<PAGE> 1
Rule 424(b)3
Registration Statement No. 333-41805
SUPPLEMENT
TO
PROSPECTUS DATED JANUARY 9, 1998
RIVIERA TOOL COMPANY
1,461,529 SHARES
COMMON STOCK
After the date of the accompanying Prospectus, all of the 8% Cumulative
Convertible Preferred Stock of the Company was converted to Common Stock. The
following is qualified in its entirety by the more detailed information and
financial statements and the notes thereto in the accompanying Prospectus to
which this Prospectus Supplement relates.
The shares offered by the Prospectus consist of up to 1,461,529 common
shares, no par value (the "Common Stock") of Riviera Tool Company, a Michigan
corporation ("Riviera" or the "Company") which have been issued by the Company
to the Selling Shareholders upon conversion of the 8% Cumulative Convertible
Preferred Stock of the Company ("Preferred Stock") and are issuable upon
exercise by certain of the Selling Shareholders of certain warrants to purchase
Common Stock. For further information regarding the Selling Shareholders, see
"Selling Shareholders."
The terms of the Preferred Stock provided that it must be converted upon
notice by the Company after the average closing price on the American Stock
Exchange for ten (10) consecutive trading days was $10.00 or more (see
"Description of Capital Stock"). No fractional shares are issued in connection
with a conversion and cash is paid in lieu thereof. This event has occurred and
as of February 11, 1998 all 80,000 shares of Preferred Stock have been converted
into 1,310,499 shares of Common Stock of the Company and $151.50 paid in lieu of
fractional shares resulting from the conversion process. The total dividend
obligation with respect to the Preferred Stock through the date of conversion
was $202,108.50 of which $137,705.21 has been paid and $64,403.29 has been
accrued for payment. All further dividend obligations with respect to the
Preferred Stock have ceased.
All references to the Preferred Stock in the text of the Prospectus and in
the Pro Forma financial information should be read with this conversion in mind.
All equity reflected on the balance sheets of the Company on the Preferred Stock
line has been moved to the Common Stock line (less the $151.50 paid as a result
of fractional shares) with the number of outstanding shares increased by
1,310,499. No shares of Preferred Stock are shown as outstanding.
THERE ARE CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED BEFORE PURCHASING
SHARES IN THIS OFFERING SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THE
PROSPECTUS.
THE DATE OF THIS SUPPLEMENT IS MARCH 2, 1998
<PAGE> 2
PROSPECTUS
RIVIERA TOOL COMPANY
1,461,529 SHARES
COMMON STOCK
The shares offered hereby (the "Shares") consist of up to 1,461,529 common
Shares, no par value (the "Common Stock") of Riviera Tool Company, a Michigan
corporation ("Riviera" or the "Company") which are issuable by the Company to
certain persons ("Selling Shareholders") upon conversion of the 8% Cumulative
Convertible Preferred Stock of the Company ("Preferred Stock") and upon exercise
by certain of the Selling Shareholders of certain warrants to purchase Common
Stock ("Warrants'). For further information regarding the Selling Shareholders,
see "Selling Shareholders." The number of Shares registered for sale by this
Prospectus consists of all of the Shares into which the Preferred Stock is
convertible, assuming the Preferred Stock was fully converted on the date
hereof, plus the number of Shares issuable upon exercise of the Warrants,
assuming the Warrants were fully exercised on the date hereof. For a further
description of the terms of the Preferred Stock and Warrants, see "Selling
Shareholders." This Prospectus covers the sale of the Shares from time to time
by the Selling Shareholders. The issuance of Shares upon conversion of the
Preferred Stock and exercise of the Warrants is not covered by this Prospectus,
but rather only the resale of such Shares. All expenses of the registration
incurred in connection herewith are being borne by the Company, but any brokers'
or underwriters' fees or commission will be borne by the Selling Shareholders.
The Company will not receive any proceeds from the sale of the Shares by the
Selling Shareholders. However, the Company will receive $10.50 per Share upon
exercise of 101,000 of the Warrants and $10.00 per share upon exercise of the
balance of the Warrants (50,000) or $1,560,500 in the aggregate if all Warrants
are exercised.
The Selling Shareholders have not advised the Company of any specific plans
for the distribution of the Shares covered by this Prospectus, but it is
anticipated that the Shares will be sold from time to time primarily in
transactions (which may include block transactions) on the American Stock
Exchange at the market price then prevailing, although sales may also be made in
negotiated transactions or otherwise. The Selling Shareholders and the brokers
and dealers through whom sale of the Shares may be made may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"). See "Plan of Distribution."
The Common Stock is currently listed on the American Stock Exchange (the
"AMEX") under the symbol "RTC." On December 5, 1997, the last reported sale
price of the Common Stock on the American Stock Exchange was $11.00 per share.
The Shares have been approved for quotation subject to notice of issuance on the
American Stock Exchange.
THERE ARE CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED BEFORE PURCHASING
SHARES IN THIS OFFERING. SEE "RISK FACTORS" BEGINNING ON PAGE 6.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is January 9, 1998
<PAGE> 3
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements included elsewhere in this Prospectus.
Unless the context indicates otherwise, Riviera Tool Company, is referred to as
the "Company" or "Riviera." Investors should carefully consider the information
set forth under the heading "Risk Factors."
THE COMPANY
The Company designs, develops and manufactures custom large scale metal
stamping die systems used in the high speed production of sheet metal stamped
parts and assemblies for the automobile industry. The Company incorporates its
knowledge of integrated computer technologies with the design and manufacture of
metal stamping die systems resulting in solutions that address the specific
manufacturing requirements of its main customers, Chrysler Corporation
("Chrysler"), Ford Motor Company ("Ford") and General Motors Corporation
("General Motors"), the three largest domestic automobile manufacturers (the
"OEMs"), and their tier one suppliers of sheet metal stamped parts and
assemblies.
Management has strategically positioned the Company as one of North
America's most technologically advanced independent suppliers of metal stamping
die systems utilizing a totally computer integrated process for the design,
manufacture and validation of its products. The Company should continue to
benefit from current trends in the global automotive industry which require
continuous quality improvement, simultaneous engineering and development, and
increasing reliance on a select number of suppliers capable of utilizing
computer integrated technology to develop new automobile models. Examples of
parts made from die systems recently developed and manufactured by the Company
include the bumper system for the Ford Explorer and F-Series trucks, door panels
and wheels for the Jeep Wrangler, structural body components for the Chrysler
Neon and mini-vans, as well as body panels for semi-tractor vehicles.
The Company maintains "Preferred Supplier" status with Chrysler and Ford. In
the past, the Company has been awarded Chrysler's PentaStar quality award, the
highest quality award for a single plant supplier and Ford's Q-1 supplier award,
an award that has historically been given to suppliers who manufacture parts and
assemblies, rather than suppliers of tooling and equipment. The Company was the
first tool and die supplier to be awarded the Q-1 status by Ford.
By transferring design information electronically ("EDI"), the Company
communicates directly with the OEMs' design and development centers regarding
specific product and manufacturing information necessary to develop a custom
manufacturing system for each respective part. This digital data base is
incorporated in each phase of the design, manufacture and inspection process for
both the prototype and production tooling systems, ensuring high quality
repeatable processes. Electronically linking the Company to the OEMs' design and
development centers enables significant reductions in product development lead
time and cost.
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<PAGE> 4
The Company has adopted a strategy that includes (i) single source program
management from concept to completion which involves the coordination of design,
manufacture of prototype and final dies, tryout and final inspection, all at a
single location; (ii) accomplishing each of the foregoing using the same
electronic data; (iii) simultaneous engineering of product and process, see
"Business -- Products and Services;" and (iv) maintaining ongoing continuous
improvement programs enabling it to improve its products and services in
response to technological advances and the changing requirements of its
customers.
The Company was originally acquired by the purchase of the assets of an
existing tool and die business on December 19, 1967 and was incorporated in its
present form in 1988 under the laws of the State of Michigan to provide an
investment vehicle for Motor Wheel Corporation, an Ohio corporation, ("Motor
Wheel") which currently owns none of the Company's Common Stock, having sold its
entire interest to the Company in October of 1997. The Company sold 1,010,000
shares of its Common Stock, approximately 57.5% of its currently issued and
outstanding Common Stock, in an initial public offering on March 4, 1997. In
October of 1997 the Company sold 80,000 shares of Preferred Stock, which are
convertible into an aggregate of 1,310,529 shares of Common Stock.
The executive offices and manufacturing facilities of the Company are
located at 5460 Executive Parkway, Grand Rapids, Michigan 49512, and its
telephone number is (616) 698-2100.
3
<PAGE> 5
THE OFFERING
Common Stock offered by the Selling
Shareholders.................................. 1,461,529 shares
Common Stock outstanding prior to the Offering 1,755,000 shares(1)
Common Stock outstanding after the Offering... 3,216,529 shares(2)
Use of Proceeds............................... The Company will not
receive any of the
proceeds of the
Offering. Exercise
of the Warrants,
which will result in
up to 151,000 of
the Shares offered,
will produce
$1,560,500 in the
aggregate to the
Company.
Terms of the Offering......................... AMEX and/or privately
negotiated transactions.
AMEX Symbol for the Common Stock.............. "RTC"
- -------------
(1) Shares of Common Stock outstanding are presented prior to the offering
excluding 181,000 shares of Common Stock issuable upon the exercise of
warrants, including the Warrants, outstanding on the date hereof at various
prices not less than $10 per share.
(2) Shares of Common Stock outstanding are presented after the offering
excluding 30,000 shares of Common Stock issuable upon the exercise of
warrants outstanding on the date hereof at various prices not less than $10
per share and assuming the Warrants for 151,000 shares of Common Stock
included in the offering have been fully exercised.
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<PAGE> 6
SUMMARY 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,
------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- --------- ---------- ----------
STATEMENT OF OPERATION DATA:
<S> <C> <C> <C> <C> <C>
Sales........................................................... $18,946 $22,425 $22,225 $18,334 $21,960
Gross Profit ................................................... 1,788 2,749 4,108 3,398 5,128
Income (loss) from Operations .................................. 318 1,635 2,206 2,043 3,424
Interest Expense ............................................... 856 1,415 1,589 1,670 1,211
Other Income ................................................... 244 139 106 227 45
Other Expense .................................................. 2,247 532 160 0 406
Income (loss) before income taxes .............................. (2,541) (173) 563 600 1,851
Income Taxes (Benefits) ........................................ (252) (134) 77 204 667
------- ------- ------- ------- -------
Net Income (loss) available for common shares................... $(2,314) $ (69) $ 450 $ 367 $ 1,178
======= ======= ======= ======= =======
Net Income (loss) per common share.............................. $ (1.58) $ (.05) $ .31 $ .25 $ .60
======= ======= ======= ======= =======
Weighted Average common shares outstanding ..................... $ 1,460 $ 1,460 $ 1,460 $ 1,460 $ 1,969
======= ======= ======= ======= =======
OTHER DATA :
Depreciation & amortization..................................... $ 993 $ 1,214 $ 1,438 $ 1,272 $ 1,298
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
AS OF AUGUST 31,
-----------------------------------------------------------------------
PRO-FORMA
1993 1994 1995 1996 1997 1997(1)
--------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital ...................................... $ (2,727) $(4,273) $(3,966) $(3,669) $10,164 $10,016
Total Assets ......................................... 22,927 26,439 21,706 22,928 23,091 23,036
Current Portion of Long-Term Debt & Capital Leases ... 2,935 3,129 2,256 1,336 650 650
Revolving Line of Credit ............................. 8,127 9,461 6,866 10,242 4,711 560
Long-term Capital Leases & Term Debt, less current
portion .............................................. 1,178 2,715 1,830 1,002 2,491 2,491
Redeemable Preferred Stock ........................... 80 109 111 139 0 0
8% Cumulative Convertible Preferred Stock ............ 0 0 0 0 0 6,949
Common Stockholder's Equity .......................... 4,839 4,770 5,220 5,588 11,822 8,822
</TABLE>
(1) Adjusted to reflect the October, 1997, sale and issuance of 80,000 shares
of 8% Cumulative Convertible Preferred Stock and the redemption and
retirement of 730,000 shares of common stock. See "Principal Shareholders
-- Shareholders Agreement."
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<PAGE> 7
RISK FACTORS
A prospective investor should consider, together with the other information
set forth in this Prospectus, the following:
RELIANCE UPON MAJOR CUSTOMERS
Approximately 40% of the Company's sales during fiscal 1997 and 25% in
fiscal 1996 were made directly to Chrysler Corporation. In addition,
approximately 16% of the Company's sales during fiscal 1997 and 11% during
fiscal 1996 were made directly to Ford Motor Company. Ford suppliers represented
approximately 16% and 17% of the Company's sales during fiscal 1997 and 1996,
respectively. General Motors represented approximately 4% of the Company's sales
during fiscal 1997 and 13% during fiscal 1996. For the year ended August 31,
1997 and 1996, Chrysler, Ford, General Motors and their tier one suppliers
accounted for approximately 87% and 75% of the Company's revenues, respectively.
See "Business -- General."
The loss of the Company's relationship with these customers, or a
significant reduction of their minimum tooling purchases, or a reduction in new
product development due to economic conditions, could have a material adverse
effect upon the Company.
The Company is directly dependent on its customers who directly produce the
end use product. As a result, if the end use producers (Chrysler, Ford and
General Motors) experience difficulties in such critical areas as style, quality
or global competition, the demand for such end use producer's product may be
adversely affected, which may in turn adversely affect the Company.
GENERAL FACTORS: ECONOMIC CLIMATE, INTERNATIONAL MONETARY CYCLES, CHANGING
FACILITIES, INTER-INDUSTRY DEPENDENCE, AVAILABLE FINANCING
The revenue and value of manufacturing concerns, such as the Company, in
general, may be adversely affected by a number of factors, including: (a) the
international, national, regional and local economic climate -- in particular,
manufacturing intended for large ticket durable consumer goods, which directly
contributes to or adversely affects the work loads of manufacturing concerns
supplying product that will contribute to or be incorporated into end use
consumer products; (b) international monetary cycles -- manufacturing concerns
produce products that contribute to or are otherwise incorporated into retail
consumer end use products that will directly or indirectly be competing on a
global basis; where price becomes an issue, monetary cycles may contribute to or
detract from competitive positioning; (c) the need to periodically repair,
replace, upgrade and expand existing production capabilities may not prove to be
a profitable endeavor; (d) the dependence on other industries -- manufacturing
concerns that do not produce an end product but contribute to an end product
produced by another manufacturing concern are subject to both the trends of the
end user and the buying practices of the manufacturer that assembles the
materials into a merchantable product; (e) manufacturing concern values which
are affected by factors such as changes in interest rates and the availability
6
<PAGE> 8
of financing in capital intensive industries, and in addition, manufacturing
concerns do not typically receive progress payments from their customers.
VOTING CONTROL
Following completion of this Offering, Riviera Holding Company (owned 100%
by Kenneth K. Rieth), a Michigan corporation will have approximately 19% of the
voting power and ownership of the Company. As a result Kenneth K. Rieth will
exercise significant control over the affairs of the Company and will be able to
block any proposal put to a vote of the shareholders which requires a
supermajority. Previously, this shareholder and Motor Wheel had entered into
voting agreement as to voting on directors for the Company. See "Management -
Shareholders Agreement." The Company has agreed to use its best efforts
to elect a person designated by National Securities Corporation to the
Company's Board of Directors until March 4, 2002. See "Management - Other
Information Relating to Directors and Executive Officers."
DEPENDENCE ON EXISTING MANAGEMENT
Kenneth K. Rieth and a few key employees have been primarily responsible for
the development of most of the Company's products, processes and business
methods. The loss or interruption of the continued full-time services of any of
them could have a material adverse effect on the Company. The Company maintains
"Key-man" life insurance policies on Kenneth K. Rieth, President, C.E.O. and
Director, and Leonard H. Wood, Vice President, General Manager and Director, for
$2,500,000 and $500,000, respectively. The Company has pledged $1,500,000 of
this insurance on Kenneth K. Rieth to its principal commercial lender, Old Kent
Bank.
COMPETITION AND MARKET CONSOLIDATION
The tooling systems industry is highly competitive, and there can be no
assurance that the Company will be able to compete successfully in the future.
The Company's largest customers, Chrysler and Ford, both have internal die
construction capability; however, the Company believes that such capacity is
insufficient in relationship to their total requirements. The Company believes
that the automobile industry has been going through a tooling systems supplier
consolidation and that there are now fewer quality oriented, full service die
systems suppliers. There is no assurance that the Company will continue to
qualify as a supplier to any of the automobile manufacturers. The loss of any
such qualification would have a material adverse effect on the Company. In
addition, the Company faces competition from foreign manufacturers, particularly
from Japan.
FUTURE SALE OF COMMON STOCK
The 605,000 shares of Common Stock held by Riviera Holding Company, owned
100% by Kenneth K. Rieth, after the date of this Prospectus will be eligible for
sale in accordance with Rule 144 under the Securities Act of 1933, as amended.
Under Rule 144, shareholders who have held fully-paid shares for at least one
year may sell them without registration under certain
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<PAGE> 9
conditions. Riviera Holding has held its shares for more than one year. The
sale of a significant portion of these shares in the open market could have a
material adverse effect on the market price of the Common Stock. However,
Riviera Holding Company has agreed that it will not sell or otherwise dispose
of any Common Stock until March 4, 1999 without the consent of the National
Securities Corporation, the managing underwriter of the Company's initial public
offering ("National"). See "Shares Eligible for Future Sale."
PREFERRED STOCK
The Board of Directors of the Company is authorized to issue, without any
further action on the part of the Company's shareholders, up to 120,000 shares
of preferred stock in one or more series with such designations, preferences,
limitations and other rights, including voting rights, as are determined by the
Board of Directors from time to time. The issuance of such shares of preferred
stock could result in the dilution of the voting power of the shares of Common
Stock convertible from the Shares purchased in this Offering and could have a
dilutive effect on earnings per share. See "Description of Capital Stock." The
1,425 shares of 8% Cumulative Preferred Stock of the Company, which is
redeemable and has all been redeemed, are also available for issuance if
approved by a vote of the holders of the Shares. See "Description of Capital
Stock."
