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United States
Securities and Exchange Commission
Washington D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 001-12673
RIVIERA TOOL COMPANY
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2828870
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5460 EXECUTIVE PARKWAY SE
GRAND RAPIDS, MI 49512
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (616) 698-2100
Securities registered pursuant to Section 12(b) of the Act: Common Stock,
no par value
Securities registered pursuant to 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the voting common stock of the Registrant (based
upon the last reported sale of the Common Stock at that date by the American
Stock Exchange) held by non-affiliates was $16,363,981 as of November 17, 1998.
The number of shares outstanding of the Registrant's common stock as of
November 23, 1998 was 3,218,744 shares of common stock without par value.
DOCUMENTS INCORPORATED BY REFERENCE:
<TABLE>
<CAPTION>
Part of Form 10-K Into Which Portions
Document of Documents are Incorporated
- -------------------------------------------------------------- ------------------------------------------------------------
<S> <C>
Riviera Tool Company 1998 Annual Report to Shareholders. Parts I, II and IV
Definitive Proxy Statement for the 1998 Annual Meeting of Part III
Shareholders filed with the Securities and Exchange
Commission, November, 1998.
</TABLE>
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RIVIERA TOOL COMPANY
Annual Report on Form 10-K
November 23, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I PAGE
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<S> <C> <C>
Item 1. Business........................................................................ 3
Item 2. Properties...................................................................... 8
Item 3. Legal Proceedings............................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders............................. 9
PART II
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Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters..................................................... 9
Item 6. Selected Financial Data......................................................... 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................. 10
Item 8. Financial Statements and Supplemental Data...................................... 10
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.......................................... 11
PART III
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Item 10. Directors and Executive Officers of the Registrant.............................. 11
Item 11. Executive Compensation.......................................................... 11
Item 12. Security Ownership of Certain Beneficial Owners and Management.................. 11
Item 13. Certain Relationships and Related Transactions.................................. 11
PART IV
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Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K - Index........ 11-13
SIGNATURES...................................................................... 14
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
The Company is a leading designer and manufacturer of large scale, complex
stamping die systems used to form sheet metal parts. Most of the stamping die
systems sold by the Company are used in the production of automobile and truck
body parts such as doors, door frames, structural components and bumpers. The
following table sets forth the Company's sales (in millions) and percentage of
total sales by customer in fiscal years 1994, 1995, 1996, 1997 and 1998.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
- -------------------------------------------------------------------------------------------------------------------------------
CUSTOMER 1994 1995 1996 1997 1998
- -------------------------------------------------------- ----------------- ---------------- --------------- ------------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
----------------- ----------------- ---------------- --------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Chrysler Corporation..................$ 6.9 31% $ 4.6 24% $ 4.6 25% $ 8.9 40% $ 2.3 10%
Suppliers of Chrysler Corp. ........... 0 * 0 * 0 * .7 3 1.5 7
Ford Motor Company..................... 1.9 8 1.3 7 2.1 11 3.4 16 0 *
Suppliers of Ford Motor Company........ 6.9 31 10.4 55 3.0 17 3.4 16 6.0 26
General Motors Corporation............. 0 * .2 1 2.3 13 .9 4 5.2 23
Suppliers of General Motors
Corporation............................ 0 * 0 * 1.6 9 1.8 8 6.0 27
Other auto and truck manufacturers
And their suppliers.................... 6.7 30 2.5 13 4.7 25 2.8 13 1.6 7
----------------- ----------------- ---------------- --------------- ------------------
Total Sales............................$ 22.4 100% $ 19.0 100% $ 18.3 100% $21.9 100% $ 22.6 100%
================= ================= ================ =============== ==================
</TABLE>
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* Less than 1.0% of the Company's total sales.
INDUSTRY TRENDS
The automotive industry continues to evolve towards the early stages of
convergence between the OEM's and the supplier base. This trend will result in
the OEM's focusing their capital expenditures on marketing and distribution,
rather than manufacturing. A recent Bear Sterns & Co. Inc. automotive parts
industry report (1) noted that the OEM's greatest single asset is their brands
and that independent suppliers will become a critical component of the design,
engineering and delivery of systems which will increasingly be outsourced in the
future.
Other significant trends within the North American automotive industry
have had, and are likely to continue to have, an impact on the Company's
business. Over the past several years, the industry has required that its tool
suppliers utilize advanced computer integrated technology. This has required
significant capital investment. In some cases, being unable or unwilling to make
this investment, many independent tooling suppliers have exited the business.
This has decreased the available domestic tooling capacity and has resulted in
fewer qualified suppliers.
The automotive industry's trend towards shorter product life cycles and
introduction of a greater number of vehicle models will create growing demand
for the Company's complex tooling systems. In accordance with this trend,
Chrysler Corporation ("Chrysler"), Ford Motor Company ("Ford") and General
Motors Corporation ("General Motors"), the three largest domestic automobile
manufacturers (the "OEMs"), are forming alliances with select suppliers which
have the technological capability to successfully perform simultaneous
engineering of product and manufacturing processes from concept to completion at
the supplier level and utilizing computer data based design, manufacturing and
validation processes. The OEMs have formed "Platform" teams which provide the
organizational
- ------------------------------------
(1) Source: Bear Sterns Equity Research Report on the Auto Parts Industry, dated
September, 1998.
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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.
A recent report (2) on Light Car and Truck Product Cycle by Manufacturer --
U.S. Market, indicated the following trends of "major changes" and "facelifts"
by manufacturer (foreign and domestic) for vehicles in the U.S. market:
<TABLE>
<CAPTION>
Model Major
Year "Facelifts" Changes Total
---------------- ------------- ------------- -------------
<S> <C> <C> <C>
1999............ 11 23 34
2000............ 10 33 43
2001............ 12 25 37
2002............ 9 40 49
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Total 42 121 163
============= ============= =============
</TABLE>
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 (largely
utilized in large semi-trucks).
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 should new car sales volumes were to decrease. As of June
30, 1998, Chrysler had accumulated $7.0 billion, Ford $9.0 billion and General
Motors $22 billion, for such development during future industry downturns.(3)
General Motors stated in its 1996 mid-year Report to Shareholders that this cash
accumulation "will enable us to weather the next industry down cycle without
sacrificing any of our product programs, which is critical for long-term
success". (4)
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.
(2) Source: Bear Sterns Equity Research Report on the Auto Parts Industry,
dated September, 1998.
(3) Source: Chrysler Corporation, Ford Motor Company and General Motors
Corporation Securities and Exchange
Commission Form 10Q for the quarter ended June 30, 1998.
(4) Source: General Motors Midyear Report to Shareholders, dated September 10,
1996.
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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.
During fiscal 1998, the Company purchased four large stamping presses and is
in the process of installing such presses. These additional presses will provide
the Company the opportunity to manufacture the largest parts used in an
automobile. These parts would include double attached doors, body side apertures
and very large hood and deck panels. The Company believes it is only one of
three domestic die manufacturers and one of only eight in the world with this
capacity. Upon installation of these presses, the Company believes it will
benefit as these types of large dies can result in larger contracts. For
example, a set of stamping dies currently manufactured by the Company generally
sells for between $250,000 and $2,000,000 depending upon size and complexity,
whereas a body side aperture can sell for between $4,000,000 and $6,000,000.
Simultaneous Engineering of Product and Process. The OEMs are developing
organizational structures involving internal design and engineering personnel as
well as supplier representatives which they are using to develop new car models.
These organizations are called "Platform" teams. This allows full implementation
of simultaneous engineering -- the application of the product engineering and
process engineering functions simultaneously and early in the process. The
Company utilizes advanced Computer Aided Design/Computer Aided Manufacturing
("CAD/CAM") technology to design and manufacture its complex stamping dies. Due
to this advanced computer capability, the Company is able to work very closely
with its customers and is often assigned to these Platform teams early. Its
process engineering input facilitates the teams' goals of introducing new models
rapidly and efficiently. The Company has invested significantly to ensure that
it remains one of the few domestic tool and die firms with advanced technology
capabilities and is one of only a few independent suppliers capable of receiving
and working directly from complex mathematical data received from its OEM
customers. Although several of its competitors also utilize CAD/CAM technology,
management believes the Company is one of only a few suppliers who have
successfully integrated mathematical data into their on-site design,
manufacturing and validation processes across their product line. Management's
investment in, and 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
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incorporated into the mathematical data base which will then be used to
manufacture the final production tools. After testing the primary forming
operations, prototype parts are manufactured using special means such as
computerized laser cutting machines to trim off excess scrap and to incorporate
various slots and holes. These parts are then sent to the automobile
manufacturers for further testing and evaluation. The results of this testing
and evaluation may require the incorporation of additional design and
manufacturing process modifications.
MANUFACTURING
Traditionally, the die manufacturing process was comprised of various manual
steps performed by craftsmen. After being awarded a contract, the Company would
be presented with a wooden model of the part to be produced. From the model,
plaster tooling aids were constructed. The plaster tooling aids were then traced
and cut into steel. The steel was then ground, usually quite extensively, by
hand to fit. Validation was also done by hand by measuring specific points on
the die face and comparing these to the original design blueprints. Today, with
the Company's technology, the design and most of the manufacturing process is
computer-driven, which increases accuracy and reduces the time required to
produce a set of stamping dies. The process starts when the Company is assigned
to a new Platform team and simultaneous engineering begins. An electronic
"model" of the part to be produced is transmitted directly to the Company by
transferring design information electronically ("EDI"), or sent on computer disk
represented as a mathematical database. Company engineers use the mathematical
database to generate computer-aided die designs and die face cutter path
programs. These cutter path programs are used by the tool makers and machinists
to manufacture the inner workings of the tool. Most material is removed and the
cutting is done by CNC machine tools which utilize the computer-generated cutter
path programs. Depending on the complexity of the tool, a prototype may be
manufactured to prove-out the manufacturing process or to provide actual parts
for crash testing and to test fit and function. Finally, after the die is
constructed, it is evaluated statistically for process repeatability and
dimensional validation on the Company's Coordinate Measuring Machine, or CMM.
The Company believes, based upon experience and customer discussions, that it is
one of a very few North American die suppliers and manufacturers that are able
to routinely, and across their product line, completely computer integrate the
mathematical database throughout the entire die design, manufacture and
validation process at their own facilities. During this automated validation
process, the tool is statistically compared to the mathematical database. Having
the optimum size and quantity of tryout presses is an important aspect of the
construction and validation process, and the Company has therefore invested
heavily to ensure its capability in this area.
On average, 10 months elapse from the time the Company is awarded a contract
until the final set of dies is shipped to the customer. The OEMs are facing
growing pressure to reduce the time required to introduce a new car model. For
example, Chrysler has historically needed three years, on average, to introduce
a new model. However, the last small car introduced by Chrysler was introduced
in only 31 months. To meet shorter timeframes, OEMs are relying more heavily on
simultaneous engineering and integrating suppliers more closely into the design
process. This trend helps the Company by requiring more direct relationships
between the OEMs and its suppliers such as the Company.
The steel, castings and other components utilized by the Company in the
manufacturing process are available from many different sources and the Company
is not dependent on any single source.
MARKETING AND SALES
The Company's marketing emphasis is on Chrysler, Ford and General Motors and
their tier one suppliers. The Company maintains excellent relationships with
Chrysler, Ford and General Motors which directly accounted for about 33%, in the
aggregate, of the Company's revenues in 1998. For the year ended August 31,
1998, Chrysler, Ford, General Motors and their tier one suppliers accounted for
approximately 93% of the Company's revenues.
With the growing use of simultaneous engineering, the Company's marketing
goal is to be assigned early to the new model Platforms. As one of only a few
technically proficient suppliers assigned to a Platform, the Company's
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opportunity to win business for a new model is greatly enhanced. The Company
works to achieve preferred supplier status with its customers to further
increase its chances of being assigned to new model Platforms.
Sales efforts are conducted primarily by Company's Vice President of Sales,
President, senior management and project management personnel. Frequent contact
is made with the domestic automobile manufacturers and their purchasing agents,
Platform managers and tier one suppliers. When the Company has been assigned to
a new model Platform Team, the Platform Team manager is contacted to determine
those parts and assemblies that will be assigned to various required suppliers.
During the design phase, the Company recommends process and design changes to
improve the cost and quality of the product. Generally, when the Company is
assigned to a Platform Team, orders are obtained directly and without a formal
bid process. The Company maintains a comprehensive computer database with
historical information regarding dies it has previously manufactured. This
assists the Company in quoting prices for dies and enables it to respond to most
quotation requests quickly. If the customer decides to accept the Company's
quotation, a purchase order is issued subject to price adjustments for
engineering changes requested by the customer. Where no Platform Team is
assembled, the Company bids on specific tooling assignments, and bids are
awarded on a competitive basis among a small group of qualified suppliers.
For business done with tier one suppliers, the Company's sales process
follows a more traditional process. The Company typically receives a package or
request for quotation from the tier one supplier and is less involved in the
design process of the part to be manufactured. Bids are generally awarded based
on technological capability, price, quality and past performance.
BACKLOG AND SEASONALITY
The Company's backlog of awarded contracts, of which all are believed to be
firm, was approximately $16.2 million and $12.1 million as of August 31, 1998
and 1997, respectively. Of the August 31, 1998 contract backlog, the Company
expects all backlog contracts will be reflected in sales during fiscal years
ended August 31, 1999 and 2000. The Company's sales of stamping dies do not
follow a seasonal pattern; however, the timing of new model introductions and
existing model restyling tooling programs are dependent on Chrysler, Ford and
General Motors and their strategy of accelerating the introduction of new
models.
COMPETITION
Large, complex automotive stamping dies are manufactured primarily by three
supplier groups: a) domestic independent tool and die manufacturers, b) foreign
independent tool and die manufacturers, and c) captive or in-house tool and die
shops owned and operated by the OEMs.
The independent (both domestic and foreign) tool and die manufacturers have
experienced a significant reorganization over the past five years as the
industry has consolidated. Management believes that during this period, the
independent domestic supplier base (those with sales of at least $15 million)
was reduced significantly and that fewer than 6 such independent domestic
suppliers remain today. Management believes that these 6 competitors have begun
to utilize portions of the technology utilized by the Company. Further,
significant barriers to entry reduce competition in the large-scale die market.
The industry is highly capital intensive and technically complex. Attracting and
retaining employees skilled in the use of advanced design and manufacturing
technology is a multi-year process. Finally, a new competitor would most likely
lack much of the credibility and historical customer relationships that can take
years to develop.
Based upon the responses of 84 sheet metal die manufacturing companies to a
1996 survey by the National Tooling and Machining Association, the annual
domestic independent production of tools and dies exceeds $662,000,000, as
compared to $528,000,000 in a 1995 survey. Of those respondents only 18 reported
average annual sales in excess of $10 million. Based upon the study and the
Company's independent knowledge of its direct competitors, the Company believes
it is among the 6 largest independent suppliers and that no one supplier is
dominant.
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Finally, the OEMs maintain in-house, captive tool and die capacity to meet a
portion of their needs. General Motors maintains the largest captive capacity
and, based on estimates from various trade publications, supplies an estimated
75-80% of its own die construction needs. Ford produces approximately 50% and
Chrysler 25% of their own respective needs. Independent suppliers like the
Company tend to have a competitive advantage over the OEMs' in-house die shops
due to the OEMs' higher cost structure.
The Company designs, develops and manufactures custom large scale metal
stamping die systems used in the high speed production of sheet metal stamped
parts and assemblies for the automobile industry. The Company incorporates its
knowledge of integrated computer technologies with the design and manufacture of
metal stamping die systems resulting in solutions that address the specific
manufacturing requirements of its main customers, Chrysler, Ford and General
Motors, the three largest domestic automobile manufacturers, and their tier one
suppliers of sheet metal stamped parts and assemblies.
Management has strategically positioned the Company as one of North
America's most technologically advanced independent suppliers of metal stamping
die systems utilizing a totally computer integrated process for the design,
manufacture and validation of its products. The Company should continue to
benefit from current trends in the global automotive industry which require
continuous quality improvement, simultaneous engineering and development, and
increasing reliance on a select number of suppliers capable of utilizing
computer integrated technology to develop new automobile models. Examples of
parts made from die systems recently developed and manufactured by the Company
include; the Ford Explorer and F-Series truck bumper system, Jeep Wrangler door
panels and wheels, Chrysler Neon and mini-vans structural body components,
Chrysler LH roof panels, Ford Navigator frame systems, Ford HN 80 truck panels,
as well as aluminum body panels for the Navistar and Paccar semi-tractor
vehicle.
By transferring the design information electronically, the Company
communicates directly with the OEMs' design and development centers regarding
specific product and manufacturing information necessary to develop a custom
manufacturing system for each respective part. This digital data base is
incorporated in each phase of the design, manufacture and inspection process for
both the prototype and production tooling systems, ensuring high quality
repeatable processes. Electronically linking the Company to the OEMs' design and
development centers enables significant reductions in product development lead
time and cost.
EMPLOYEES
The Company's work force consists of approximately 141 full-time employees,
of which approximately 34 are salaried managerial and engineering personnel. The
balance are hourly employees engaged in manufacturing and indirect labor
support. Included among these hourly workers are approximately 102 skilled
tradesmen who are either journeymen tool and die makers or machinists. None of
the Company's employees are covered by a collective bargaining agreement. The
Company has not experienced any work stoppages and considers its relations with
its employees to be good. The Company has a discretionary contribution 401K
plan. The Company has no contingent pension liabilities arising from any defined
benefit plan.
ITEM 2. PROPERTIES
The Company's facilities are located in Grand Rapids, Michigan and
consist of approximately 178,000 square feet of space of which 28,000 square
feet is utilized for office, engineering and employee service functions, 98,000
square feet is dedicated to the Company's tooling production and 52,000 square
feet is under a four-year sublease to an unaffiliated tenant. Constructed in
1989, the facility is leased with a lease term of 20 years. The facility lease
provides for annual payments of $934,500 plus an escalation of base rent of 1%
for each of the first ten years and 2% for each of the second ten years. The
Company has a purchase option on the building at the fair market value beginning
in November 1996. The sublease requires annual lease payments of $224,724
commencing August 1, 1996 through July 1, 1998 and $231,468 per annum from
August 1, 1998 through July 31, 2000. The sublease also requires the subtenant
to pay 33.7% of common operating expenses of the facility. The sublease has two
renewal options for two years each with annual lease payments of $231,468 and
$238,412, respectively. During
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1998, the tenant exercised its option to extend the lease period until July 31,
2000. The Company exercised its option to terminate the sublease agreement on
July 31, 2000.
ITEM 3. LEGAL PROCEEDINGS
The Company is a plaintiff in an action against Fred Borsini, Herbert Keeler
and Durametallic Corporation, a Delaware corporation, with Kenneth K. Rieth,
Arlene Morris and Riviera Holding Company, a Michigan corporation wholly owned
by Kenneth K. Rieth, as co-plaintiffs, filed July 22, 1994, in the Kent County
Circuit Court, Grand Rapids, Michigan, Case No. 94-2809-CZ. In July of 1992, the
Company contributed machinery, equipment, inventory, work-in-process and
receivables related to the business of building plastic injection molds to a
joint venture that then became known as Leap Technologies, Inc. Defendants in
this action contributed all of the stock of a mold builder then known as Leap
Technologies, Inc. The Company contributed assets valued at $5.4 million, the
new entity assumed debts in the amount of $3.7 million, and the Company received
$1.7 million of preferred stock in the new entity. The Company alleges that the
status of the business contributed by the defendants was fraudulently
represented to it and the defendants are therefore liable to the Company for all
losses sustained as a result of the failure of the venture. The Company is
asking for return of its investment plus the additional damages it incurred in
the process of liquidating the venture. Management believes that approximately
$3,000,000 of damages has been identified, however, the damage evaluation is
incomplete. One defendant has counterclaimed for breach of representations by
the Company without specifying any amount of damages. The Company is not
currently involved in other legal proceedings other than ordinary or routine
proceedings incidental to its operations. In the opinion of management, no
existing proceedings, including the matter involving Leap Technologies, Inc.,
would have a significant effect on the financial condition, results of
operations and cash flows of the Company if determined against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders through the solicitation of
proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Company's Common Stock is traded on the American Stock Exchange
("AMEX") under the symbol RTC. The table below sets forth the high and low sales
prices as reported by AMEX during the year ended August 31, 1998.
