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United States Securities and Exchange Commission
Washington D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended August 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 001-12673
RIVIERA TOOL COMPANY
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2828870
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5460 EXECUTIVE PARKWAY SE
GRAND RAPIDS, MI 49512
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(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (616) 698-2100
Securities registered pursuant to Section 12(b) of the Act: Common Stock,
no par value
Securities registered pursuant to 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting common stock of the Registrant (based
upon the last reported sale of the Common Stock at that date by the American
Stock Exchange) held by non-affiliates was $_____________ as of November ___,
1999.
The number of shares outstanding of the Registrant's common stock as of November
___, 1999 was 3,218,744 shares of common stock without par value.
DOCUMENTS INCORPORATED BY REFERENCE:
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Part of Form 10-K Into Which Portions
Document of Documents are Incorporated
- --------------------------------------------------------------- -------------------------------------------------------------
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Riviera Tool Company 1999 Annual Report to Shareholders. Parts I, II and IV
Definitive Proxy Statement for the 1999 Annual Meeting of Part III
Shareholders filed with the Securities and Exchange Commission,
November, 1999.
</TABLE>
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THE MATTERS DISCUSSED IN THIS ANNUAL REPORT ON FORM 10-K CONTAIN CERTAIN
FORWARD-LOOKING STATEMENTS. FOR THIS PURPOSE, ANY STATEMENTS CONTAINED IN THIS
REPORT THAT ARE NOT STATEMENTS OF HISTORICAL FACT MAY BE DEEMED TO BE
FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING THE FOREGOING, WORDS SUCH AS "MAY,"
"WILL," "EXPECT," BELIEVE," "ANTICIPATE," OR "CONTINUE," THE NEGATIVE OR OTHER
VARIATION THEREOF, OR COMPARABLE TERMINOLOGY, ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. THESE STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL
RISKS AND UNCERTAINTIES, AND ACTUAL RESULTS MAY DIFFER MATERIALLY DEPENDING UPON
A VARIETY OF FACTORS, INCLUDING CONTINUED MARKET DEMAND FOR THE TYPES OF
PRODUCTS AND SERVICES PRODUCED AND SOLD BY THE COMPANY.
RIVIERA TOOL COMPANY
Annual Report on Form 10-K
November __, 1999
TABLE OF CONTENTS
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PART I PAGE
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Item 1. Business........................................................................ 3
Item 2. Properties...................................................................... 7
Item 3. Legal Proceedings............................................................... 8
Item 4. Submission of Matters to a Vote of Security Holders............................. 8
PART II
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Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters..................................................... 8
Item 6. Selected Financial Data......................................................... 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................. 9
Item 8. Financial Statements and Supplemental Data...................................... 9
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.......................................... 9
PART III
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Item 10. Directors and Executive Officers of the Registrant.............................. 10
Item 11. Executive Compensation.......................................................... 10
Item 12. Security Ownership of Certain Beneficial Owners and Management.................. 10
Item 13. Certain Relationships and Related Transactions.................................. 10
PART IV
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Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ............... 10
SIGNATURES...................................................................... 12
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PART I
ITEM 1. BUSINESS
GENERAL
The Company is a 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 roofs, hoods, fenders, doors, door frames, structural components
and bumpers. The following table sets forth the Company's sales (in millions)
and percentage of total sales by major customer in fiscal years 1995, 1996,
1997, 1998 and 1999.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
- ------------------------------------------------------------------------------------------------------------------------
CUSTOMER 1995 1996 1997 1998 1999
- -------------------------------------------------- -------------- -------------- ------------- ---------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------------ -------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DaimlerChrysler AG.............. $4.6 24% $4.6 25% $8.9 40% $2.3 10% $5.2 23%
Suppliers of DaimlerChryslerAG... 0 * 0 * .7 3 1.5 7 .9 4
Ford Motor Company.............. 1.3 7 2.1 11 3.4 16 0 * .1 *
Suppliers of Ford Motor Co...... 10.4 55 3.0 17 3.4 16 6.0 26 2.6 11
General Motors Corporation........ .2 1 2.3 13 .9 4 5.2 23 5.7 25
Suppliers of General Motors
Corporation...................... 0 * 1.6 9 1.8 8 6.0 27 2.9 13
Other auto and truck
manufacturers
and their suppliers............ 2.5 13 4.7 25 2.8 13 1.6 7 5.4 24
------------ -------------- -------------- ------------- ---------------
Total Sales.................... $19.0 100% $18.3 100% $21.9 100% $22.6 100% $22.8 100%
============ ============== ===== ======== ============= ===============
</TABLE>
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* Less than 1.0% of the Company's total sales.
INDUSTRY TRENDS
The automotive industry continues to evolve towards the early stages of
convergence between the OEM's and the supplier base. This trend will result in
the OEM's focusing their capital expenditures on marketing and distribution,
rather than manufacturing. A Bear Sterns & Co. Inc. automotive parts industry
report (1) noted that the OEM's greatest single asset is their brands and that
independent suppliers will become a critical component of the design,
engineering and delivery of systems which will increasingly be outsourced in the
future.
Other significant trends within the North American automotive industry
have had, and are likely to continue to have, an impact on the Company's
business. Over the past several years, the industry has required that its tool
suppliers utilize advanced computer integrated technology. This has required
significant capital investment. In some cases, being unable or unwilling to make
this investment, many independent tooling suppliers have exited the business.
This has decreased the available domestic tooling capacity and has resulted in
fewer qualified suppliers.
The automotive industry's trend towards shorter product life cycles and
introduction of a greater number of vehicle models will create growing demand
for the Company's complex tooling systems. In accordance with this trend,
DaimlerChrysler AG ("Chrysler"), Ford Motor Company ("Ford") and General Motors
Corporation ("General Motors"), the three largest domestic automobile
manufacturers (the "OEMs"), are forming alliances with select
- ------------
(1) Source: Bear Sterns Equity Research Report on the Auto Parts Industry,
dated September, 1998.