MARKET FOR COMMON STOCK
Prior to March 4, 1997 there was no public market for the Common Stock of
the Company. Since then it has traded on the AMEX under the Symbol RTC. There
can be no assurance that an active public market for the shares will be
sustained or that the market price of the Common Stock will not decline. The
trading price of the Company's Common Stock in the future could be subject to
wide fluctuations in response to quarterly variations in operating results of
the Company or its competitors, changes in analysts' estimates of the Company's
financial performance, regulatory developments, general industry conditions,
worldwide economic and financial conditions, and other factors. During certain
periods, the stock markets have experienced extreme price and volume
fluctuations. These broad market fluctuations and other factors may adversely
affect the market price of the Company's Common Stock.
8
<PAGE> 10
CAUTIONARY STATEMENTS FOR PURPOSES OF
THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Prospectus contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. When used in this
document, the words "anticipate," "believe," "estimate," and "expect" and
similar expressions are generally intended to identify forward-looking
statements. Prospective investors are cautioned that any forwarding-looking
statements, including statements regarding the intent, belief, or current
expectations of the Company or its management, are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those in the forward-looking statements as a result of
various factors including, but not limited to: (i) general economic conditions
in the markets in which the Company operates; (ii) fluctuations in worldwide or
regional automobile and light and heavy truck production; (iii) labor disputes
involving the Company or its significant customers; (iv) changes in practices
and/or policies of the Company's significant customers toward outsourcing
automotive components and systems; (iv) other risks detailed from time to time
in the Company's filings with the Commission; and (vi) those items identified
under "Risk Factors." The Company does not intend to update these
forward-looking statements.
USE OF PROCEEDS
The Shares of Common Stock offered hereby will be sold by the Selling
Shareholders. See "Selling Shareholders." The Company will not receive any of
the proceeds from the Offering.
MARKET PRICE AND DIVIDEND POLICY
The Company's Common Stock is traded on the American Stock Exchange under
the symbol RTC. The table below sets forth the high and low sales prices as
reported by AMEX since the Company's initial public offering on March 3, 1997.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
FISCAL 1997
-----------
<S> <C> <C>
1st quarter(1)....................... N/A N/A
2nd quarter(1)....................... N/A N/A
3rd quarter.......................... $7.00 $4.75
4th quarter.......................... $6.625 $4.875
FISCAL 1998
-----------
1st quarter.......................... $9.6875 $5.375
2nd quarter (through
January 7, 1998) .................... $12.375 $8.75
</TABLE>
- -------------
(1) The Company was privately held during the period.
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<PAGE> 11
As of October 20, 1997, the Company's common stock was held by 24 holders
of record, and approximately 750 beneficial shareholders.
The Company has not historically paid cash dividends on its Common Stock.
The Company, on October 31, 1996, declared a preferential dividend on the shares
of common stock of the Company owned by Riviera Holding Company to pay income
tax payable by Riviera Holding Company as a result of the lapse of options by
Motor Wheel Corporation to purchase common stock owned by Riviera Holding
Company and as a result of the dividend itself. In May, 1997 the Company paid
this dividend of $90,000 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 Stock) 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 are entitled
to cumulative dividends at an annual rate of 8% payable quarterly, in arrears,
at a rate of $2.00 per share per quarter, commencing December 31, 1997.
10
<PAGE> 12
CAPITALIZATION
The following table, in thousands, sets forth the actual short-term debt and
capitalization of the Company at August 31, 1997. This table should be reviewed
in conjunction with the Company's financial statements and related notes
appearing elsewhere in this Registration Statement.
<TABLE>
<CAPTION>
AUGUST 31, 1997
---------------------------
ACTUAL PRO-FORMA (1)
------- ----------
(AUDITED)
<S> <C> <C>
Notes Payable-- Current......................................................... $ 650 $ 650
======= ==========
Long-term Debt Obligations, less current portions............................... $ 7,202 $ 3,051
8% Cumulative Preferred Stock, $5 par value, $100 redemption value-- no
shares outstanding ............................................................. -- --
Stockholder's Equity:
8% Cumulative Convertible Preferred Stock, no par value, 200,000 shares
authorized and none outstanding as of August 31, 1997, and 80,000 shares
outstanding as of August 31, 1997 on a pro-forma basis.......................... -- 6,949
Common Stock, no par value-- 9,798,575 shares authorized, 2,485,000 shares
outstanding as of August 31, 1997, and 1,755,000 as of August 31, 1997 on a
pro-forma basis................................................................. 9,540 6,540
Retained Earnings............................................................... 2,282 2,282
------- ----------
Total Stockholder's Equity............................................... 11,822 15,771
------- ----------
Total Capitalization............................................................ $19,024 $ 18,822
======= ==========
</TABLE>
(1) Adjusted to reflect the October, 1997, sale and issuance of 80,000 shares
of 8% Cumulative Convertible Preferred Stock and the redemption and
retirement of 730,000 shares of common stock held by Motor Wheel
Corporation for $3.0 million or $4.11 per share.
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<PAGE> 13
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,
-------------------------------------------------------------
1993 1994 1995 1996 1997
------------ ------------ ----------- ------------ -----------
STATEMENT OF OPERATION DATA:
<S> <C> <C> <C> <C> <C>
Sales........................................................... $ 18,946 $ 22,425 $ 22,225 $ 18,334 $ 21,960
Gross Profit..................................................... 1,788 2,749 4,108 3,398 5,128
Income (loss) from Operations.................................... 318 1,635 2,206 2,043 3,424
Interest Expense................................................. 856 1,415 1,589 1,670 1,211
Other Income..................................................... 244 139 106 227 45
Other Expense.................................................... 2,247 532 160 0 406
Income (loss) before income taxes................................ (2,541) (173) 563 600 1,851
Income Taxes (Benefits).......................................... (252) (134) 77 204 667
------------ ------------ ----------- ------------ -----------
Net Income (loss) available for common shares................... $ (2,314)$ (69)$ 450 $ 367 $ 1,178
============ ============ =========== ============ ===========
Net Income (loss) per common share............................. $ (1.58)$ (.05)$ .31 $ .25 $ .60
============ ============ =========== ============ ===========
Weighted Average common shares outstanding....................... 1,460 1,460 1,460 1,460 1,969
============ ============ =========== ============ ===========
OTHER DATA :
Depreciation & amortization..................................... $ 993 $ 1,214 $ 1,438 $ 1,272 $ 1,298
============ ============ =========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
AS OF AUGUST 31,
---------------------------------------------------------------------------
PRO-FORMA
1993 1994 1995 1996 1997 1997(1)
------------ ------------ ----------- ------------ ----------- ------------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C>
Working Capital.................................... $ (2,727)$ (4,273)$ (3,966)$ (3,669)$ 10,164 $ 10,016
Total Assets....................................... 22,927 26,439 21,706 22,928 23,091 23,036
Current Portion of Long-Term Debt & Capital
Leases........................................... 2,935 3,129 2,256 1,336 650 650
Revolving Line of Credit........................... 8,127 9,461 6,866 10,242 4,711 560
Long-term Capital Leases & Term Debt, less current
portion............................................ 1,178 2,715 1,830 1,002 2,491 2,491
Redeemable Preferred Stock......................... 80 109 111 139 0 0
8% Cumulative Convertible Preferred Stock.......... 0 0 0 0 0 6,949
Common Stockholder's Equity........................ 4,839 4,770 5,220 5,588 11,822 8,822
</TABLE>
(1) Adjusted to reflect the October, 1997, sale and issuance of 80,000 shares
of 8% Cumulative Convertible Preferred Stock and the redemption and
retirement of 730,000 shares of common stock. See "Management
-Shareholders Agreement."
12
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL OVERVIEW
The Company is a leading designer and manufacturer of large scale, complex
stamping die systems used to form sheet metal parts. Most of the stamping die
systems sold by the Company are used in the high-speed production of automobile
and truck body parts such as doors, door frames, structural components and
bumpers. A majority of the Company's sales are to Chrysler Corporation, Ford
Motor Company, General Motors Corporation and their tier one suppliers. The
Company completed an initial public offering in March, 1997.
RESULTS OF OPERATIONS
The following table is derived from the Company's Statement of Operations
and sets forth, for the periods indicated, selected operating data as a
percentage of sales.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31,
--------------------------------------------------
1993 1994 1995 1996 1997
------- -------- -------- --------- --------
STATEMENT OF OPERATION DATA:
<S> <C> <C> <C> <C> <C>
Net sales.............................................................. 100% 100% 100% 100% 100%
Gross margin........................................................... 9 12 18 19 23
Income from continuing operations...................................... 2 7 10 11 16
Interest expense....................................................... 5 6 8 9 6
Other income........................................................... 1 -- -- 1 --
Other expense.......................................................... 12 2 -- -- 2
Income (loss) before income taxes...................................... (13) (1) 2 3 8
Federal income tax (benefit)........................................... (1) (1) -- 1 3
------- -------- -------- --------- -------
Net income (loss)...................................................... (12)% --% 2% 2% 5%
======= ======== ======== ========= =======
OTHER DATA:
Depreciation and amortization ......................................... 5% 5% 6% 7% 6%
======= ======== ======== ========= =======
</TABLE>
QUARTERLY FINANCIAL DATA
The following is a condensed summary of quarterly results of operations for
1995, 1996 and 1997 (in thousands, except per share data):
13
<PAGE> 15
<TABLE>
<CAPTION>
Net Income Weighted Average
Gross Operating Net per Common Shares
Revenues Profit Income Income Common Share Outstanding
----------- -------- --------- -------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
1995: First............ $ 5,456 $ 856 $ 409 $ 26 $ .02 1,460
- ---- Second........... 6,122 1,067 512 120 .09 1,460
Third............ 5,683 1,144 622 135 .09 1,460
Fourth........... 4,964 1,041 663 169 .11 1,460
----------- -------- --------- -------- -------------- ----------------
Total $ 22,225 $ 4,108 $ 2,206 $ 450 $ .31 1,460
=========== ======== ========= ======== ============== ================
1996: First............ $ 4,934 $ 884 $ 463 $ 80 $ .06 1,460
---- Second........... 4,629 947 546 120 .08 1,460
Third............ 4,458 957 505 72 .05 1,460
Fourth........... 4,313 610 529 95 .07 1,460
----------- -------- --------- -------- -------------- ----------------
Total $ 18,334 $ 3,398 $ 2,043 $ 367 $ .25 1,460
=========== ======== ========= ======== ============== ================
1997: First............ $ 5,480 $ 1,085 $ 654 $ 172 $ .12 1,460
- ---- Second........... 5,405 1,105 666 157 .11 1,460
Third............ 5,001 1,085 730 244 .10 2,426
Fourth........... 6,074 1,853 1,374 605 .24 2,485
----------- -------- --------- -------- -------------- ----------------
Total $ 21,960 $ 5,128 $ 3,424 $ 1,178 $ .60 1,969(1)
=========== ======== ========= ======== ============== ================
(1) Represents weighted-average number of common shares outstanding during year ended August 31, 1997.
</TABLE>
The following discussion and analysis should be read in conjunction with the
Company's Financial Statements and the Notes thereto included elsewhere herein.
FISCAL 1997 COMPARED TO FISCAL 1996
Revenue. Total revenue for 1997 increased by 20% from approximately $18.3
million in 1996 to $21.9 million in 1997. This increase is due to the
realization of the 1996 contract backlog during 1997. Additionally, during the
second half of 1997, the Company had adequate financing resources which allowed
the Company to add additional sales contracts. Since March, 1997, the Company
has retained new contracts at an average rate of $3.0 million per month as
compared to an average rate of $2.0 million per month over the same period in
1996.
Cost of Goods Sold. Cost of goods sold increased from $14.9 million in 1996
to $16.8 million in 1997, an increase of 13%. As a percent of sales, cost of
goods sold decreased from 81.5% for 1996 to 76.6% for 1997. Of the cost of goods
sold, direct costs were $9.6 million, 43.6% of sales, in 1997 as compared to
$8.2 million, 44.7% of sales, in 1996. The largest direct cost decreases were in
the outside prototype tooling and parts expense, $537,000 or 2.9% of sales in
1996 as compared to $168,500 or .76% of sales, in 1997 and outside pattern
services, $387,000 or 2.1% of sales in 1996 as compared to $236,300 or 1.1% of
sales in 1997. These decreases were due largely to the fact that the Company
outsourced less of this work and maintained increased capacity internally. The
largest direct cost increases were in direct materials, $2.6 million or 14.2% of
sales in 1996 as compared to $3.3 million or 15.0% in 1997, outside machining
services, $100,500 or .55% of sales in 1996 as compared to $321,000 or 1.5% of
sales in 1997 and direct labor, $4.2 million or 22.9% of sales in 1996 as
compared to $5.0 million or 22.8% of sales in 1997. These increases were due to
increased sales volume and performing more prototype tooling work internally in
1997 as compared to outsourcing such work in 1996.
14
<PAGE> 16
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.
Other Expense. Other expense during 1997 included $150,000 of bank fees
paid during the first two quarters of 1997 charged by the Company's former
primary lender. The Company also incurred $75,700 in debt prepayment fees,
$27,300 in tax agency penalties and $101,000 in late charges on its facility
lease.
FISCAL 1996 COMPARED TO FISCAL 1995
Revenue. Total revenue decreased by 17% from approximately $22.2 million for
1995, to approximately $18.4 million for 1996. This decrease was due to the
timing of contracts in process and the Company's contract backlog.
Contracts-in-process as of August 31, 1996 was approximately $2.2 million higher
than as of August 31, 1995 (an increase of 69%) and the Company's backlog as of
August 31, 1996 was $6.4 million higher than as of August 31, 1995.
15
<PAGE> 17
Cost of Goods Sold. Cost of goods sold decreased from $18.1 million in 1995
to $14.9 million in 1996. This was due to the decrease in revenue when comparing
the same periods. As a percentage of total revenue, cost of goods sold remained
consistent at 81.5% for 1996 from 1995.
Selling and Administrative Expense. Selling and administrative expense was
approximately $1.4 million for 1996, a decrease of 26% from approximately $1.9
million for 1995. As a percentage of total revenue, selling, general and
administrative expense decreased from 8.6% in 1995 to 7.4% for 1996. This
decrease was largely due to legal and professional expense (a decrease of
$134,000), amortization expense (a decrease of $47,000), and administrative
salaries (a decrease of $128,000).
Interest Expense. Interest expense was approximately $1.7 million for 1996,
an increase of 6% from approximately $1.6 million for 1995. As a percentage of
total revenue, interest expense increased from 7% for 1995 to 9% for 1996. This
was primarily due to the increase in average short-term outstanding debt of
$11.1 million in 1996 as compared to $10.7 million in 1995.
FEDERAL INCOME TAX
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109. A current tax liability or asset
is recognized for the estimated taxes payable or refundable on tax returns for
the year. Deferred tax liabilities or assets are recognized for the estimated
future tax effects of temporary differences between book and tax accounting and
operating loss and tax credit carryforwards. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
As of August 31, 1997, the Company had approximately $1.7 million of net
operating loss carryforwards that expire 2006 through 2009, investment tax
credit carryforwards of approximately $204,900 that expire 1998 through 2003,
and alternative minimum tax credits of approximately $189,300, the use of which
does not expire.
LIQUIDITY AND CAPITAL RESOURCES
The Company's needs for capital have been extensive over the period
presented. Bank borrowings have increased primarily to acquire fixed assets and
to finance the increase in Trade Accounts Receivable and Contracts in Process,
as the Company's customers typically do not make progress payments on tooling
contracts. The Company has financed these needs through internally generated
funds, bank financing, and various capital and operating leases. Cash provided
from (used in) operating activities was $4,991,021 in 1995, ($977,133) in 1996
and $304,954 for 1997. The capital used by operations in 1997, was primarily due
to the decrease in the Company's Accounts Receivable ($453,654), an increase in
Work-in-Process ($1,588,535) and a decrease in Accounts Payable ($1,672,635).
The decrease in Accounts Receivable as of August 31, 1997, in lieu of an
increase in sales of approximately $3.6 million, was largely due to improving
its billing and collection procedures. The increase in Work-in-Process as of
August 31, 1997 was due to the decrease in the Company's progress billings on
its Work-in-Process at August 31, 1997 as the contracts were in an earlier
completion stage as compared to Contracts in
16
<PAGE> 18
Process at August 31, 1996. The decrease in Accounts Payable as of August 31,
1997 was due to increased cash flow from collection of Accounts Receivable,
decrease in debt service requirements and proceeds of the Company's initial
public offering.
The Company utilized $575,401, $319,308 and $488,791 of Cash Flows from
Investing Activities in 1995, 1996 and 1997, respectively. For 1995, 1996 and
1997, the most significant items were the acquisition of $585,248, $501,103 and
$792,580 of machinery and equipment, respectively.
Cash Flow From Financing Activities in 1995, the reduction of short-term
debt was a result of the decrease in Accounts Receivable and application of such
proceeds to the revolving line of credit. For 1996, the increase in the
short-term debt resulted from the increase in Contracts in Process and decrease
in Accounts Payable accounts, and the Company incurred $333,325 of initial
public offering costs which have been capitalized. For 1997, the Company reduced
financial institution debt and capital lease obligations (net of $4,726,990),
received proceeds from issuance of 1,010,000 shares of Common Stock (net of
$5,147,127), redeemed 1,425 shares of 8% mandatory redeemable preferred stock
($142,500) and paid a preferential common stock dividend ($90,000).
The Company's total bank debt as of August 31, 1997, was $7,202,393, of
which $650,000 was short-term and the balance long-term. The Company has a $10.0
million Revolving Line of Credit and a $4.0 million Non-Revolving Equipment Line
of Credit. The interest rate on the financing is prime rate plus .25 percent.