<TABLE>
<CAPTION>
FISCAL 1998
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HIGH LOW
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<S> <C> <C>
1st quarter.......................... 10.000 5.875
2nd quarter.......................... 12.375 6.625
3rd quarter.......................... 10.375 8.000
4th quarter.......................... 9.875 4.750
</TABLE>
As of October 20, 1998, the Company's common stock was held by 42
holders of record and approximately 931 beneficial shareholders.
The Company has not historically paid cash dividends on its Common
Stock. The Company, on October 31, 1996, declared a preferential dividend on the
shares of common stock of the Company owned by Riviera Holding Company to pay
income tax payable by Riviera Holding Company as a result of the lapse of
options by
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Motor Wheel Corporation to purchase common stock owned by Riviera Holding
Company and as a result of the dividend itself. In May, 1997 the Company paid
this dividend of $90,000 to Riviera Holding Company. The payment of common stock
cash dividends is within the discretion of the Company's Board of Directors,
with prior written consent of its primary lender; however, in view of the
potential working capital needs and in order to finance future growth, it is
unlikely that the Company will pay any cash dividends on its Common Stock in the
foreseeable future.
In October, 1997, the Company issued and sold 80,000 shares of 8%
Cumulative Convertible Preferred Stock (the "Preferred Shares") at $100.00 per
share through a private placement under Regulation D of the Securities Act of
1933. With a portion of the proceeds from this sale, the Company exercised its
option to purchase all 730,000 shares of common stock held by Motor Wheel
Corporation. Under such option, the Company repurchased all the Motor Wheel
Corporation shares for $3.0 million or $4.11 per share.
The holders of the 8% Cumulative Convertible Preferred Stock possessed
no voting rights. Cumulative dividends were to be paid at an annual rate of 8%
payable quarterly, in arrears, at a rate of $2.00 per share per quarter,
commencing December 31, 1997. Of the 80,000 Preferred Shares issued, 67,500
preferred shares were convertible into Common Stock at any time, and from time
to time, in whole or in part, for the number of shares of Common Stock per share
equal to $100 divided by $6.00. The remaining 12,500 preferred shares were
convertible into Common Stock at any time, and from time to time, in whole or in
part, for the number of shares of Common Stock per share equal to $100 divided
by $6.7375. All the Preferred Shares outstanding were automatically converted
into Common Stock when the average closing price for the Common Stock on the
American Stock Exchange for 10 consecutive trading days is equal to or greater
than $10 per share. The Company was not required to issue fractional shares in
connection with any conversion and a cash payment shall be made in lieu thereof.
On January 9, 1998, the Company registered 1,461,529 shares of Common Stock
under the Securities Act of 1933. These common shares were issuable upon
conversion of the its 8% Cumulative Convertible Preferred Stock. On January 10,
1998, the Company sent notice to all holders of the 8% Cumulative Convertible
Preferred Stock that all such preferred shares outstanding would be
automatically converted into Common Stock on or before February 11, 1998, under
the mandatory conversion provision which requires mandatory conversion when the
average closing price for the Common Stock on the American Stock Exchange is
$10.00 per share (which occurred during the trading period of November 20 and
December 4, 1997). On February 11, 1998, all 80,000 shares of 8% Cumulative
Convertible Preferred Stock was converted into 1,310,499 shares of registered
Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this Item 6 is incorporated by reference to
page 32 and 33 of the Company's 1998 Annual Report to Shareholders filed as
Exhibit 13 hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information required by this Item 7 is incorporated by reference to
pages 34 - 37 of the Company's 1998 Annual Report to Shareholders filed as
Exhibit 13 hereto.
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
The Registrant hereby incorporates the financial statements required by
this Item 8 by reference to Item 14(a)(1) hereof, and the supplementary
financial information required by this Item 8 by reference to page 38 - 51 of
the Company's 1998 Annual Report to Shareholders filed as Exhibit 13 hereto.
10
<PAGE> 11
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The Registrant hereby incorporates the information required by Form
10-K, Items 10-13 by reference to the Registrant's definitive proxy statement
for its 1998 annual meeting of shareholders which was filed with the Commission
prior to November 23, 1998.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. Financial Statements - The following financial statements and
the report of independent auditors set forth on pages 38 - 51 of the
Company's 1998 Annual Report to Shareholders filed as Exhibit 13 hereto
are incorporated by reference in this Annual Report on Form 10-K.
Balance Sheets as of August 31, 1998 and 1997
Notes to Financial Statements
For each of the three years in the period ended August 31,
1998:
Statements of Common Shareholders' Equity
Statement of Operations
Statements of Cash Flows
Report of Independent Auditors
2. Financial Statement Schedules - No such schedules are included because
of the absence of the conditions under which they are required, or
because the information called for is included in the financial
statements or notes thereto.
3. Exhibits
3(a) Amended and Restated Articles of Incorporation of the
Registrant.
3(b) Bylaws of the Registrant (incorporated by reference to
Exhibit 3(b) of the Registrant's Amendment No. 1 to Form
S-1, Registration No. 333-14187, filed January 8, 1997).
4(a) Specimen Common Stock of Registrant (incorporated by
reference to Exhibit 4(a) of the Registrant's Form S-1,
Registration No. 333-14187, filed October 15, 1996).
4(b) Representative's Warrant Agreement (incorporated by
reference to Exhibit 4(b) of the Registrant's Post-effective
Amendment No. 1 to Form S-1, Registration No. 333-14187,
filed March 14, 1997).
4(c) Consulting Agreement and Plan of Compensation dated March 4,
1997 between the Registrant and John T. Moran (incorporated
by reference to Exhibit 4(c) of the Registrant's Form S-8,
Registration No. 333-29249, filed June 13, 1997).
11
<PAGE> 12
4(d) Form of Warrant Agreement (including form of Warrant)
(incorporated by reference to Exhibit 4(d) of the
Registrant's Form S-8, Registration No. 333-29249, filed
June 13, 1997).
9 Shareholder Agreement and related Stock Option Agreement
between Riviera Holding Company and Motor Wheel Corporation
(incorporated by reference to Exhibit 9 of the Registrant's
Amendment No. 1 to Form S-1, Registration No. 333-14187,
filed January 8, 1997).
10(a) 1996 Incentive Stock Option Plan of Registrant.
10(b) Employment Agreement of Kenneth K. Rieth (incorporated by
reference to Exhibit 10(b) of the Registrant's Amendment No.
1 to Form S-1, Registration No. 333-14187, filed January 8,
1997).
10(e) Lease Agreement dated November 1, 1988 between Registrant
and Greenbrook Limited Partners/Riviera regarding industrial
facilities at 5460 Executive Parkway SE, Grand Rapids,
Michigan (incorporated by reference to Exhibit 10(e) of the
Registrant's Form S-1, Registration No. 333-14187, filed
October 15, 1996).
10(f) Commitment from LaSalle National Bank (incorporated by
reference to Exhibit 10(f) of the Registrant's Amendment No.
2 to Form S-1, Registration No. 333-14187, filed February
24, 1997).
10(g) NBD Bank Credit Agreement (incorporated by reference to
Exhibit 10(g) of the Registrant's Amendment No. 2 to Form
S-1, Registration No. 333-14187, filed February 24, 1997).
10(h) Assignment of Stock Options between Riviera Holding Company
and Registrant (incorporated by reference to Exhibit 10(h)
of the Registrant's Amendment No. 2 to Form S-1,
Registration No. 333-14187, filed February 24, 1997).
10(i) Loan Agreement, Revolving Loan Note, Term Note and Security
Agreement between Registrant and LaSalle National Bank dated
March 7, 1997 (incorporated by reference to Exhibit 10(i) of
the Registrant's Form 10-Q, filed April 17, 1997).
10(j) Assignment of Life Insurance Policy to NBD Bank dated March
3, 1997 (incorporated by reference to Exhibit 10(j) of the
Registrant's Form 10-Q, filed April 17, 1997).
10(k) Assignment of Claim to NBD Bank dated March 3, 1997
(incorporated by reference to Exhibit 10(k) of the
Registrant's Form 10-Q, filed April 17, 1997).
10(l) Loan Agreement, Revolving Line of Credit Loan Note, Existing
Equipment Term Loan Note, Non-Revolving Equipment Line of
Credit Loan Note, Security Agreement and Assignment of Life
Insurance Policy as Collateral between Registrant and Old
Kent Bank dated June 12, 1997 (incorporated by reference to
Exhibit 10(l) of the Registrant's Form 10K, filed November
26, 1997).
10(m) Amendments number 1, 2, 3, and 4 between Registrant and Old
Kent Bank dated December 31, 1997, February 15, 1998, August
14, 1998 and August 14, 1998, respectively.
10(n) Release of Policy as Collateral Security from NBD Bank dated
December 2, 1997.
10(o) Assignment of Life Insurance Policy as Collateral Security
to Old Kent Bank dated July 23, 1998.
10(p) 1998 Key Employee Stock Option Plan dated November 2, 1998
13 1998 Annual Report to Shareholders.
12
<PAGE> 13
21 Subsidiaries - None
27 Financial Data Schedule.
(b). No Reports on Form 8-K were filed in 1998.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities
and Exchange Act of 1934 the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: November 23, 1998 RIVIERA TOOL COMPANY
By: /s/ Kenneth K. Rieth
--------------------
Kenneth K. Rieth, Principal Executive
Officer
and
By: /s/ Peter C. Canepa
-------------------
Peter C. Canepa, Principal Financial
and Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on the 23rd day of November, 1998, by the
following persons on behalf of the Company and in the capacities indicated.
Each Director of the Company whose signature appears below hereby
appoints Kenneth K. Rieth and Peter C. Canepa, and each of them individually, as
his attorney-in-fact to sign in his name and on his behalf as a Director of the
Company, and to file with the Commission any and all amendments to this report
on Form 10-K to the same extent and with the same effect as if done personally.
/s/ Leonard H. Wood /s/ Kenneth K. Rieth
- ------------------- --------------------
Leonard H. Wood, Director Kenneth K. Rieth, Director
/s/ John C. Kennedy /s/ Daniel W. Terpsma
- ------------------- ---------------------
John C. Kennedy, Director Daniel W. Terpsma, Director
/s/ Thomas H. Highley
- ---------------------
Thomas H. Highley, Director
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
Not Applicable.
14
<PAGE> 15
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3(a) Amended and Restated Articles of Incorporation of the Registrant.
3(b) Bylaws of the Registrant (incorporated by reference to Exhibit 3(b)
of the Registrant's Amendment No. 1 to Form S-1, Registration No.
333-14187, filed January 8, 1997).
4(a) Specimen Common Stock of Registrant (incorporated by reference to
Exhibit 4(a) of the Registrant's Form S-1, Registration No.
333-14187, filed October 15, 1996).
4(b) Representative's Warrant Agreement (incorporated by reference to
Exhibit 4(b) of the Registrant's Post-effective Amendment No. 1 to
Form S-1, Registration No. 333-14187, filed March 14, 1997).
4(c) Consulting Agreement and Plan of Compensation dated March 4, 1997
between the Registrant and John T. Moran (incorporated by reference to
Exhibit 4(c) of the Registrant's Form S-8, Registration No. 333-29249,
filed June 13, 1997).
4(d) Form of Warrant Agreement (including form of Warrant) (incorporated
by reference to Exhibit 4(d) of the Registrant's Form S-8,
Registration No. 333-29249, filed June 13, 1997).
9 Shareholder Agreement and related Stock Option Agreement between
Riviera Holding Company and Motor Wheel Corporation (incorporated by
reference to Exhibit 9 of the Registrant's Amendment No. 1 to Form
S-1, Registration No. 333-14187, filed January 8, 1997).
10(a) 1996 Incentive Stock Option Plan of Registrant.
10(b) Employment Agreement of Kenneth K. Rieth (incorporated by reference
to Exhibit 10(b) of the Registrant's Amendment No. 1 to Form S-1,
Registration No. 333-14187, filed January 8, 1997).
10(e) Lease Agreement dated November 1, 1998 between Registrant and
Greenbrook Limited Partners/Riviera regarding industrial facilities
at 5460 Executive Parkway SE, Grand Rapids, Michigan (incorporated by
reference to Exhibit 10(e) of the Registrant's Form S-1, Registration
No. 333-14187, filed October 15, 1996).
10(f) Commitment from LaSalle National Bank (incorporated by reference to
Exhibit 10(f) of the Registrant's Amendment No. 2 to Form S-1,
Registration No. 333-14187, filed February 24, 1997).
10(g) NBD Bank Credit Agreement (incorporated by reference to Exhibit 10(g)
of the Registrant's Amendment No. 2 to Form S-1, Registration No.
333-14187, filed February 24, 1997).
10(h) Assignment of Stock Options between Riviera Holding Company and
Registrant (incorporated by reference to Exhibit 10(h) of the
Registrant's Amendment No. 2 to Form S-1, Registration No. 333-14187,
filed February 24, 1997).
10(i) Loan Agreement, Revolving Loan Note, Term Note and Security Agreement
between Registrant and LaSalle National Bank dated March 7, 1997
(incorporated by reference to Exhibit 10(i) of the Registrant's Form
10-Q, filed April 17, 1997).
10(j) Assignment of Life Insurance Policy to NBD Bank dated March 3, 1997
(incorporated by reference to Exhibit 10(j) of the Registrant's Form
10-Q, filed April 17, 1997).
<PAGE> 16
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10(k) Assignment of Claim to NBD Bank dated March 3, 1997 (incorporated by
reference to Exhibit 10(k) of the Registrant's Form 10-Q, filed April
17, 1997).
10(l) Loan Agreement, Revolving Line of Credit Loan Note, Existing
Equipment Term Loan Note, Non-Revolving Equipment Line of Credit Loan
Note, Security Agreement and Assignment of Life Insurance Policy as
Collateral between Registrant and Old Kent Bank dated June 12, 1997
(incorporated by reference to Exhibit 10(l) of the Registrant's Form
10K, filed November 26, 1997).
10(m) Amendments number 1, 2, 3, and 4 between Registrant and Old Kent Bank
dated December 31, 1997, February 15, 1998, August 14, 1998 and
August 14, 1998, respectively.
10(n) Release of Policy as Collateral Security from NBD Bank dated December
2, 1997.
10(o) Assignment of Life Insurance Policy as Collateral Security to Old
Kent Bank dated July 23, 1998.
10(p) 1998 Key Employee Stock Option Plan dated November 2, 1998.
13 1998 Annual Report to Shareholders.
21 Subsidiaries -- None
27 Financial Data Schedule.
<PAGE> 1
EXHIBIT 10(M)
AMENDMENTS 1, 2, 3 AND 4 BETWEEN REGISTRANT AND OLD KENT BANK
FIRST AMENDMENT TO LOAN DOCUMENTS
This First Amendment to Loan Documents is made on the 31st day of
December, 1997 (but effective as of the Effective Date set forth below), between
OLD KENT BANK, a Michigan banking corporation (the "Bank"), One Vandenberg
Center, Grand Rapids, Michigan 49503, and RIVIERA TOOL COMPANY, a Michigan
corporation ("Borrower"), 5460 Executive Parkway, Grand Rapids, Michigan 49512.
RECITALS:
A. The Bank and the Borrower are parties to a Loan Agreement dated
June 12, 1997 (the "Loan Agreement"), pursuant to which the Bank has agreed,
subject to the terms and conditions set forth in the Loan Agreement and the Loan
Documents, to extend to the Borrower the following loans: (i) a Revolving L/C
Loan in the maximum principal amount of $10,000,000; (ii) an Existing Equipment
Term Loan in the maximum principal amount of $3,250,000; and (iii) a
Non-Revolving Equipment L/C Loan in the maximum principal amount of $4,000,000.
Capitalized terms used but not defined in this First Amendment shall have the
meanings given such terms in the Loan Agreement.
B. The Revolving L/C Loan is evidenced by a Promissory Note in
substantially the form attached to the Loan Agreement as Exhibit A (the
"Revolving L/C Loan Note"), the Existing Equipment Term Loan is evidenced by a
Promissory Note in substantially the form attached to the Loan Agreement as
Exhibit B (the "Existing Equipment Term Loan Note"), and the Non-Revolving
Equipment L/C Loan is evidenced by a Promissory Note in substantially the form
attached to the Loan Agreement as Exhibit C (the "Non-Revolving Equipment L/C
Loan Note").
C. The Bank and the Borrower wish to amend the Loan Agreement and the
Notes in the manner set forth below.
NOW, THEREFORE, the Bank and the Borrower agree as follows:
1. Change in Interest Rates. Effective as of September 1, 1997
(the "Effective Date"):
(a) The Revolving L/C Loan shall bear interest at the Prime
Rate.
(b) The Existing Equipment Term Loan shall bear interest at
the Prime Rate, unless and until the Borrower duly exercises its option
under the applicable Loan Documents to change the interest rate on the
Existing Equipment Term Loan to the rate of interest that is equal to
the Five (5)-Year Treasury Rate on the Interest Rate Determination Date
plus 275 basis points.
<PAGE> 2
(c) The Non-Revolving Equipment L/C Loan shall bear interest
at the Prime Rate, unless and until the Borrower duly exercises its
option under the applicable Loan Documents to change the interest rate
on the Existing Equipment Term Loan to the rate of interest that is
equal to the Six (6)-Year Treasury Rate on the Interest Rate
Determination Date plus 275 basis points.
2. Effect of this First Amendment. The Loan Agreement, the Notes, and
the other Loan Documents are hereby amended as required (and only as required)
to give effect to the change in the interest rates for the Loans expressly
provided for in paragraph 1 of this First Amendment. Each and every one of the
Loan Documents shall be deemed to have been amended by this First Amendment as
if such Loan Documents had been specifically amended by separate instrument.
This First Amendment shall be a Loan Document, and all references in any Loan
Document to the "Loan Documents" shall refer to the Loan Documents as amended by
this First Amendment.
3. No other Amendments, etc. Except as expressly set forth above, the
Loan Agreement, each of the Notes, and all of the other Loan Documents shall
remain in full force and effect as originally executed and delivered by the
parties, and are hereby ratified and affirmed by the undersigned.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
WITNESSES:
/s/ Gilbert A Segovia RIVIERA TOOL COMPANY
- ---------------------------
/s/ Peter C. Canepa By: /s/ Kenneth K. Rieth
- --------------------------- -----------------------------
Kenneth R. Rieth, President
/s/ Peter C. Canepa OLD KENT BANK
- ---------------------------
/s/ Kenneth K. Rieth By: /s/ Gilbert A Segovia
- --------------------------- -----------------------
Gilbert A. Segovia, Vice President
2
<PAGE> 3
SECOND AMENDMENT TO LOAN DOCUMENTS
This Second Amendment to Loan Documents is made on the 15th day of
February, 1998, between OLD KENT BANK, a Michigan banking corporation (the
"Bank"), One Vandenberg Center, Grand Rapids, Michigan 49503, and RIVIERA TOOL
COMPANY, a Michigan corporation ("Borrower"), 5460 Executive Parkway, Grand
Rapids, Michigan 49512.