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suppliers which have the technological capability to successfully perform
simultaneous engineering of product and manufacturing processes from concept to
completion at the supplier level and utilizing computer data based design,
manufacturing and validation processes. Some 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.
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 lightweight, high strength steels and aluminum in new model designs in
order to decrease the weight of the vehicle and increase fuel efficiency.
Therefore, suppliers will be required to have the ability to work with these
types of materials in order to remain competitive. The Company has established
an expertise in manufacturing dies used in the production of structural
components made of light-weight, high strength steels and aluminum (largely
utilized in large semi-trucks).
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.
Management believes these industry trends will continue with emphasis on
simultaneous engineering and manufacturing processes centered around the
utilization of fully computer integrated technologies. This should increase the
Company's customer relationships with and importance to the OEMs and their tier
one suppliers of sheet metal stamped parts and assemblies.
PRODUCTS AND SERVICES
Dies. The Company's dies are used in the high speed production of sheet
metal stamped parts and assemblies. Production of such parts is a multiple step
process involving a series of dies. Typically, the first die is used to cut the
appropriate size metal blank from a sheet or coil of steel. The next die draws
the metal blank into its primary shape and subsequent dies are used to bend
edges or corners, create flanges, trim off excess metal and pierce assembly
holes. A customer usually orders only one series of dies for each separate part.
Normally, the dies do not require replacement due to usage because the life of
well-maintained dies is sufficient to carry production to the point when styling
changes dictate production of new dies. The dies manufactured by the Company
generally include automation features, adding to the complexity of design and
construction. These automation features facilitate rapid introduction and
removal of the work piece or raw material into and out of the die, thereby
increasing production speeds and reducing labor cost.
During fiscal 1998, the Company purchased four large stamping presses and
completed the installation of such presses during fiscal 1999. These additional
presses provide the Company the opportunity to manufacture the largest dies for
the largest parts used in an automobile. These parts would include double
attached doors, body side apertures and very large hood and deck panels. The
Company believes it is only one of three domestic die manufacturers and one of
only eight in the world with this capacity. This large die press capacity will
benefit the Company in that these types of large dies can result in larger
dollar contracts. For example, a set of stamping dies currently manufactured by
the Company generally sells for between $250,000 and $2,000,000 depending upon
size and complexity, whereas a body side aperture can sell for between
$4,000,000 and $6,000,000.
Simultaneous Engineering of Product and Process. The OEMs are developing
organizational structures involving internal design and engineering personnel as
well as supplier representatives which they are using to develop new car models.
These organizations are called "Platform" teams. This allows full implementation
of
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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 utilizes the latest advanced technology and is capable of receiving and
working directly from complex mathematical data received from its OEM customers.
Management's investment in, and commitment to, advanced technology has
solidified its quality reputation with its customers and helped the Company
advance to tier one status.
Prototype Tooling and Parts. With the advent of Platform team and
simultaneous engineering methods, the Company has become responsible for the
design and manufacture of both the prototype tooling, the final production
tooling and specifies the final production process. Prototype tooling and parts
are utilized during the design phase of new models, which the automobile
manufacturers use to validate the fit and function of the respective components
and assemblies and the repeatability of the respective production processes. The
parts manufactured from prototype tools are also often used in crash testing.
Typically, prototype tools associated with the primary metal forming
operations are manufactured from an alloy casting or mild steel and subsequently
machined using the mathematical database 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 database, which will then be used to manufacture the final
production tools. After testing the primary forming operations, prototype parts
are manufactured using special means such as computerized laser-cutting machines
to trim off excess scrap and to incorporate various slots and holes. These parts
are then sent to the automobile manufacturers for further testing and
evaluation. The results of this testing and evaluation may require the
incorporation of additional design and manufacturing process modifications.
MANUFACTURING
Traditionally, the die manufacturing process was comprised of various manual
steps performed by craftsmen. After being awarded a contract, the Company would
be presented with a wooden model of the part to be produced. From the model,
plaster tooling aids were constructed. The plaster tooling aids were then traced
and cut into steel. The steel was then ground, usually quite extensively, by
hand to fit. Validation was also done by hand, by measuring specific points on
the die face and comparing these to the original design blueprints. Today, with
the Company's technology, the design and most of the manufacturing process is
computer-driven, which increases accuracy and reduces the time required to
produce a set of stamping dies. The process starts when the Company is assigned
to a new Platform team and simultaneous engineering begins. An electronic
"model" of the part to be produced is transmitted directly to the Company by
transferring design information electronically ("EDI"), or sent on computer disk
represented as a mathematical database. Company engineers use the mathematical
database to generate computer-aided die designs and die face cutter path
programs. These cutter path programs are used by the toolmakers 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. During
this automated validation process, the tool is statistically compared to the
mathematical database. Having the optimum size and quantity of tryout presses is
an important aspect of the construction and validation process, and the Company
has therefore invested heavily to ensure its capability in this area.
On average, 10 months elapse from the time the Company is awarded a contract
until the final set of dies is shipped to the customer. The OEMs are facing
growing pressure to reduce the time required to introduce a new car model. To
meet shorter timeframes, OEMs are relying more heavily on simultaneous
engineering and integrating
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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.
RAW MATERIALS
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. The Company typically purchases its raw
materials on a purchase order basis as needed and has generally been able to
obtain adequate supplies of raw materials for its operations.
MARKETING AND SALES
The Company's marketing emphasis is on DaimlerChrysler, Ford and General
Motors and their tier one suppliers. The Company maintains excellent
relationships with DaimlerChrysler, Ford and General Motors which directly
accounted for about 48%, in the aggregate, of the Company's revenues in 1999.