The Company believes that the unused portion of this credit line and the funds
generated from operations, will be sufficient to cover anticipated cash needs
through 1998. However, depending on the level of future sales, an expanded
credit line may be necessary to finance increases in trade accounts receivable
and contracts in process. The Company believes it will be able to obtain such
expanded credit line, if required, on generally the same terms as the existing
credit line.
Subsequent to August 31, 1997, the Company sold and issued 80,000 shares of
8% Cumulative Convertible Preferred Stock at $100.00 per share (net proceeds of
approximately $7.2 million). With a portion of the proceeds from this sale, the
Company exercised its option to purchase and retire all 730,000 shares of
common stock held by Motor Wheel Corporation for $3.0 million or $4.11 per
share. The balance of the proceeds were used to retire Company debt under its'
Revolving LIne of Credit.
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.
17
<PAGE> 19
BUSINESS
GENERAL
The Company is a leading designer and manufacturer of large scale, complex
stamping die systems used to form sheet metal parts. Most of the stamping die
systems sold by the Company are used in the production of automobile and truck
body parts such as doors, door frames, structural components and bumpers. The
following table sets forth the Company's sales (in millions) and percentage of
total sales by customer in fiscal years 1993, 1994, 1995, 1996 and 1997.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
- --------------------------------------------------------------------------------------------------------------------------
CUSTOMER 1993 1994 1995 1996 1997
- ---------------------------------------------------- ----------- ------------ ------------ ------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Chrysler Corporation.................. $ 8.9 47% $ 6.9 31% $ 5.3 24% $ 4.6 25% $ 8.9 40%
Suppliers of Chrysler Corp. ........... 0 * 0 * 0 * 0 0* .7 3
Ford Motor Company..................... .2 1 1.9 8 1.5 7 2.1 11 3.4 16
Suppliers of Ford Motor Company........ 7.6 40 6.9 31 12.2 55 3.0 17 3.4 16
General Motors Corporation............. 0 0 0 * .2 1 2.3 13 .9 4
Suppliers of General Motors Corporation 0 * 0 * .1 * 1.6 9 1.8 8
Other auto and truck manufacturers
and their suppliers................... 2.2 12 6.7 30 2.9 13 4.7 25 2.8 13
------------- ----------- ------------ ------------- ------------
Total Sales(1).........................$ 18.9 100% $22.4 100% $ 22.2 100% $ 18.3 100% $21.9 100%
============= =========== ============ ============= ============
</TABLE>
- ----------
* Less than 1% of the Company's total sales.
(1) Sales to Motor Wheel Corporation were $2.7, $2.5, $2.8, $2.0, and $.9
million for fiscal years 1993 through 1997, respectively, and are all
included above. Included in sales to Motor Wheel Corporation are die
construction contract underutilization charges of $462,543, $110,744,
$246,011, $72,245 and $0 for fiscal years 1993 through 1997, respectively.
See "Management - Compensation".
INDUSTRY TRENDS
Several significant trends within the North American automotive industry
have had, and are likely to continue to have, an impact on the Company's
business. Over the past several years, the industry has required that its tool
suppliers utilize advanced computer integrated technology. This has required
significant capital investment. In some cases, being unable or unwilling to make
this investment, many independent tooling suppliers have exited the business.
This has decreased the available domestic tooling capacity and has resulted in
fewer qualified suppliers.
The automotive industry's trend towards shorter product life cycles and
introduction of a greater number of vehicle models will create growing demand
for the Company's complex tooling systems. In accordance with this trend,
Chrysler, Ford and General Motors, the three largest domestic automobile
manufacturers, are forming alliances with select suppliers which have the
technological capability to successfully perform simultaneous engineering of
product
18
<PAGE> 20
and manufacturing processes from concept to completion at the supplier
level and utilizing computer data based design, manufacturing and validation
processes. The OEMs have formed "Platform" teams which provide the
organizational structure for this simultaneous engineering process, and have
included their critical or key suppliers in these teams. This simultaneous
engineering concept allows model changes to be implemented more quickly and
cost-effectively. By involving the ultimate tool and die manufacturer early in
the design process, the OEMs are better able to design-in more cost-effective
manufacturing processes, improve product quality, and avoid costly changes
downstream. Chrysler and Ford are currently operating Platform teams and
management believes that General Motors will implement this concept within the
near future.
The emphasis on designing and manufacturing more fuel efficient vehicles as
the result of federal Corporate Average Fuel Economy ("C.A.F.E.") regulation has
produced many new vehicle designs. In addition, automobile manufacturers are
utilizing light-weight, high strength steels and aluminum in new model designs
in order to decrease the weight of the vehicle and increase fuel efficiency.
Therefore, suppliers will be required to have the ability to work with these
types of materials in order to remain competitive. The Company has established
an expertise in manufacturing dies used in the production of structural
components made of light-weight, high strength steels and aluminum.
Chrysler, Ford and General Motors have developed "cash accumulation
policies." These policies entail the establishing and maintaining of cash
reserves to fund new model development during industry downturns. These policies
should create increased and more stable demand for the Company's products and
services in the future. As of June 30, 1997, Chrysler had accumulated $8.0
billion, Ford $18.2 billion and General Motors $19.0 billion, for such
development during future industry downturns.(1) General Motors stated in its
1996 mid-year Report to Shareholders that this cash accumulation "will enable us
to weather the next industry down cycle without sacrificing any of our product
programs, which is critical for long-term success".(2)
Efforts by OEMs and their suppliers to reduce labor and other manufacturing
costs have resulted in their tending to combine common parts into a single
stamping press and reduce the number of "hits" required to manufacture a part.
In addition, utilization of transfer presses has increased demand for transfer
dies to reduce labor cost at the OEMs and their suppliers. The Company believes
that it is one of only a few North American independent suppliers that have the
capability to both design and produce large complex transfer dies.
Management believes these industry trends will continue with emphasis on
simultaneous engineering and manufacturing processes centered around the
utilization of fully computer
- -----------------
(1) Source: Chrysler Corporation, Ford Motor Company and General Motors
Corporation Securities and Exchange Commission Form 10Q for the quarter
ended June 30, 1997
(2) Source: General Motors Corporation, 1996 Midyear Report to Shareholders,
dated September 10, 1996.
19
<PAGE> 21
integrated technologies. This should increase the Company's customer
relationships with and importance to the OEMs and their tier one suppliers of
sheet metal stamped parts and assemblies.
PRODUCTS AND SERVICES
Dies. The Company's dies are used in the high speed production of sheet
metal stamped parts and assemblies. Production of such parts is a multiple step
process involving a series of dies. Typically, the first die is used to cut the
appropriate size metal blank from a sheet or coil of steel. The next die draws
the metal blank into its primary shape and subsequent dies are used to bend
edges or corners, create flanges, trim off excess metal and pierce assembly
holes. A customer usually orders only one series of dies for each separate part.
Normally, the dies do not require replacement due to usage because the life of
well maintained dies is sufficient to carry production to the point when styling
changes dictate production of new dies. The dies manufactured by the Company
generally include automation features, adding to the complexity of design and
construction. These automation features facilitate rapid introduction and
removal of the work piece or raw material into and out of the die, thereby
increasing production speeds and reducing labor cost. A set of stamping dies
manufactured by the Company generally sells for between $250,000 and $2,000,000
depending upon size and complexity.
Simultaneous Engineering of Product and Process. The OEMs are developing
organizational structures involving internal design and engineering personnel as
well as supplier representatives which they are using to develop new car models.
These organizations are called "Platform" teams. This allows full implementation
of simultaneous engineering -- the application of the product engineering and
process engineering functions simultaneously and early in the process. The
Company utilizes advanced Computer Aided Design/Computer Aided Manufacturing
("CAD/CAM") technology to design and manufacture its complex stamping dies. Due
to this advanced computer capability, the Company is able to work very closely
with its customers and is often assigned to these Platform teams early. Its
process engineering input facilitates the teams' goals of introducing new models
rapidly and efficiently. The Company has invested significantly to ensure that
it remains one of the few domestic tool and die firms with advanced technology
capabilities and is one of only a few independent suppliers capable of receiving
and working directly from complex mathematical data received from its OEM
customers. Although several of its competitors also utilize CAD/CAM technology,
management believes the Company is one of only a few suppliers who have
successfully integrated mathematical data into their on-site design,
manufacturing and validation processes across their product line. Management's
investment in, and 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.
20
<PAGE> 22
Typically, prototype tools associated with the primary metal forming
operations are manufactured from an alloy casting or mild steel and subsequently
machined using the mathematical data base and related Computer Numerically
Controlled ("CNC") programs. After machining, the prototype tools are assembled
and tested to validate the integrity and repeatability of the final
manufacturing process. The results of the validation process are incorporated
into the mathematical data base which will then be used to manufacture the final
production tools. After testing the primary forming operations, prototype parts
are manufactured using special means such as computerized laser cutting machines
to trim off excess scrap and to incorporate various slots and holes. These parts
are then sent to the automobile manufacturers for further testing and
evaluation. The results of this testing and evaluation may require the
incorporation of additional design and manufacturing process modifications.
MANUFACTURING
Traditionally, the die manufacturing process was comprised of various manual
steps performed by craftsmen. After being awarded a contract, the Company would
be presented with a wooden model of the part to be produced. From the model,
plaster tooling aids were constructed. The plaster tooling aids were then traced
and cut into steel. The steel was then ground, usually quite extensively, by
hand to fit. Validation was also done by hand by measuring specific points on
the die face and comparing these to the original design blueprints. Today, with
the Company's technology, the design and most of the manufacturing process is
computer-driven, which increases accuracy and reduces the time required to
produce a set of stamping dies. The process starts when the Company is assigned
to a new Platform team and simultaneous engineering begins. An electronic
"model" of the part to be produced is transmitted directly to the Company by
transferring design information electronically 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
21
<PAGE> 23
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 time frames, 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 60% of the
Company's revenues in 1997. For the year ended August 31, 1997, Chrysler, Ford,
General Motors and their tier one suppliers accounted for approximately 85% of
the Company's revenues.
With the growing use of simultaneous engineering, the Company's marketing
goal is to be assigned early to the new model Platforms. As one of only a few
technically proficient suppliers assigned to a Platform, the Company's
opportunity to win business for a new model is greatly enhanced. The Company
works to achieve preferred supplier status with its customers to further
increase its chances of being assigned to new model Platforms.
Sales efforts are conducted primarily by Company's Vice President of Sales,
President, senior management and project management personnel. Frequent contact
is made with the domestic automobile manufacturers and their purchasing agents,
Platform managers and tier one suppliers. When the Company has been assigned to
a new model Platform Team, the Platform Team manager is contacted to determine
those parts and assemblies that will be assigned to various required suppliers.
During the design phase, the Company recommends process and design changes to
improve the cost and quality of the product. Generally, when the Company is
assigned to a Platform Team, orders are obtained directly and without a formal
bid process. The Company maintains a comprehensive computer database with
historical information regarding dies it has previously manufactured. This
assists the Company in quoting prices for dies and enables it to respond to most
quotation requests quickly. If the customer decides to accept the Company's
quotation, a purchase order is issued subject to price adjustments for
engineering changes requested by the customer. Where no Platform Team is
assembled, the Company bids on specific tooling assignments, and bids are
awarded on a competitive basis among a small group of qualified suppliers.
For business done with tier one suppliers, the Company's sales process
follows a more traditional process. The Company typically receives a package or
request for quotation from the tier one supplier and is less involved in the
design process of the part to be manufactured. Bids are generally awarded based
on technological capability, price, quality and past performance.
22
<PAGE> 24
During 1997, the Company entered into a marketing agreement with Jake
International, an international sales and marketing firm, to serve as the
Company's exclusive sales agent in various international markets. The agreement
provides Jake International exclusive marketing of the Company's services and
products to all automotive companies and suppliers in Brazil and Mexico,
excluding General Motors do Brasil until October 15, 1997. Prior to this
agreement, the Company had done no marketing of the Company's services and
products to automotive companies and suppliers in these markets.
BACKLOG AND SEASONALITY
The Company's backlog of awarded contracts, of which all are believed to be
firm, was approximately $17.0 million and $11.8 million as of October 31, 1997
and 1996, respectively. Of the October 31, 1997 contract backlog, the Company
expects all backlog contracts will be reflected in sales during fiscal years
ended August 31, 1998 and 1999. The Company's sales of stamping dies do not
follow a seasonal pattern; however, the timing of new model introductions and
existing model restyling ("facelifts" and "redos") tooling programs are
dependent on Chrysler, Ford and General Motors and their strategy of
accelerating the introduction of new models.
COMPETITION
Large, complex automotive stamping dies are manufactured primarily by three
supplier groups: a) domestic independent tool and die manufacturers, b) foreign
independent tool and die manufacturers, and c) captive or in-house tool and die
shops owned and operated by the OEMs.
The independent (both domestic and foreign) tool and die manufacturers have
experienced a significant reorganization over the past five years as the
industry has consolidated. Management believes that during this period, the
independent domestic supplier base (those with sales of at least $15 million)
was reduced significantly and that fewer than 6 such independent domestic
suppliers remain today. Management believes that these 6 competitors have begun
to utilize portions of the technology utilized by the Company. Further,
significant barriers to entry reduce competition in the large-scale die market.
The industry is highly capital intensive and 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.
23
<PAGE> 25
Finally, the OEMs maintain in-house, captive tool and die capacity to meet a
portion of their needs. General Motors maintains the largest captive capacity
and, based on estimates from various trade publications, supplies an estimated
75-80% of its own die construction needs. Ford produces approximately 50% and
Chrysler 25% of their own respective needs. Independent suppliers like the
Company tend to have a competitive advantage over the OEMs' in-house die shops
due to the OEMs' higher cost structure.
The Company designs, develops and manufactures custom large scale metal
stamping die systems used in the high speed production of sheet metal stamped
parts and assemblies for the automobile industry. The Company incorporates its
knowledge of integrated computer technologies with the design and manufacture of
metal stamping die systems resulting in solutions that address the specific
manufacturing requirements of its main customers, Chrysler, Ford and General
Motors, the three largest domestic automobile manufacturers, and their tier one
suppliers of sheet metal stamped parts and assemblies.
Management has strategically positioned the Company as one of North
America's most technologically advanced independent suppliers of metal stamping
die systems utilizing a totally computer integrated process for the design,
manufacture and validation of its products. The Company should continue to
benefit from current trends in the global automotive industry which require
continuous quality improvement, simultaneous engineering and development, and
increasing reliance on a select number of suppliers capable of utilizing
computer integrated technology to develop new automobile models. Examples of
parts made from die systems recently developed and manufactured by the Company
include; the Ford Explorer and F-Series truck bumper system, Jeep Wrangler door
panels and wheels, Chrysler Neon and mini-vans structural body components,
Chrysler LH roof panels, Ford Navigator frame systems, Ford HN 80 truck panels,
as well as aluminum body panels for the Paccar semi-tractor vehicle.
By transferring the design information electronically, the Company
communicates directly with the OEMs' design and development centers regarding
specific product and manufacturing information necessary to develop a custom
manufacturing system for each respective part. This digital data base is
incorporated in each phase of the design, manufacture and inspection process for
both the prototype and production tooling systems, ensuring high quality
repeatable processes. Electronically linking the Company to the OEMs' design and
development centers enables significant reductions in product development lead
time and cost.
EMPLOYEES
The Company's work force consists of approximately 140 full-time employees,
of which approximately 34 are salaried managerial and engineering personnel. The
balance are hourly employees engaged in manufacturing and indirect labor
support. Included among these hourly workers are approximately 100 skilled
tradesmen who are either journeymen tool and die makers or machinists. None of
the Company's employees are covered by a collective bargaining agreement. The
Company has not experienced any work stoppages and considers its relations with
its employees to be good. The Company has a discretionary contribution 401K
plan. The Company has no contingent pension liabilities arising from any defined
benefit plan.
24
<PAGE> 26
PROPERTIES
The Company's facilities are located in Grand Rapids, Michigan and consist
of approximately 178,000 square feet of space of which 28,000 square feet is
utilized for office, engineering and employee service functions, 98,000 square
feet is dedicated to the Company's tooling production and 52,000 square feet is
under a four-year sublease to an unaffiliated tenant. Constructed in 1989, the
facility is leased with a lease term of 20 years. The facility lease provides
for annual payments of $934,500 plus an escalation of base rent of 1% for each
of the first ten years and 2% for each of the second ten years. The Company has
a purchase option on the building at the fair market value beginning in November
1996. The sublease requires annual lease payments of $216,000 commencing August
1, 1994 through July 1, 1996 with annual lease payments of $224,724 commencing
August 1, 1996 through July 1, 1998. The sublease has two renewal options for
two years each with annual lease payments of $231,468 and $238,412,
respectively. The sublease also requires the subtenant to pay 33.7% of common
operating expenses of the facility.
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.
25
<PAGE> 27
MANAGEMENT
The following table sets forth the names of and certain other
information concerning the executive officers and directors of the Company.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OF TOTAL COMMON
COMMON STOCK OF THE
STOCK COMPANY
BENEFICIALLY BENEFICIALLY
POSITIONS AND OFFICES OWNED AS OF OWNED AS OF TERM
NAME AND YEAR FIRST WITH THE COMPANY AND OTHER NOVEMBER 30, NOVEMBER 30, TO
BECAME A DIRECTOR AGE PRINCIPAL OCCUPATIONS 1997 1997 EXPIRE
- ----------------------------------------------------------------------------------------------------------------------- ----------
<S> <C> <C> <C> <C>
Kenneth K. Rieth (1980)...... 38 President and Chief Executive Officer of the 605,000(1) 34.5% 1999
Company............................................
Leonard H. Wood (1988)....... 55 Vice President and General Manager of the Company.. 500 * 1998
Peter C. Canepa.............. 39 Chief Financial Officer, Treasurer and ............ 5,000 * _
Secretary of the Company
John C. Kennedy (1988)....... 39 Principal owner, Director and President 8,333(2) * 1997
Autocam Corporation ...............................