RECITALS:
A. The Bank and the Borrower are parties to a Loan Agreement dated
June 12, 1997 (the "Loan Agreement"), as amended by a First Amendment to Loan
Documents dated as of December 31, 1997 (the "First Amendment"), pursuant to
which the Bank has agreed, subject to the terms and conditions set forth in the
Loan Agreement and the Loan Documents, as so amended, to extend to the Borrower
certain credit facilities, including but not limited to a Revolving L/C Loan in
the maximum principal amount of $10,000,000.00. Capitalized terms used but not
defined in this Second Amendment shall have the meanings given such terms in the
Loan Agreement, as amended.
B. The Revolving L/C Loan is evidenced by a Promissory Note in
substantially the form attached to the Loan Agreement as Exhibit A (the
"Revolving L/C Loan Note").
C. The Bank and the Borrower wish to amend the Loan Agreement and the
Revolving L/C Note in the manner set forth below.
NOW, THEREFORE, the Bank and the Borrower agree as follows:
1. Change in Maturity Date of Revolving L/C Loan. Effective as of the
date of this Second Amendment, the maturity date of the Revolving L/C Loan shall
be extended from January 1, 1999 to March 1, 1999.
2. Effect of this Second Amendment. The Loan Agreement, the Revolving
L/C Note, and the other Loan Documents are hereby amended as required (and only
as required) to give effect to the extension of the maturity date of the
Revolving L/C Loan expressly provided for in paragraph 1 of this Second
Amendment. Each and every one of the Loan Documents shall be deemed to have been
amended by this Second Amendment as if such Loan Documents had been specifically
amended by separate instrument. This Second Amendment shall be a Loan Document,
and all references in any Loan Document to the "Loan Documents" shall refer to
the Loan Documents, as amended by the First Amendment and as further amended by
this Second Amendment.
3. No other Amendments, etc. Except as expressly set forth above, the
Loan Agreement, each of the Notes, and all of the other Loan Documents shall
remain in full force and effect as originally executed and delivered by the
parties, and as previously amended by the First Amendment, and are hereby
ratified and affirmed by the undersigned.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
1
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
WITNESSES:
/s/ Gilbert A Segovia RIVIERA TOOL COMPANY
- ---------------------------
/s/ Peter C. Canepa By: /s/ Kenneth K. Rieth
- --------------------------- ----------------------------------
Kenneth R. Rieth, President
/s/ Peter C. Canepa OLD KENT BANK
- ---------------------------
/s/ Kenneth K. Rieth By: /s/ Gilbert A Segovia
- --------------------------- ----------------------------------
Gilbert A. Segovia, Vice President
2
<PAGE> 5
THIRD AMENDMENT TO LOAN DOCUMENTS
This Third Amendment to Loan Documents is made on the 14th day of
August, 1998, between OLD KENT BANK, a Michigan banking corporation (the
"Bank"), One Vandenberg Center, Grand Rapids, Michigan 49503, and RIVIERA TOOL
COMPANY, a Michigan corporation ("Borrower"), 5460 Executive Parkway, Grand
Rapids, Michigan 49512.
RECITALS:
A. The Bank and the Borrower are parties to a Loan Agreement dated
June 12, 1997 (the "Loan Agreement"), as amended by a First Amendment to Loan
Documents dated December 31, 1997 (the "First Amendment") and a Second Amendment
to Loan Documents dated February 15, 1998 (the "Second Amendment"), pursuant to
which the Bank has agreed, subject to the terms and conditions set forth in the
Loan Agreement and the Loan Documents, as so amended, to extend to the Borrower
the following loans: (i) a Revolving L/C Loan in the maximum principal amount of
$10,000,000; (ii) an Existing Equipment Term Loan in the maximum principal
amount of $3,250,000; and (iii) a Non-Revolving Equipment L/C Loan in the
maximum principal amount of $4,000,000. Capitalized terms used but not defined
in this Third Amendment shall have the meanings given such terms in the Loan
Agreement, as previously amended.
B. The Revolving L/C Loan is evidenced by a Promissory Note in
substantially the form attached to the Loan Agreement as Exhibit A (the
"Revolving L/C Loan Note"), the Existing Equipment Term Loan is evidenced by a
Promissory Note in substantially the form attached to the Loan Agreement as
Exhibit B (the "Existing Equipment Term Loan Note"), and the Non-Revolving
Equipment L/C Loan is evidenced by a Promissory Note in substantially the form
attached to the Loan Agreement as Exhibit C (the "Non-Revolving Equipment L/C
Loan Note").
C. The Bank and the Borrower wish to amend the Loan Agreement and the
Notes in the manner set forth below.
NOW, THEREFORE, the Bank and the Borrower agree as follows:
1. Change in Interest Rates. Effective as of June 1, 1998 (the
"Effective Date"), the Borrower may elect, subject to the terms of this
Agreement, to have:
(a) The unpaid principal balance of the Revolving L/C
Loan indebtedness bear interest at a rate that is
equal to: (i) the Prime Rate minus 25 basis points
(such interest rate is referred to below as the
"Prime-Based Index"); or (ii) 225 basis points plus
the LIBOR (London Inter-bank Offered Rate) for the
applicable LIBOR Period described in paragraph (d)
below (such interest rate is referred to below as the
"LIBOR-Based Index"). In the absence of an effective
election by the Borrower to have the interest rate on
all or part of the Revolving L/C Loan determined on
the basis of the LIBOR Index, interest on such
indebtedness shall be determined on the basis of the
Prime-Based Index.
(b) The unpaid principal balance of the Existing
Equipment Term Loan bear interest at a rate that is
equal to: (i) the Prime-Based Index; or (ii) the
LIBOR-Based Index; or (iii) 250 basis points plus the
Five (5)-Year Treasury Rate on the Interest Rate
Determination Date, as provided in Section 4.1(b) of
the Loan Agreement (such interest rate is referred to
below as the "5-Year Treasury-Based Index"). In the
absence of an effective election by the Borrower to
have the interest rate on all or part of the Existing
Equipment Term Loan determined on the basis of the
LIBOR-Based Index or the 5-Year Treasury-Based
<PAGE> 6
Index, interest on such indebtedness shall be
determined on the basis of the Prime-Based Index.
(c) The unpaid principal balance of the Non-Revolving
Equipment L/C Loan bear interest at a rate that is
equal to: (i) the Prime Rate Index; or (ii) the
LIBOR-Based Index; or (iii) 250 basis points plus the
Six (6)-Year Treasury Rate on the Interest Rate
Determination Date, as provided in Section 4.1(c) of
the Loan Agreement (such interest rate is referred to
below as the "6-Year Treasury-Based Index"). In the
absence of an effective election by the Borrower to
have the interest rate on all or part of the
Non-Revolving Equipment L/C Loan determined on the
basis of the LIBOR-Based Index or the 6-Year
Treasury-Based Index, interest on such indebtedness
shall be determined on the basis of the Prime-Based
Index.
(d) The applicable LIBOR Period for any indebtedness
under the Loan Agreement for which interest is
determined on the basis of the LIBOR-Based Index
shall be one of the following, as specified in
writing by the Borrower when giving notice to the
Bank pursuant to paragraph (g) below: (i) loans
having 30-day maturities, (ii) loans having 60-day
maturities, and (iii) loans having 90-day maturities;
provided, however, that the Borrower may not select a
LIBOR Period that extends beyond the maturity date
for the pertinent Loan.
(e) For any Loan as to which the Borrower elects the
LIBOR-Based Index, the original principal amount with
respect to which interest may be determined on the
basis of the LIBOR-Based Index shall be not less than
$500,000, or whole multiples of that amount, as
specified in writing by the Borrower when giving
notice to the Bank pursuant to paragraph (g) below.
(f) Subject to compliance with paragraph (e) above, the
Borrower may elect to divide the unpaid principal
balance of a Loan into two or more segments (each
such segment is referred to as a "Loan Segment"), and
to have interest as to one Loan Segment determined on
the basis of the Prime-Based Index and interest as to
the other Loan Segment(s) determined on the basis of
the LIBOR-Based Index; different LIBOR Periods may be
used for each Loan Segment as to which the
LIBOR-Based Index has been designated.
(g) If the Borrower elects to have interest for the
Existing Equipment Term Loan determined on the basis
of the 5-Year Treasury-Based Index, such election
must be made as to the entire principal balance of
such Loan; likewise, if the Borrower elects to have
interest for the Non-Revolving Equipment L/C Loan
determined on the basis of the 6-Year Treasury-Based
Index, such election must be made as to the entire
principal balance of such Loan.
(h) To make an election to have the interest on the
Borrower's indebtedness to the Bank determined on the
basis of the LIBOR-Based Index, the Borrower shall
give the Bank written notice on the Bank's standard
request form, which is attached hereto as Exhibit A.
Any such election shall become effective upon the
later of: (i) the third (3rd) Business Day after the
Bank's receipt of such written notice or (ii) the
funding date specified in such written notice.
(i) The Borrower may prepay, in whole or in part, a Loan
or Loan Segment with respect to which interest in
determined on the basis of the LIBOR-Based Index;
provided, however that simultaneously with making any
such prepayment, the Borrower shall pay, in addition
to the accrued interest on the amount prepaid through
the date of prepayment, an
2
<PAGE> 7
amount equal to the interest that would have accrued
through the applicable LIBOR Period on the principal
amount so prepaid.
(j) During the continuation of an Event of Default under
the Loan Agreement, the Borrower shall have no right
to change the rate at which interest is payable on
the outstanding indebtedness under any of the Loans.
2. Change in Maturity Date of Revolving L/C Loan. As of the
Effective Date, the maturity date of the Revolving L/C Loan shall be extended
from March 1, 1999 to January 1, 2000.
3. Changes in Certain Financial Covenants. As of the Effective
Date, Sections 6.8, 6.9 and 6.10 of the Loan Agreement shall provide as
follows:
6.8 Maintain Tangible Net Worth (the applicable amount
for each date of determination being referred to
herein as the "Minimum Net Worth") of:
(a) not less than $11,500,000 for the period
beginning on August 31, 1997 and ending on
August 30, 1998;
(b) not less than $14,000,000 for the period
beginning on August 31, 1998 and ending on
August 30, 1999; and
(c) For the period beginning on August 31, 1999
and ending on August 30, 2000, and for each
like period thereafter until all of the
Borrower's indebtedness to the Bank has been
repaid in full, with interest, the
Borrower's Minimum Net Worth requirement
shall be increased by $500,000 over the
Borrower's Minimum Net Worth requirement in
effect for the immediately preceding period.
6.9 Maintain Working Capital of not less than $9,000,000.
6.10 Maintain a ratio of total Liabilities to Tangible Net
Worth of not more than 1.2:1.
4. Effect of this Third Amendment. The Loan Documents are hereby
amended as required (and only as required) to give effect to the amendments
expressly provided for in this Third Amendment. Each and every one of the Loan
Documents shall be deemed to have been amended by this Third Amendment as if
such Loan Documents had been specifically amended by separate instrument. This
Third Amendment shall be a Loan Document, and all references in any Loan
Document to the "Loan Documents" shall refer to the Loan Documents, as
previously amended by the First and Second Amendments to Loan Documents, and as
further amended by this Third Amendment.
5. No other Amendments, etc. Except as expressly set forth above,
the Loan Agreement, each of the Notes, and all of the other Loan Documents shall
remain in full force and effect as originally executed and delivered by the
parties, as previously amended by the First and Second Amendments to Loan
Documents, and as further amended by this Third Amendment, and are hereby
ratified and affirmed by the undersigned.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
3
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Third Amendment to
Loan Documents as of the day and year first above written.
WITNESSES:
/s/ Gilbert A Segovia RIVIERA TOOL COMPANY
- ---------------------------
/s/ Peter C. Canepa By: /s/ Kenneth K. Rieth
- --------------------------- ----------------------------------
Kenneth R. Rieth, President
/s/ Peter C. Canepa OLD KENT BANK
- ---------------------------
_/s/ Kenneth K. Rieth By: /s/ Gilbert A Segovia
- --------------------------- ----------------------------------
Gilbert A. Segovia, Vice President
4
<PAGE> 9
FOURTH AMENDMENT TO LOAN DOCUMENTS
This Fourth Amendment to Loan Documents is made on the 14th day of
August, 1998, by and between OLD KENT BANK, a Michigan banking corporation (the
"Bank"), One Vandenberg Center, Grand Rapids, Michigan 49503, and RIVIERA TOOL
COMPANY, a Michigan corporation ("Borrower"), 5460 Executive Parkway, Grand
Rapids, Michigan 49512.
RECITALS:
A. The Bank and the Borrower are parties to a Loan Agreement dated
June 12, 1997 (the "Loan Agreement"), as amended by a First Amendment to Loan
Documents dated December 31, 1997 (the "First Amendment"), a Second Amendment to
Loan Documents dated February 15, 1998 (the "Second Amendment"), and a Third
Amendment to Loan Documents dated the date of this Fourth Amendment (the "Third
Amendment"), pursuant to which the Bank has agreed, subject to the terms and
conditions set forth in the Loan Agreement and the Loan Documents, as so
amended, to extend to the Borrower certain credit facilities, including but not
limited to a Revolving L/C Loan in the maximum principal amount of $10,000,000.
Capitalized terms used but not defined in this Fourth Amendment shall have the
meanings given such terms in the Loan Agreement, as previously amended.
B. The Revolving L/C Loan is evidenced by a Promissory Note in
substantially the form attached to the Loan Agreement as Exhibit A (the
"Revolving L/C Loan Note").
C. The Bank and the Borrower wish to amend the Loan Agreement and the
Revolving L/C Loan Note in the manner set forth below.
NOW, THEREFORE, the Bank and the Borrower agree as follows:
1. Temporary Change in Availability Formula. Effective as of August
1, 1998, the following provision shall be substituted for the corresponding
provision appearing in Section 3.1(a) of the Loan Agreement (page 9 of the Loan
Agreement):
Availability: At no time shall the outstanding
balance of the Revolving L/C Loan
exceed the lesser of (1) the Loan
Maximum, or (2) the sum of (a) 85%
of Eligible Accounts Receivable
plus (b) the lesser of (i)
$5,000,000, or (ii) 40% of the Work
in Process Inventory.
2. Reversion to Original Availability Formula. Effective as of
November 1, 1998, the following provision shall, without further act by the Bank
or the Borrower, be substituted for the availability formula set forth in
paragraph 1 above, and the availability formula set forth in paragraph 1 above
thereupon shall cease to be effective:
Availability: At no time shall the outstanding
balance of the Revolving L/C Loan
exceed the lesser of (1) the Loan
Maximum, or (2) the sum of (a) 85%
of Eligible Accounts Receivable
plus (b) the lesser of (i)
$3,500,000, or (ii) 40% of the Work
in Process Inventory.
3. Effect of this Fourth Amendment. The Loan Documents are hereby
amended as required (and only as required) to give effect to the amendments
expressly provided for in this Fourth Amendment. Each and every one of the Loan
Documents shall be deemed to have been amended by this Fourth Amendment as if
such Loan Documents had been specifically amended by separate instrument. This
Fourth Amendment shall be a Loan Document, and all references in any Loan
Document to the "Loan Documents" shall refer to the Loan Documents, as
previously amended by the First, Second and Third Amendments to Loan Documents,
and as further amended by this Fourth Amendment.
4. No other Amendments, etc. Except as expressly set forth above, the
Loan Agreement, each of the Notes, and all of the other Loan Documents shall
remain in full force and effect as originally executed and delivered by the
parties, as previously amended by the First, Second and Third Amendments to Loan
Documents, and as further amended by this Fourth Amendment, and are hereby
ratified and affirmed by the undersigned.
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Fourth Amendment to
Loan Documents as of the day and year first above written.
WITNESSES:
/s/ Gilbert A Segovia RIVIERA TOOL COMPANY
- ---------------------------
/s/ Peter C. Canepa By: /s/ Kenneth K. Rieth
- --------------------------- ----------------------------------
Kenneth R. Rieth, President
/s/ Peter C. Canepa OLD KENT BANK
- ---------------------------
/s/ Kenneth K. Rieth By: /s/ Gilbert A Segovia
- --------------------------- ----------------------------------
Gilbert A. Segovia, Vice President
2
<PAGE> 1
EXHIBIT 10(n)
[TRANSAMERICA LIFE COMPANIES LOGO] NOTICE OF CHANGE
- --------------------------------------------------------------------------------
RDT Inc Date: December 22, 1997
MEADOW BROOK BUS CTR Policy No.: 92004017
5460 EXECUTIVE PK SE Insured: MR KENNETH K RIETH
GRAND RAPIDS MI 49508
- --------------------------------------------------------------------------------
WE HAVE RECEIVED YOUR REQUESTED CHANGE AND HAVE RECORDED IT AS SUBMITTED. SUCH
RECORDING DOES NOT MEAN THAT WE HAVE PASSED ON THE LEGAL ADEQUACY OR VALIDITY
OF THIS TRANSACTION. THIS IS YOUR RESPONSIBILITY.
[X] The recorded Transfer of Ownership, Collateral Assignment, Change of
--- --- ---
Name, Beneficiary Designation, X , Release of Assignment Other is/are
--- ----- --- ---
enclosed
<TABLE>
<CAPTION>
<S> <C>
[ ] The name of the Insured/Owner has been changed. [ ] Please note the Company endorsement.
[ ] The policy is enclosed. [ ] The legal document is enclosed.
[ ] The policy lapsed without value effective:____. [ ] Another collateral assignment has also been recorded.
[ ] The assignment is subject to a prior collateral [ ] The assignment is subject to the right of the irrevocable
assignment. beneficiary.
[ ] A beneficiary form is enclosed in the event a [ ] The policy lapsed without value effective:______.
change of beneficiary is desired. however, reinstatement is pending.
[ ] Because of the community property laws, it [ ] This is a second assignment in your favor. Forms are
may have been in the best interest of the enclosed in the event you wish to release the first
Insured/owner if____ had joined in signing assignment.
the request.
[ ] The transfer of ownership is subject [ ] A certified copy of the Trust Agreement dated
to the collateral assignment in favor of: _____________________________will be required
_____________________________. before any other policy change can be made. Please
send us a copy as soon as possible.
[ ] Only lapse notices will be sent to the Collateral [ ] Please furnish us with the mailing address of:
Assignee(s), unless the collateral assignee(s) ____.The address is:
specifically request otherwise (i.e., special ___________________________________________________
request for duplicate billing notices). ___________________________________________________
[ ] SPECIAL NOTICE: A federal income tax law requires [ ] Other
that the enclosed W-9 form be completed by the _______________________________________
policy owner in order to avoid withholding and/or _______________________________________
penalties. The introductions should be read _______________________________________
carefully. A postage paid envelope is enclosed _______________________________________
for your convenience in returning the form.
[ ] THE POLICY IS IN THE GRACE PERIOD AND
IN DANGER OF LAPSING
WE ARE PLEASED TO HAVE BEEN OF SERVICE TO YOU. DIRECT ALL INQUIRIES TO OUR CUSTOMER
JANICE KEENE SERVICE DEPARTMENT (800) 852-4678
</TABLE>
cc: 9120 271541 THOMAS C L
<PAGE> 2
RELEASE OF ASSIGNMENT OF POLICY AS COLLATERAL SECURITY
Policy No: 92004017 Insured Kenneth K. Rieth
------------------------- -------------------------------------
issued or assumed by
[X] Transamerica Occidental Life Insurance Company
[ ] Transamerica Assurance Company
[ ] Transamerica Life Insurance & Annuity Company
(herein called "the Company")
For good and sufficient consideration, the undersigned releases all rights,
title and interest in this policy held under the assignment dated March 3, 1997.
The rights of the policyowner, beneficiary and any other assignee under the
policy shall be the same as though such assignment to the undersigned had never
been made.