For the year ended August 31, 1999, DaimlerChrysler, Ford, General Motors and
their tier one suppliers accounted for approximately 76% 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 domestic and foreign 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 and accurately. 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 group of qualified suppliers.
For business done with tier one suppliers, the Company's sales process
follows a more traditional process. The Company typically receives a package or
request for quotation from the tier one supplier and is less involved in the
design process of the part to be manufactured. Bids are generally awarded based
on technological capability, price, quality and past performance.
BACKLOG AND SEASONALITY
The Company's backlog of awarded contracts, of which all are believed to be
firm, was approximately $17.0 million and $16.2 million as of August 31, 1999
and 1998, respectively. Of the August 31, 1999 contract backlog, the Company
expects all backlog contracts will be reflected in sales during fiscal years
ended August 31, 2000 and 2001. The Company's sales of stamping dies do not
follow a seasonal pattern; however, the timing of new model introductions and
existing model restyling tooling programs are dependent on DaimlerChrysler, Ford
and General Motors and their strategy of accelerating the introduction of new
models.
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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 tool and die manufacturer industry has significant barriers
to entry, which can reduce competition in the large-scale die market. These
barriers include the highly capital intensive and technically complex
requirements of the industry. Additionally 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
1998 survey by the National Tooling and Machining Association, only 18 companies
reported average annual sales in excess of $10 million. Based upon the study and
the Company's independent knowledge of its direct competitors, the Company
believes it is among the 6 largest independent suppliers and that no one
supplier is dominant.
Finally, the OEMs maintain in-house, captive tool and die capacity to meet a
portion of their needs. General Motors maintains the largest captive capacity
and, based on estimates from various trade publications, supplies an estimated
75-80% of its own die construction needs. Ford produces approximately 50% and
DaimlerChrysler 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.
With the advent of simultaneous engineering in the automobile industry,
proximity of the OEM's design engineers may effect the placement of the die
manufacturer. However, foreign competition may have certain advantages over
domestic die manufacturers including lower capital costs, currency exchange
advantages, government assistance and lower labor costs. The Company believes
that it is one of eight die manufacturing companies on a global basis with the
large press capacity necessary to manufacture and validate large scale stamping
die systems.
EMPLOYEES
The Company's work force consists of approximately 138 full-time employees,
of which approximately 34 are salaried managerial and engineering personnel. The
balance are hourly employees engaged in manufacturing and indirect labor
support. Included among these hourly workers are approximately 102 skilled
tradesmen who are either journeymen tool and die makers or machinists. None of
the Company's employees are covered by a collective bargaining agreement. The
Company has not experienced any work stoppages and considers its relations with
its employees to be good. The Company has a discretionary contribution 401(K)
plan. The Company has no contingent pension liabilities arising from any defined
benefit plan.
ENVIRONMENTAL MATTERS
The Company is subject to environmental laws and regulations concerning
emissions to the air, discharges to waterways, and generation, handling,
storage, transportation, treatment and disposal of waste materials. The Company
is also subject to other Federal and state laws and regulations regarding health
and safety issues. The Company believes that it is currently in compliance with
applicable environmental and health and safety laws and regulations.
ITEM 2. PROPERTIES
The Company's facilities are located in Grand Rapids, Michigan, and
consist of approximately 178,000 square feet of space, of which 28,000 square
feet is utilized for office, engineering and employee service functions,
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98,000 square feet is dedicated to the Company's tooling production and 52,000
square feet is under a four-year sublease to an unaffiliated tenant. Constructed
in 1989, the facility is leased with a lease term of 20 years. The facility
lease provides for annual payments of $934,500 plus an escalation of base rent
of 1% for each of the first ten years and 2% for each of the second ten years.
The Company has a purchase option on the building at the fair market value
beginning in November 1996. The sublease requires annual lease payments of
$224,724 commencing August 1, 1996 through July 1, 1998 and $231,468 per annum
from August 1, 1998 through July 31, 2000. The sublease also requires the
subtenant to pay 33.7% of common operating expenses of the facility. The
sublease has two renewal options for two years each with annual lease payments
of $231,468 and $238,412, respectively. During 1998, the tenant exercised its
option to extend the lease period until July 31, 2000. The Company has exercised
its option to terminate the sublease agreement on July 31, 2000. The Company
believes its facilities are modern, well maintained, adequately insured and
suitable for their present and intended uses.
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently a party to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year,
covered by this report, to a vote of security holders through the solicitation
of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the American Stock Exchange
("AMEX") under the symbol RTC. The common stock commenced trading on the AMEX on
March 7, 1997, as a result of the Company's initial public offering. Prior to
that date, there was no public market for the common stock. The table below sets
forth the high and low sales prices as reported by AMEX for each period
reported.
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FISCAL 1998 FISCAL 1999
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HIGH LOW HIGH LOW
---- --- ---- ---
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1st quarter....................... $10.000 $5.875 $6.7500 $4.625
2nd quarter....................... $12.375 $6.625 $5.9375 $4.625
3rd quarter....................... $10.375 $8.000 $5.4375 $4.500
4th quarter....................... $9.875 $4.750 $4.875 $3.875
</TABLE>
As of October 19, 1999, the Company's common stock was held by 44
holders of record and approximately 795 beneficial shareholders.
The Company has not historically paid cash dividends on its Common
Stock. 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.
On November 2, 1998, the Company's Board of Directors declared a
five-percent common stock dividend, payable on December 18, 1998, to all
shareholders of record on November 17, 1998. On December 18, 1998, an additional
153,245 common shares were issued as a stock dividend.
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ITEM 6. SELECTED FINANCIAL DATA
Information required by this Item 6 is incorporated by reference to
page 50 and 51 of the Company's 1999 Annual Report to Stockholders filed as
Exhibit 13 hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information required by this Item 7 is incorporated by reference to
pages 52-54 of the Company's 1999 Annual Report to Stockholders filed as
Exhibit 13 hereto.