Thomas H. Highley (1997)..... 55 President and Chief Executive Officer - - 1997
The Empire Company, Inc............................
Thomas R. Collins (1995)..... 54 Controller, Hayes Wheels International, Automotive - - 1998
Brake Division.....................................
John R. Kinstler (1988)...... 48 Vice President, Hayes Wheels International, - - 1999
Fabricated Wheel Division..........................
-------- -----
All Directors and Executive Officers as a group (7 persons)................... 618,833 35.1%
======== =====
</TABLE>
- ------------
* Beneficial ownership of less than 1% of the class.
(1) Riviera Holding Company, 100% owned by Kenneth K. Rieth, President and CEO
of Riviera Tool Company, owns the Common Stock of Riviera Holding Company.
(2) Mr. Kennedy owns 500 shares of the Company's 8% Convertible Preferred
Stock (less than 1% of such preferred stock outstanding), convertible at
any time into common stock at $6.00 per share. For purposes of calculating
the percentage of outstanding shares owned by Mr. Kennedy and the group,
these shares are deemed to be converted by Mr. Kennedy.
OTHER INFORMATION RELATING TO DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is each Director's name, date he became a Director and a
brief account of the business experience of each Executive Officer and Director
during the past five years.
KENNETH K. RIETH - 1980
Mr. Rieth has been a principal owner and President of Riviera Tool Company
since 1980. Mr. Rieth has served as a Director of Autocam Corporation, a
designer and manufacturer of close tolerance, specialty metal alloy components
for the automotive, electronic and computer industries since 1991.
26
<PAGE> 28
LEONARD H. WOOD - 1988
Mr. Wood has been a Vice President of the Company since 1985. Prior to that
time, he was Project Manager with American Motors Corporation.
PETER C. CANEPA
Mr. Canepa has been with the Company since March of 1994 as the Chief
Financial Officer, Secretary and Treasurer. Prior to that time, he was Chief
Financial Officer, Treasurer and Director of Frost, Incorporated, a Michigan
corporation, a manufacturer of material handling systems components, for more
than three years.
JOHN C. KENNEDY - 1991
Mr. Kennedy has been a principal owner, Director and President of Autocam
Corporation, a designer and manufacturer of close tolerance, specialty metal
alloy components for the automotive, electronic and computer industries since
1988.
THOMAS R. COLLINS - 1988
Mr. Collins has been Controller of the Automotive Brake Division of Hayes
Wheels International, Inc. since July, 1996. Prior to that time, he was Vice
President, Treasurer and Chief Financial Officer of Motor Wheel Corporation, a
designer and producer of wheels and brakes for the automotive and commercial
highway markets, since 1991. Prior to 1991, he was Comptroller and held other
various positions at Motor Wheel Corporation.
JOHN R. KINSTLER 1988
Mr. Kinstler has been Vice President of Engineering of the Fabricated Wheel
Division of Hayes Wheels International, Inc., since May, 1996. Prior to that
time, he was Vice President of Manufacturing of Motor Wheel Corporation since
1992. He was Executive Vice President of Engineering and Quality from 1989
through 1992 and Vice President of Engineering from 1985 through 1989 of Motor
Wheel Corporation.
THOMAS H. HIGHLEY 1997
Mr. Highley has been President and CEO of The Empire Company, Inc., a
distributor of residential and commercial millwork products, since 1991.
The Company has agreed to use its best efforts to elect a person designated
by National Securities Corporation, the managing underwriter for its initial
public offering, to the Company's Board of Directors. National Securities
Corporation has not designated a person for this position as of this date.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has a standing Audit Committee. The current members of the Audit
Committee are Messrs. John C. Kennedy and Thomas H. Highley. During fiscal year
ended August 31, 1997, the Audit Committee held one meeting. The duties of the
Audit Committee are briefly: recommending to the Board of Directors the
retention or discharge of the independent public accountants; reviewing the
arrangements and scope of the audit and non-audit engagements and
27
<PAGE> 29
the compensation of the independent public accountants; reviewing with the
independent public accountants and the Company's financial officers the adequacy
of the Company's internal financial controls; and reviewing major changes in
accounting policies.
The Company has a standing Compensation Committee. The current members of
the Compensation Committee are Messrs. John R. Kinstler, Thomas H. Highley, and
Thomas R. Collins. The duties of the Committee recommending to the Board of
Directors the remuneration arrangements for Kenneth K. Rieth, President and
Chief Executive Officer of the Company and granting stock options under the
Company's 1996 Stock Option Plan. During fiscal year ended August 31, 1997,
the Compensation Committee held no meetings.
The Company has no nominating committee the functions of which are
performed by the Board of Directors.
28
<PAGE> 30
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Compensation of Directors
The Company pays each Director who is not a Company employee or an employee
of a 10% or more shareholder a fee of $5,000 per year. During fiscal year ended
August 31, 1997, the Company paid $5,000 of Directors fees to Messrs. Kennedy
and Highley.
Summary Compensation Table
The following table sets forth the total compensation earned by each of the
Company's Executive Officers during the fiscal years ended August 31, 1995,
1996, and 1997 for services rendered to the Company in all capacities during
such years.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
-----------------------------------------------------------
OTHER ALL
FISCAL ANNUAL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(2) COMPENSATION(4)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Kenneth K. Rieth....................................... 1997 $ 150,800(3) $ 64,798 (3) $ -0- $ 1,264
President, CEO and Director 1996 150,800 -0- -0- 1,267
1995 150,800 -0- -0- 1,233
Leonard H. Wood........................................ 1997 $ 129,700 $ -0- $ 7,291 $ 1,421
Vice President, General Manager and Director 1996 124,800 -0- 7,291 1,425
1995 124,800 -0- 7,291 1,326
Peter C. Canepa........................................ 1997 $ 112,500 $ 69,789 $ -0- $ -0-
Secretary, Treasurer and CFO 1996 110,500 -0- -0- -0-
1995 110,500 -0- -0- -0-
</TABLE>
- --------------
(1) Does not include any value that might be attributable to job-related
personal benefits, the annual value of which has not exceeded the lesser of
10% of annual salary plus bonus or $50,000 for each executive officer.
(2) Represents the dollar value of the premiums paid by the Company for life
insurance policy maintained in of respect an Executive Deferred Compensation
Plan agreement with Mr. Wood. This Agreement provides that upon death,
disability or retirement from service after reaching age 65, the employee or
his heirs and assigns will receive $50,000 per year for five consecutive
years. For each year that employment with the Company is terminated, for any
reason, prior to September 1, 1999, the benefit will be reduced by 10% or
$5,000 per year.
(3) The Company has an Employment Agreement with Kenneth K. Rieth pursuant to
which Mr. Rieth will continue to serve as the Chief Executive Officer and
President of the Company. The term of the agreement is for a period of
three years beginning September 1, 1996. Pursuant to the agreement with Mr.
Rieth, the Company will pay Mr. Rieth a base salary of $150,800 and a bonus
of not less than 3.5% of the Company's income before taxes.
(4) Amounts contributed to the 401(k) plan maintained by the Company for
its employees generally.
The Company's Board of Directors has given Mr. Rieth the authority to set
the compensation for senior management.
1996 Stock Option Plan
The Company's 1996 Stock Option Plan (the "Option Plan") was adopted by the
Board of Directors and approved by the shareholders on October 31, 1996. Under
such Option Plan no options were issued or granted during the year ended August
31, 1997. The purpose of the Option Plan is to make options available to
employees of the Company to give them a greater
29
<PAGE> 31
personal interest in the success of the Company and an added incentive to
continue their employment. Employees of Riviera Holding Company are not eligible
to participate in the Option Plan. Two Hundred Fifty Thousand shares of Common
Stock are reserved for issuance under the Option Plan and the options are
intended to qualify as incentive stock options under the Internal Revenue Code
of 1986, as amended.
The Option Plan is administered by the Compensation Committee. Options
granted under the Option Plan are not transferable by the optionee other than by
will or the laws of descent and distribution. Each option is exercisable during
the lifetime of the optionee and so long as the employee does not engage in
activity in competition with or contrary to the interests of the Company. No
option may be granted under the Option Plan after August 31, 2006.
The exercise price of options granted under the Option Plan cannot be less
than the fair market value of the underlying shares on the option grant date.
The terms of each option and the manner in which it may be exercised will be
determined by the administrator subject to the requirement that no option may be
exercisable more than ten years after the option grant date. With respect to any
option granted to a participant who owns, or is deemed to own, stock possessing
more than 10% of the voting rights of the Company's outstanding capital stock at
the option grant date, the exercise price of the option must be at least equal
to 110% of the fair market value on the date of grant and the option may not be
exercisable more than five years after the option grant date. Under the terms of
the Option Plan, the aggregate fair market value of the Common Stock (determined
at the date of the option grant) underlying options granted to any employee and
exercisable in any single year may not exceed $100,000.
Retirement Savings Plan
The Company has a profit-sharing plan that covers substantially all
employees (the "Plan"). The Plan includes a 401(k) deferred compensation option.
It is the Company's policy to fund profit-sharing costs accrued on an annual
basis. The Plan, as established, allows for discretionary contribution as
determined annually by the Company's Board of Directors. No discretionary
contribution has been made for 1995, 1996, or 1997.
Part of the Plan includes a retirement savings plan qualified under Internal
Revenue Code Section 401(k) in which all full-time employees may participate.
Contributions are made to the plan by participants electing to defer portions of
their regular compensation. Amounts elected to be deferred within certain
statutory limits (currently $9,500 per year) are not taxable to the participant.
The Company matches and contributes up to 15% of the employee's contribution to
the 401(k) Plan, up to 2% of the employee's annual wage.
The Company's 8% Cumulative Preferred Stock (not the 8% Cumulative
Convertible Preferred Stock now outstanding) was all owned by the Plan. All
outstanding shares were redeemed prior to July 1, 1997 together with payment of
all unpaid dividends.
Under the Plan, benefits are payable in a lump sum upon termination of
employment with the Company for any reason.
30
<PAGE> 32
SHAREHOLDERS AGREEMENT
Riviera Holding Company and Motor Wheel had a written Shareholders Agreement
which was terminated in October 1997 (the "Shareholders Agreement"). It provided
that they would unconditionally and irrevocably vote their respective shares of
Common Stock jointly in structuring the Company's Board of Directors into a
board consisting of seven members divided into three classes, two classes
consisting of two members and one class consisting of three members. Under the
agreement Riviera Holding Company was entitled to designate three directors and
Motor Wheel to designate two directors. Both parties agreed unconditionally and
irrevocably to vote all of their respective shares of Common Stock in favor of
the persons so designated by each party as directors. The remaining members of
the Board of Directors (two directors) could be nominated by any person;
however, Motor Wheel and Riviera Holding Company had agreed to vote together on
nominees for these positions. Voting on all other matters was in the sole
discretion of the shareholder. Under such Shareholder Agreement, Riviera Holding
Company had designated as directors Messrs. Rieth, Wood, and Kennedy whereas
Motor Wheel had designated Messrs. Kinstler and Collins. Mr. Highley was elected
by the agreement of Motor Wheel and Riviera Holding Company.
Pursuant to the Shareholders Agreement, Motor Wheel had granted Riviera
Holding Company an option to purchase all the shares of the Company owned by
Motor Wheel. The option was exercisable at a purchase price of $3.0 million, or
$4.11 per share, payable within 30 days after notice of exercise. Riviera
Holding Company assigned its rights pursuant to this option to the Company. In
October,1997, the Company issued and sold 80,000 shares of 8% Cumulative
Convertible Preferred Stock at $100.00 per share. With a portion of the proceeds
from this sale, the Company exercised its option to purchase and retired all
730,000 shares of common stock held by Motor Wheel Corporation for $3.0 million
or $4.11 per share. The Shareholders Agreement was then terminated.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1997 and prior to the Company's initial public offering, the
Board of Directors, then consisting of Directors Kennedy, Wood, Kinstler,
Collins and Rieth, had the responsibility of setting executive compensation. The
Compensation Committee of the Board of Directors consisting of Directors
Collins, Kinstler and Highley was formalized on April 16, 1997 and has assumed
that responsibility. Mr. Rieth serves as President and Chief Executive Officer
of the Company and serves on the Board of Directors of Autocam Corporation,
where Mr. Kennedy is President, Chief Executive Officer and also a member of the
Board of Directors. Mr. Rieth also served on the Compensation Committee of
Autocam Corporation until August 1995.
The Company previously had a contract with Motor Wheel relating to the
performance of engineering for and construction of dies to be purchased by Motor
Wheel. This contract was terminated October 31, 1996, effective December 31,
1995. Mr. Kinstler, a director of the Company, is Vice President of the
Fabricated Wheel Division of Hayes Wheels International,
31
<PAGE> 33
Inc., the Parent Company of Motor Wheel. Mr. Collins, a director of the Company,
is Controller of the Automotive Brake Division of Hayes Wheels International,
Inc., the Parent Company of Motor Wheel. Motor Wheel then owned 29.6% of the
outstanding Common Stock of the Company. The contract with Motor Wheel provided
that the Company would quote such services to Motor Wheel at hourly rates not
greater than it had on file with or was actually quoting to any automobile
manufacturer. Motor Wheel was required to purchase not less than 155,000 hours
of such work, as defined by the contract, or, if less, 85% of its entire
domestic consumption of such services if domestic consumption was less than
182,500 hours in any year. In that event, Motor Wheel was required to purchase
its foreign consumption of such services from the Company if the Company was
competitive in price, quality and delivery. Motor Wheel paid to the Company
$72,245 and $246,011 during fiscal 1996 and 1995, respectively, resulting from
its having used less than the 155,000 hour minimum. The contract was to
terminate on December 31, 1998 and could have been extended for two additional
five year terms by Motor Wheel. Pursuant to the Shareholders Agreement between
Motor Wheel and Riviera Holding Company dated October 31, 1996, such die
construction supply contract was terminated effective December 31, 1995. As a
result, no under utilization charges will be received by the Company for any
period after December 31, 1995.
Pursuant to the Shareholders Agreement, Motor Wheel had granted Riviera
Holding Company an option to purchase all the shares of the Company owned by
Motor Wheel. The option was exercisable at a purchase price of $3.0 million, or
$4.11 per share, payable within 30 days after notice of exercise. Riviera
Holding Company assigned its rights pursuant to this option to the Company. In
October,1997, the Company exercised this option. See "Shareholder Agreement"
below.
Riviera Holding Company, owned 100% by Kenneth K. Rieth, had pledged all of
its shares of the Company to NBD Bank in connection with commercial lending
arrangements not related to the Company. The pledge was terminated effective
with the Company's initial public offering, March 4, 1997, pursuant to a
settlement agreement between Riviera Holding Company, NBD Bank and Kenneth K.
Rieth. Under such settlement agreement, NBD Bank received 125,000 shares of the
Common Stock of the Company from Riviera Holding Company, owned 100% by Kenneth
K. Rieth, a pledge by co-plaintiffs Kenneth K. Rieth, Arlene Morris, Riviera
Holding Company and the Company of all proceeds of the legal action against Fred
Borsini, Herbert Keeler and Durametallic Corporation, and a pledge by the
Company of $1,000,000 of existing Key Man life insurance on Kenneth K. Rieth.
The pledges were terminated and all obligation to NBD Bank by the Company was
released on December 2, 1997.
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 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.
The Company believes that the transactions described above were at prices
and terms which were no less favorable to the Company than would have been
available in similar transactions
32
<PAGE> 34
with unaffiliated third parties. The policy of the Company is that proposed
transactions with affiliates of the Company must have the prior approval of a
majority of the disinterested members of the Board of Directors and be made on
terms no less favorable to the Company than could be obtained from unaffiliated
parties.
33
<PAGE> 35
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's articles of incorporation and bylaws provide for
indemnification of directors and officers. The Company believes that such
indemnification will assist the Company in continuing to attract and retain
talented directors and officers in light of the growing risk of litigation
directed against directors and officers of publicly held corporations. The
Company's articles of incorporation and bylaws provide that the Company shall
indemnify each person who may serve or who has served at any time as director or
officer, or who at the request of the Board of Directors of the Company may
serve or at any time have served as director or officer of another corporation
or enterprise, and his or her respective heirs, administrators, successors and
assigns, against any and all expenses, including amounts paid upon judgments,
counsel fees, and amounts paid in settlement (before and after suit is
commenced), actually and reasonably incurred by such person in connection with
the defense or settlement of any claim, action, suit, or proceeding in which he
or she is made a party, or is a party, or which may be asserted against him or
her in any event, by reason of being or having been director or officer of the
Company or any such other corporation or enterprise, if he or she acted in good
faith and in a manner which such person reasonably believed to be in or not
opposed to the best interests of the Company, or its shareholders, and, with
respect to any criminal action or proceeding, had reasonable cause to believe
that his or her conduct was not unlawful. Payment indemnification requires
approval of the shareholders not parties or threatened to be made parties to the
proceeding or by the majority of a quorum or committee of the Board of Directors
as defined in the Michigan Business Corporation Act. Such indemnification shall
be in addition to any other rights to which those indemnified may be entitled
under any law, by-law, agreement, vote of Shareholders or otherwise.
The Michigan Business Corporation Act permits Michigan corporations to limit
the personal liability of directors for a breach of their fiduciary duty. The
Company's articles of incorporation limit liability to the maximum extent
permitted by law. The Company's articles of incorporation provide that a
director of the Company shall not be personally liable to the Company or its
shareholders for monetary damages for breach of the director's fiduciary duty.