ASSIGNMENT BY
Date Signed: December 2, 1997
---------------------
STUART F. CHENEY xx NBD BANK
- --------------------------------- -----------------------------------------
Witness Stuart F. Cheney Assignees Complete Name
900 CNONA #900, Grand Rapids, MI By: BARRY S. REED V.P.
- --------------------------------- ------------------------ -----------
Address of witness 44503 Authorized Signature Title
JUDY L. EDWARDS By:
- --------------------------------- ------------------------ -----------
Witness Judy L. Edwards Authorized Signature Title
200 Ottawa Ave. NW, #900
Grand Rapids, MI 49503
- ---------------------------------
Address of witness
- --------------------------------------------------------------------------------
This Release of Assignment has been recorded at the Home Office of the Company
in Los Angeles, California. The Company assumes no legal responsibility for the
sufficiency or validity of this Release of Assignment.
<TABLE>
<S><C>
Stanley C. Hausman Jr. Team Manager
Date recorded December 22, 1997 By Policy Change & Technical Services Department
----------------------- --------------------------------------
Name
</TABLE>
- --------------------------------------------------------------------------------
Note: If the assignee's name has changed or takeover/merger is involved,
attach certified copy of document issued by the State and/or Federal
Agency.
<PAGE> 1
EXHIBIT 10(O)
ASSIGNMENT OF POLICY AS COLLATERAL SECURITY
(This form does not change the Beneficiary of the policy)
Policy No 92004017 Insured TRANSAMERICA LIFE COMPANIES
----------------------- --------------------------------------
issued or assumed by
[X] Transamerica Occidental Life Insurance Company
[ ] Transamerica Assurance Company
[ ] Transamerica Life Insurance & Annuity Company
(herein called "Insurer")
THIS FORM WILL NOT BE RECORDED IF MODIFIED UNLESS APPROVED BY THE HOME OFFICE
For value received, all rights, title and interest of the undersigned in this
policy is hereby assigned to:
Assignee:
Address of Assignee:
(Complete Mailing Address)
his, her or its executors, administrators, successors or assigns (herein called
"Assignee") with the right to exercise any and all rights and privileges
thereunder (except as provided in paragraph B hereof), subject to all the terms
and conditions of the Policy and to all superior liens, if any, which the
Insurer may have against the Policy. The undersigned jointly and severally agree
and the Assignee by the acceptance of this assignment agrees to the conditions
and provisions hereof.
A. It is agreed that, without detracting from the generality of the foregoing,
the following rights are included in this assignment:
(1) The sole right to collect from the Insurer the net proceeds of the
Policy when it becomes a claim by death or maturity; (2) the sole right to
surrender the Policy and receive the surrender value thereof at any time
provided by the terms of the Policy and at such other times as the Insurer
may allow; (3) the sole right to obtain one or more loans or advances on the
Policy, either from the Insurer or, at any time, from other persons, and to
pledge or assign the Policy as security for such loans or advances; (4) the
sole right to collect and receive all distributions or shares of surplus,
dividend deposits or additions to the Policy now or hereafter made or
apportioned thereto, and to exercise any and all options contained in the
Policy with respect to; provided, that unless and until the Assignee shall
notify the Insurer in writing to the contrary, the distributions or shares
of surplus, dividend deposits and additions shall continue on the plan in
force at the time of the assignment; and (5) the sole right to exercise all
non forfeiture rights permitted by the terms of the Policy or allowed by the
Insurer and to receive all benefits and advantages derived therefrom.
B. It is agreed that the following rights, so long as the Policy has not been
surrendered, are excluded from this assignment:
(1) The right to collect from the Insurer any disability income; (2) the
right to designate and change the beneficiary; and (3) the right to elect
optional modes of settlement; but the reservation of these rights shall in
no way impair the right of the Assignee to surrender the Policy completely
with all its incidents or impair any other right of the Assignee hereunder,
and any designation or change of beneficiary or election of a mode of
settlement shall be made subject to this assignment and to the rights of
the Assignee hereunder.
C. This assignment is made and the Policy is to be held as collateral security
for any and all liabilities of the undersigned, or any of them, to the
Assignee, either now existing or that may hereafter arise in the ordinary
course of business between any of the undersigned and the Assignee (all of
which liabilities secured or to become secured are herein called
"Liabilities").
D. The Assignee covenants and agrees with the undersigned as follows:
1 That any balance of sums received hereunder from the Insurer remaining
after payment of the then existing Liabilities shall be paid by the Assignee
to the persons entitled thereto under the terms of the Policy had this
assignment not been executed.
2 That the Assignee will not exercise either the right to surrender the
Policy or (except for the purpose of paying premiums) the right to obtain
policy loans from the Insurer, until there has been default in any of the
Liabilities or a failure to pay any premium when due, nor until twenty days
after the Assignee shall have mailed, by first-class mail, to the
undersigned at the addresses given herein below, notice of intention to
exercise such right; and
3 That the Assignee will upon request forward without unreasonable delay to
the Insurer the Policy for endorsement of any designation or change of
beneficiary or any election of an optional mode of settlement.
E. The Insurer is hereby authorized to recognize the Assignee's claim to rights
hereunder without investigating the reasons for any action taken by the
Assignee, or the validity or the amount of the Liabilities or the existence
of any default therein, or the giving of any notice under Paragraph D(2)
above or otherwise, or the application to be made by the Assignee of any
amounts to be paid to the Assignee. The sole signature of the Assignee shall
be sufficient for the exercise of any rights under the Policy assigned
hereby and the sole receipt of the Assignee for any sums received shall be a
full discharge and release therefor to the Insurer.
F. The Assignee shall be under no obligation to pay any premium, or the
principal of or interest on any loans or advances on the Policy whether or
not obtained by the Assignee, or any other charges on the Policy, but any
such amounts so paid by the assignee from its own funds, shall become a part
of the Liabilities hereby secured, shall be due immediately, and shall draw
interest at a rate fixed by the Assignee from time to time not exceeding 6%
per annum.
G. The exercise of any right or privilege given herein to the Assignee shall be
at the option of the Assignee, but (except as restricted in Paragraph D(2)
above) the assignee may exercise any such right or privilege without notice
to, or assent by, or affecting the liability of, or releasing any interest
hereby assigned by the undersigned, or any of them.
H. The Assignee may take or release other security, may release any party
primarily or secondarily liable for any of the Liabilities, may grant
extensions, renewals or indulgences with respect to the Liabilities, or may
apply to the Liabilities proceeds of the Policy hereby assigned or any
amount received on account of the Policy by the exercise of any right
permitted under this assignment, without resorting or regard to other
security.
I. In the event of any conflict between the provisions of this assignment and
provisions of the note or other evidence of any Liability, with respect to
the Policy or rights of collateral security therein, the provisions of this
assignment shall prevail.
J. Each of the undersigned declares that no proceedings in bankruptcy are
pending against him and that his property is not subject to any assignment
for the benefit of creditors.
K. This assignment shall apply to and be effective under any policy issued in
exchange for the Policy or as a renewal or conversion thereof.
L. The validity of this assignment is hereby guaranteed by each of the
undersigned.
Date Signed: 8-21-98 ASSIGNMENT BY
---------------------
Jamie Davis XX RIVERIA TOOL CO.
- ---------------------------------- ---------------------------------------
Witness Complete Name of Policyowner
By: [SIG] CFO
- ---------------------------------- ------------------------- -----------
Address of witness Authorized Signature Title
Mel Barry By:
- ---------------------------------- ------------------------- -----------
Witness Authorized Signature Title
- ---------------------------------- ---------------------------------------
Address of witness
- --------------------------------------------------------------------------------
This assignment has been recorded at the Home Office of the Insurer in Los
Angeles, California. The Insurer assumes no legal responsibility for the
sufficiency or validity of the assignment.
Date recorded By
------------------- -------------------------------------
Name
- --------------------------------------------------------------------------------
ASSIGNMENT
<PAGE> 2
ASSIGNMENT OF LIFE INSURANCE POLICY AS COLLATERAL
A. The undersigned ("Assignor") assign(s) and transfer(s) to
Old Kent Bamk of 111 Lyon NW, Grand Rapids, MI 49503 ("Assignee"), as
security, Policy No. 0011750630 issued by Jackson National Life
Insurance Co. ("Insurer") upon the life of Kenneth K. Rieth and any
supplementary contracts issued in connection with the policy (the
policy and the supplementary contracts are called the "Policy") and all
claims, options, privileges, rights, title and interest in and under
the Policy (except as provided in Paragraph C), subject to all the
terms and conditions of the Policy and to all superior liens, if any,
that the Insurer may have against the Policy.
B. Without detracting from the generality of the foregoing, the following
specific rights are included in this Assignment and pass to Assignee:
1. The sole right to collect from Insurer the net proceeds of the
Policy when it becomes a claim by death or maturity;
2. The sole right to surrender the Policy and receive its surrender
value at any time provided by the terms of Policy and at any other
times as Insurer may allow;
3. The sole right to obtain one or more loans or advances on the
Policy, either from Insurer or from other persons, and to pledge or
assign the Policy as security for those loans or advances;
4. The sole right to collect and receive all distributions or shares of
surplus, dividend deposits or additions to the Policy now or in the
future made or apportioned to it, and to exercise any and all
options contained in the Policy with respect to those distributions,
shares, deposits or additions; but unless and until Assignee shall
notify Insurer in writing to the contrary, the distributions or
shares of surplus, dividend deposits and additions shall continue on
the plan in force at the time of this Assignment; and
5. The sole right to exercise all nonforfeiture rights permitted by the
terms of the Policy or allowed by Insurer and to receive all
benefits and advantages derived from those rights.
C. The following specific rights, so long as the Policy has not been
surrendered, are reserved and excluded from this Assignment and do not
pass to Assignee:
1. The right to collect from Insurer any disability benefit payable in
cash that does not reduce the amount of insurance;
2. The right to designate and change the beneficiary; and
3. The right to elect any optional mode of settlement permitted by the
Policy or allowed by Insurer; but the reservation of these rights
shall not impair the right of Assignee to surrender the Policy
completely with all its incidents or any other right of Assignee
under this Assignment, and any designation or change of beneficiary
or election of a mode of settlement shall be made subject to this
Assignment and to the rights of Assignee under it.
D. THIS ASSIGNMENT IS MADE AND THE POLICY IS TO BE HELD AS COLLATERAL
SECURITY FOR ANY AND ALL INDEBTEDNESS AND OBLIGATIONS NOW OR IN THE
FUTURE OWING TO ASSIGNEE BY ASSIGNOR AND FOR ANY AND ALL INDEBTEDNESS
AND OBLIGATIONS NOW OR IN THE FUTURE OWING TO ASSIGNEE BY
Riviera Tool Company ("DEBTOR"), regardless of whether any such
indebtedness or obligation is (a) not presently intended or
contemplated by Assignee, Assignor or Debtor, (b) indirect, contingent
or secondary, (c) unrelated to the Policy, (d) of a kind or class that
is different from any indebtedness or obligation now owing to Assignee
by Assignor or Debtor, or (e) evidenced by a note or other document
that does not refer to this Assignment (collectively, the
"INDEBTEDNESS").
E. Assignee agrees as follows:
1. Any balance of sums received under this Assignment from Insurer
remaining after payment of the then-existing Indebtedness, matured
or unmatured, shall be returned by Assignee to Insurer, which shall
pay the balance to the persons who would be entitled to it under the
terms of the Policy if this Assignment had not been made;
2. Assignee will not exercise either the right to surrender the Policy
or (except for the purpose of paying premiums) the right to obtain
policy loans from Insurer until there has been default in payment of
any of the Indebtedness or a failure to pay any premium when due;
and
3. Upon the request of the undersigned owner of the Policy, Assignee
will send the Policy to Insurer for endorsement of any designation
or change of beneficiary or any election of an optional mode of
settlement.
F. Insurer is authorized to recognize Assignee's claims to rights under
this Assignment without investigating the reason for any action taken
by Assignee or the validity or the amount of the Indebtedness or the
existence of any default in the Indebtedness or the application to be
made by Assignee of any amounts to be paid to Assignee. The sole
signature of Assignee shall be sufficient for the exercise of any
rights under the Policy assigned by this Assignment and the sole
receipt of Assignee for any sums received shall be a full discharge and
release to Insurer. Checks for all or any part of the sums payable
under the Policy and assigned in this Assignment shall be drawn to the
exclusive order of Assignee if, when, and in the amounts as Assignee
shall request.
G. Assignee shall be under no obligation to pay any premium or the
principal of or interest on any loans or advances on the Policy,
whether or not obtained by Assignee, or any other charges on the
Policy, but any amounts so paid by Assignee from its own funds shall
become a part of the Indebtedness secured by this Assignment, payable
by Assignor on demand, together with interest at an annual rate equal
to the lesser of (i) five percent (5%) above the rate of interest
announced from time to time by Assignee as its "prime" rate of
interest, or (ii) the highest rate to which the undersigned could
lawfully agree in writing.
H. The exercise of any right, option, privilege or power given in this
Assignment to Assignee shall be at the option of Assignee, but (except
as restricted by Paragraph E(2) above) Assignee may exercise the right,
option, privilege or power without notice to, or assent by or
affecting the liability of, or releasing any interest assigned in this
Assignment by, Assignor.
I. If Paragraph D provides that this Assignment secures indebtedness and
obligations owing to Assignee by a third party named in that paragraph
("DEBTOR"), then the Additional Provisions of Assignment set forth on
the reverse side are a part of this Assignment and are incorporated in
it by reference.
J. Notwithstanding the foregoing, the maximum amount of net proceeds of
the Policy that Assignee shall be entitled to receive under this
Assignment is $500,000. If no amount, zero or the words "No Limit,"
"None" or similar words are inserted in the blank space in this
paragraph, then there is no limit on the amount of net proceeds of the
Policy that Assignee may receive under this Assignment.
Signed as of July 23 , 1998
----------------------
Kenneth K. Rieth RIVIERA TOOL CO.
- ------------------------------------------------ -------------------------
Witness Policy Owner
[SIG]
-------------------------
Peter C. Canepa, CEO &
Secretary
-------------------------
Address
Marcia J. Shumato
- ------------------------------------------------ -------------------------
Witness Policy Beneficiary
-------------------------
-------------------------
Address
<PAGE> 3
\ ADDITIONAL PROVISIONS OF ASSIGNMENT
K. The effectiveness of this Assignment is not subject to the satisfaction
of any conditions, including, without limitation, the granting of any
other security by any other person, firm, or corporation. Assignee
shall not be obligated at any time to make any disclosure to Assignor
concerning Debtor's financial condition, assets, liabilities,
activities, or operations or the status of the Indebtedness or of any
other security for the Indebtedness. This Assignment does not create
any obligation or duty of Assignee to grant or continue credit to
Debtor or to give notice to or obtain the consent of Assignor before
doing so.
L. Assignee in its sole discretion may, without affecting or impairing
this Assignment, apply payments or collections received from any source
other than the Policy to the payment of indebtedness other than the
Indebtedness, even though Assignee could have applied those payments to
the Indebtedness. Any payments that Assignee receives from Insurer
under this Assignment shall be applied to the interest on or principal
of the Indebtedness or to other components of the Indebtedness in any
manner that Assignee in its sole discretion shall determine.
M. Assignor waives (a) notice of the acceptance of this Assignment, (b)
presentment, protest, notice, demand, or action with respect to any
default in payment of all or any part of the Indebtedness, and (c) any
right to require Assignee to sue Debtor or any other person obligated
with respect to all or any part of the Indebtedness or to foreclose or
realize upon any security for all or any part of the Indebtedness.
N. The validity and enforceability of this Assignment shall not be
impaired or affected by the invalidity or unenforceability of any of
the Indebtedness or of any guaranty or other security for it or by any
act or omission by Assignee with respect to all or part of the
Indebtedness or any agreement relating to the Indebtedness or with
respect to any present or future guaranty or other security for all or
part of the Indebtedness, including, but not limited to, (a) any
extension, modification, renewal, indulgence, or substitution, (b) any
failure or omission to enforce any right, power, or remedy, (c) any
waiver of any right, power, or remedy or of any default, (d) any
release, surrender, compromise, settlement, subordination, or
modification, with or without consideration, or (e) any consent by
Assignee to any sale or transfer of any security; all whether or not
Assignor shall have had notice or knowledge of any act, omission, or
circumstance referred to in this paragraph.
O. This Assignment is independent of any other obligations at any time in
effect with respect to all or any part of the Indebtedness and may be
enforced regardless of the existence, validity, enforcement, or
nonenforcement of any such other obligations.
INDIVIDUAL ACKNOWLEDGMENT
STATE OF )
--------------------
:ss.
COUNTY OF )
--------------------
The Assignment of Life Insurance Policy as Collateral on the reverse
side, including the Additional Provisions on this side, was acknowledged before
me on ________________________, 199___, by ______________________________.
-----------------------------------------
Notary Public
County,
----------------- -----------------
My commission expires
--------------------
ACKNOWLEDGMENT BY ENTITY
STATE OF Michigan )
--------------------
:ss.
COUNTY OF Kent )
--------------------
The Assignment of Life Insurance Policy as Collateral on the reverse
side, including the Additional Provisions on this side, was acknowledged before
me on July 23, 1998, by Peter C. Canepa the Secretary of Riviera Tool Co., a
Corporation , on its behalf.
- --------------------------
(type of entity)
<TABLE>
<S><C>
CAROL S. SIMONSON
---------------------------------------------------------------
Notary Public
CAROL S. SIMONSON
Notary Public, Kent County, Michigan
County, My Commission Expires Oct. 5, 2000
-------------------- ------------------------------------
My commission expires
------------------------------------------
</TABLE>
INSURER'S ACKNOWLEDGMENT, CERTIFICATION AND AGREEMENT
The undersigned Insurer acknowledges having received and filed, at its
home office in ________________________________________________________________
on __________________________ , 199___, the Assignment of Life Insurance Policy
as Collateral on the reverse side. Insurer certifies to the Assignee named in
the Assignment and agrees that (a) the Policy described in the Assignment is in
full force and effect; (b) there are no other assignments of the Policy on file
with the Insurer, except in favor of Assignee; and (c) Insurer will not cancel
the Policy or permit it to lapse (whether for nonpayment of premiums or
otherwise) without giving Assignee at least 30 days' prior written notice and
the opportunity to cure any default in premium payments or otherwise.
--------------------------------------------------
(Name of Insurer)
By
------------------------------------------------
Authorized Officer
<PAGE> 4
ASSIGNMENT OF LIFE INSURANCE POLICY AS COLLATERAL
A. The undersigned ("Assignor") assign(s) and transfer(s) to Old Kent
Bank, of 111 Lyon NW, Grand Rapids, MI 49503 ("Assignee"), as security,
Policy No. 0011750620 issued by Jackson National Life Insurance Company
("Insurer") upon the life of Kenneth K. Rieth and any supplementary
contracts issued in connection with the policy (the policy and the
supplementary contracts are called the "Policy") and all claims,
options, privileges, rights, title and interest in and under the Policy
(except as provided in Paragraph C), subject to all the terms and
conditions of the Policy and to all superior liens, if any, that the
Insurer may have against the Policy.
B. Without detracting from the generality of the foregoing, the following
specific rights are included in this Assignment and pass to Assignee:
1. The sole right to collect from Insurer the net proceeds of the
Policy when it becomes a claim by death or maturity;
2. The sole right to surrender the Policy and receive its surrender
value at any time provided by the terms of Policy and at any other
times as Insurer may allow;
3. The sole right to obtain one or more loans or advances on the
Policy, either from Insurer or from other persons, and to pledge or
assign the Policy as security for those loans or advances;
4. The sole right to collect and receive all distributions or shares of
surplus, dividend deposits or additions to the Policy now or in the
future made or apportioned to it, and to exercise any and all
options contained in the Policy with respect to those distributions,
shares, deposits or additions; but unless and until Assignee shall
notify Insurer in writing to the contrary, the distributions or
shares of surplus, dividend deposits and additions shall continue on
the plan in force at the time of this Assignment; and
5. The sole right to exercise all nonforfeiture rights permitted by the
terms of the Policy or allowed by Insurer and to receive all
benefits and advantages derived from those rights.