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTAL DATA
The Registrant hereby incorporates the financial statements required by
this Item 8 by reference to Item 14(a)(1) hereof, and the supplementary
financial information required by this Item 8 by reference to page 54-67 of the
Company's 1999 Annual Report to Shareholders filed as Exhibit 13 hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On April 28, 1999, the Company filed a Form 8-K, Item 4. Changes in
Registrant's Certifying Accountant (a) Previous independent accountants. Such
filing indicated that on April 22, 1999, the Company
- dismissed Plante & Moran LLP as its independent accountant.
- The reports of Plante & Moran LLP on the financial statements for
the past two fiscal years (fiscal 1997 and 1998) contained no
adverse or disclaimer of opinion and were not qualified or
modified as to uncertainty, scope or accounting principles.
- The Company's Audit Committee participated in and recommended the
decision to change independent accountants.
- In connection with its audits for the two most recent fiscal years
(1997 and 1998) and through April 28, 1999, there have been no
disagreements with Plante & Moran LLP on any matter of accounting
principles or practices, financial statement disclosure or
auditing scope procedure or any reportable events.
- During the two most recent fiscal years (1997 and 1998) and
through April 28, 1999, there have been no reportable events (as
defined in Regulation S-K Item 304 (a)(1)(v).
- The Company had provided Plante & Moran LLP with a copy of the
Form 8-K and attached a letter from Plante & Moran LLP addressed
to the SEC stating that they agreed with the statement on such
Form 8-K.
On July 14, 1999, the Company filed a Form 8-K, Item 4. Changes in
Registrant's Certifying Accountant (b) New independent accountants. Such filing
indicated that the Company
- Engaged Deloitte & Touche LLP as its new independent accountants
- In November 1998, the Company engaged Deloitte & Touche LLP to
assist the Audit Committee in its review of the Company's prior
financial statements. In conjunction with this engagement,
Deloitte &
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Touche LLP provided oral advice regarding matters relating to the
Company's restated financial statements.
- The Company has not consulted with Deloitte & Touche LLP on any
matter that was either the subject of a disagreement, as that term
is defined in Item 304(a)(1)(iv) of Regulation S-K, or a
reportable event, as that term is defined in Item 304(a)(1)(v)
of Regulation S-K.
PART III
The Registrant hereby incorporates the information required by Form
10-K, Items 10-13 by reference to the Registrant's definitive proxy statement
for its 1999 annual meeting of shareholders which was filed with the Commission
prior to November ___, 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. Financial Statements - The following financial statements and
the report of independent auditors set forth on pages 54 - 67 of the
Company's 1999 Annual Report to Shareholders filed as Exhibit 13 hereto
are incorporated by reference in this Annual Report on Form 10-K.
- Balance Sheets as of August 31, 1999 and 1998
- Notes to Financial Statements
- For each of the three years in the period ended August 31, 1999:
Statements of Common Shareholders' Equity
Statement of Operations
Statements of Cash Flows
- Reports of Independent Auditors
2. Financial Statement Schedules - No such schedules are included because
of the absence of the conditions under which they are required, or
because the information called for is included in the financial
statements or notes thereto.
3. Exhibits
10(l) Loan Agreement, Revolving Line of Credit Loan Note, Existing
Equipment Term Loan Note, Non-Revolving Equipment Line of
Credit Loan Note, Security Agreement and Assignment of Life
Insurance Policy as Collateral between Registrant and Old
Kent Bank dated June 12, 1997 (incorporated by reference to
Exhibit 10(l) of the Registrant's Form 10K, filed November
26, 1997).
10(m) Amendments number 1, 2, 3, and 4 between Registrant and Old
Kent Bank dated December 31, 1997, February 15, 1998, August
14, 1998 and August 14, 1998, respectively (incorporated by
reference to Exhibit 10(m) of the Registrant's Form 10K,
filed November 23, 1998).
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10(n) Release of Policy as Collateral Security from NBD Bank dated
December 2, 1997 (incorporated by reference to Exhibit 10(n)
of the Registrant's Form 10K, filed November 23, 1998).
10(o) Assignment of Life Insurance Policy as Collateral Security
to Old Kent Bank dated July 23, 1998 (incorporated by
reference to Exhibit 10(o) of the Registrant's Form 10K,
filed November 23, 1998).
10(p) 1998 Key Employee Stock Option Plan dated November 2, 1998
(incorporated by reference to Exhibit 10(p) of the
Registrant's Form 10K, filed November 23, 1998).
10(q) Amendments number 5, 6, 7 and 8 between Registrant and Old
Kent Bank dated October 31, 1998, January 1, 1999, February
27, 1999 and March 31, 1999, respectively.
10(r) First Restated Loan Agreement and $1,000,000 Term Loan Note
between Registrant and Old Kent Bank dated August 31, 1999.
13 1999 Annual Report to Shareholders.
21 Subsidiaries - None
27 Financial Data Schedule.
(b). Reports filed on Form 8-K during the fourth quarter of fiscal 1999 -
The Company filed a Form 8-K on July 14, 1999, regarding Item 4 -
Changes in Registrant's Certifying Accountant (b) New Independent
Accountants. In such filing, the Company disclosed that, on the
recommendation of its Audit Committee and Board of Directors, it has
engaged Deloitte & Touche as its new independent accountants.
11
<PAGE> 12
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities
and Exchange Act of 1934 the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
Dated: November 18, 1999 RIVIERA TOOL COMPANY
By: /s/ Kenneth K. Rieth
--------------------
Kenneth K. Rieth, Principal Executive Officer
and
By: /s/ Peter C. Canepa
-------------------
Peter C. Canepa, Principal Financial and
Accounting Officer
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on the 18th day of November, 1999, by the
following persons on behalf of the Company and in the capacities indicated.