However, it does not eliminate or limit the liability of a director for any of
the following: (1) the amount of a financial benefit received by a director to
which the director is not entitled, (2) intentional infliction of harm on the
Company or its shareholders, (3) declaring an unlawful distribution, or (4) an
intentional criminal act. As a result of this provision, shareholders of the
Company may be unable to recover monetary damages against directors for actions
taken by them which constitute negligence or gross negligence or which are in
violation of their fiduciary duties, although it may be possible to obtain
injunctive or other equitable relief with respect to such actions. If equitable
remedies are found not to be available to shareholders in any particular case,
shareholders may not have any effective remedy against the challenged conduct.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act") may be permitted to underwriters or to
directors, officers or persons controlling the Company
34
<PAGE> 36
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
35
<PAGE> 37
PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of November 30, 1997 by persons known
by the Company to own more than 5% of the Company's Common Stock.
Beneficial ownership includes both voting and investment power.
<TABLE>
<CAPTION>
SHARES
NAME AND ADDRESS BENEFICIALLY OWNED
---------------- ----------------------------------
NUMBER PERCENT
------ -------
<S> <C> <C>
Kenneth K. Rieth........................................................................ 605,000(1) 34.5%
5460 Executive Parkway SE, Grand Rapids, MI 49512
Heartland Advisor, Inc.................................................................. 351,400(2) 18.0%
790 N. Milwaukee Street, Milwaukee, WI 53202
Wellington Management................................................................... 308,333(3) 16.3%
75 State Street, Boston, MA 02109
Pioneer Management Corporation.......................................................... 200,000(4) 10.2%
60 State Street, Boston, MA 02109
Schaenan & Fox Capital Management, Inc.................................................. 171,900 9.8%
200 Park Avenue, New York, NY 10166
Kennedy Capital Management, Inc......................................................... 178,108(5) 9.2%
10829 Olive Boulevard, St. Louis, MO 63141
Deltec Asset Management Corporation..................................................... 158,333(6) 8.28%
535 Madison Avenue, New York, NY 10022
William Harris Investors, Inc........................................................... 138,667(7) 7.4%
2 North LaSalle Street, Chicago, IL 60602
ROI Capital Management.................................................................. 100,000(8) 5.4%
17 E. Sir Francis Drake Boulevard, Larkspur, CA 94939
</TABLE>
(1) Riviera Holding Company, 100% owned by Kenneth K. Rieth, President and CEO
of Riviera Tool Company, owns the Common Stock of Riviera Holding Company.
(2) Includes 195,000 shares of Common Stock which may be acquired immediately
through the conversion of 8% Cumulative Convertible Preferred Stock at
$6.00 per share. For purposes of calculating the percentage of outstanding
shares of Common Stock owned by this person these shares are deemed to have
been converted and owned by this person.
(3) Includes 133,333 shares of Common Stock which may be acquired immediately
through the conversion of 8% Cumulative Convertible Preferred Stock at
$6.00 per share. For purposes of calculating the percentage of outstanding
shares of Common Stock owned by this person these shares are deemed to have
been converted and owned by this person.
(4) Includes 200,000 shares of Common Stock which may be acquired immediately
through the conversion of 8% Cumulative Convertible Preferred Stock at
$6.00 per share. For purposes
36
<PAGE> 38
of calculating the percentage of outstanding shares of Common Stock owned
by this person these shares are deemed to have been converted and owned by
this person.
(5) Includes 178,108 shares of Common Stock which may be acquired immediately
through the conversion of 8% Cumulative Convertible Preferred Stock at
$6.7375 per share. For purposes of calculating the percentage of
outstanding shares of Common Stock owned by this person these shares are
deemed to have been converted and owned by this person.
(6) Includes 158,333 shares of Common Stock which may be acquired immediately
through the conversion of 8% Cumulative Convertible Preferred Stock at
$6.00 per share. For purposes of calculating the percentage of outstanding
shares of Common Stock owned by this person these shares are deemed to have
been converted and owned by this person.
(7) Includes 116,667 shares of Common Stock which may be acquired immediately
through the conversion of 8% Cumulative Convertible Preferred Stock at
$6.00 per share. For purposes of calculating the percentage of outstanding
shares of Common Stock owned by this person these shares are deemed to have
been converted and owned by this person.
(8) Includes 100,000 shares of Common Stock which may be acquired immediately
through the conversion of 8% Cumulative Convertible Preferred Stock at
$6.00 per share. For purposes of calculating the percentage of outstanding
shares of Common Stock owned by this person these shares are deemed to have
been converted and owned by this person.
(9) Includes 8,333 shares of Common Stock which may be acquired immediately
through the conversion of 8% Cumulative Convertible Preferred Stock at
$6.00 per share. For purposes of calculating the percentage of outstanding
shares of Common Stock owned by this person these shares are deemed to have
been converted and owned by this person.
37
<PAGE> 39
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 200,000 shares of
preferred stock of which 80,000 shares have been designated as 8% Cumulative
Convertible Preferred Stock and all 80,000 of which are issued and outstanding.
Additionally, the Company has authorized 1,425 shares of 8% Cumulative Preferred
Stock, which were issued and subsequently redeemed and none of which are
currently outstanding. Finally, the Company has 9,798,575 shares of Common Stock
authorized, of which 1,755,000 shares are currently issued and outstanding. See
"Management" and "Principal Shareholders." Pursuant to Michigan corporate law,
the capital stock of the Company has no par value.
PREFERRED STOCK
The terms of the unissued shares of preferred stock, or any series thereof,
may be determined from time to time by the Board of Directors. Such shares may
be convertible into Common Stock and may be superior to the Common Stock in the
payment of dividends, liquidation, voting and other rights, preferences and
privileges. Shares of preferred stock may be issued from time to time by
authorization of the Board of Directors of the Company without the vote of
holders of the Common Stock. The issuance of such preferred stock could be used,
for example, in certain circumstances to render more difficult or to discourage
a merger, tender offer or proxy contest or a removal of incumbent management.
The Company has no present plans to issue any shares of preferred stock.
8% CUMULATIVE PREFERRED STOCK (REDEEMED)
If issued, holders of the 8% Cumulative Preferred Stock (the "Redeemable
Preferred Stock") could vote only on such matters where voting as a class is
required by law to authorize an action. All outstanding shares of this stock in
the past were owned by the Company's qualified retirement plan. A dividend of
$8.00 per share is payable on each July 31 to the holder of each share of such
stock and no other dividends can be paid until all such dividends have been paid
for all periods during which the Redeemable Preferred Stock is outstanding. No
other dividends are payable in respect of the Redeemable Preferred Stock. Any
outstanding Redeemable Preferred Stock may be redeemed at any time by the Board
of Directors for the price of $100 per share. Upon redemption, all unpaid
dividends must also be paid on a pro rata basis through date of redemption. In
the event of liquidation of the Company, holders of shares of Redeemable
Preferred Stock, if any, would be entitled to receive, prior to the holders of
shares of all other stock of the Company, ratably an amount up to $100 per share
plus all unpaid and accrued dividends to the date of payment. Holders of
Redeemable Preferred Stock would have no conversion rights and are not entitled
to any preemption or subscription rights. No shares of Redeemable Preferred
Stock are currently outstanding.
8% CUMULATIVE CONVERTIBLE PREFERRED STOCK
The holders of the 8% Cumulative Convertible Preferred Stock will possess
no voting rights with respect to their Shares except where required by law and
under the following circumstances:
38
<PAGE> 40
(i) at whatever time or times dividends are not payable for two consecutive
quarterly periods, the holders of the Shares have the right to elect one
additional director who shall continue until all such accumulated dividends have
been paid in full, or (ii) for so long as the Shares remain outstanding, the
Company must obtain a vote of the holders of 66 2/3% of the then outstanding
Shares to issue any class of stock ranking senior to the Shares as to dividends
or distribution of assets on liquidation. Cumulative dividends shall be paid at
an annual rate of 8% payable quarterly, in arrears, at a rate of $2.00 per share
per quarter, commencing December 31, 1997. Upon liquidation, the Shares will be
entitled to seniority to the extent of $100 per share plus cumulative dividends
to the date of payment over the Common Stock and any other capital stock not
given senior rights by the holders of the Shares. The Shares will be convertible
into Common Stock at any time, and from time to time, in whole or in part, for
the number of shares of Common Stock per share equal to $100 divided by $6.00
for 67,500 of the Shares and $6.7375 for 12,500 of the Shares. All Shares
outstanding will be automatically converted into Common Stock when the average
closing price for the Common Stock on the AMEX for 10 consecutive trading days
is equal to or greater than $10 per share. The Company shall not be required to
issue fractional shares in connection with any conversion and a cash payment
shall be made in lieu thereof. The Shares will not be subject to call for
redemption by the Company. The Company has agreed with the initial purchasers of
the Preferred Stock that it will have a registration statement become effective
under the 1933 Act covering the shares of Common Stock issuable upon conversion
of the Preferred Shares by February 6, 1998 and use its best efforts to maintain
such registration after its effective date until October 24, 1999. The Company
must pay a penalty to the initial holders of the Preferred Stock at a rate of
2% per annum of the liquidation value of the shares held until a registration
statement covering the Common Stock issuable upon conversion of the Preferred
Stock is effective. See Note 2 of Notes to Financial Statements of the 1997
Audited Financial Statements.
COMMON STOCK
Holders of Common Stock have one vote per share and a ratable right to the
net assets of the Company in liquidation after payment of all amounts due to
creditors and any holders of preferred stock. After payment of dividends or
distributions to the holders of preferred stock, if any, holders of Common Stock
participate ratably in dividends and distributions as may be declared by the
Board of Directors from funds legally available therefor. See "Dividend Policy."
Holders of Common Stock have no conversion rights and are not entitled to any
preemptive or subscription rights. The shares of Common Stock currently
outstanding are, and the shares to be issued pursuant to this Offering will be,
duly authorized, validly issued, fully paid and nonassessable.
VOTING ON DIRECTORS
The Company's by-laws provide that the Board of Directors is divided into
three classes with each class elected for a three year term. The Board currently
consists of six members. Shareholders do not have cumulative voting rights in
the election of directors. Riviera Holding Company and Motor Wheel Corporation,
which no longer owns any Common Stock, had an agreement with respect to the
voting of their shares on Directors which provided that they would vote in
concert to elect three members designated by Riviera Holding Company, two
members
39
<PAGE> 41
designated by Motor Wheel and two additional members as they were to agree upon.
Only one additional member had been agreed upon, Thomas H. Highley. This
agreement terminated on October 10, 1997 when the stock of the Company owned by
Motor Wheel Corporation was redeemed. Holders of the Preferred Stock possess the
right to elect by majority vote of the outstanding shares one additional
Director during such periods as two consecutive quarters of dividends remain
unpaid.
OTHER PROVISIONS
Chapter 7A of the Michigan Business Corporation Act. Under Chapter 7A of the
Michigan Business Corporation Act (the "MBCA"), "business combinations" (defined
to include, among other transactions, mergers, consolidations, certain
dispositions of assets or shares, and certain recapitalizations) between certain
corporations or their domestic subsidiaries and an "interested Shareholder"
(defined as the direct or indirect beneficial owner of at least 10% of the
voting power of a covered corporation's outstanding shares or an affiliate of
the corporation which had such 10% ownership within the preceding two years) can
only be consummated if approved by at least 90% of the votes of each class of
the corporation's shares entitled to vote thereon and by at least two-thirds of
such votes not held by the interested Shareholder or its affiliates, unless
certain price and other conditions imposed by Chapter 7A are satisfied. The
Board of Directors may elect to exempt business combinations with a particular
interested shareholder from the requirements of Chapter 7A at any time before
the interested shareholder attains that status.
Chapter 7B of the Michigan Business Corporation Act. Under Chapter 7B of the
MBCA, "control shares" (defined to mean shares, which when added to all other
shares of the corporation owned by a person or with respect to which that person
may exercise or direct the exercise of voting power, would entitle that person,
immediately after the acquisition of the shares, to exercise or direct the
exercise of voting power in the election of directors in excess of threshold
levels of 20%, 33 1/2% or a majority of all voting power) acquired in a "control
share acquisition" (defined to include the acquisition, directly or indirectly,
by any person of ownership of or the power to exercise the voting power with
respect to, issued and outstanding control shares) have the same voting rights
as were accorded the shares before the control share acquisition only to the
extent granted by resolution approved by the Shareholders of the corporation. To
have such a resolution considered by the shareholders of the corporation, the
acquiring person must deliver an "acquiring person statement" to the corporation
and the Michigan Department of Commerce, Corporations, Securities and Land
Development Bureau. To be approved by the shareholders, the resolution must be
approved by a majority of the votes cast by the holders of the Common Stock and
a majority of the votes cast by the holders of shares of each class or series
entitled to vote thereon, excluding "interested shares" (defined to include
shares held by the acquiring person or member of his group, an officer of the
corporation and any director who is also an employee of the corporation). The
practical effect of Chapter 7B of the MBCA is to require that a person making a
tender offer for shares of a corporation condition the offer on shareholder
approval of the person's right to vote the shares to be acquired.
If authorized by the corporation's articles of incorporation or bylaws,
control shares acquired in a control share acquisition with respect to which no
acquiring person statement has been filed
40
<PAGE> 42
may be redeemed by the corporation at any time more than 60 days after the end
of the control share acquisition at "fair value." If authorized by the
corporation's articles of incorporation or bylaws, control shares acquired in a
control share acquisition which are not accorded full voting rights may be
redeemed by the corporation at "fair value." Unless otherwise provided in the
corporation's articles of incorporation or bylaws, in the event that control
shares acquired in a control share acquisition are accorded full voting rights
and the acquiring person has acquired a majority of all voting power of the
corporation, the shareholders of the corporation, other than the acquiring
person, have dissenters' rights. "Fair value" means a value not less than the
highest price paid per share by the acquiring person in the control share
acquisition.
The provisions of Chapter 7B automatically apply to the Company, although
the Board of Directors or the shareholders may elect to remove the Company from
the application of Chapter 7B. The Board has no plans to elect to remove such
application and is not aware of any plans or proposals to do so. Further, none
of the provisions discussed above has been included in the Company's Articles of
Incorporation or Bylaws.
The foregoing discussion concerning the provisions of the MBCA is qualified
in its entirety by reference to such MBCA provisions.
SHAREHOLDER PROPOSALS
Any proposal intended to be presented by a shareholder at a meeting of the
Company's shareholders must be presented in writing to the Secretary of the
Company at least 60 days prior to the date of the meeting for consideration by
the shareholders at such meeting.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the shares of Common Stock of the
Company is Continental Stock Transfer & Trust Company. Its telephone number is
(212) 509-4000.
41
<PAGE> 43
SHARES ELIGIBLE FOR FUTURE SALE
On this date and immediately following the completion of this Offering,
approximately 605,000 shares of Common Stock will be held by Riviera Holding
Company which is 100% owned by Kenneth K. Rieth. Such shares of Common Stock
(herein referred to as "Restricted Shares") may not be sold unless they are
registered under the Securities Act of 1933, are sold pursuant to an applicable
exemption from registration, or sold within the volume limitations established
by Rule 144 promulgated under the Act. Rule 144 restricts Riviera Holding
Company to sales via brokers' transactions or to market-makers in an amount in
any three months not in excess of the greater of 1% of the number of shares of
Common Stock then outstanding or the average weekly trading volume for a
four-week period prior to each such sale. In connection with the initial public
offering of its Common Stock, Riviera Holding Company has agreed not to sell any
of its Restricted Shares until March 4, 1999 without the consent of National
Securities Corporation, the managing underwriter of the Offering ("National").
In connection with its initial public offering, the Company issued warrants
to National and affiliates, entitling them to purchase up to 101,000 shares of
Common Stock ("National's Initial Warrant"). National's Initial Warrant is
exercisable beginning March 4, 1998, expires four years later, and may not be
transferred, assigned or hypothecated prior to March 4, 1998, but may
thereafter be assigned to any successor, officer or partner of National
Securities Corporation. National's Initial Warrant will be exercisable in whole
or in part during that four year period at a price equal to $10.50 per share.
National's Initial Warrant provides for adjustment in the exercise price in
the event of certain mergers, acquisitions, stock dividends and capital
changes. National's Initial Warrant grants to the holders thereof certain
rights with respect to the registration under the Act of the securities
issuable upon exercise of the warrant. In the event of the exercise of
National's Initial Warrant, the Company has the right to redeem such warrants.
In connection with its recent placement of 8% Cumulative Convertible
Preferred Stock, the Company issued warrants to National and affiliates,
entitling them to purchase up to 50,000 shares of Common Stock (the "Placement
Agent's Warrant"). The Placement Agent's Warrant is exercisable beginning
October 10, 1998, expires four years later, and may not be transferred,
assigned or hypothecated for a period of one year following the date of its
issuance, but may thereafter be assigned to any successor, officer or partner
of the placement agent. The Placement Agent's Warrant will be exercisable in
whole or in part during that four year period at a price equal to $10.00 per
share. The Placement Agent's Warrant provides for adjustment in the exercise
price of the Placement Agent's Warrant in the event of certain mergers,
acquisitions, stock dividends and capital changes. The Placement Agent's
Warrant grants to the holders thereof certain rights with respect to the
registration under the Act of the securities issuable upon exercise of the
Placement Agent's Warrant. National's Initial Warrant and the Placement Agent's
Warrant are the Warrants exercisable for a portion of the Shares included in
this Offering.
In addition, the Company has issued warrants to purchase 30,000 shares of
its Common Stock in connection with a consulting arrangement. This warrant is
exercisable beginning March 4,
42
<PAGE> 44
1998, expires four years later, and may not be transferred, assigned or
hypothecated. This warrant will be exercisable in whole or in part during that
four year period at a price equal to $10.50 per share for 15,000 shares and
$14.00 per share for 15,000 shares. The warrant provides for adjustment in the
exercise price in the event of certain mergers, acquisitions, stock dividends
and capital changes. The warrant grants to the holder certain rights with
respect to the registration under the Act of the securities issuable upon
exercise of the warrant. In the event of the exercise of the warrants, the
Company has the right to redeem it.
No predictions can be made as to the effect, if any, that market sales of
Common Stock or the availability of Common Stock for sale will have on the
market price prevailing from time to time. Nevertheless, sales of substantial
amounts of Common Stock in the public market could adversely affect prevailing
market prices.