C. The following specific rights, so long as the Policy has not been
surrendered, are reserved and excluded from this Assignment
and do not pass to Assignee:
1. The right to collect from Insurer any disability benefit payable in
cash that does not reduce the amount of insurance;
2. The right to designate and change the beneficiary; and
3. The right to elect any optional mode of settlement permitted by the
Policy or allowed by Insurer; but the reservation of these rights
shall not impair the right of Assignee to surrender the Policy
completely with all its incidents or any other right of Assignee
under this Assignment, and any designation or change of beneficiary
or election of a mode of settlement shall be made subject to this
Assignment and to the rights of Assignee under it.
D. THIS ASSIGNMENT IS MADE AND THE POLICY IS TO BE HELD AS COLLATERAL
SECURITY FOR ANY AND ALL INDEBTEDNESS AND OBLIGATIONS NOW OR IN THE
FUTURE OWING TO ASSIGNEE BY ASSIGNOR AND FOR ANY AND ALL INDEBTEDNESS
AND OBLIGATIONS NOW OR IN THE FUTURE OWING TO ASSIGNEE BY Riviera Tool
Company ("DEBTOR"), regardless of whether any such indebtedness or
obligation is (a) not presently intended or contemplated by Assignee,
Assignor or Debtor, (b) indirect, contingent or secondary, (c)
unrelated to the Policy, (d) of a kind or class that is different from
any indebtedness or obligation now owing to Assignee by Assignor or
Debtor, or (e) evidenced by a note or other document that does not
refer to this Assignment (collectively, the "INDEBTEDNESS").
E. Assignee agrees as follows:
1. Any balance of sums received under this Assignment from Insurer
remaining after payment of the then-existing Indebtedness, matured
or unmatured, shall be returned by Assignee to Insurer, which shall
pay the balance to the persons who would be entitled to it under the
terms of the Policy if this Assignment had not been made;
2. Assignee will not exercise either the right to surrender the Policy
or (except for the purpose of paying premiums) the right to obtain
policy loans from Insurer until there has been default in payment of
any of the Indebtedness or a failure to pay any premium when due;
and
3. Upon the request of the undersigned owner of the Policy, Assignee
will send the Policy to Insurer for endorsement of any designation
or change of beneficiary or any election of an optional mode of
settlement.
F. Insurer is authorized to recognize Assignee's claims to rights under
this Assignment without investigating the reason for any action taken
by Assignee or the validity or the amount of the Indebtedness or the
existence of any default in the Indebtedness or the application to be
made by Assignee of any amounts to be paid to Assignee. The sole
signature of Assignee shall be sufficient for the exercise of any
rights under the Policy assigned by this Assignment and the sole
receipt of Assignee for any sums received shall be a full discharge and
release to Insurer. Checks for all or any part of the sums payable
under the Policy and assigned in this Assignment shall be drawn to the
exclusive order of Assignee if, when, and in the amounts as Assignee
shall request.
G. Assignee shall be under no obligation to pay any premium or the
principal of or interest on any loans or advances on the Policy,
whether or not obtained by Assignee, or any other charges on the
Policy, but any amounts so paid by Assignee from its own funds shall
become a part of the Indebtedness secured by this Assignment, payable
by Assignor on demand, together with interest at an annual rate equal
to the lesser of (i) five percent (5%) above the rate of interest
announced from time to time by Assignee as its "prime" rate of
interest, or (ii) the highest rate to which the undersigned could
lawfully agree in writing.
H. The exercise of any right, option, privilege or power given in this
Assignment to Assignee shall be at the option of Assignee, but (except
as restricted by Paragraph E(2) above) Assignee may exercise the right,
option, privilege or power without notice to, or assent by, or
affecting the liability of, or releasing any interest assigned in this
Assignment by, Assignor.
I. If Paragraph D provides that this Assignment secures indebtedness and
obligations owing to Assignee by a third party named in that paragraph
("DEBTOR"), then the Additional Provisions of Assignment set forth on
the reverse side are a part of this Assignment and are incorporated in
it by reference.
J. Notwithstanding the foregoing, the maximum amount of net proceeds of
the Policy that Assignee shall be entitled to receive under this
Assignment is $1,000,000. If no amount, zero or the words "No Limit,"
"None" or similar words are inserted in the blank space in this
paragraph, then there is no limit on the amount of net proceeds of the
Policy that Assignee may receive under this Assignment.
Signed as of July 23, 1998
-----------------------------.
Riviera Tool Co.
-----------------------------
Policy Owner
Kenneth K. Rieth [SIG]
- --------------------------------------- -----------------------------
Witness
Peter C. Canepa, CFO &
Secretary
-----------------------------
Address
Marcia J. Shumato
- --------------------------------------- -----------------------------
Witness Policy Beneficiary
-----------------------------
-----------------------------
Address
<PAGE> 5
ADDITIONAL PROVISIONS OF ASSIGNMENT
K. The effectiveness of this Assignment is not subject to the satisfaction
of any conditions, including, without limitation, the granting of any
other security by any other person, firm, or corporation. Assignee
shall not be obligated at any time to make any disclosure to Assignor
concerning Debtor's financial condition, assets, liabilities,
activities, or operations or the status of the Indebtedness or of any
other security for the Indebtedness. This Assignment does not create
any obligation or duty of Assignee to grant or continue credit to
Debtor or to give notice to or obtain the consent of Assignor before
doing so.
L. Assignee in its sole discretion may, without affecting or impairing
this Assignment, apply payments or collections received from any source
other than the Policy to the payment of indebtedness other than the
Indebtedness, even though Assignee could have applied those payments to
the Indebtedness. Any payments that Assignee receives from Insurer
under this Assignment shall be applied to the interest on or principal
of the Indebtedness or to other components of the Indebtedness in any
manner that Assignee in its sole discretion shall determine.
M. Assignor waives (a) notice of the acceptance of this Assignment, (b)
presentment, protest, notice, demand, or action with respect to any
default in payment of all or any part of the Indebtedness, and (c) any
right to require Assignee to sue Debtor or any other person obligated
with respect to all or any part of the Indebtedness or to foreclose or
realize upon any security for all or any part of the Indebtedness.
N. The validity and enforceability of this Assignment shall not be
impaired or affected by the invalidity or unenforceability of any of
the Indebtedness or of any guaranty or other security for it or by any
act or omission by Assignee with respect to all or part of the
Indebtedness or any agreement relating to the Indebtedness or with
respect to any present or future guaranty or other security for all or
part of the Indebtedness, including, but not limited to, (a) any
extension, modification, renewal, indulgence, or substitution, (b) any
failure or omission to enforce any right, power, or remedy, (c) any
waiver of any right, power, or remedy or of any default, (d) any
release, surrender, compromise, settlement, subordination, or
modification, with or without consideration, or (e) any consent by
Assignee to any sale or transfer of any security; all whether or not
Assignor shall have had notice or knowledge of any act, omission, or
circumstance referred to in this paragraph.
O. This Assignment is independent of any other obligations at any time in
effect with respect to all or any part of the Indebtedness and may be
enforced regardless of the existence, validity, enforcement, or
nonenforcement of any such other obligations.
INDIVIDUAL ACKNOWLEDGMENT
STATE OF )
----------------
:ss.
COUNTY OF )
--------------
The Assignment of Life Insurance Policy as Collateral on the reverse
side, including the Additional Provisions on this side, was acknowledged before
me on , 199 , by
---------- -- ----------------
-------------------------------------------------------------
Notary Public
County,
----------------------------- -------------------------
My commission expires
---------------------------------------
ACKNOWLEDGMENT BY ENTITY
STATE OF Michigan )
----------------
:ss.
COUNTY OF Kent )
---------------
The Assignment of Life Insurance Policy as Collateral on the reverse
side, including the Additional Provisions on this side, was acknowledged before
me on July 23, 1998, by Peter C. Canepa the Secretary of Riviera Tool Company, a
Corporation, on its behalf.
Carol S. Simonson
---------------------------------------------
Notary Public
County,
------------------- -------------------
My commission expires
------------------------
CAROL S. SIMONSON
Notary Public, Kent County, Michigan
My Commission Expires Oct. 5, 2000
INSURER'S ACKNOWLEDGMENT, CERTIFICATION AND AGREEMENT
The undersigned insurer acknowledges having received and filed, at its home
office in ____________________ on _____________, 199___, the Assignment of Life
Insurance Policy as Collateral on the reverse side. Insurer certifies to the
Assignee named in the Assignment and agrees that (a) the Policy described in the
Assignment is in full force and effect; (b) there are no other assignments of
the Policy on file with the Insurer, except in favor of Assignee; and (c)
Insurer will not cancel the Policy or permit it to lapse (whether for nonpayment
of premiums or otherwise) without giving Assignee at least 30 days' prior
written notice and the opportunity to cure any default in premium payments or
otherwise.
------------------------------------------------
(Name of Insurer)
By
------------------------------------------------
Authorized Officer
<PAGE> 1
EXHIBIT 10(P)
RIVIERA TOOL COMPANY
1998 KEY EMPLOYEE STOCK OPTION PLAN
ARTICLE I. - PURPOSE
The purpose of the Riviera Tool Company 1998 Key Employee Stock Option
Plan (the "Plan") is to enable key employees of Riviera Tool Company (the
"Company") to participate in the Company's future growth and profitability by
offering them long-term performance-based incentive compensation. The Plan also
provides a means through which the Company can attract and retain key employees
and directors.
ARTICLE II. - DEFINITIONS
2.1 The following terms have the meaning described below when used in
the Plan:
(a) "Board of Directors" shall mean the Board of
Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986,
as amended, and as it may be further amended from time to time.
(c) "Committee" shall mean the Stock Option Committee of
the Board of Directors.
(d) "Common Stock" shall mean the Common Stock no par
value of the Company.
(e) "Fair Market Value" shall mean as of any given date
the closing price of the Common Stock on the American Stock Exchange rounded, if
necessary, to the next full one cent, or if there is no such price published,
then on the most recent preceding date on which such prices are published.
(f) "Option" shall mean a stock option granted under
Article VI.
(g) "Participant" shall mean an eligible employee, member
of the Board of Directors or any other individual valuable services to the
Company, as designated by the Compensation Committee from time to time, who has
been granted an Option.
(h) "Subsidiary" shall mean a corporation a majority of
the outstanding voting capital stock of which is owned by the Company.
ARTICLE III. - ADMINISTRATION
3.1 Compensation Committee. (a) The Compensation Committee
appointed by the Board of Directors of the Company (the "Committee") shall
administer the Plan. The Committee shall have full power and authority, subject
to such orders or resolutions not inconsistent with the provisions of the Plan
as may from time to time be issued or adopted by the Board of Directors, to
grant to eligible persons, Options under Article VI of the Plan, to interpret
the provisions of the Plan and any agreements relating to Options granted under
the Plan and to supervise the administration of the Plan.
(b) Decisions of Committee. All decisions made by the
Committee pursuant to the provisions of the Plan and related resolutions of the
Board of Directors shall be final, conclusive and binding on all persons,
including the Company, its shareholders, Directors and employees, and
beneficiaries of employees.
ARTICLE IV. - SHARES SUBJECT TO THE PLAN
4.1 (a) Number of Shares. Subject to adjustment as provided for in
Section 4.1(b), the maximum number of shares of Common Stock with respect to
which Options may be granted shall be 200,000 shares of Common Stock. Shares of
Common Stock shall be made available from the authorized but unissued shares of
the Company. If an Option granted under the Plan shall expire or terminate for
any reason, the shares subject to, but not delivered, under such Option shall be
available for other Options to be issued under the Plan.
<PAGE> 2
(b) Adjustments. All as may be deemed appropriate by the
Committee, the aggregate number of shares of Common Stock which may be issued
under the Plan, the number of shares covered by each outstanding Option, and the
price per share in each Option, shall all be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock of the
Company resulting from a subdivision or consolidation of shares or any other
capital adjustment, a stock split, the payment of a stock dividend in excess of
5% per fiscal year of the Company, or other increase or decrease in such shares
effected without receipt of consideration by the Company.
ARTICLE V. - ELIGIBILITY
5.1 The persons eligible to participate in the Plan and receive
Options under the Plan shall consist of officers, directors and other key
employees of the Company and its subsidiaries, directors who are full time
employees or any other individual, as determined by the Compensation Committee.
ARTICLE VI. - STOCK OPTIONS
6.1 Grant of Options. Subject to the limitations of the Plan, the
Committee, after such consultation with and consideration of the recommendations
of management as the Committee considers desirable, shall select from eligible
persons Participants to be granted Options, determine the time when each Option
shall be granted, the number of shares subject to each Option and the time when
options shall vest and be exercisable. More than one Option may be granted to
the same person. Options granted under the Plan are not intended to be qualified
under Section 422 of the Internal Revenue Code of 1986, as amended, or successor
provisions thereto.
6.2 Option Agreements. Each Option under the Plan shall be
evidenced by an option agreement that shall be signed by an officer of the
Company and the Participant and shall contain such provisions as may be approved
by the Committee. Any such option agreement may be amended from time to time as
approved by the Committee and the Participant, provided that the terms of such
option agreement after being amended conform to the terms of the Plan.
6.3 Option Price. The price at which shares may be purchased upon
exercise of an Option shall be not less than one hundred percent (100%) of the
Fair Market Value of such shares on the date such Option is granted.
6.4 Exercise of Options.
(a) The period during which each Option may be exercised shall
be fixed by the Committee at the time such Option is granted, not to exceed ten
years.
(b) Subject to the terms and conditions of the option
agreement and unless cancelled prior to exercise, each Option shall be
exercisable in whole or in part in installments at such time or times as the
Committee may prescribe and specify in the applicable option agreement.
(c) No shares shall be delivered pursuant to any exercise of
an Option until payment in full of the option price therefor is received by the
Company. Such payment shall be made in cash or, at the discretion of the
Committee, through the delivery of shares of Common Stock of the Company with a
value equal to the total option price or a combination of cash and shares. Any
shares so delivered shall be valued at their Fair Market Value on the exercise
date. No Participant shall be deemed to be a holder of any shares subject to any
Option prior to the issuance of such shares upon exercise of such Option.
6.5 Non-Transferability of Options. No Option or any rights with
respect thereto shall be subject to any debts or liabilities of a Participant,
nor be assignable or transferable except by Will or the laws of descent and
distribution, nor be exercisable during the Participant's lifetime other than by
the Participant, nor shall Common Stock be issued to or in the name of one other
than the Participant; provided, however, that an Option may after the death or
disability of a Participant be exercised pursuant to Section 6.6(b); and
provided further than any Common Stock issued to a Participant hereunder may at
the request of the Participant be issued in the names of the Participant and one
other person, as joint tenants with right of survivorship and not as tenants in
common, or in the name of a trust for the benefit of the Participant or for the
benefit of the Participant and others.
6.6 Termination, Death and Disability. Subject to the condition
that no Option may be exercised in whole or in part after the expiration of the
option period specified in the applicable option agreement:
(a) Except as hereinafter provided, an Option may be exercised
by the Participant only while such Participant is in the employ or a member of
the Board of Directors of the Company or a subsidiary or in the case of a
designated person who is not an employee or director, as provided by the terms
of the grant. In the event that the service of a Participant to whom an Option
has been granted under the Plan shall terminate (except as set forth below) such
Option may be exercised, to the extent that the Option was exercisable on the
date of termination, only until the earlier of three (3) months after such
termination or the original expiration date of the Option; provided, however,
that if termination results from death or total and permanent disability, such
three (3) month period shall be extended to twelve (12) months; and provided,
further, that any Option held by a
2
<PAGE> 3
Participant whose service shall be terminated either (i) for cause as determined
by the Committee or (ii) voluntarily by the Participant and without the consent
of the Company shall, to the extent not theretofore exercised, forthwith
terminate.
(b) In the event of the permanent disability of a
Participant as determined by the Committee, an Option which is otherwise
exercisable may be exercised by the Participant's legal representative or
guardian. In the event of the death of the Participant, an Option which is
otherwise exercisable may be exercised by the person or persons whom the
Participant shall have designated in writing on forms prescribed by and filed
with the Committee ("Beneficiaries"), or, if no such designation has been made,
by the person or persons to whom the Participant's rights shall have passed by
Will or the laws of descent and distribution, including a personal
representative ("Successors"). The Committee may require an indemnity and/or
such evidence or other assurances as it may deem necessary in connection with an
exercise by a legal representative, guardian, Beneficiary or Successor.
ARTICLE VII. - GENERAL PROVISIONS
7.1 Change in Control.
(a) In the case of a Change in Control (as defined below)
of the Company, unless the Committee determines otherwise, each Option then
outstanding shall immediately become exercisable in full.
(b) Any determination by the Committee made pursuant to
this Section may be made as to all outstanding Options or only as to certain
Options specified by the Committee and any such determinations shall be made in
cases covered by subparagraphs 7.1(c)(i) and (ii) below prior to or as soon as
practicable after the occurrence of such event and in the cases covered by
subparagraphs 7.1(c)(iii) or (iv) prior to the occurrence of such event.
(c) A Change in Control shall occur if:
(i) Any "person" or "group of persons" as
such terms are defined in Section 13(d) and 14(d) of the Securities Exchange Act
of 1934 (the "Exchange Act"), other than a participant in this Plan, directly or
indirectly purchases or otherwise becomes the "beneficial owner" (as defined in
the Exchange Act) or has the right to acquire such beneficial ownership (whether
or not such right is exercised immediately, with the passage of time or subject
to any condition) of voting securities representing thirty percent (30%) or more
of the combined voting power of all outstanding voting securities of the
Company,
(ii) The shareholders of the Company shall
approve an agreement to merge or consolidate the Company with or into another
corporation as a result of which less than fifty percent (50%) of the
outstanding voting securities of the surviving or resulting entity are or are to
be owned by the former shareholders of the Company, or
(iii) The shareholders of the Company shall
approve the sale of all or substantially all of the Company's business and/or
assets to a person or entity that is not a wholly-owned subsidiary of the
Company.
7.2 No Right of Continued Service. Neither the establishment of
the Plan, the granting of Options or the payment of any benefits hereunder or
any action of the Company or of the Board of Directors or of the Committee shall
be held or construed to confer upon any person any legal right to be continued
in the employ of the Company or its subsidiaries, or as a Director thereof, each
of which expressly reserves the right to discharge any person whenever the
interest of any such company in its sole discretion may so require without
liability to such company, the Board of Directors or the Committee except as to
any rights that may be expressly conferred upon such Participant under the Plan.
7.3 No Segregation of Cash or Shares. The Company shall not be
required to segregate any shares of Common Stock that may at any time be
represented by Options, and the Plan shall constitute an "unfunded" plan of the
Company. No employee shall have rights with respect to shares of Common Stock
prior to the delivery of such shares. The Company shall not, by any provisions
of the Plan, be deemed to be a trustee of any Common Stock or any other property
and the liabilities of the Company to any employee pursuant to the Plan shall be
those of a debtor pursuant to such contract obligations as are created by or
pursuant to the Plan, and the rights of any employee, former employee or
beneficiary under the Plan shall be limited to those of a general creditor of
the Company.