Each Director of the Company whose signature appears below hereby
appoints Kenneth K. Rieth and Peter C. Canepa, and each of them individually, as
his attorney-in-fact to sign in his name and on his behalf as a Director of the
Company, and to file with the Commission any and all amendments to this report
on Form 10-K to the same extent and with the same effect as if done personally.
/s/ Leonard H. Wood /s/ Kenneth K. Rieth
- ------------------------- --------------------------
Leonard H. Wood, Director Kenneth K. Rieth, Director
/s/ John C. Kennedy /s/ Daniel W. Terpsma
- ------------------------- --------------------------
John C. Kennedy, Director Daniel W. Terpsma, Director
/s/ Thomas H. Highley
- -------------------------
Thomas H. Highley, Director
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
Not Applicable.
12
<PAGE> 13
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
----------------------
EXHIBITS
TO
1999
FORM 10-K
UNDER
THE SECURITIES AND EXCHANGE ACT OF 1934
----------------------
RIVIERA TOOL COMPANY
================================================================================
13
<PAGE> 14
EXHIBIT INDEX
EXHIBIT NO.
- ----------
10(l) Loan Agreement, Revolving Line of Credit Loan Note, Existing
Equipment Term Loan Note, Non-Revolving Equipment Line of
Credit Loan Note, Security Agreement and Assignment of Life
Insurance Policy as Collateral between Registrant and Old
Kent Bank dated June 12, 1997 (incorporated by reference to
Exhibit 10(l) of the Registrant's Form 10K, filed November
26, 1997).
10(m) Amendments number 1, 2, 3, and 4 between Registrant and Old
Kent Bank dated December 31, 1997, February 15, 1998, August
14, 1998 and August 14, 1998, respectively (incorporated by
reference to Exhibit 10(m) of the Registrant's Form 10K,
filed November 23, 1998).
10(n) Release of Policy as Collateral Security from NBD Bank dated
December 2, 1997 (incorporated by reference to Exhibit 10(n)
of the Registrant's Form 10K, filed November 23, 1998).
10(o) Assignment of Life Insurance Policy as Collateral Security
to Old Kent Bank dated July 23, 1998 (incorporated by
reference to Exhibit 10(o) of the Registrant's Form 10K,
filed November 23, 1998).
10(p) 1998 Key Employee Stock Option Plan dated November 2, 1998
(incorporated by reference to Exhibit 10(p) of the
Registrant's Form 10K, filed November 23, 1998).
10(q) Amendments number 5, 6, 7 and 8 between Registrant and Old
Kent Bank dated October 31, 1998, January 1, 1999, February
27, 1999 and March 31, 1999, respectively.
10(r) First Restated Loan Agreement and $1,000,000 Term Loan Note
between Registrant and Old Kent Bank dated August 31, 1999.
13 1999 Annual Report to Shareholders.
21 Subsidiaries - None
27 Financial Data Schedule.
<PAGE> 1
EXHIBIT 10(Q)
AMENDMENTS 5, 6, 7, 8, AND 9 BETWEEN REGISTRANT AND OLD KENT BANK
FIFTH AMENDMENT TO LOAN DOCUMENTS
This Fifth Amendment to Loan Documents is made on October 31, 1998, by
and between OLD KENT BANK, a Michigan banking corporation (the "Bank"), One
Vandenberg Center, Grand Rapids, Michigan 49503, and RIVIERA TOOL COMPANY, a
Michigan corporation ("Borrower"), 5460 Executive Parkway, Grand Rapids,
Michigan 49512.
RECITALS:
A. The Bank and the Borrower are parties to a Loan Agreement dated June
12, 1997 (the "Loan Agreement"), as amended by a First Amendment to Loan
Documents dated December 31, 1997 (the "First Amendment"), a Second Amendment to
Loan Documents dated February 15, 1998 (the "Second Amendment"), a Third
Amendment to Loan Documents dated August 14, 1998 (the "Third Amendment"), and a
Fourth Amendment to Loan Documents dated August 14, 1998 (the "Fourth
Amendment"), pursuant to which the Bank has agreed, subject to the terms and
conditions set forth in the Loan Agreement and the Loan Documents, as so
amended, to extend to the Borrower certain credit facilities, including but not
limited to a Revolving L/C Loan in the maximum principal amount of $10,000,000.
Capitalized terms used but not defined in this Fifth Amendment shall have the
meanings given such terms in the Loan Agreement, as previously amended.
B. The Revolving L/C Loan is evidenced by a Promissory Note in
substantially the form attached to the Loan Agreement as Exhibit A (the
"Revolving L/C Loan Note").
C. The Bank and the Borrower wish to amend the Loan Agreement and the
Revolving L/C Loan Note in the manner set forth below.
NOW, THEREFORE, the Bank and the Borrower agree as follows:
1. Amendment to Paragraph 2 of Fourth Amendment. Effective as of
November 1, 1998, paragraph 2 of the Fourth Amendment was deleted and the
following was substituted in its place:
Availability: At no time shall the
outstanding balance of the Revolving
L/C Loan exceed the lesser of (1)
the Loan Maximum, or (2) the sum of
(a) 85% of Eligible Accounts
Receivable plus (b) the lesser of
(i) $6,000,000, or (ii) 50% of the
Work in Process Inventory.
14
<PAGE> 2
2. Availability Formula as of February 1, 1999. Effective as of
February 1, 1999, the following provision shall, without further act by the Bank
or the Borrower, be substituted for the availability formula set forth in
paragraph 1 above, and the availability formula set forth in paragraph 1 above
thereupon shall cease to be effective:
Availability: At no time shall the
outstanding balance of the Revolving
L/C Loan exceed the lesser of (1)
the Loan Maximum, or (2) the sum of
(a) 85% of Eligible Accounts
Receivable plus (b) the lesser of
(i) $5,000,000, or (ii) 40% of the
Work in Process Inventory.