43
<PAGE> 45
SELLING SHAREHOLDERS
The Shares being offered by the Selling Shareholders hereby are issuable by the
Company to the Selling Shareholders upon conversion of the Preferred Stock and
exercise of the Warrants. The Preferred Stock was issued by the Company 67,500
shares on October 10, 1997 and 12,500 on October 24, 1997 and the Warrants were
issued for 151,000 shares of Common Stock by the Company 101,000 on March 7,
1997 in connection with the Company's initial public offering, and 50,000 on
October 10, 1997 in connection with the placement of the Preferred Stock. The
Preferred Stock may be converted at any time at a price of $6.00 per share for
67,500 shares and $6.7375 per share for 12,500 of the shares. The Warrants
issued in March, 1997 may be exercised at an exercise price of $10.50 per share
but may not be exercised until March 7, 1998 nor after March 7, 2002. The
Warrants issued in October, 1997 may be exercised at an exercise price of $10
per share but may not be exercised until October 10, 1998 nor after October 10,
2002. Thus, the maximum aggregate Shares which may be sold is 1,461,529. The
conversion rates for the Preferred Stock and the exercise prices for the
Warrants are subject to equitable adjustment upon the occurrence of certain
events such as stock split, stock dividends, reclassifications or combinations.
In the event that the average of the closing price of the Common Stock on the
AMEX for ten (10) consecutive trading days is $10.00 or more, all of the
Preferred Stock will be automatically converted. As required by the terms of
the Preferred Stock, the Company has filed with the Securities and Exchange
Commission under the Act a Registration Statement on Form S-1, of which this
Prospectus forms a part, with respect to the resale of the Shares by the
Selling Shareholders from time to time on the American Stock Exchange or in
privately negotiated transactions. The holders of the Warrants have elected to
exercise their right to include the shares subject to the Warrants in the
Registration Statement.
The following table sets for the number of shares of Common Stock covered by
this Prospectus with respect to each Selling Shareholder, and the amount and
percentage of ownership of each Selling Shareholder after the offering of
securities offered hereby, assuming all the securities covered by this
Prospectus are sold by the Selling Shareholders. After the date of this
prospectus any of the Selling Shareholders may purchase additional shares or
dispose of any or all of its shares in the Company from time to time in the
open market, in privately negotiated transactions or otherwise. Except as
otherwise indicated by footnote below, none of the Selling Shareholders has had
any position, office or other material relationship with the Company with the
past three years, other than as a result of the ownership of the securities or
other securities of the Company.
<TABLE>
<CAPTION>
NO. OF SHARES
INCLUDED IN THE
NO. OF SHARES NO. OF SHARES OF NO. OF SHARES PERCENTAGE OF
BENEFICIALLY OWNED COMMON STOCK OF COMMON STOCK COMMON STOCK
SELLING PRIOR INCLUDED IN THE HELD AFTER HELD AFTER
SHAREHOLDERS TO THE OFFERING OFFERING THE OFFERING THE OFFERING
<S> <C> <C> <C> <C>
Laborers' District Council
and Contractors' Pension
Fund of Ohio 33,333 33,333 0 -----
- ------------------------------------------------------------------------------------------------------------------------------------
Ohio Carpenters' Pension Trust 41,667 41,667 0 -----
- ------------------------------------------------------------------------------------------------------------------------------------
Dow Chemical Retirement Plan 51,333 58,333 0 -----
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE> 46
<TABLE>
<CAPTION>
NO. OF SHARES
INCLUDED IN THE
NO. OF SHARES NO. OF SHARES OF NO. OF SHARES PERCENTAGE OF
BENEFICIALLY OWNED COMMON STOCK OF COMMON STOCK COMMON STOCK
SELLING PRIOR INCLUDED IN THE HELD AFTER HELD AFTER
SHAREHOLDERS TO THE OFFERING OFFERING THE OFFERING THE OFFERING
<S> <C> <C> <C> <C>
Jerome Kahn, Jr. 8,333 8,333 0 -----
Revocable Trust
Irving Harris 12,500 12,500 0 -----
Foundation B
Irving Harris 14,167 14,167 0 -----
Foundation A
Irving Harris 8,333 8,333 0 -----
Foundation
Harris Foundation 41,667 41,667 0 -----
Irving Harris 35,300 25,000 10,300 *
Revocable Trust
David Rosenbaum 2,667 1,667 1,000 *
& Margot Kahn
JTWROS
James J. Pelts 5,000 5,000 0 -----
Heartland Value(1) 195,000 195,000 0 -----
Plus Fund
ROI Partners 45,000 45,000 0 -----
ROI Offshore 27,000 25,000 2,000 -----
NAV LLC 8,333 8,333 0 -----
ROI and Lane L.P. 6,667 6,667 0 -----
Pleiades Investment 6,667 6,667 0 -----
Partners, L.P.
MicroCap Partners 8,333 8,333 0 -----
L.P.
John Kennedy 8,332 8,332 0 -----
Kent Williams 41,667 41,667 0 -----
Employee Pension
Plan
Pioneer Micro Cap Fund 200,000 200,000 0 -----
c/o Pioneering Management
Corporaton
60 State Street
Boston, MA 02109
</TABLE>
45
<PAGE> 47
<TABLE>
<CAPTION>
NO. OF SHARES
INCLUDED IN THE
NO. OF SHARES NO. OF SHARES OF NO. OF SHARES PERCENTAGE OF
BENEFICIALLY OWNED COMMON STOCK OF COMMON STOCK COMMON STOCK
SELLING PRIOR INCLUDED IN THE HELD AFTER HELD AFTER
SHAREHOLDERS TO THE OFFERING OFFERING THE OFFERING THE OFFERING
<S> <C> <C> <C> <C>
Beamport & Co. 47,495 47,495 0 --
Topworks & Co. 66,790 66,790 0 --
Ell & Co. 71,243 71,243 0 --
Spear, Leeds & 166,666 83,333 83,333 2.6%
Kellogg
Deltac Panameria 58,333 58,333 0 --
Trust Co. Ltd.
Rodgers Family 33,333 33,333 0 --
Partnership Ltd.
John Gordon 16,667 16,667 0 --
Daniel F. Gordon 16,667 16,667 0 --
Robert J. Allison, Jr. 12,500 12,500 0 --
Elizabeth Kountze 12,500 12,500 0 --
James Turner 8,333 8,333 0 --
Rodgers
Alan L. Bauer & 5,000 5,000 0 --
Lois Bauer
Mark M. Moeller & 4,167 4,167 0 --
Melissa M. Moeller
TTEES
Albert N. Schrieber 4,167 4,167 0 --
& Jeanette B.
Schrieber TTEES
National Securities 4,167 4,167 0 --
Corporation Custo-
dian for George E.
Mohler IRA
Sarah Draper 4,167 4,167 0 --
Gregory C. Lowney 4,167 4,167 0 --
</TABLE>
46
<PAGE> 48
<TABLE>
<CAPTION>
NO. OF SHARES
INCLUDED IN THE
NO. OF SHARES NO. OF SHARES OF NO. OF SHARES PERCENTAGE OF
BENEFICIALLY OWNED COMMON STOCK OF COMMON STOCK COMMON STOCK
SELLING PRIOR INCLUDED IN THE HELD AFTER HELD AFTER
SHAREHOLDERS TO THE OFFERING OFFERING THE OFFERING THE OFFERING
<S> <C> <C> <C> <C>
& Mary Anne K.
Snyder
Brian R. Meyers & 4,167 4,167 0 --
Helen Meyers
Andrew Willner 8,333 8,333 0 --
TTEE
Orthopedic Consul- 12,500 12,500 0 --
tants of Washington
Arnold S. Reich & 4,167 4,167 0 --
Anita Reich
National Securities 4,167 4,167 0 --
Corporation Custo
dian for William A.
Schwartz IRA
Rollover
Tilikum Place 8,333 8,333 0 --
Printers
Gregory P. Kusnick & 4,167 4,167 0 --
Karen J. Gustafson
National Securities 4,167 4,167 0 --
Corp. Custodian for
Lee Levin Holm
IRA
Edward Epstein 8,333 8,333 0 --
DDS PS
B'nal B'risth 4,167 4,167 0 --
Foundation of the
United States
National Securities
Corporation(2) 34,050 34,050 0 --
Steven Rothstein(2) 81,325 81,325 0 --
</TABLE>
47
<PAGE> 49
<TABLE>
<CAPTION>
NO. OF SHARES
INCLUDED IN THE
NO. OF SHARES NO. OF SHARES OF NO. OF SHARES PERCENTAGE OF
BENEFICIALLY OWNED COMMON STOCK OF COMMON STOCK COMMON STOCK
SELLING PRIOR INCLUDED IN THE HELD AFTER HELD AFTER
SHAREHOLDERS TO THE OFFERING OFFERING THE OFFERING THE OFFERING
<S> <C> <C> <C> <C>
L. H. Friend, Weinress,
Frankson & Presson, Inc.(2) 25,000 25,000 0 --
Samuel M. Chase(2) 10,625 10,625 0 --
----------- ---------- --------- ------------
Total: 1,714,562 1,461,529 96,633 3.0%
=========== ========== ========= ============
</TABLE>
* Beneficial ownership of less than 1% of the class.
(1) Neither Heartland Value Plus Fund, nor any of its affiliates (except for
Heartland Small Cap Contrarian Fund as discussed below), has held any
position or had any other material relationship with the Company within
the past three years. Heartland Value Plus Fund is a series of Heartland
Group, Inc., a registered investment company. Heartland Small Cap
Contrarian Fund, another series of Heartland Group that is managed by the
same investment adviser as Heartland Value Plus Fund, held 156,400 shares
of the Company's common stock at November 30, 1997. The Heartland Small
Cap Contrarian Fund may purchase additional shares or dispose of any or all
of its shares in the Company from time to time in the open market, in
privately negotiated transactions or otherwise.
(2) National Securities Corporation acted as managing underwriter in
connection with the Company's initial public offering of Common Stock on
March 4, 1997 and as placement agent in connection with the private
placement of the Company's Preferred Stock in October of 1997. L. H.
Friend, Weinress, Franken & Presson, Inc. is a wholly-owned subsidiary of
National Securities Corporation, Mr. Rothstein is Chairman of the Board of
National and Mr. Chase is an officer of National. The named individuals
performed services in connection with either the initial public offering
or Preferred Stock placement.
48
<PAGE> 50
PLAN OF DISTRIBUTION
The sale of all or a portion of the Shares by the Selling Shareholders (or
by persons who may receive any of the Shares as donor, pledges or otherwise by
transfer in a private transaction) may be effected, from time to time, in
private transactions or on the AMEX at prices related to the prevailing
prices of the Shares at the time of the sale, or at negotiated prices as each
Selling Shareholder shall determine in its sole discretion from time to time.
The Selling Shareholders may effect such transactions by selling to or through
one or more broker-dealers, and such broker-dealers may receive compensation in
the form of underwriting discounts, concessions or commission from the Selling
Shareholders. The Selling Shareholders and any broker-dealers that participate
in the distribution of the Shares may, under certain circumstances, be deemed
to be "underwriters" within the meaning of the Securities Act, and any
commissions received by such broker-dealers and any profits realized on the
resale of Shares by them may be deemed to be underwriting discounts and
commissions under the Securities Act. The Company and the Selling Shareholders
may agree to indemnify such broker-dealers against certain liabilities,
including liabilities under the Securities Act. In addition, the Company has
agreed to indemnify the Selling Shareholders, with respect to the Shares
offered hereby, against certain liabilities, including certain liabilities
under the Securities Act.
To the extent required under the Securities Act, a supplemental prospectus
will be filed, disclosing (a) the name of any such broker-dealers, (b) the
number of Shares involved, (c) the price at which such Shares are to be sold,
(d) the commissions paid or discounts or concessions allowed to such
broker-dealers, where applicable, (e) that such broker-dealers did not conduct
any investigation to verify the information set out in this Prospectus, as
supplemented, and (f) other facts material to the transaction.
There is no assurance that any of the Selling Shareholders will sell any of
the Shares.
The Company has agreed to pay all costs and expenses incurred in connection
with the registration of the Shares offered hereby, except that the Selling
Shareholders shall be responsible for all selling commissions, transfer taxes
and related charges in connection with the offer and sale of such securities and
the fees of the Selling Shareholders' counsel.
The Company has agreed to use its best efforts to keep the Registration
Statement relating to this offering and sale continuously effective until the
earlier of sale of all the Shares by the Selling Shareholders or October 24,
1999.
LEGAL MATTERS
Counsel for the Company is Dickinson Wright PLLC Grand Rapids, Michigan.
49
<PAGE> 51
EXPERTS
The financial statements of Riviera Tool Company appearing in this
Prospectus and Registration Statement have been audited by Plante & Moran, LLP,
independent auditors, to the extent indicated in their report thereon also
appearing herein and in the Registration Statement included in herein in
reliance upon their authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
This Prospectus, which constitutes a part of a Registration Statement on
Form S-1 (the "Registration Statement") filed by the Company with the Securities
and Exchange Commission (the "Commission") under the Securities Act, omits
certain of the information set forth in the Registration Statement. Reference is
hereby made to the Registration Statement and to the exhibits thereto for
further information with respect to the Company and the securities offered
hereby. Copies of the Registration Statement and the exhibits thereto are on
file at the offices of the Commission and may be obtained upon payment of the
prescribed fee or may be examined without charge at the public reference
facilities of the Commission described below.
Statements contained herein concerning the provisions of documents are
necessarily summaries of such documents, and each statement is qualified in its
entirety by reference to the copy of the applicable documents filed with the
Commission.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copies at the Public Reference Section of the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the following
regional office of the Commission: Midwest Regional Office, Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, IL 600661-2511. Copies of such
material can also be obtained at prescribed rates by writing to the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. The Company is an electronic filer and such reports and other information
filed with the Commission may also be available at the Commission's site on the
World Wide Web at http:www.sec.gov.
The Company's Common Stock is listed on the American Stock Exchange, and
copies of its reports, proxy statements and other information filed with the
Commission under the Exchange Act, and other information concerning the Company,
can be inspected at the American Stock Exchange.
50
<PAGE> 52
RIVIERA TOOL COMPANY
FINANCIAL STATEMENTS
TABLE OF CONTENTS
REPORT LETTER.................................................... F-2
FINANCIAL STATEMENTS
Balance Sheet.................................................. F-3
Statement of Operations........................................ F-4
Statement of Common Stockholders' Equity....................... F-5
Statement of Cash Flows........................................ F-6
Notes to Financial Statements.................................. F-7
F-1
<PAGE> 53
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, 1996 and 1997, and the related statements of income,
common stockholders' equity and cash flows for the years ended August 31,
1995, 1996 and 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Riviera Tool
Company at August 31, 1996 and 1997, and the results of its operations
and cash flows for the years ended August 31, 1995, 1996 and 1997, in
conformity with generally accepted accounting principles.
/s/ PLANTE & MORAN, LLP
Grand Rapids, Michigan
October 17, 1997
F-2
<PAGE> 54
RIVIERA TOOL COMPANY
BALANCE SHEET
<TABLE>
<CAPTION>
AUGUST 31
--------------------------------
ASSETS NOTE 1996 1997
------ ---- ----
<S> <C> <C> <C>
CURRENT ASSETS
Cash................................................................... $ -- $ --
Accounts receivable:
Trade.............................................................. 3 4,924,305 4,614,257
Related party...................................................... 15 344,892 201,286
Costs and estimated gross profit in excess
of billings on contracts in process................................ 6 5,549,823 7,138,358
Inventories.......................................................... 7 445,473 468,740
Prepaid expenses and other current assets............................ 250,210 267,554
------------- ------------
Total current assets.......................................... 11,514,703 12,690,195
Property, Plant and Equipment, net..................................... 8 10,147,146 9,640,330
Perishable Tooling..................................................... 759,258 572,585
Other Assets........................................................... 3 507,325 187,843
------------- ------------
Total assets.................................................. $ 22,928,432 $ 23,090,953
============= ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable........................................................ $ 10,241,503 $ --
Current portion of long-term debt.................................... 9 926,861 650,000
Current portion of capitalized lease obligations..................... 13 409,225 --
Accounts payable..................................................... 2,913,878 1,241,243
Accrued liabilities.................................................. 692,271 634,924
------------- ------------
Total current liabilities..................................... 15,183,738 2,526,167
Capitalized Lease Obligations.......................................... 13 118,805 --
Long-Term Debt......................................................... 9 882,989 7,202,393
Deferred Gains......................................................... 61,540 --
Accrued Lease Expense.................................................. 12 558,935 605,660
Deferred Tax Liability................................................. 10 395,700 934,400
Preferred Stock -- no par value, $100 mandatory redemption value:
Authorized--5,000 shares
Issued and outstanding--1,425 shares at August 31,1996 14,
and no shares at August 31, 1997................................... 16 139,072 --
Preferred Stock-- no par value,
Authorized -- 200,000 shares
Issued and outstanding-- none at August 31, 1996 and 1997.......... 2 -- --
Common Stockholders' Equity
Common stock -- No par value,
Authorized -- 9,798,575 shares
Issued and outstanding -- 1,460,000 shares at August 31,1996
and 2,485,000 at August 31,1997.................................. 4 4,392,752 9,539,879
Retained earnings.................................................... 1,194,901 2,282,454
------------- ------------
Total Common Stockholders' equity............................. 5,587,653 11,822,333
------------- ------------
Total liabilities and stockholders' equity............................. $ 22,928,432 $ 23,090,953
============= ============
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE> 55
RIVIERA TOOL COMPANY
STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
-----------------------------------------------
NOTE 1995 1996 1997
-----
------------- ------------- --------------
<S> <C> <C> <C>
Sales
Trade...................................................... 5 $ 19,429,894 $ 16,379,909 $ 21,108,195
Related party.............................................. 15 2,794,829 1,954,184 851,979
------------- ------------- --------------
TOTAL SALES................................................. 22,224,723 18,334,093 21,960,174
Cost of Sales............................................... 18,116,301 14,936,514 16,831,905
------------- ------------- --------------
GROSS PROFIT................................................ 4,108,422 3,397,579 5,128,269
Selling and Administrative Expenses......................... 1,902,044 1,354,112 1,703,884
------------- ------------- --------------
INCOME FROM OPERATIONS...................................... 2,206,378 2,043,467 3,424,385
Other Income (Expense):
Interest expense.......................................... (1,589,447) (1,670,414) (1,211,287)
Other Expense............................................. 20 (160,000) -- (406,368)
Gain on asset sales....................................... 105,632 226,710 44,651
------------- ------------- --------------
Total Other Expense -- Net.................................. (1,643,815) (1,443,704) (1,573,004)
------------- ------------- --------------
INCOME -- BEFORE TAXES ON INCOME............................ 562,563 599,763 1,851,381
Income Tax Expense.......................................... 76,700 204,000 666,600
------------- ------------- --------------
NET INCOME.................................................. 485,863 395,763 1,184,781
Dividends and Accretion on Preferred Stock.................. 16 35,488 28,535 7,228
------------- ------------- --------------
NET INCOME AVAILABLE FOR COMMON SHARES...................... $ 450,375 $ 367,228 $ 1,177,553
============= ============= ==============
NET INCOME PER COMMON SHARE................................. $ .31 $ .25 $ .60
============= ============= ==============
Common Shares Outstanding................................... 3,4 1,460,000 1,460,000 1,968,750
============= ============= ==============
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE> 56
RIVIERA TOOL COMPANY
STATEMENT OF COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------------------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
----------------- ------------------- ------------------- ----------------------
<S> <C> <C> <C> <C>
BALANCE-- AUGUST 31, 1994................ 1,460,000 $ 4,392,752 $ 377,298 4,770,050
Increase to redeemable preferred stock -- -- (35,488) (35,488)
(Note 13)................................