7.4 Delivery of Shares. No shares shall be delivered pursuant to
any exercise of an Option under the Plan unless the requirements of such laws
and regulations as may be deemed by the Committee to be applicable thereto are
satisfied. All certificates for shares of Common Stock delivered under the Plan
shall be subject to such stock-transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Common Stock is then listed, and any applicable Federal or state
securities law, and the Committee may cause a legend or legends to be put on any
such certificates to make appropriate reference to such restrictions.
7.5 Governing Law. The Plan and all determinations made and action
taken pursuant thereto shall be governed by the laws of the State of Michigan
and construed in accordance therewith.
3
<PAGE> 4
7.6 Payments and Tax Withholding. The delivery of any shares of
Common Stock under the Plan shall be for the account of the Company and any such
delivery or distribution shall not be made until the recipient shall have made
satisfactory arrangements for the payment of any applicable withholding taxes.
ARTICLE VIII. - AMENDMENT AND TERMINATION
8.1 Amendment or Termination. The Board of Directors may amend or
terminate the Plan provided, however, that no such amendment or termination
shall adversely affect any Option then in effect unless the prior approval of
the Participant so affected is obtained and provided further that any amendment
to the Plan shall be subject to shareholder approval to the extent necessary to
satisfy the requirements of Section 16 under the Securities Exchange Act of
1934.
ARTICLE IX. - EFFECTIVENESS OF PLAN
9.1 The Plan was adopted by the Board of Directors on October 30,
1998, subject to the approval by the shareholders of the Company.
ARTICLE X. - SEVERABILITY
10.1 If any provision of the Plan, or any term or condition of any
Option granted thereunder, is invalid, such provision, term, condition or
application shall to that extent be void (or, in the discretion of the Board of
Directors, such provision, term or condition may be amended so as to avoid such
invalidity or failure), and shall not affect other provisions, terms or
conditions or applications thereof, and to this extent such provisions, terms
and conditions are severable.
4
<PAGE> 1
EXHIBIT 13
FINANCIAL OVERVIEW
Selected Financial Data
The following selected financial data should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operation and the Financial Statements and related Notes contained herein. All
amounts are in thousands, except per share data.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-------------------------------------------------------
STATEMENT OF OPERATION DATA: 1994 1995 1996 1997 1998
- ---------------------------- --------- --------- --------- ----------- --------
As Restated
<S> <C> <C> <C> <C> <C>
Sales ......................................... $ 22,425 $ 19,042 $ 18,334 $ 21,960 $ 22,581
Gross Profit .................................. 2,749 926 3,398 5,128 5,484
Income (loss) from Operations ................. 1,635 (976) 2,043 3,424 3,821
Interest Expense .............................. 1,415 1,589 1,670 1,211 244
Other Income .................................. 139 106 227 45 0
Other Expense ................................. 532 160 0 406 132
Income (loss) before income taxes ............. (173) (2,620) 600 1,851 3,445
Income Taxes (Benefits) ....................... (134) (1,005) 204 667 1,240
-------- -------- -------- -------- --------
Net Income (loss) ............................. (39) (1,615) 396 1,185 2,405
-------- -------- -------- -------- --------
Dividends ..................................... 30 35 29 7 202
-------- -------- -------- -------- --------
Net Income (loss) available for common shares.. $ (69) $ (1,650) $ 367 $ 1,178 $ 2,203
======== ======== ======== ======== ========
Basic Earnings (loss) per common share ....... $ (.05) $ (1.13) $ .25 $ .60 $ .86
======== ======== ======== ======== ========
Basic common shares outstanding ............... 1,460 1,460 1,460 1,969 2,558
======== ======== ======== ======== ========
Diluted Earnings (loss) per common share ..... $ (.05) $ (1.10) $ .27 $ .60 $ .80
======== ======== ======== ======== ========
Diluted common shares outstanding ............. 1,460 1,460 1,460 1,966 2,988
======== ======== ======== ======== ========
OTHER DATA :
- ------------
Depreciation & amortization ................... $ 1,214 $ 1,438 $ 1,272 $ 1,298 $ 1,292
======== ======== ======== ======== ========
<CAPTION>
AS OF AUGUST 31,
--------------------------------------------------------
BALANCE SHEET DATA: 1994 1995 1996 1997 1998
- ------------------- --------- --------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Working Capital ..................................... $ (4,273) $ (7,149) $ (6,851) $ 6,982 $ 11,297
Total Assets ........................................ 26,439 19,414 20,432 20,056 27,696
Current Portion of Long-Term Debt & Capital Leases.. 3,129 2,256 1,336 650 877
Revolving Line of Credit ............................ 9,461 6,866 10,242 4,711 3,863
Long-term Capital Leases & Term Debt, less current
portion ............................................. 2,715 1,830 1,002 3,142 4,334
Redeemable Preferred Stock .......................... 109 111 139 0 0
Common Stockholder's Equity ......................... 4,770 3,120 3,487 9,722 15,882
</TABLE>
32
<PAGE> 2
The following table is derived from the Company's Statement of Operations and
sets forth, for the periods indicated, selected operating data as a percentage
of sales.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31,
---------------------------------------
STATEMENT OF OPERATION DATA: 1994 1995 1996 1997 1998
- ---------------------------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net Sales ................................... 100% 100% 100% 100% 100%
Gross Margin ................................ 12 5 19 23 24
Income (Loss) from Continuing Operations ... 7 (5) 11 16 17
Interest Expense ............................ 6 8 9 6 1
Other Income ................................ -- -- 1 -- --
Other Expense ............................... 2 -- -- 2 --
Income (loss) before income taxes ........... (1) (14) 3 8 16
Federal Income Tax (Benefit) ................ (1) (5) 1 3 5
---- ---- ---- ---- ----
Net Income (Loss) ........................... --% (9)% 2% 5% 11%
---- ---- ---- ---- ----
Dividends ................................... -- -- -- -- 1
==== ==== ==== ==== ====
Net Income (Loss) available for Common
Shares ................................... --% (9)% 2% 5% 10%
==== ==== ==== ==== ====
OTHER DATA:
- -----------
Depreciation and Amortization ............... 5% 8% 7% 6% 6%
==== ==== ==== ==== ====
</TABLE>
Quarterly Financial Data
The following is a condensed summary of quarterly results of operations for
1996, 1997 and 1998 (in thousands, except per share data):
<TABLE>
<CAPTION>
BASIC DILUTED
NET INCOME ----------------------- -----------------------
AVAILABLE EARNINGS COMMON EARNINGS COMMON
GROSS OPERATING NET FOR COMMON PER SHARES PER SHARES
REVENUES PROFIT INCOME INCOME SHARES SHARE OUTSTANDING SHARE OUTSTANDING
--------- ---------- --------- ---------- ------------- --------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996: First..... $ 4,934 $ 884 $ 463 $ 87 $ 80 $ .06 1,460 $ .06 1,460
Second.... 4,629 947 546 127 120 .08 1,460 .09 1,460
Third..... 4,458 957 505 79 72 .05 1,460 .05 1,460
Fourth.... 4,313 610 529 103 95 .06 1,460 .07 1,460
------- ------- ------- ------- ------- ------- ------- ------- -------
Total.. $18,334 $ 3,398 $ 2,043 $ 396 $ 367 $ .25 1,460 $ .27 1,460
======= ======= ======= ======= ======= ======= ======= ======= =======
1997: First..... $ 5,480 $ 1,085 $ 654 $ 176 $ 172 $ .12 1,460 $ .12 1,460
Second.... 5,405 1,105 666 159 157 .11 1,460 .06 1,460
Third..... 5,001 1,085 730 247 244 .10 2,426 .10 2,470
Fourth.... 6,074 1,853 1,374 603 605 .24 2,485 .24 2,485
------- ------- ------- ------- ------- ------- ------- ------- -------
Total.. $21,960 $ 5,128 $ 3,424 $ 1,185 $ 1,178 $ .60 1,969 $ .60 1,966
======= ======= ======= ======= ======= ======= ======= ======= =======
1998: First..... $ 5,444 $ 1,260 $ 756 $ 415 $ 331 $ .16 2,067 $ .14 2,755
Second.... 6,096 1,662 1,103 526 408 .20 2,017 .17 3,065
Third..... 6,878 1,846 1,297 714 714 .23 3,065 .23 3,065
Fourth.... 4,163 716 665 750 750 .25 3,065 .25 3,065
------- ------- ------- ------- ------- ------- ------- ------- -------
Total.. $22,581 $ 5,484 $ 3,821 $ 2,405 $ 2,203 $ .86 2,558 $ .79 2,988
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
33
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL OVERVIEW
The Company is a leading designer and manufacturer of large scale, complex
stamping die systems used to form sheet metal parts. Most of the stamping die
systems sold by the company are used in the high-speed production of automobile
and truck body parts such as doors, door frames, structural components and
bumpers. A majority of the Company's sales are to Chrysler Corporation, Ford
Motor Company, General Motors Corporation and their tier one suppliers.
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's Financial Statements and the Notes thereto included elsewhere herein.
FISCAL 1998 COMPARED TO FISCAL 1997
Revenue. Total revenue for 1998 increased by 3% from approximately $21.9
million in 1997 to $22.6 million in 1998. The increase in 1998 sales was due to
the Company's increase in securing contracts awarded during 1998. Additionally,
the Company's August 31, 1998 contract backlog was 31% higher than as of August
31, 1997. These contracts will be completed and recognized as revenue during
fiscal years 1999 and 2000. The Company's contracts in process as of August 31,
1998 was approximately $7.3 million higher than as of August 31, 1997. These
contracts will be completed and recognized as revenue during fiscal years 1999
and 2000.
Cost of Goods Sold. Cost of goods sold increased from $16.8 million in 1997 to
$17.1 million in 1998, an increase of 2%. As a percent of sales, cost of goods
sold decreased from 76.6% for 1997 to 75.7% for 1998. Of the cost of goods sold,
direct costs were $10.4 million, 46.1% of sales, in 1998 as compared to $9.6
million, 43.6% of sales, in 1997. The largest direct cost increase was in the
outside machining services expense, $1.1 million or 4.9% of sales in 1998 as
compared to $321,000 or 1.5% of sales in 1997. This increase was largely due to
the Company rebuilding and upgrading its machining equipment during 1998, this
lowered the Company's internal machining capacity and resulted in increased
outsourced machining expense. Upon completion of the machining equipment rebuild
and upgrade, the Company's machining capacity and efficiency will improve. The
largest direct cost decreases in 1998 were in prototype parts purchased expense,
a decrease of $150,000 or .7% of sales, and direct labor expense, a decrease of
$131,600 or .6% of sales.
Engineering expense was $1.7 million or 7.5% of sales in 1998 as compared
to $1.6 million or 7.1% of sales in 1997. The increase in engineering expense
was due to the Company increasing its engineering personnel to fulfill the
Company's increased engineering requirements.
Manufacturing overhead was $5.1 million or 22.6% of sales in 1998 as
compared to $5.7 million or 26.0% of sales in 1997. This decrease of $.6 million
in 1998 as compared to 1997 was largely due to a $327,300 decrease in
depreciation expense in 1998 as compared to 1997. This was due to the Company
selling certain equipment during 1998 which was in service and depreciated for
all of 1997. Other decreases include, a $224,100 decrease in perishable tooling
expense in 1998 as a result of the Company improving its usage and purchase of
such tooling, a $84,400 decrease in equipment rentals, a $84,600 decrease in
machinery repairs and maintenance, a $28,900 decrease in workers compensation
expense and a $29,300 decrease in utilities expense.
Selling and Administrative Expense. Selling and administrative expense remained
consistent at $1.7 million per year for 1997 and 1998. As a percent of sales,
selling, general and administrative expense decreased from 7.8% in 1997 to 7.5%
in 1998. The largest administrative expense decreases in 1998 were in office
salaries ($187,900), legal and professional expense ($47,000), insurance expense
($35,500), computer maintenance ($22,600) and state tax expense ($147,900).
During 1998, increases in administrative expenses were in public company
expenses ($144,400), supervision salaries ($38,000), and Directors and Officers
insurance expense ($34,500). Selling expenses increases were in sales salaries
($80,900), travel expenses ($38,000), and sales commissions expense ($33,700).
34
<PAGE> 4
Interest Expense. Interest expense decreased from $1.2 million in 1997 to
$.2 million in 1998 and as a percent of sales, interest expense decreased from
5.5% in 1997 to 1.1% in 1998. This decrease was due to lower average debt levels
during 1998 as compared to 1997 and reduction in interest rates.
Other Expense. Other expense during 1997 included $150,000 of bank fees
paid to the Company's former primary lender as well as $75,700 in debt
prepayment fees, $27,300 in tax agency penalties and $101,000 in late charges on
its facility lease. For 1998, other expense represents a negotiated settlement
for penalties and interest for late payment of 1995 and 1996 state income taxes.
FISCAL 1997 COMPARED TO FISCAL 1996
Revenue. Total revenue for 1997 increased by 20% from approximately $18.3
million in 1996 to $21.9 million in 1997. This increase is due to the
realization of the 1996 contract backlog during 1997. Additionally, during the
second half of 1997, the Company had adequate financing resources which allowed
the Company to add additional sales contracts. Since March, 1997, the Company
has retained new contracts at an average rate of $3.0 million per month as
compared to an average rate of $2.0 million per month over the same period in
1996.
Cost of Goods Sold. Cost of goods sold increased from $14.9 million in 1996
to $16.8 million in 1997, an increase of 13%. As a percent of sales, cost of
goods sold decreased from 81.5% for 1996 to 76.6% for 1997. Of the cost of goods
sold, direct costs were $9.6 million, 43.6% of sales, in 1997 as compared to
$8.2 million, 44.7% of sales, in 1996. The largest direct cost decreases were in
the outside prototype tooling and parts expense , $537,000 or 2.9% of sales in
1996 as compared to $168,500 or .76% of sales, in 1997 and outside pattern
services, $387,000 or 2.1% of sales in 1996 as compared to $236,300 or 1.1% of
sales in 1997.These decreases were due largely to the timing of expense and that
the Company outsourced less of this work and maintaining increased capacity
internally. The largest direct cost increases were in direct materials, $2.6
million or 14.2% of sales in 1996 as compared to $3.3 million or 15.0% in 1997,
outside machining services, $100,500 or .55% of sales in 1996 as compared to
$321,000 or 1.5% of sales in 1997 and direct labor, $4.2 million or 22.9% of
sales in 1996 as compared to $5.0 million or 22.8% of sales in 1997. These
increases were due to increased sales volume and performing more prototype
tooling work internally in 1997 as compared to outsourcing such work in 1996.
Engineering expense was $1.5 million or 8.2% of sales in 1996 as compared
to $1.6 million or 7.3% of sales in 1997. The decrease in engineering expense as
a percent of sales was due to utilizing the Company's engineering capacity
without adding additional personnel. This utilization, in conjunction with the
20% increase in 1997 revenue, lowered engineering expense as a percent of sales.
Manufacturing overhead was $5.7 million or 26.0% of sales in 1997 as
compared to $5.2 million or 28.4% of sales in 1996. This decrease, as a percent
of sales, was due to the increase in 1997 revenue which lowered the
manufacturing fixed overhead expense. The increase of $.5 million in 1997 as
compared to 1996 was due to a $96,200 increase in payroll tax expense in 1997 as
compared to 1996 as a result of the increase in direct labor expense in 1997
over 1996, a $206,000 increase in depreciation expense in 1997 over 1996, a
$90,800 increase in machinery repairs and maintenance expense in 1997 over 1996
and a $67,000 increase in perishable tooling expense in 1997 over 1996.
Selling and Administrative Expense. Selling and administrative expense
increased from $1.4 million in 1996 to $1.7 million in 1997. As a percent of
sales, selling, general and administrative expense increased to 7.8% in 1997 as
compared to 7.4% in 1996. The largest increases were in legal and professional
expense, a $260,000 increase in 1997 over 1996, and public company expense,
$58,000 increase in 1997 over 1996.
Interest Expense. Interest expense decreased from $1.7 million in 1996 to
$1.2 million in 1997. As a percent of sales, interest expense decreased from
9.1% in 1996 to 5.5% in 1997. This decrease was due to the decrease in debt for
the third and fourth quarters as a result of the payment of $5.1 million, from
the proceeds of the Company's initial public offering, to the Company's debt.
The remaining debt maintained during the same quarters was carried at an
interest rate of approximately 3.25% lower than during the first two quarters of
1997 and all of 1996.
35
<PAGE> 5
Other Expense. Other expense during 1997 included $150,000 of bank fees
paid during the first two quarters of 1997 charged by the Company's former
primary lender. The Company also incurred $75,700 in debt prepayment fees,
$27,300 in tax agency penalties and $101,000 in late charges on its facility
lease.
FEDERAL INCOME TAX.
As of August 31, 1998, the Company had approximately $988,000 of net
operating loss carryforwards that expire 2010, investment tax credit
carryforwards of approximately $172,000 that expire 1999 through 2003, and
alternative minimum tax credits of approximately $250,000, 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 over the period presented through internally
generated funds, bank financing, various equity raising activities and various
capital and operating leases. Cash provided from (used in) operating activities
was ($977,133) in 1996, $304,954 for 1997 and ($20,022) for 1998. The capital
used by operations in 1998, was primarily due to the decrease in the Company's
Accounts Receivable ($3,306,271), an increase in Work-in-Process ($7,344,003)
and a decrease in Accounts Payable and Accrued Liabilities ($558,372).
The Company utilized $319,308, $488,791 and $4,951,525 of Cash Flows from
Investing Activities in 1996, 1997 and 1998, respectively. For 1996, 1997, and
1998, the most significant items were the acquisition of $501,103, $792,580 and
$5,958,962 of machinery and equipment, respectively. During 1996, 1997 and 1998,
the Company received proceeds from sale of machinery and equipment of $205,800,
$25,200 and $1,084,356, respectively.
Cash Flow From Financing Activities in 1996, the increase in the short-term
debt resulted from the increase in Contracts in Process and decrease in Accounts
Payable accounts, and the Company incurred $333,325 of initial public offering
costs which have been capitalized. For 1997, the Company reduced financial
institution debt and capital lease obligations (net of $4,726,990), received net
proceeds from issuance of 1,010,000 shares of Common Stock ($5,147,127),
redeemed 1,425 shares of 8% mandatory redeemable preferred stock ($142,500) and
paid a preferential common stock dividend ($90,000). For 1998, The Company
received proceeds from its equipment line of credit ($2,718,655), reduced
long-term debt ($1,497,852), received net proceeds from the issuance of 80,000
shares of 8% Cumulative Convertible Preferred Stock ($6,957,058), redeemed
730,000 shares of common stock at $4.11 per share ($3,000,000) and paid
preferred stock dividends ($202,108) from issuance of the 8% Cumulative
Convertible Preferred Stock (October, 1998) through conversion of these
preferred shares into common stock (February 11, 1998).
The Company's total bank debt as of August 31, 1998, is $9,073,196, of which
$876,555 is short-term and the balance long-term. The Company has a $10.0
million Revolving Line of Credit and a $4.0 million Non-Revolving Equipment Line
of Credit. The interest rate on the financing is prime rate less .25 percent or
Libor plus 2.25%. The Company believes that the unused portion of this credit
line and the funds generated from operations, will be sufficient to cover
anticipated cash needs through 1999. However, depending on the level of future
sales, an expanded credit line may be necessary to finance increases in trade
accounts receivable and contracts in process. The Company believes it will be
able to obtain such expanded credit line, if required, on generally the same
terms as the existing credit line.
PRIOR PERIOD ADJUSTMENT.
The Company's financial statements as of August 31, 1995 have been
restated to reflect an understatement of progressive billings on certain
contracts in process at August 31, 1995. The Company records progressive
billings on contracts in process as a reduction to costs and estimated gross
profit in excess of billings on contracts in process.