3. Availability Formula as of April 1, 1999. Effective as of April 1,
1999, the following provision shall, without further act by the Bank or the
Borrower, be substituted for the availability formula set forth in paragraph 2
above, and the availability formula set forth in paragraph 2 above thereupon
shall cease to be effective:
Availability: At no time shall the
outstanding balance of the Revolving
L/C Loan exceed the lesser of (1)
the Loan Maximum, or (2) the sum of
(a) 85% of Eligible Accounts
Receivable plus (b) the lesser of
(i) $3,500,000, or (ii) 40% of the
Work in Process Inventory.
4. Effect of this Fifth Amendment. The Loan Documents are hereby
amended as required (and only as required) to give effect to the amendments
expressly provided for in this Fifth Amendment. Each and every one of the Loan
Documents shall be deemed to have been amended by this Fifth Amendment as if
such Loan Documents had been specifically amended by separate instrument. This
Fifth Amendment shall be a Loan Document, and all references in any Loan
Document to the "Loan Documents" shall refer to the Loan Documents, as
previously amended by the First, Second, Third and Fourth Amendments to Loan
Documents, and as further amended by this Fifth Amendment.
5. No other Amendments, etc. Except as expressly set forth above, the
Loan Agreement, each of the Notes, and all of the other Loan Documents shall
remain in full force and effect as originally executed and delivered by the
parties, as previously amended by the First, Second, Third and Fourth Amendments
to Loan Documents, and as further amended by this Fifth Amendment, and are
hereby ratified and affirmed by the undersigned.
IN WITNESS WHEREOF, the parties have executed this Fifth Amendment to
Loan Documents as of the day and year first above written.
WITNESSES:
/s/ Peter C. Canepa RIVIERA TOOL COMPANY
- -------------------
/s/ Marcia J. Shumate By: /s/ Kenneth R. Rieth
- --------------------- --------------------
Kenneth R. Rieth, President
/s/ Peter C. Canepa OLD KENT BANK
- -------------------
/s/ Marcia J. Shumate By: /s/ Gilbert A. Segovia
- --------------------- ----------------------
Gilbert A. Segovia, Vice President
15
<PAGE> 3
SIXTH AMENDMENT TO LOAN DOCUMENTS
This Sixth Amendment to Loan Documents is made on January 1, 1999, by
and between OLD KENT BANK, a Michigan banking corporation (the "Bank"), One
Vandenberg Center, Grand Rapids, Michigan 49503, and RIVIERA TOOL COMPANY, a
Michigan corporation ("Borrower"), 5460 Executive Parkway, Grand Rapids,
Michigan 49512.
RECITALS:
A. The Bank and the Borrower are parties to a Loan Agreement dated
June 12, 1997 (the "Loan Agreement") as amended by a First
Amendment to Loan Documents dated December 31, 1997 (the "First
Amendment"), a Second Amendment to Loan Documents dated February
15, 1998 (the "Second Amendment"), a Third Amendment to Loan
Documents dated August 14) 1998 (the "Third Amendment'), a Fourth
Amendment to Loan Documents dated August 14, 1998 (the "Fourth
Amendment"), and a Fifth Amendment to Loan Documents dated
October 31, 1998 (the Fifth Amendment"), pursuant to which the
Bank has agreed, subject to the terms and conditions set forth in
the Loan Agreement and the Loan Documents, as so amended, to
extend to the Borrower certain credit facilities, including but
not limited to a Non-Revolving Equipment L/C Loan in the maximum
principal amount of $4,000,000. Capitalized terms used but not
defined in this Sixth Amendment shall have the meanings given
such terms in the Loan Agreement, as previously amended.
B. Under the Loan Agreement, as heretofore amended, the
Non-Revolving Equipment L/C Loan was evidenced by a Promissory
Note in substantially the form attached to the Loan Agreement as
Exhibit C (the "Non-Revolving Equipment L/C Loan Note").
C. At the Borrower's request, the Bank has consented to refinance
the Non-Revolving Equipment L/C Loan. To evidence the
Indebtedness formerly evidenced by the Non-Revolving Equipment
L/C Loan Note, the Borrower is, simultaneously with its execution
and delivery of this Sixth Amendment, executing and delivering
its Equipment Term Loan Note to the Bank (the "Equipment Term
Loan Note", a copy of which is attached to this Sixth Amendment
as Exhibit A). The indebtedness evidenced by the Equipment Term
Loan Note is referred to below as the "Equipment Term Loan". The
Equipment Term Loan and the Equipment Term Loan Note are separate
and distinct from the Existing Equipment Term Loan and the
Existing Equipment Term Loan Note, as such terms are defined in
the Loan Agreement as previously amended.
D. The Bank and the Borrower wish to amend the Loan Agreement to
reflect their agreement that the Equipment Term Loan Note shall
be deemed to have been issued pursuant to the Loan Agreement, the
Equipment Term Loan shall be deemed Indebtedness as defined in
the Loan Agreement, and no further advances of the Non-Revolving
Equipment L/C Loan shall be permitted, and to reflect the other
agreements set forth below.
NOW, THEREFORE, the Bank and the Borrower agree as follows:
1. Equipment Term Loan. The Equipment Term Loan Note shall be deemed
to have been issued pursuant to the Loan Agreement and the
Equipment Term Loan shall be deemed Indebtedness as defined in
the Loan Agreement. All of the collateral that secures the
Borrower's indebtedness and obligations under the Loan Agreement
(including but not limited to the obligations evidenced by the
Revolving L/C Loan Note and the Existing Equipment Term Loan
Note, as heretofore amended) shall
16
<PAGE> 4
secure the Equipment Term Loan to full extent and with the same
priority as such collateral secured the Non-Revolving Equipment
L/C Loan Note and the indebtedness evidenced thereby.