Net income............................... -- -- 485,863 485,863
------------- ------------ ------------ ------------
BALANCE-- AUGUST 31, 1995................ 1,460,000 4,392,752 827,673 5,220,425
------------- ------------- ------------ ------------
Increase to redeemable preferred stock -- -- (28,535) (28,535)
(Note 16)................................
Net income............................... -- -- 395,763 395,763
------------- ------------- ------------ ---------------
BALANCE-- AUGUST 31, 1996................ 1,460,000 4,392,752 1,194,901 5,587,653
------------- ------------- ------------ ---------------
Increase to redeemable preferred stock -- -- (7,228) (7,228)
(Note 16)................................
Preferential Common Stock Dividend (Note -- -- (90,000) (90,000)
17)......................................
Sale of Common Stock (Note 4)............ 1,025,000 5,147,127 -- 5,147,127
Net Income............................... -- -- 1,184,781 1,184,781
------------- ------------- ------------ ---------------
BALANCE-- AUGUST 31, 1997................ 2,485,000 $ 9,539,879 $ 2,282,454 $ 11,822,333
============= ============= ============ ===============
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE> 57
RIVIERA TOOL COMPANY
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
---------------------------------------------------
1995 1996 1997
------------- ------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ............................................. $ 485,863 $ 395,763 $ 1,184,781
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization....................... 1,438,403 1,272,366 1,298,200
Loss (gain) on sale of machinery and equipment...... 43,170 (77,908) 16,889
Amortization of deferred gain....................... (148,802) (148,802) (61,540)
Deferred taxes...................................... 75,000 204,000 538,700
Bad debt expense.................................... -- 175,000 (75,000)
(Increase) decrease in assets:
Accounts receivable.............................. 2,763,901 100,214 528,654
Costs and estimated gross profit in
excess of billings on contracts in process...... 1,014,107 (2,270,334) (1,588,535)
Inventories...................................... 165,392 116,237 (23,267)
Perishable Tooling............................... (131,747) 77,102 186,673
Prepaid expenses and other current assets........ 44,446 34,468 (17,344)
Increase (decrease) in liabilities:
Accounts payable................................. (764,847) (1,039,644) (1,672,635)
Accrued lease expense............................ 65,413 56,065 46,725
Accrued liabilities.............................. (59,278) 128,340 (57,347)
------------ ------------- --------------
Net cash provided by (used in)
operating activities.......................... 4,991,021 (977,133) 304,954
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of machinery and equipment........... 80,000 205,800 25,200
(Increase) decrease in other assets..................... (70,153) (24,005) 278,589
Additions to property, plant and equipment.............. (585,248) (501,103) (792,580)
------------ ------------- --------------
Net cash used in investing activities........... (575,401) (319,308) (488,791)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from (repayments of) short-term debt....... (2,594,499) 3,375,333 (10,241,503)
Principal payments under capital lease obligations...... (437,408) (493,943) (528,030)
Proceeds from issuance of long-term debt................ -- -- 9,904,848
Principal payments on long-term debt.................... (1,346,325) (1,254,812) (3,862,305)
Redemption of Preferred Stock........................... -- -- (142,500)
Sale of Common Stock.................................... -- -- 5,147,127
Capitalized refinancing costs........................... -- (333,325) --
Common Stock dividends paid............................. -- -- (90,000)
Preferred Stock dividends paid.......................... (34,200) -- (3,800)
------------ ------------- --------------
Net cash provided by (used in) financing
activities.................................... (4,412,432) 1,293,253 183,837
------------ ------------- --------------
NET INCREASE (DECREASE) IN CASH........................... 3,188 (3,188) --
CASH-- Beginning of Period................................ -- 3,188 --
------------ ------------- --------------
CASH-- End of Period...................................... $ 3,188 $ -- $ --
============ ============= ==============
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE> 58
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 Bylaws and Articles
of Incorporation have been amended to provide updated language on officer and
director indemnification and the authorized capital stock of the Company was
amended to increase the availability of unissued shares of common and preferred
stock. The following two classes of preferred stock existed after the merger:
- Redeemable Preferred Stock -- no par value, authorized 1,425 shares, 1,425
shares issued and outstanding.
- Non-Redeemable Preferred Stock -- no par value, authorized 200,000 shares,
no shares issued and outstanding.
These two entities have been reported on a consolidated basis for more than
five years prior to the merger. Therefore, the merger has no effect on the
balance sheet, statement of income, statement of common stockholders' equity or
cash flows. The stockholders' equity section of this report reflects the impact
of this merger on authorized, issued and outstanding shares of stock.
NOTE 2 -- SUBSEQUENT SALE OF 8% CUMULATIVE CONVERTIBLE PREFERRED STOCK AND PRO-
FORMA PRESENTATION
In October, 1997, the Company issued and sold 80,000 shares of 8%
Cumulative Convertible Preferred Stock (the "Preferred Shares") at $100.00 per
share. With a portion of the proceeds from this sale, the Company exercised its
option to purchase and retired all 730,000 shares of common stock held by Motor
Wheel Corporation for $3.0 million or $4.11 per share.
The holders of the 8% Cumulative Convertible Preferred Stock will
possess no voting rights except where required by law and under the following
circumstances (i) at whatever time or times dividends are not payable for two
consecutive quarterly periods, the holders of the Preferred Shares
F-7
<PAGE> 59
have the right to elect one additional director who shall continue until all
such accumulated dividends have been paid in full, or (ii) for so long as the
Preferred Shares remain outstanding, the Company must obtain a vote of the
holders of 66 2/3% of the then outstanding Preferred Shares to issue any class
of stock ranking senior to the Preferred Shares as to dividends or distribution
of assets on liquidation. Cumulative dividends shall be paid at an annual rate
of 8% payable quarterly, in arrears, at a rate of $2.00 per share per quarter,
commencing December 31, 1997. Upon liquidation, the Shares will be entitled to
seniority to the extent of $100 per share plus cumulative dividends to the date
of payment over the Common Stock and any other capital stock not given senior
rights by the holders of the Shares. Of the 80,000 Preferred Shares issued,
67,500 preferred shares are convertible into Common Stock at any time, and from
time to time, in whole or in part, for the number of shares of Common Stock per
share equal to $100 divided by $6.00. The remaining 12,500 preferred shares are
convertible into Common Stock at any time, and from time to time, in whole or in
part, for the number of shares of Common Stock per share equal to $100 divided
by $6.7375. All Preferred Shares outstanding will be automatically converted
into Common Stock when the average closing price for the Common Stock on the
American Stock Exchange for 10 consecutive trading days is equal to or greater
than $10 per share. The Company shall not be required to issue fractional shares
in connection with any conversion and a cash payment shall be made in lieu
thereof. The Preferred Shares are not subject to call for redemption by the
Company. The Company must register under the 1933 Act the shares of Common Stock
issuable upon conversion of the Preferred Shares by February 6, 1998.
F-8
<PAGE> 60
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 2 -- SUBSEQUENT SALE OF 8% CUMULATIVE CONVERTIBLE PREFERRED STOCK AND PRO-
FORMA PRESENTATION -- CONTINUED
Had the subsequent sale of the 8% Cumulative Convertible Preferred
Stock occurred prior to August 31, 1997, the balance sheet would have been as
follows:
<TABLE>
<CAPTION>
ACTUAL PRO-FORMA
BALANCE SHEET AUGUST 31, AUGUST 31,
1997 1997
------------------------- --------------------------------
<S> <C> <C>
ASSETS:
Total current assets........................................... $ 12,690,195 $ 12,690,195
Property, plant and equipment, net............................. 9,640,330 9,640,330
Perishable tooling............................................. 572,585 572,585
Other assets................................................... 187,843 133,107
------------------------- --------------------------------
Total assets.......................................... $ 23,090,953 $ 23,036,217
========================= ================================
Liabilities:
Total current liabilities...................................... 2,526,167 2,674,067
Long-term debt................................................. 7,202,393 3,050,838
Other liabilities.............................................. 1,540,060 1,540,060
Stockholders Equity:
Common stock................................................. 9,539,879 6,539,879
Convertible preferred stock.................................. - 6,948,919
Retained earnings............................................ 2,282,454 2,282,454
------------------------- --------------------------------
Total shareholders equity............................ 11,822,333 15,771,252
------------------------- --------------------------------
Total liabilities and shareholders equity............ $ 23,090,953 $ 23,036,217
========================= ================================
</TABLE>
NOTE 3-- SIGNIFICANT ACCOUNTING POLICIES
Net Income per Common Share -- Net Income per common share is based on net
income available for Common Stockholders divided by the weighted average number
of common shares outstanding during the period. The number of common shares
outstanding has been adjusted to reflect the impact of the merger and
recapitalization as referred to in Reporting Entity in Note 1.
In February, 1997 the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share." The statement establishes standards for computing
and presenting earnings per share (EPS) and simplifies previous standards. This
new statement is not expected to have a material impact on EPS as presented.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that
F-9
<PAGE> 61
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.
F-10
<PAGE> 62
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 3-- SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
Revenue Recognition -- The Company recognizes revenue on time and material
contracts, utilizing the completed-contract method. Revenue is recognized on all
other contracts, utilizing the percentage-of-completion method. Under the
completed-contract method, the contract is considered complete when all costs
except for insignificant items have been incurred and the project has been
approved by the customer. Under the percentage-of-completion method estimated
contract earnings are based on total estimated contract profits multiplied by
the ratio of labor hours incurred to total estimated labor hours on the
contract. Provisions for total estimated losses on contracts in process are
recognized in the period such losses are determined. Changes in job performance,
conditions and estimated profitability may result in revisions to costs and
income and are recognized in the period such revisions are determined.
Accounts Receivable -- As of August 31, 1996 and 1997, the Company reserved
$175,000 and $100,000, respectively, for uncollectible accounts receivable, and
had approximately $765,000 and $0, respectively, of unbilled accounts
receivables.
Inventories -- Inventories are recorded at the lower-of-cost (first-in,
first-out method), or market.
Property, Plant and Equipment -- Property, plant and equipment are recorded
at cost. Depreciation is computed principally using the straight-line method
over the useful life of the asset for financial reporting purposes and
accelerated methods for tax purposes.
Perishable Tooling -- Certain perishable tools are gradually used up over
extended periods of time. These inventory items, which are reported as
non-current assets in the balance sheet, are recorded at cost less a valuation
allowance to reflect the loss in value resulting from gradual use.
Other Assets -- Included in other assets are deferred debt issuance costs,
precontract costs and system development costs, that are being amortized over
the related debt term, contract term and technological life of the system,
respectively. Amortization expense for the years ended August 31, 1996 and 1997,
was $43,937 and $40,893, respectively. As of August 31, 1996 costs incurred
totaling $333,325 in connection with the planned public offering of Common Stock
were deferred and classified as other assets. These costs have been charged to
common stock during the year ended August 31, 1997. During the year ended August
31, 1997, costs incurred totaling $54,736 in connection with the sale of 8%
Cumulative Convertible Preferred Stock were deferred and classified as other
assets. These costs will be charged to capital upon the issuance of the 8%
Cumulative Convertible Preferred Stock.
F-11
<PAGE> 63
Reclassifications -- Certain reclassifications have been made in the 1996
financial statements to conform to the classifications used in 1997.
NOTE 4 -- STOCKHOLDERS INVESTMENT
In March, 1997, the Company sold 1,010,000 shares of Common Stock
through an initial public offering on the American Stock Exchange, at a price of
$7.00 per share (the "Offering"). The Company received net proceeds of
approximately $5.1 million from the Offering. The net proceeds were used to
reduce previously incurred debt. In June, 1997, the Company sold 15,000 shares
of common stock in connection with a consulting agreement entered into with a
financial consultant.
F-12
<PAGE> 64
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 5 -- SALES TO MAJOR CUSTOMERS
Nature of Business --The nature of the Company's business is such that a
limited number of customers comprise a majority of its business in any given
year, even though the specific customers will differ from year to year. The
following table summarizes the Company's sales to those customers which
represent more than 10% of the annual sales, in the particular year presented,
of the Company (in 000's):
<TABLE>
<CAPTION>
AUGUST 31
---------------------------------------------------------------------
1995 % 1996 % 1997 %
------------ -------- ----------- --------- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
Chrysler Corporation.............................. $ 5,291 24% $ 4,622 25% $ 8,890 40%
Ford Motor Company................................ 1,511 7 2,061 11 3,411 16
General Motors.................................... 225 1 2,297 13 886 4
Mayflower Vehicle Systems......................... 6,211 28 2,678 15 -- --
American Bumper & Manufacturing Co................ 3,170 14 -- -- -- --
Motor Wheel Corporation .......................... 2,795 13 1,954 11 852 4
Dana-Parish....................................... 2,684 12 984 5 1,293 6
Flex-n-Gate....................................... -- -- -- -- 3,193 15
Others............................................ 338 1 3,738 20 3,435 15
-------------- --- ----------- --- ------------ ---
Total Sales.................................. $ 22,225 100% $ 18,334 100% $ 21,960 100%
============== === =========== === ============ ===
</TABLE>
Outstanding accounts receivable from four of these customers
represented approximately 78 percent at August 31, 1996 and three of these
customers represented approximately 76 percent at August 31, 1997.
NOTE 6 -- COSTS AND BILLINGS ON CONTRACTS IN PROCESS
Costs and billings on contracts in process are as follows:
<TABLE>
<CAPTION>
AUGUST 31
--------------------------------
1996 1997
------------- ---------------
<S> <C> <C>
Costs incurred on contracts in process under the percentage-of-completion method..... $ 10,844,647 $ 9,008,594
Estimated gross profit............................................................... 900,375 1,325,000
------------- ---------------
Total........................................................................... 11,745,022 10,333,594
Less progress payments received and progress billings to date........................ 6,353,779 3,208,800
Plus costs incurred on contracts in process under the completed contract method..... 158,580 13,564
------------- ---------------
Costs and estimated gross profit in excess of billings on contracts in process....... $ 5,549,823 $ 7,138,358
============= ===============
</TABLE>
Included in estimated gross profit for 1996 and 1997 are jobs with
losses accrued of $441,301 and $55,629 respectively.