The effect of the restatement at August 31, 1995 was to reduce the costs
and estimated gross profit in excess of billings on contracts in process by
$3,182,400 and reduce retained earnings by $2,100,400, which is net of
applicable income tax benefit of $1,082,000. The restatement had no effect on
the Company's net income for the years ended August 31, 1996, 1997 and 1998.
The
36
<PAGE> 6
Company has also reflected the restatement on its Balance Sheet and Statement of
Common Shareholders' Equity for the years ended August 31, 1996, 1997 and 1998.
YEAR 2000 COMPLIANCE.
The Company has reviewed its computer technology in order to ensure year
2000 compliance. The Company primarily utilizes computer technology in its CAD
design, Numerically Controlled programming and its manufacturing information
systems.
The Company has recently replaced and upgraded both its CAD design and
Numerically Controlled programming computer systems. Although both these systems
are not date sensitive, these new systems are year 2000 compliant. The
manufacturing information systems utilize computer softwares which are
upgradable to eliminate any timing issues. In addition, the cost of such
upgrades are covered under maintenance contracts with the respective software
vendors. Management believes any other associated costs of such upgrades would
be insignificant. All of the Company's computer hardware equipment appears to be
able to integrate any software upgrades necessary in order to be year 2000
compliant. Moreover, the Company continues to review for any year 2000
compliance issues that customers or suppliers may encounter with their own
systems. Management believes that any customer or supplier year 2000 issues will
not be relevant to the Company's operations or to its interaction with such
persons.
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.
37
<PAGE> 7
Riviera Tool Company
Balance Sheet
<TABLE>
<CAPTION>
August 31
----------------------------
ASSETS Note 1997 1998
------ ------------- ------------
(As Restated)
<S> <C> <C> <C>
Current Assets
Cash .............................................. $ -- $ 4,206
Accounts receivable:
Trade ......................................... 3 4,614,257 1,609,272
Related party ................................. 201,286 --
Costs and estimated gross profit in excess
of billings on contracts in process ........... 5 3,955,958 11,299,961
Inventories ..................................... 6 468,740 405,566
Prepaid expenses and other current assets 267,554 172,054
----------- -----------
Total current assets ..................... 9,507,795 13,491,059
Property, Plant and Equipment, net ................ 7 9,640,330 13,237,501
Perishable Tooling ................................ 572,585 743,966
Deferred income tax asset ......................... 9 147,600 --
Other Assets ...................................... 187,843 223,869
----------- -----------
Total assets ............................. $20,056,153 $27,696,395
=========== ===========
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
Current Liabilities
Notes payable ................................... $ -- $ --
Current portion of long-term debt ............... 8 650,000 876,555
Accounts payable ................................ 1,241,243 1,113,113
Accrued liabilities ............................. 634,924 204,682
----------- -----------
Total current liabilities ................ 2,526,167 2,194,350
Long-Term Debt .................................... 8 7,202,393 8,196,641
Accrued Lease Expense ............................. 11 605,660 643,040
Deferred Tax Liability ............................ 9 -- 780,376
Preferred Stock -- no par value,
$100 mandatory redemption value:
Authorized--5,000 shares
Issued and outstanding--no shares .............. -- --
Preferred Stock-- no par value,
Authorized -- 200,000 shares
Issued and outstanding-- no shares ............ 2 -- --
Common Stockholders' Equity
Common stock -- No par value,
Authorized -- 9,798,575 shares
Issued and outstanding -- 2,485,000 shares at
August 31, 1997 and 3,065,499 at
August 31, 1998 ............................ 2 9,539,879 13,496,937
Retained earnings ............................. 17 182,054 2,385,051
----------- -----------
Total Common Stockholders' equity ........ 9,721,933 15,881,988
----------- -----------
Total liabilities and stockholders' equity ........ $20,056,153 $27,696,395
=========== ===========
</TABLE>
See Notes to Financial Statements
38
<PAGE> 8
Riviera Tool Company
Statement of Income
<TABLE>
<CAPTION>
Year Ended August 31
--------------------------------------------------
Note 1996 1997 1998
------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
Sales
Trade............................................. 4 $ 16,379,909 $ 21,108,195 $ 22,203,755
Related party .................................... 1,954,184 851,979 377,433
------------ ------------ ------------
Total Sales ......................................... 18,334,093 21,960,174 22,581,188
Cost of Sales ....................................... 14,936,514 16,831,905 17,096,967
------------ ------------ ------------
Gross Profit ........................................ 3,397,579 5,128,269 5,484,221
Selling and Administrative Expenses ................. 1,354,112 1,703,884 1,663,340
------------ ------------ ------------
Income From Operations .............................. 2,043,467 3,424,385 3,820,881
Other Income (Expense):
Interest expense ................................ (1,670,414) (1,211,287) (244,231)
Other Expense ................................... -- (406,368) (101,871)
Gain/(Loss) on asset sales ...................... 226,710 44,651 (29,698)
------------ ------------ ------------
Total Other Expense-- Net ........................... (1,443,704) (1,573,004) (375,800)
------------ ------------ ------------
Income-- Before taxes on income ..................... 599,763 1,851,381 3,445,081
------------ ------------ ------------
Income Tax Expense .................................. 204,000 666,600 1,039,976
------------ ------------ ------------
Net Income .......................................... 395,763 1,184,781 2,405,105
------------ ------------ ------------
Dividends and Accretion on Preferred Stock........... 14,15 28,535 7,228 202,108
------------ ------------ ------------
Net Income Available for Common Shares .............. $ 367,228 $ 1,177,553 $ 2,202,997
============ ============ ============
Basic Earnings Per Common Share ..................... $ .25 $ .60 $ .86
============ ============ ============
Basic Common Shares Outstanding...................... 2 1,460,000 1,968,750 2,558,263
------------ ------------ ------------
Diluted Earnings Per Common Share ................... $ .25 $ .60 $ .80
============ ============ ============
Diluted Common Shares Outstanding.................... 2 1,460,000 1,966,479 2,988,129
</TABLE>
See Notes to Financial Statements
39
<PAGE> 9
Riviera Tool Company
Statement of Common Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock Retained Total
------------------------------- Earnings/ Shareholders'
Shares Amount (Deficit) Equity
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance-- August 31, 1995, as restated
(Note 17)................................... 1,460,000 $ 4,392,752 $ (1,272,727) $ 3,120,025
------------ ------------ ------------ ------------
Increase to redeemable preferred stock ........ -- -- (28,535) (28,535)
Net Income .................................... -- -- 395,763 395,763
------------ ------------ ------------ ------------
Balance-- August 31, 1996 ..................... 1,460,000 $ 4,392,752 $ (905,499) $ 3,487,253
------------ ------------ ------------ ------------
Increase to redeemable preferred stock ........ -- -- (7,228) (7,228)
Preferential Common Stock Dividend (Note 14)... -- -- (90,000) (90,000)
Sale of Common Stock (Note 2) ................. 1,025,000 5,147,127 -- 5,147,127
Net Income .................................... -- -- 1,184,781 1,184,781
------------ ------------ ------------ ------------
Balance-- August 31, 1997 ..................... 2,485,000 $ 9,539,879 $ 182,054 $ 9,721,933
------------ ------------ ------------ ------------
Conversion of 8% Cumulative
Convertible Preferred Stock (Note 2) ........ 1,310,499 6,957,058 -- 6,957,058
Purchase of Common Stock (Note 2) ............. (730,000) (3,000,000) -- (3,000,000)
Preferred Stock Dividends (Note 14) ........... -- -- (202,108) (202,108)
Net Income .................................... -- -- 2,405,105 2,405,105
------------ ------------ ------------ ------------
Balance-- August 31, 1998 ..................... 3,065,499 $ 13,496,937 $ 2,385,051 $ 15,881,988
------------ ------------ ------------ ------------
</TABLE>
See Notes to Financial Statements
40
<PAGE> 10
Riviera Tool Company
Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended August 31
--------------------------------------------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income ........................................................ $ 395,763 $ 1,184,781 $ 2,405,105
------------ ------------ ------------
Adjustments to reconcile net income to net cash from operating
activities:
Depreciation and amortization ................................. 1,272,366 1,298,200 1,291,611
Loss (gain) on sale of machinery and equipment ................ (77,908) 16,889 26,717
Amortization of deferred gain ................................. (148,802) (61,540) --
Deferred taxes ................................................ 204,000 538,700 927,976
Bad debt expense .............................................. 175,000 (75,000) (100,000)
(Increase) decrease in assets:
Accounts receivable ........................................ 100,214 528,654 3,306,271
Costs and estimated gross profit in
excess of billings on contracts in process ................ (2,270,334) (1,588,535) (7,344,003)
Inventories ................................................ 116,237 (23,267) 63,174
Perishable Tooling ......................................... 77,102 186,673 (171,381)
Prepaid expenses and other current assets .................. 34,468 (17,344) 95,500
Increase (decrease) in liabilities:
Accounts payable ........................................... (1,039,644) (1,672,635) (128,130)
Accrued lease expense ...................................... 56,065 46,725 37,380
Accrued liabilities ........................................ 128,340 (57,347) (430,242)
------------ ------------ ------------
Net cash provided by (used in) operating activities ....... (977,133) 304,954 (20,022)
------------ ------------ ------------
Cash Flows from Investing Activities
Proceeds from sale of machinery and equipment ..................... 205,800 25,200 1,084,356
(Increase) decrease in other assets ............................... (24,005) 278,589 (76,919)
Additions to property, plant and equipment ........................ (501,103) (792,580) (5,958,962)
------------ ------------ ------------
Net cash used in investing activities ..................... (319,308) (488,791) (4,951,525)
------------ ------------ ------------
Cash Flows from Financing Activities
Net proceeds from (repayments of) short-term debt ................. 3,375,333 (10,241,503) --
Principal payments under capital lease obligations ................ (493,943) (528,030) --
Proceeds from issuance of long-term debt .......................... -- 9,904,848 2,718,655
Principal payments on long-term debt .............................. (1,254,812) (3,862,305) (1,497,852)
Redemption of Preferred Stock ..................................... -- (142,500) --
Sale of Common Stock .............................................. -- 5,147,127 --
Sale of convertible preferred stock ............................... -- -- 6,957,058
Redemption of common stock ........................................ -- -- (3,000,000)
Capitalized refinancing costs ..................................... (333,325) -- --
Common Stock dividends paid ....................................... -- (90,000) --
Preferred Stock dividends paid .................................... -- (3,800) (202,108)
------------ ------------ ------------
Net cash provided by financing activities .................. 1,293,253 183,837 4,975,753
------------ ------------ ------------
Net Increase (Decrease) in Cash ..................................... (3,188) -- 4,206
------------ ------------ ------------
Cash -- Beginning of Period ......................................... 3,188 -- --
Cash -- End of Period................................................ $ -- $ -- $ 4,206
============ ============ ============
</TABLE>
See Notes to Financial Statements
41
<PAGE> 11
Riviera Tool Company
Notes to Financial Statements
NOTE 1 -- NATURE OF BUSINESS
Nature of Business -- The Company designs, develops and manufactures custom and
complex large scale metal stamping die systems used in the high-speed production
of sheet metal stamped parts and assemblies for the automotive industry. These
systems are mainly sold to Chrysler Corporation, Ford Motor Company and General
Motors Corporation and their tier one suppliers of sheet metal stamped parts and
assemblies.
Reporting Entity -- In October 1996, the Company executed an agreement and plan
of merger. Under the provisions of the agreement, Riviera Die & Tool, Inc.,
merged with and into Riviera Tool Company, owner of 100% of its Common Stock, as
the survivor corporation. Concurrently with such merger, the By-Laws and
Articles of Incorporation have been amended to provide updated language on
officer and director indemnification and the authorized capital stock of the
Company was amended to increase the availability of unissued shares of common
and preferred stock. The following two classes of preferred stock existed after
the merger:
- Redeemable Preferred Stock -- no par value, authorized 1,425 shares, 1,425
shares issued and outstanding.
- Non-Redeemable Preferred Stock -- no par value, authorized 200,000 shares,
no shares issued and outstanding.
These two entities have been reported on a consolidated basis for more than five
years prior to the merger. Therefore, the merger has no effect on the balance
sheet, statement of income, statement of common stockholders' equity or cash
flows. The stockholders' equity section of this report reflects the impact of
this merger on authorized, issued and outstanding shares of stock.
NOTE 2 -- STOCKHOLDERS INVESTMENT
In March, 1997, the Company sold 1,010,000 shares of Common Stock through an
initial public offering on the American Stock Exchange, at a price of $7.00 per
share (the "Offering"). The Company received net proceeds of approximately $5.1
million from the Offering. The net proceeds were used to reduce previously
incurred debt. In June, 1997, the Company sold 15,000 shares of common stock in
connection with a consulting agreement entered into with a financial consultant.
In October, 1997, the Company issued and sold 80,000 shares of 8% Cumulative
Convertible Preferred Stock (the "Preferred Shares") at $100.00 per share. The
company received net proceeds of approximately $6.9 million, net of offering
costs, from this offering. With a portion of the proceeds from this sale, the
Company exercised its option to purchase and retired all 730,000 shares of
common stock held by Motor Wheel Corporation for $3.0 million or $4.11 per
share.
The holders of the 8% Cumulative Convertible Preferred Stock possessed no voting
rights. Cumulative dividends were to be paid at an annual rate of 8% payable
quarterly, in arrears, at a rate of $2.00 per share per quarter, commencing
December 31, 1997. Of the 80,000 Preferred Shares issued, 67,500 preferred
shares were convertible into Common Stock at any time, and from time to time, in
whole or in part, for the number of shares of Common Stock per share equal to
$100 divided by $6.00. The remaining 12,500 preferred shares were convertible
into Common Stock at any time, and from time to time, in whole or in part, for
the number of shares of Common Stock per share equal to $100 divided by $6.7375.
All the Preferred Shares outstanding were automatically converted into Common
Stock when the average closing price for the Common Stock on the American Stock
Exchange for 10 consecutive trading days is equal to or greater than $10 per
share. The Company was not required to issue fractional shares in connection
with any conversion and a cash payment shall be made in lieu thereof. On January
9, 1998, the Company registered 1,461,529 shares of Common Stock under the
Securities Act of 1933. These common shares were issuable upon conversion of the
8% Cumulative Convertible Preferred Stock. On January 10, 1998, the Company sent
notice to all holders of the 8% Cumulative Convertible Preferred Stock that all
such preferred shares outstanding would be automatically converted into Common
Stock on or before February 11, 1998, under the mandatory conversion provision
requiring mandatory conversion when the average closing price for the Common
Stock on the American Stock Exchange is $10.00 per share (which occurred during
the trading period of November 20 and December 4, 1997). On February 11, 1998,
all 80,000 shares of 8% Cumulative Convertible Preferred Stock was converted
into 1,310,499 shares of registered Common Stock.
NOTE 3 -- SIGNIFICANT ACCOUNTING POLICIES
Basic Earnings per common Share -- Basic earnings per common share is based on
net income available for Common Stockholders divided by the weighted average
number of common shares outstanding during the period. The number of common
shares outstanding has been adjusted to reflect the impact of the merger and
recapitalization as referred to in Reporting Entity in Note 1.
42
<PAGE> 12
Riviera Tool Company
Notes to Financial Statements
NOTE 3 -- ACCOUNTING POLICIES --CONTINUED
Diluted Earnings per common share -- Diluted earnings per common share is based
on net income before dividends divided by the actual weighted number of common
shares plus diluted potential common shares outstanding during the period.
Use of Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Significant Estimates -- The most significant estimates made by the Company are
in the determination and recognition of revenue on contracts in process at year
end. Management's best estimate of costs to complete is based on costs incurred
subsequent to year end, engineers' cost projections, experience with customers
or particular die systems and other analyses. Although management's estimates
are not expected to materially change in the near term, the costs the Company
will ultimately incur could differ from the amounts estimated based on the
various factors.
Revenue Recognition -- The Company recognizes revenue on time and material
contracts, utilizing the completed-contract method. Revenue is recognized on all
other contracts, utilizing the percentage-of-completion method. Under the
completed-contract method, the contract is considered complete when all costs
except for insignificant items have been incurred and the project has been
approved by the customer. Under the percentage-of-completion method estimated
contract earnings are based on total estimated contract profits multiplied by
the ratio of labor hours incurred to total estimated labor hours on the
contract. Provisions for total estimated losses on contracts in process are
recognized in the period such losses are determined. Changes in job performance,
conditions and estimated profitability may result in revisions to costs and
income and are recognized in the period such revisions are determined.
Accounts Receivable -- As of August 31, 1997 and 1998, the Company reserved
$100,000 and $0, respectively, for uncollectible accounts receivable, and had
approximately $765,000 and $0, respectively, of unbilled accounts receivables.
Inventories -- Inventories are recorded at the lower-of-cost (first-in,
first-out method), or market.
Property, Plant and Equipment -- Property, plant and equipment are recorded at
cost. Depreciation is computed principally using the straight-line method over
the useful life of the asset for financial reporting purposes and accelerated
methods for tax purposes.
Perishable Tooling -- Certain perishable tools are gradually used up over
extended periods of time. These inventory items, which are reported as
non-current assets in the balance sheet, are recorded at cost less a valuation
allowance to reflect the loss in value resulting from gradual use.
NOTE 4 -- SALES TO MAJOR CUSTOMERS
Nature of Business -- The nature of the Company's business is such that a
limited number of customers comprise a majority of its business in any given
year, even though the specific customers will differ from year to year. The
following table summarizes the Company's sales to those customers which
represent more than 10% of the annual sales, in the particular year presented,
of the Company (in 000's):
<TABLE>
<CAPTION>
August 31
---------------------------------------------------------------------------
1996 % 1997 % 1998 %
----------- ----------- ---------------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Chrysler Corporation ....... $ 4,622 25% $ 8,890 40% $ 2,363 10%
Ford Motor Company ......... 2,061 11 3,411 16 62 --
General Motors ............. 2,297 13 886 4 5,285 23
Mayflower Vehicle Systems... 2,678 15 -- -- -- --
Motor Wheel Corporation .... 1,954 11 852 4 378 2
Dana-Parish ................ 984 5 1,293 6 49 --
Flex-n-Gate ................ -- -- 3,193 15 3,230 14
A.G. Simpson ............... -- -- -- -- 2,605 12
Autodie International ...... -- -- -- -- 4,191 19
Others ..................... 3,738 20 3,435 15 4,418 20
------- ------- ------- ------- ------- -------
Total Sales ........... $18,334 100% $21,960 100% $22,581 100%
======= ======= ======= ======= ======= =======
</TABLE>
Outstanding accounts receivable from three of these customers represented
approximately 76 percent at August 31, 1997 and three of these customers
represented approximately 51 percent at August 31, 1998.
43
<PAGE> 13
Riviera Tool Company
Notes to Financial Statements
NOTE 5 -- COSTS AND BILLING ON CONTRACTS IN PROCESS
<TABLE>
<CAPTION>
August 31
----------------------------
Costs and billings on contracts in process are as follows: 1997 1998
----------- -----------
<S> <C> <C>
Costs incurred on contracts in process under the
percentage-of-completion method ............................... $ 9,008,594 $ 14,949,213
Estimated gross profit ......................................... 1,325,000 1,450,000
----------- -----------
Total ..................................................... 10,333,594 16,399,213
Less progress payments received and progress billings to date... 6,391,200 5,099,252
Plus costs incurred on contracts in process under
The completed contract method ................................ 13,564 --
----------- -----------
Costs and estimated gross profit in excess of billings on
contracts in process ........................................... $ 3,955,958 $ 11,299,961
=========== ===========
</TABLE>
Included in estimated gross profit for 1997 and 1998 are jobs with estimated
losses accrued of $55,629 and $309,565, respectively.