2. Cross-Default. An Event of Default under the Loan Agreement shall
be a default under the Equipment Term Loan Note, and shall
entitle the Bank to pursue any remedies available to it under the
Loan Agreement, any of the security agreements or other
collateral security documents referred to therein, or otherwise
available to the Bank at law or in equity or under any other
agreement between the Bank and the Borrower.
3. Termination of Advances of Non-Revolving Equipment L/C Loan- The
Bank shall no longer be required to make and the Borrower shall
no longer be entitled to receive advances of the Non-Revolving
Equipment L/C Loan.
4. Effect of this Sixth Amendment. The Loan Documents are hereby
amended as required (and only as required) to give effect to the
amendments expressly provided for in this Sixth Amendment. Each
and every one of the Loan Documents shall be deemed to have been
amended by this Sixth Amendment as if such Loan Documents had
been specifically amended by separate instrument. This Sixth
Amendment shall be a Loan Document, and all references in any
Loan Document to the "Loan Documents" shall refer to the Loan
Documents, as previously amended by the First, Second, Third,
Fourth and Fifth Amendments to Loan Documents, and as further
amended by this Sixth Amendment.
5. No other Amendments. etc. Except as expressly set forth above,
the Loan Agreement, each of the Notes, and all of the other Loan
Documents shall remain in full force and effect as originally
executed and delivered by the parties, as previously amended by
the First, Second, Third, Fourth and Fifth Amendments to Loan
Documents, and as further amended by this Sixth Amendment, and
are hereby ratified and affirmed by the undersigned.
IN WITNESS WHEREOF, the parties have executed this Sixth Amendment to
Loan Documents as of the day and year first above written.
WITNESSES:
RIVIERA TOOL COMPANY
- --------------------
By: /s/ Kenneth K. Rieth
- -------------------- --------------------
Kenneth R. Rieth, President
OLD KENT BANK
- --------------------
By: Gilbert A. Segovia
- -------------------- --------------------
Gilbert A. Segovia, Vice President
17
<PAGE> 5
SEVENTH AMENDMENT TO LOAN DOCUMENTS
This Seventh Amendment to Loan Documents is made as of February 27,
1999, by and between OLD KENT BANK, a Michigan banking corporation (the "Bank"),
One Vandenberg Center, Grand Rapids, Michigan 49503, and RIVIERA TOOL COMPANY, a
Michigan corporation (the "Borrower"), 5460 Executive Parkway, Grand Rapids,
Michigan 49512.
RECITALS:
A. The Bank and the Borrower are parties to a Loan Agreement dated June
12, 1997 (the "Loan Agreement"), as amended by a First Amendment to Loan
Documents dated December 31, 1997 (the "First Amendment"), a Second Amendment to
Loan Documents dated February 15, 1998 (the "Second Amendment"), a Third
Amendment to Loan Documents dated August 14, 1998 (the "Third Amendment"), a
Fourth Amendment to Loan Documents dated August 14, 1998 (the "Fourth
Amendment"), a Fifth Amendment to Loan Documents dated October 31, 1998 (the
"Fifth Amendment"), and a Sixth Amendment to Loan Documents dated January 1,
1999 (the "Sixth Amendment"), pursuant to which the Bank has agreed, subject to
the terms and conditions set forth in the Loan Agreement and the Loan Documents,
as so amended, to extend to the Borrower certain credit facilities, including
but not limited to the Revolving L/C Loan in the maximum principal amount of
$10,000,000. The Revolving L/C Loan is evidenced by the Revolving L/C Loan Note,
as heretofore amended. Capitalized terms used but not defined in this Seventh
Amendment shall have the meanings given such terms in the Loan Agreement, as
previously amended.
B. At the Borrower's request, the Bank agreed (in the Second and Third
Amendments) to extend the maturity date of the Revolving L/C Loan, and at the
Borrower's request the Bank has agreed to further extend the maturity date of
the Revolving L/C Loan.
C. The Bank and the Borrower wish to amend the Loan Agreement and the
Revolving L/C Loan Note in the manner set forth below.
NOW, THEREFORE, the Bank and the Borrower agree as follows:
1. Change in Maturity Date of Revolving L/C Loan. The maturity date of
the Revolving L/C Loan shall be extended from January 1, 2000 to April 1, 2000.
2. Effect of this Seventh Amendment. The Loan Documents are hereby
amended as required (and only as required) to give effect to the amendments
expressly provided for in this Seventh Amendment. Each and every one of the Loan
Documents shall be deemed to have been amended by this Seventh Amendment as if
such Loan Documents had been specifically amended by separate instrument. This
Seventh Amendment shall be a Loan Document, and all references in any Loan
Document to the "Loan Documents" shall refer to the Loan Documents, as
previously amended by the First, Second, Third, Fourth, Fifth and Sixth
Amendments to Loan Documents, and as further amended by this Seventh Amendment.
3. No other Amendments, etc. Except as expressly set forth above, the
Loan Agreement, each of the Notes, and all of the other Loan Documents shall
remain in full force and effect as originally executed and delivered by the
parties, as previously amended by the First, Second, Third, Fourth, Fifth and
Sixth Amendments to Loan Documents, and as further amended by this Seventh
Amendment, and are hereby ratified and affirmed by the undersigned.
[SIGNATURE APPEARS ON FOLLOWING PAGE]
18
<PAGE> 6
[SIGNATURE PAGE TO SEVENTH AMENDMENT
TO LOAN AGREEMENT]
IN WITNESS WHEREOF, the parties have executed this Seventh Amendment to
Loan Documents as of the day and year first above written.