F-13
<PAGE> 65
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 7-- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
AUGUST 31
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Raw material stock............................................................................ $ 149,006 $ 256,867
Small tools and supplies...................................................................... 296,467 211,873
---------- ----------
Total................................................................................ $ 445,473 $ 468,740
========== ==========
</TABLE>
NOTE 8 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
AUGUST 31
--------------------------------
1996 1997
------------- -------------
<S> <C> <C>
Land and leasehold improvements.................................................. $ 1,553,206 $ 1,560,668
Office furniture and fixtures.................................................... 186,909 137,236
Machinery and equipment.......................................................... 14,704,396 14,078,151
Computer equipment and software.................................................. 490,361 1,243,048
Transportation equipment......................................................... 99,935 115,971
------------- -------------
Total cost.................................................................. 17,034,807 17,135,074
Accumulated depreciation and amortization....................................... 6,887,661 7,494,744
------------- -------------
Net carrying amount......................................................... $ 10,147,146 $ 9,640,330
============= =============
Annual depreciation & amortization expense...................................... $ 1,228,429 $ 1,257,307
============= =============
</TABLE>
F-14
<PAGE> 66
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 9 -- NOTES PAYABLE AND LONG-TERM DEBT
The Company's notes payable and long-term debt consist of the following:
<TABLE>
<CAPTION>
AUGUST 31
-----------------------------
NOTES PAYABLE 1996 1997
-------------
------------- -----------
<S> <C> <C>
Revolving bank credit line, collateralized by substantially all assets of
the Company. The agreement provided for borrowings, subject to certain
collateral requirements of up to $10.0 million, and bore interest at 4%
above the bank's prime rate at August 31, 1996 (an effective rate of
12.25%). The agreement was subject to certain loan covenants discussed
below and required a commitment fee of .375% per annum on the average
daily unused portion of the revolving credit line, and a
facility fee of .125% per annum on the revolving credit line..........................$ 10,241,503 $ --
------------- -----------
LONG-TERM DEBT
Note payable to bank, payable in monthly installments of $40,000 plus
interest of 4% over the bank's prime rate at August 31, 1996 (an effective
rate of 12.25% ), collateralized by substantially all assets of the
Company. This agreement was
subject to certain covenants discussed below........................................... 376,962 --
Note payable to financial institution, payable in monthly installments of $39,945
including interest at 9.9%, collateralized by specific assets of the Company .......... 1,088,532 --
Note payable to bank, payable in monthly installments of $15,000 including
interest at 7%, collateralized by specific assets of the Company....................... 344,356 --
Revolving bank working capital credit line, 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 (an effective rate of 8.75%), due January 1,1999. 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
</TABLE>
F-15
<PAGE> 67
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 9 -- NOTES PAYABLE AND LONG-TERM DEBT -- CONTINUED
<TABLE>
<CAPTION>
AUGUST 31
-----------------------------
1996 1997
------------- -----------
<S> <C> <C>
LONG-TERM DEBT -- CONTINUED
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 (an effective rate of 8.75%), due July 1, 2002....................... -- 3,141,667
Revolving equipment credit line, collaterlized by specific assets of the
Company. The agreement provides for borrowing up to $4.0 million, in
$500,000 increments, and bears interest at .25% above the bank's prime
rate (an effective rate of 8.75%), due in monthly installments over six
years from date of borrowing
increment. The Agreement is subject to certain loan covenants discussed below.......... -- --
------------- -----------
Total long-term debt........................................................ 1,809,850 7,852,393
Less current portion........................................................ 926,861 650,000
------------- -----------
Long-term debt-- Net.......................................................$ 882,989 $ 7,202,393
============= ===========
</TABLE>
Minimum scheduled principal payments on long-term debt to maturity as of
August 31, 1997, are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998......................................................................................$ 650,000
1999....................................................................................... 5,360,726
2000....................................................................................... 650,000
2001....................................................................................... 650,000
2002....................................................................................... 541,667
-----------
Total...................................................................................$ 7,852,393
===========
</TABLE>
In connection with the line of credit and notes payable to certain banks as
of August 31, 1996, the Company had agreed to certain covenants. The agreements
required the Company to maintain minimum working capital and net worth of
$200,000 and $6,000,000, respectively, to not let its combined debt-to-equity
ratio exceed 3 to 1, and prohibited the payment of cash dividends. The Company
was not in compliance at August 31, 1996, with these covenants and, therefore,
has reclassified those debt obligations to banks as current liabilities.
As of August 31, 1997, in connection with the lines of credit and note
payable to bank, the Company has agreed to certain covenants. The agreements
require the Company to maintain certain ratios/levels of tangible net worth,
working capital, liabilities to tangible net worth, earnings before interest,
taxes, depreciation and amortization to debt service and prohibit the payment of
common stock cash dividends. The Company was in compliance at August 31, 1997,
with all of these covenants.
F-16
<PAGE> 68
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 10 -- FEDERAL INCOME TAXES
The provision for federal income taxes is as follows:
<TABLE>
<CAPTION>
AUGUST 31
-------------------------
1996 1997
--------- ---------
<S> <C> <C>
Current expense............................................................................... $ -- $ 127,900
Deferred expense.............................................................................. 204,000 538,700
--------- ---------
Total tax expense............................................................... $ 204,000 $ 666,600
========= =========
</TABLE>
The difference between the federal statutory tax rate and the Company's
effective rate was:
<TABLE>
<CAPTION>
AUGUST 31
--------------------------
1996 1997
----------- ------------
<S> <C> <C>
Federal statutory tax rate.................................................................... 34.0% 34.0%
Increase (reduction) in income taxes relating to:
Effect of recording and changing valuation allowance..................................... -- --
Effect of providing for deferred taxes at rates less than statutory rates and other
items.................................................................................... -- 2.0
----------- ------------
Effective tax rate.................................................................. 34.0% 36.0%
=========== ============
</TABLE>
The details of the net deferred tax liability are as follows:
<TABLE>
<CAPTION>
AUGUST 31
------------------------------
1996 1997
------------- -------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation............................................................................ $ (2,137,000) $ (2,020,600)
------------- -------------
Deferred tax assets:
Net operating loss carryforward......................................................... 1,438,000 590,900
Investment tax credit carryforward...................................................... 246,700 204,900
Alternative minimum tax credit carryforward............................................. 40,000 208,600
Accrued lease expense................................................................... 190,000 205,900
Allowance for doubtful accounts......................................................... -- 34,000
Deferred gains and other items.......................................................... 73,300 46,800
------------- -------------
Total deferred tax assets................................................... 1,988,000 1,291,100
Valuation allowance recognized for deferred tax assets.................................... (246,700) (204,900)
------------- -------------
Net deferred tax liability.................................................. $ (395,700) $ (934,400)
============= =============
</TABLE>
F-17
<PAGE> 69
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 10 -- FEDERAL INCOME TAXES -- CONTINUED
The details of the deferred tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
AUGUST 31
----------------------------
1996 1997
------------- -----------
<S> <C> <C>
Net operating loss carryforward........................................................... $ 199,200 $ 847,100
Accrued lease............................................................................. (19,100) (15,900)
Depreciation.............................................................................. (21,000) (116,400)
Deferred compensation..................................................................... (5,000) 8,000
Deferred revenue.......................................................................... 51,000 20,900
Other items............................................................................... (1,100) (2,400)
Change in valuation allowance............................................................. -- (41,800)
Allowance for doubtful accounts........................................................... -- (34,000)
Investment tax credit..................................................................... -- 41,800
Alternative minimum tax credit............................................................ -- (168,600)
------------- -----------
Deferred tax expense (reduction)...................................... $ 204,000 $ 538,700
============= ===========
</TABLE>
As of August 31, 1997, the Company had the following applicable
carryforwards to be applied against future taxable income:
<TABLE>
<CAPTION>
INVESTMENT NET OPERATING LOSS
TAX CREDIT CARRYFORWARD
---------- ------------------
<S> <C> <C>
1999...................................................................................... $ 37,400 $ --
2000...................................................................................... 19,600 --
2001...................................................................................... 22,400 --
2002...................................................................................... 28,000 --
2003...................................................................................... 97,500 --
2004...................................................................................... -- --
2005...................................................................................... -- --
2006...................................................................................... -- --
2007...................................................................................... -- 1,032,000
2008...................................................................................... -- 486,000
2009...................................................................................... -- 220,100
----------- ---------------
Total............................................................ $ 204,900 $ 1,738,100
=========== ===============
</TABLE>
The Company also has approximately $189,300 of alternative minimum tax
credits that do not expire.
F-18
<PAGE> 70
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 11 -- CASH FLOWS
Cash paid or refunded during the years ended August 31, 1995, 1996 and
1997, for interest and income taxes is summarized as follows:
<TABLE>
<CAPTION>
AUGUST 31
------------------------------
1996 1997
------------- -------------
<S> <C> <C>
Interest paid............................................................................. $ 1,572,292 $ 1,253,563
Income taxes paid......................................................................... -- 1,871
</TABLE>
NOTE 12 -- OPERATING LEASES
The Company has entered into a noncancellable operating lease agreement for
manufacturing and office facilities with a lease term that expires in October
2009. The agreement provides for annual lease payments plus an escalation of the
base rent of 1 percent in each of the first 10 years and 2 percent in each of
the second 10 years. The Company has an option to renew this lease for two
additional 10-year terms at a rate to be negotiated and has an option to acquire
the facility at fair market value, commencing November 1996. The 1997 annual
rent was $977,578. Generally accepted accounting principles require that rent
expense related to this type of lease be recognized ratably over the term of the
lease. The difference between the rent payments made and the amount of expense
recognized has been recorded as accrued lease expense (a liability). For the
years ended August 31,1996 and 1997, accrued lease expense exceeded cash
payments made by $56,065 and $46,725, respectively.
On May 25, 1994, the Company entered into a sublease agreement with an
unrelated company. The agreement commenced August 1, 1994, and terminates on
July 31, 1998. The agreement provides for annual lease payments ranging from
$216,000 to $224,724. The agreement also contains two options to renew the lease
for up to five years, with annual lease payments ranging from $231,468 to
$268,332. In addition, the agreement requires the tenant to pay a pro-rata share
(33.7 percent) of the facility's operating costs.
The Company has various operating leases, including the noncancellable
operating lease noted above, for facilities and equipment that expire during the
next 15 years. Rent expense under these leases for the year ended August 31,
1995, 1996 and 1997 amounted to $1,117,023, $1,164,855 and $1,134,625,
respectively.
F-19
<PAGE> 71
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 12 -- 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,
1997:
<TABLE>
<CAPTION>
LEASE SUB-LEASE NET LEASE
PAYMENTS RECEIVABLE PAYMENT
------------- ------------- -------------
<S> <C> <C> <C>
1998.................................................................... $ 1,067,330 $ 224,724 $ 842,606
1999.................................................................... 1,031,486 -- 1,031,486
2000.................................................................... 1,034,180 -- 1,034,180
2001.................................................................... 1,052,870 -- 1,052,870
2002.................................................................... 1,071,560 -- 1,071,560
2003 and after.......................................................... 8,225,158 -- 8,225,158
------------- ------------- -------------
Total minimum payments required.................................... $ 13,482,584 $ 224,724 $ 13,257,860
============= ============= =============
</TABLE>
NOTE 13 -- CAPITAL LEASES
The Company has entered into a number of capital leases. At August 31, 1996,
included in machinery and equipment and accumulated depreciation and
amortization are assets with a total cost of $3,065,770, and accumulated
amortization of $1,068,780, acquired through capital lease transactions. During
1997, these capital leases were paid out and such assets are included in
machinery and equipment as of August 31, 1997. The following is a schedule of
future minimum lease payments under capital leases together with the present
value of the net minimum lease payments as of August 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
1997............................................................................................. $ 439,614 $ --
1998............................................................................................. 119,723 --
--------- ---------
Total minimum lease payments................................................................ 559,337 --
Less amount representing interest................................................................ 31,307 --
--------- ---------
Present value of net minimum lease payments...................................................... 528,030 --
Less amount representing current portion.................................................... 409,225 --
--------- ---------
Noncurrent portion..................................................................... $ 118,805 $ --
========= =========
</TABLE>
NOTE 14 -- RETIREMENT PLANS
The Company has a profit-sharing plan that covers substantially all
employees. The plan includes a 401(k) deferred-compensation option. The
Company's policy is to fund profit-sharing costs accrued on an annual basis.
The plan, as established, allows for discretionary contributions
F-20
<PAGE> 72
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 14 -- RETIREMENT PLANS-- CONTINUED
as determined annually by the Company's Board of Directors. No discretionary
contribution was made for the years ended August 31, 1995, 1996, and 1997.
The Company also matches and contributes up to 15 percent of the employees'
contributions, up to 2% of the employee's annual wage, to the 401(k)
deferred-compensation plan. The Company's contributions to the plan for the
years ended August 31, 1995, 1996 and 1997, amounted to $92,575, $80,438 and
$90,879, respectively.
For the years ended August 31, 1996, the plan owned 100 percent of the
Company's redeemable preferred stock.
NOTE 15 -- RELATED-PARTY TRANSACTIONS
The Company had a contract with a Motor Wheel Corporation which owns 50
percent of the Company's Common Stock as of August 31, 1995, 1996 and
29.4percent as of August 31, 1997. The contract related to the performance of
engineering services and construction of dies to be purchased by the stockholder
corporation. The contract provided that the stockholder corporation was required
to purchase not less than 155,000 hours of work, as defined by the contract, or,
if less, 85 percent of its entire domestic consumption. In the event the total
hours of work were less than the required amount, the stockholder corporation
paid an underutilization fee, based on a formula, to the Company. Under the plan
of merger between Riviera Die and Tool, Inc. and Riviera Tool Company dated
October 31, 1996, and related shareholders agreement, such contract was
terminated retroactive to December 31, 1995 and no such underutilization fees
were received or recorded for periods thereafter. Sales to the stockholder
corporation (including underutilization fees for periods prior to December 31,
1995) for the fiscal years ended August 31, 1995, 1996 and 1997, amounted to
$2,794,829, $1,954,184 and $851,979, respectively.
NOTE 16 -- REDEEMABLE PREFERRED STOCK
The Company had no issued and outstanding shares of mandatory redeemable
preferred stock at August 31, 1997. The Company had 1,425 shares issued and
outstanding as of August 31, 1996. The stock bears an $8 per year cumulative
dividend preference over Common Stock of the Company. All outstanding shares of
this stock were owned by the Company's retirement plan. According to the terms
of the redemption agreement, 475 shares of the stock were to be redeemed at $100
per share, plus unpaid dividends on July 31, 1995, 1996, and 1997.
F-21
<PAGE> 73
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 16 -- REDEEMABLE PREFERRED STOCK-- CONTINUED
The carrying amount of the preferred stock was being increased by periodic
accretions, using the interest method, so that the carrying amount would equal
the mandatory redemption amount on the redemption date. The carrying amount was
also being increased by unpaid dividends. Increases in the preferred stock were
being effected by charges against retained earnings. The following schedule
summarizes activity in the preferred stock:
<TABLE>
<CAPTION>
AUGUST 31
---------------------------
1996 1997
----------- -----------
<S> <C> <C>
Beginning balance............................................................................. $ 110,537 $ 139,072
Accretion..................................................................................... 17,135 7,228
Cumulative dividend preference................................................................ 11,400 --
Preferred stock redeemed...................................................................... -- (142,500)
Dividends paid................................................................................ -- (3,800)
----------- -----------
Ending balance........................................................................... $ 139,072 $ --
=========== ===========
</TABLE>
NOTE 17 -- PREFERENTIAL COMMON STOCK DIVIDEND
The Company, on October 31, 1996, declared a preferential dividend on the
shares of common stock of the Company owned by Riviera Holding Company to pay
the income tax payable by Riviera Holding Company as a result of the lapse of
options by Motor Wheel Corporation to purchase common stock owned by Riviera
Holding Company and as a result of the dividend itself. In May, 1997 the Company
paid this $90,000 dividend to Riviera Holding Company.
NOTE 18 -- STOCK OPTION PLAN
The Company's 1996 Stock Option Plan (the "Option Plan") was adopted by the
Board of Directors and approved by the shareholders on October 31, 1996. Under
the Option Plan, 250,000 shares of Common Stock are reserved for issuance and
are intended to qualify as incentive stock options under the Internal Revenue
Code of 1986, as amended. Riviera Holding Company, Kenneth K. Rieth and Motor
Wheel Corporation are not eligible to participate in the Option Plan. During the
year ended August 31, 1997, no stock options were issued under the Option Plan.
NOTE 19 -- LEGAL PROCEEDINGS AND CLAIMS
The Company is a plaintiff and counter-defendant in an action against two
individuals and a corporation, with the owners of the Company and a related
corporation affiliated through common ownership as co-plaintiffs, filed July
22, 1994. In July 1992, the Company contributed
F-22
<PAGE> 74
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 19 -- LEGAL PROCEEDINGS AND CLAIMS-- CONTINUED
machinery, equipment, inventory, work in process and receivables that were
related to the business of building plastic injection molds to a joint venture
that then operated as a mold builder and injection molder. The Company
contributed assets valued at $5.4 million, assigned debts in the amount of $3.7
million, and received $1.7 million of preferred stock in the new entity.
Defendants in this action contributed all of the stock of a mold builder then
known as Leap Technologies, Inc. In November 1993, the joint venture was
liquidated, and the Company's preferred stock in the entity and receivables from
such entity were written off. These write-offs were reflected in the financial
statements for the year ended August 31, 1993. The Company alleges that the
status of the business contributed by the defendants was fraudulently
represented, and the defendants are, therefore, liable to the Company for all
losses sustained as a result of the failure of the venture. The Company is
asking for the return of its investment plus additional damages it incurred in
the process of liquidating the venture. One defendant has counterclaimed for
breach of representations by the Company without specifying any amount of
damages. The Company is not currently involved in other legal proceedings other
than ordinary and routine proceedings incidental to its operations. In the
opinion of management, no existing proceedings, including the matter involving
Leap Technologies, Inc., would have a significant effect on the financial
condition, results of operations and cash flows of the Company if determined
against the Company.
NOTE 20 -- OTHER EXPENSE
The Company incurred bank forbearance fees of $160,000, $0 and $150,000 in
1995, 1996 and 1997, respectively, in conjunction with its then primary lender.
For 1997, the Company incurred $75,771 in prepayment fees, $27,339 in tax agency
penalties, and $101,075 in late charges on the facility lease.
NOTE 21 -- SUBSEQUENT PURCHASE OF EQUIPMENT
Subsequent to August 31, 1997, the Company purchased four (4) 1000 ton
stamping presses for $2,235,000. On October 9, 1997, the Company borrowed
$1,200,000 on its $4,000,000 revolving equipment credit line to finance the
purchase of these presses. The installation cost of these four presses is
estimated to be approximately $800,000.
NOTE 22 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
A summary of the methods and significant assumptions used to estimate the fair
value of financial instruments is as follows:
F-23
<PAGE> 75
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 22 -- FAIR VALUE OF FINANCIAL INSTRUMENTS -- CONTINUED
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.
F-24
<PAGE> 76
==============================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE PLACEMENT AGENT.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN WHICH THE PERSON MAKING
THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
MEMORANDUM NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
---------------
TABLE OF CONTENTS
Page
Prospectus Summary....................................................... 2
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 9
Dividend Policy.......................................................... 9
Capitalization........................................................... 11
Selected Financial Data.................................................. 12
Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................... 13
Business................................................................. 18
Management............................................................... 26
Principal Shareholders................................................... 37
Description of Capital Stock............................................. 39
Shares Eligible for Future Sale.......................................... 43
Selling Shareholders..................................................... 45
Plan of Distribution..................................................... 50
Legal Matters............................................................ 50
Experts.................................................................. 51
Additional Information................................................... 51
Index to Financial Statements............................................F-1