NOTE 6 -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
August 31
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
Raw material stock................................ $ 256,867 $ 234,424
Small tools and supplies.......................... 211,873 171,142
---------- ----------
Total.................................... $ 468,740 $ 405,566
========== ==========
</TABLE>
NOTE 7 -- PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
August 31
------------------------------
1997 1998
------------- -------------
<S> <C> <C>
Land and leasehold improvements............................ $ 1,560,668 $ 1,453,539
Office furniture and fixtures.............................. 137,236 203,514
Machinery and equipment.................................... 13,703,823 11,594,436
Computer equipment and software............................ 1,243,048 1,518,214
Transportation equipment................................... 115,971 126,365
Construction in process.................................... 374,328 5,283,903
------------- -------------
Total cost............................................ 17,135,074 20,179,971
Accumulated depreciation and amortization................. 7,494,744 6,942,470
------------- -------------
Net carrying amount................................... $ 9,640,330 $ 13,237,501
============= =============
Annual depreciation & amortization expense................ $ 1,257,307 $ 1,250,718
============= =============
</TABLE>
As of August 31, 1998, the Company had $5,283,903 of construction in process.
These costs represent costs related to the installation of four large stamping
presses and other machinery. The Company has machinery and equipment commitments
of approximately $2,000,000 at August 31, 1998 which will be incurred during the
subsequent August 31, 1999 year. During year ended August 31, 1998, the Company
capitalized interest of approximately $310,000 at the prevailing borrowing
interest rate at the time these costs were incurred.
44
<PAGE> 14
Riviera Tool Company
Notes to Financial Statements
NOTE 8 -- TERM DEBT
The Company's long-term debt consist of the following:
<TABLE>
<CAPTION>
August 31
------------------------------
Long-Term Debt 1997 1998
-------------- ------------- -------------
<S> <C> <C>
Revolving bank working capital credit line, collateralized by
substantially all assets of the Company. The agreement
provides for borrowing, subject to certain collateral
requirements of up to $10.0 million, and bears interest,
payable monthly, at .25% above the bank's prime rate as of
August 31, 1997 (an effective rate of 8.75%), and .25% below
the bank's prime rate or Libor plus 2.25% as of August 31,
1998 (an effective rate of 8.25%), due January 1, 2000. The
Agreement is subject to certain loan covenants discussed below
and requires a commitment fee of .25% per annum on the
average daily unused portion of the revolving credit
line.......................................................... $ 4,710,726 $ 3,862,874
Note payable to bank, collateralized by substantially all
assets of the Company, payable in monthly installments of
$54,166.67 plus interest of .25% above the bank's prime rate
as of August 31, 1997 (an effective rate of 8.75%) and .25%
below the bank's prime rate or Libor plus 2.25% as of August
31, 1998 (an effective rate of 8.25%), due June, 2002. The
Agreement is subject to certain loan covenants discussed
below......................................................... 3,141,667 2,491,667
Revolving equipment credit line, collaterlized by specific
assets of the Company. The agreement provides for borrowing up
to $4.0 million, in $500,000 increments, and bears interest at
.25% above the bank's prime rate as of August 31, 1997 (an
effective rate of 8.75%) and .25% below the bank's prime rate
or Libor plus 2.25% as of August 31, 1998 (an effective rate
of 8.25%), due in monthly installments over six years from
date of borrowing increment. As of August 31, 1998,
amortization of this loan has not occurred. The Agreement is
subject to certain loan covenants discussed below............. -- 2,718,655
------------- -------------
Total long-term debt................................. 7,852,393 9,073,196
Less current portion................................. 650,000 876,555
------------- -------------
Long-term debt-- Net................................. $ 7,202,393 $ 8,196,641
============= =============
</TABLE>
Minimum scheduled principal payments on long-term debt to maturity as of August
31, 1998, are as follows (assuming the Revolving Equipment Line of Credit
amortizes effective March 1, 1999):
<TABLE>
<S> <C>
1999................................................. $ 876,555
2000................................................. 4,965,984
2001................................................. 1,103,110
2002................................................. 994,774
2003 ................................................ 453,110
2004 and after....................................... 679,663
-------------
Total.............................................. $ 9,073,196
=============
</TABLE>
As of August 31, 1997 and 1998, the Company has agreed to certain covenants. The
agreements require the Company to maintain certain ratios/levels of tangible net
worth, working capital, liabilities to tangible net worth, earnings before
interest, taxes, depreciation and amortization to debt service and prohibit the
payment of common stock cash dividends. The company was in compliance at August
31, 1998 with all these covenants.
45
<PAGE> 15
Riviera Tool Company
Notes to Financial Statements
NOTE 9 -- FEDERAL INCOME TAXES
The provision for federal income taxes is as follows:
<TABLE>
<CAPTION>
August 31
---------------------------
1997 1998
--------- ------------
<S> <C> <C>
Current expense.................................... $ 127,900 $ 112,000
Deferred expense................................... 538,700 927,976
--------- ------------
Total tax expense.................... $ 666,600 $ 1,039,976
========= ============
</TABLE>
The difference between the federal statutory tax rate and the Company's
effective rate was:
<TABLE>
<CAPTION>
August 31
--------------------------
1997 1998
----------- -----------
<S> <C> <C>
Federal statutory tax rate......................... 34.0% 34.0%
Increase (reduction) in income taxes relating to:
Effect of recording and changing valuation -- (6.0)
allowance..........................................
Effect of providing for deferred taxes at
rates less than statutory rates and other items. 2.0 2.0
----------- -----------
Effective tax rate....................... 36.0% 30.0%
=========== ===========
</TABLE>
The details of the net deferred tax liability are as follows:
<TABLE>
<CAPTION>
August 31
------------------------------
1997 1998
------------- -------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation....................................... $ (2,020,600) $ (1,798,676)
------------- -------------
Deferred tax assets:
Net operating loss carryforward.................... 1,672,900 335,800
Investment tax credit carryforward................. 204,900 171,800
Alternative minimum tax credit carryforward........ 208,600 250,000
Accrued lease expense.............................. 205,900 218,600
Allowance for doubtful accounts.................... 34,000 --
Deferred Compensation and other items.............. 46,800 42,100
------------- -------------
Total deferred tax assets.............. 2,373,100 1,018,300
Valuation allowance recognized for deferred tax (204,900) --
assets............................................... ------------- -------------
Net deferred tax asset (liability)..... $ 147,600 $ (780,376)
============= =============
</TABLE>
The details of the deferred tax expense are as follows:
<TABLE>
<CAPTION>
August 31
-------------------------
1997 1998
----------- -----------
<S> <C> <C>
Net operating loss carryforward...................... $ 847,100 $ 1,337,100
Accrued lease........................................ (15,900) (12,700)
Depreciation......................................... (116,400) (221,924)
Deferred compensation................................ 8,000 (3,900)
Deferred revenue..................................... 20,900 --
Other items.......................................... (2,400) 8,600
Change in valuation allowance........................ (41,800) (204,900)
Allowance for doubtful accounts...................... (34,000) 34,000
Investment tax credit................................ 41,800 33,100
Alternative minimum tax credit....................... (168,600) (41,400)
----------- -----------
Deferred tax expense............. $ 538,700 $ 927,976
=========== ===========
</TABLE>
46
<PAGE> 16
Riviera Tool Company
Notes to Financial Statements
NOTE 9 -- FEDERAL INCOME TAXES--CONTINUED
As of August 31, 1998, the Company had the following applicable carry forwards
to be applied against future taxable income:
<TABLE>
<CAPTION>
Net
Investment Operating
Tax Loss
Credit Carryforward
------------ --------------
<S> <C> <C>
1999.............................................. $ 4,300 $ --
2000.............................................. 19,600 --
2001.............................................. 22,400 --
2002.............................................. 28,000 --
2003.............................................. 97,500 --
2004.............................................. -- --
2005.............................................. -- --
2006.............................................. -- --
2007.............................................. -- --
2008.............................................. -- --
2009.............................................. -- --
2010.............................................. -- 987,800
--------- --------------
Total........................... $ 171,800 $ 987,800
========= ==============
</TABLE>
The Company also has approximately $250,000 of alternative minimum tax credits
that do not expire.
NOTE 10 -- CASH FLOWS
Cash paid or refunded during the years ended August 31, 1997 and 1998, for
interest and income taxes is summarized as follows:
<TABLE>
<CAPTION>
August 31
-------------------------
1997 1998
----------- ----------
<S> <C> <C>
Interest paid........................................ $ 1,253,563 $ 557,334
Income taxes paid.................................... 1,871 429,583
</TABLE>
NOTE 11 -- 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 1998 annual
rent was $,1007,702. Generally accepted accounting principles require that rent
expense related to this type of lease be recognized ratably over the term of the
lease. The difference between the rent payments made and the amount of expense
recognized has been recorded as accrued lease expense (a liability). For the
years ended August 31, 1996, 1997 and 1998, accrued lease expense exceeded cash
payments made by $56,065, $46,725 and $37,380, respectively.
On May 25, 1994, the Company entered into a sublease agreement with an unrelated
company. The agreement commenced August 1, 1994, and expired on July 31, 1998.
The agreement provided for annual lease payments ranging from $216,000 to
$224,724 plus a pro-rata share (33.7 percent) of the facility's operating costs.
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. During the year
ended August 31, 1998, the tenant exercised the first option to extend the
sublease until July 31, 2000. The Company exercised its option to terminate the
sublease agreement on July 31, 2000.
The Company has various operating leases, including the noncancellable operating
lease noted above, for facilities that expire during the next 15 years. Rent
expense under these leases for the year ended August 31, 1996, 1997 and 1998
amounted to $1,164,855, $1,134,625 and $960,636, respectively.
47
<PAGE> 17
Riviera Tool Company
Notes to Financial Statements
NOTE 11 -- 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, 1998:
<TABLE>
<CAPTION>
Lease Sub-Lease Net Lease
Payments Receivable Payment
------------- ------------- -------------
<S> <C> <C> <C>
1999.............................................. $ 1,031,486 $ 219,468 $ 812,018
2000.............................................. 1,034,180 238,412 795,768
2001.............................................. 1,052,870 -- 1,052,870
2002.............................................. 1,071,560 -- 1,071,560
2003.............................................. 1,090,250 -- 1,090,250
2004 and after.................................... 7,134,908 -- 7,134,908
------------- ------------- -------------
Total minimum payments required................... $ 12,415,254 $ 457,880 $ 11,957,374
============= ============= =============
</TABLE>
NOTE 12 -- 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, 1996, 1997, and 1998.
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, 1996, 1997 and 1998, amounted to $80,438, $90,879 and
$78,984, respectively.
NOTE 13 -- RELATED-PARTY TRANSACTIONS
On October 10, 1997, the Company exercised its option to purchase all 730,000
shares of common stock owned by Motor Wheel Corporation for $3.0 million or
$4.11 per share.
NOTE 14 -- DIVIDENDS
The Company, on October 31, 1996, declared a preferential dividend on the shares
of common stock of the Company owned by Riviera Holding Company to pay the
income tax payable by Riviera Holding Company as a result of the lapse of
options by Motor Wheel Corporation to purchase common stock owned by Riviera
Holding Company and as a result of the dividend itself. In May, 1997 the Company
paid this $90,000 dividend to Riviera Holding Company.
In October, 1997, the Company issued and sold 80,000 shares of 8% Cumulative
Convertible Preferred Stock (the "Preferred Shares") at $100.00 per share. The
Company, on February 11, 1998, converted all 80,000 shares of the 8% Cumulative
Convertible Preferred Stock into 1,310,499 of common stock. The dividend expense
for the year ended August 31, 1998 represents the dividends paid on the 80,000
shares of 8% Cumulative Convertible Preferred Stock between the issuance date
and the conversion date.
NOTE 15 -- STOCK OPTION PLAN
The Company's 1996 Stock Option Plan (the "Option Plan") was adopted by the
Board of Directors and approved by the shareholders on October 31, 1996. Under
the Option Plan, 250,000 shares of Common Stock are reserved for issuance and
are intended to qualify as incentive stock options under the Internal Revenue
Code of 1986, as amended. During the year ended August 31, 1997, no stock
options were issued under the Option Plan. Subsequent to august 31, 1998, the
Company granted stock options for 45,000 shares to certain personnel under the
option plan.
48
<PAGE> 18
Riviera Tool Company
Notes to Financial Statements
NOTE 16 -- LEGAL PROCEEDINGS AND CLAIMS
The Company is a plaintiff and counter-defendant in an action against two
individuals and a corporation, with the owners of the Company and a related
corporation affiliated through common ownership as co-plaintiffs, filed July 22,
1994. In July 1992, the Company contributed machinery, equipment, inventory,
work in process and receivables that were related to the business of building
plastic injection molds to a joint venture that then operated as a mold builder
and injection molder. The Company contributed assets valued at $5.4 million,
assigned debts in the amount of $3.7 million, and received $1.7 million of
preferred stock in the new entity. Defendants in this action contributed all of
the stock of a mold builder then known as Leap Technologies, Inc. In November
1993, the joint venture was liquidated, and the Company's preferred stock in the
entity and receivables from such entity were written off. These write-offs were
reflected in the financial statements for the year ended August 31, 1993. The
Company alleges that the status of the business contributed by the defendants
was fraudulently represented, and the defendants are, therefore, liable to the
Company for all losses sustained as a result of the failure of the venture. The
Company is asking for the return of its investment plus additional damages it
incurred in the process of liquidating the venture. One defendant has
counterclaimed for breach of representations by the Company without specifying
any amount of damages. The Company is not currently involved in other legal
proceedings other than ordinary and routine proceedings incidental to its
operations. In the opinion of management, no existing proceedings, including the
matter involving Leap Technologies, Inc., would have a significant effect on the
financial condition, results of operations and cash flows of the Company if
determined against the Company.
NOTE 17 -- PRIOR PERIOD ADJUSTMENT
The Company's financial statements as of August 31, 1995 have been restated to
reflect an understatement of progressive billings on certain contracts in
process at August 31, 1995. The Company records progressive billings on
contracts in process as a reduction to costs and estimated gross profit in
excess of billings on contracts in process.
The effect of the restatement at August 31, 1995 was to reduce the costs and
estimated gross profit in excess of billings on contracts in process by
$3,182,400 and reduce retained earnings by $2,100,400, which is net of
applicable income tax benefit of $1,082,000. The restatement had no effect on
the Company's net income for the years ended August 31, 1996, 1997 and 1998.
The Company has also reflected the restatement on its Balance Sheet and
Statement of Common Shareholders' Equity for the years ended August 31, 1996,
1997 and 1998.
NOTE 18 -- FAIR FINANCIAL INSTRUMENTS
A summary of the methods and significant assumptions used to estimate the fair
value of financial instruments is as follows:
Short-term Financial Instruments - The fair value of short-term financial
instruments, including cash, trade accounts receivable and payable and cost and
earnings in excess of billings on uncompleted contracts, approximates their
carrying amounts in the financial statements due to the short maturity of such
instruments.
Notes Payable and long-term debt - The estimated fair value of the Company's
notes payable and long-term debt approximates its carrying amount because the
interest rate fluctuates with market rates.
49
<PAGE> 19
Report of Management
The management of Riviera Tool Company is responsible for the preparation of the
accompanying financial statements in conformity with generally accepted
accounting principles appropriate in the circumstances. Management is also
responsible for the determination of estimates and judgments used in the
financial statements, and the preparation of other financial information
included in this annual report to shareholders. The financial statements have
been audited by Plante & Moran LLP, independent auditors.
The management of the Company is responsible for and maintains an accounting
system and related internal controls that it believes are sufficient to provide
reasonable assurance that assets are safeguarded against unauthorized
acquisition, use or disposition, that transactions are executed and recorded in
accordance with management's authorization and that the financial records are
reliable for preparing financial statements. The concept of reasonable assurance
is based on the recognition that the cost of a system of internal control must
be related to the benefits derived and that the balancing of those factors
requires estimates and judgments. The system is evaluated by the independent
auditors in connection with their annual audit. Management responds to all
significant recommendations of the independent auditors and makes changes to the
systems where appropriate.
The Board of Directors has an Audit Committee of Directors who are not members
of management. The committee meets with management and the independent auditors
in connection with its review of matters relating to the company's annual
financial statements; the Company's system of internal controls, and the
services of the independent auditors. The Committee also periodically meets with
independent auditors, without management present, to discuss appropriate
matters. In addition, the independent auditors have full and free access to meet
with the Committee, with or without management representatives present, to
discuss the results of their audit, the adequacy of internal controls and the
quality of financial reporting.
/s/ Kenneth K. Rieth
- --------------------
Kenneth K. Rieth
President and Chief Executive Officer
/s/ Peter C. Canepa
- -------------------
Peter C. Canepa
Treasurer and Chief Financial Officer
50
<PAGE> 20
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, 1997 and 1998, and the related statements of income, common
stockholders' equity and cash flows for the years ended August 31, 1996, 1997
and 1998. 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, 1997 and 1998, and the results of its operations and cash flows for the
years ended August 31, 1996, 1997 and 1998, in conformity with generally
accepted accounting principles.
PLANTE & MORAN, LLP
/s/ Plante & Moran, LLP
- -----------------------
Grand Rapids, Michigan
October 19, 1998
51
<PAGE> 21
Board of Directors and Officers
Riviera Tool Company
BOARD OF DIRECTORS
THOMAS H. HIGHLEY
Chief Executive Officer and President
The Empire Company, Inc.
JOHN C. KENNEDY
Chairman, President and Director
Autocam Corporation
KENNETH K. RIETH
Chairman, Chief Executive Officer and President
Riviera Tool Company
DANIEL W. TERPSMA
Senior Vice President
Old Kent Bank
LEONARD H. WOOD
Vice President and General Manager
Riviera Tool Company
OFFICERS
KENNETH K. RIETH
Chairman, Chief Executive Officer and President
Riviera Tool Company
PETER C. CANEPA
Chief Financial Officer, Secretary and Treasurer
Riviera Tool Company
LEONARD H. WOOD
Vice President and General Manager
Riviera Tool Company
SHAREHOLDER INFORMATION
Annual Meeting
The annual meeting will be held Wednesday, December 16, 1998, 4:00 p.m. (EST),
at Rembrandt's at Bridgewater , 333 Bridge Street, NW, Grand Rapids, Michigan
49504.
Form 10-K and Financial Information
A copy of the Company's annual report filed with the Securities and Exchange
Commission is available without charge to shareholders. Requests should be
addressed to Riviera Tool Company, Peter C. Canepa, CFO, 5460 Executive Parkway
SE, Grand Rapids, Michigan 49512.
Common Stock
Traded on the American Stock Exchange - AMEX, under the symbol of RTC.
Corporate Headquarters
Riviera Tool Company
5460 Executive Parkway SE
Grand Rapids, Michigan 49512 U.S.A.
Phone 616.698.2100
52
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> AUG-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,609,272
<ALLOWANCES> 0
<INVENTORY> 11,705,527
<CURRENT-ASSETS> 13,491,059
<PP&E> 13,237,501
<DEPRECIATION> 6,942,470
<TOTAL-ASSETS> 27,696,395
<CURRENT-LIABILITIES> 2,194,350
<BONDS> 8,196,641
0
0
<COMMON> 13,496,937
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 27,696,395
<SALES> 27,696,395
<TOTAL-REVENUES> 27,696,395
<CGS> 17,096,967
<TOTAL-COSTS> 18,760,307
<OTHER-EXPENSES> (131,569)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 244,231
<INCOME-PRETAX> 3,445,081
<INCOME-TAX> 1,039,976
<INCOME-CONTINUING> 2,405,105
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,202,997
<EPS-PRIMARY> .86
<EPS-DILUTED> .80
</TABLE>