WITNESSES:
/s/ Peter C. Canepa RIVIERA TOOL COMPANY
By: /s/ Kenneth K. Rieth
- ------------------------ --------------------
Kenneth K. Rieth, President
/s/ Peter C. Canepa OLD KENT BANK
By: /s/ Gilbert A. Segovia
- ------------------------ --------------------
Gilbert A. Segovia, Vice President
19
<PAGE> 7
EIGHTH AMENDMENT TO LOAN DOCUMENTS
This Eighth Amendment to Loan Documents is made as of March 31, 1999,
by and between OLD KENT BANK, a Michigan banking corporation (the "Bank"), One
Vandenberg Center, Grand Rapids, Michigan 49503, and RIVIERA TOOL COMPANY, a
Michigan corporation (the "Borrower"), 5460 Executive Parkway, Grand Rapids,
Michigan 49512.
RECITALS:
A. The Bank and the Borrower are parties to a Loan Agreement dated June
12, 1997 (the "Loan Agreement"), as amended by a First Amendment to Loan
Documents dated December 31, 1997 (the "First Amendment"), a Second Amendment to
Loan Documents dated February 15, 1998 (the "Second Amendment"), a Third
Amendment to Loan Documents dated August 14, 1998 (the "Third Amendment"), a
Fourth Amendment to Loan Documents dated August 14, 1998 (the "Fourth
Amendment"), a Fifth Amendment to Loan Documents dated October 31, 1998 (the
"Fifth Amendment"), a Sixth Amendment to Loan Documents dated January 1, 1999
(the "Sixth Amendment"), and a Seventh Amendment to Loan Documents dated as of
February 27, 1999 (the "Seventh Amendment"), pursuant to which the Bank has
agreed, subject to the terms and conditions set forth in the Loan Agreement and
the Loan Documents, as so amended, to extend to the Borrower the credit
facilities referred to in Recital B below.
B. As of the date of this Eighth Amendment, the credit facilities
outstanding under the Loan Agreement and the Loan Documents, as so amended, are:
(i) the Revolving L/C Loan in the maximum principal amount of $10,000,000; (ii)
the Existing Equipment Term Loan in the original principal amount of $3,250,000;
and (iii) the Equipment Term Loan in the original principal amount of $4,000,000
(being the indebtedness arising under the Sixth Amendment to refinance the
indebtedness theretofore referred to in the Loan Agreement as the "Non-Revolving
Equipment L/C Loan"). Capitalized terms used but not defined in this Eighth
Amendment shall have the meanings given such terms in the Loan Agreement, as
previously amended.
C. At the Borrower's request, the Bank agreed (in the Fourth and Fifth
Amendments) to temporary changes in the availability formula for the Revolving
L/C Loan, and at the Borrower's request the Bank has agreed to further extend
the period during which the temporary availability formula set forth in
paragraph 2 of the Fifth Amendment shall continue in effect.
D. At the Borrower's request, the Bank has also agreed to extend to the
Borrower, in addition to the credit facilities referred to in Recital B above, a
non-revolving line of credit loan in the maximum amount of $3,271,000 (the "1999
Equipment L/C Loan") for the purpose of financing the Borrower's acquisition of
certain equipment.
E. The 1999 Equipment L/C Loan shall be evidenced by a Promissory Note
in substantially the form attached to this Eighth Amendment as Exhibit A (the
"1999 Equipment L/C Note").
F. The Bank and the Borrower wish to amend the Loan Agreement to
reflect their agreement that the 1999 Equipment L/C Note shall be deemed to have
been issued pursuant to the Loan Agreement and that the 1999 Equipment L/C Loan
shall be deemed Indebtedness as defined in the Loan Agreement, and to reflect
the other agreements set forth below.
NOW, THEREFORE, the Bank and the Borrower agree as follows:
1. Amendment to Paragraph 3 of Fifth Amendment. The date "April 1,
1999" is deleted wherever it appears in paragraph 3 of the Fifth Amendment, and
the date "June 1, 1999" is inserted in its place.
20
<PAGE> 8
2. 1999 Equipment L/C Loan. The 1999 Equipment L/C Note shall be deemed
to have been issued pursuant to the Loan Agreement and shall constitute a
"Note", as defined therein, and the 1999 Equipment L/C Loan shall be deemed
Indebtedness as defined in the Loan Agreement. All of the collateral that
secures the Borrower's existing Indebtedness and obligations under the Loan
Agreement shall secure the 1999 Equipment L/C Loan to full extent and with the
same priority as such collateral secures the Indebtedness evidenced by the other
Notes currently outstanding under the Loan Agreement.
3. Cross-Default. An Event of Default under the Loan Agreement shall be
a default under the 1999 Equipment L/C Note, and a default under the 1999
Equipment L/C Note shall be an Event of Default under the Loan Agreement and all
of the other Loan Documents, and shall entitle the Bank to pursue any remedies
available to it under the Loan Agreement, any of the security agreements or
other collateral security documents referred to therein, or otherwise available
to the Bank at law or in equity or under any other agreement between the Bank
and the Borrower.
4. Special Terms Relating to 1999 Equipment L/C Loan. Advances of the
1999 Equipment L/C Loan shall be conditioned upon the Borrower's compliance with
Sections 10 and 11 of the Loan Agreement and shall be subject to the limitations
provided therein (specifically including but not limited to Section 11.1 of the
Loan Agreement). Under no circumstances shall the Bank have any obligation to
make principal advances of the 1999 Equipment L/C Loan after September 30, 1999.
The Borrower acknowledges that the Bank shall at no time ever be obligated to
advance to the Borrower more than a total of $3,271,000 under the 1999 Equipment
L/C Loan, and that the 1999 Equipment L/C Loan is not a revolving loan. Once
repaid, amounts borrowed under the 1999 Equipment L/C Loan may not be
re-borrowed.
21
<PAGE> 9
5. Effect of this Eighth Amendment. The Loan Documents are hereby
amended as required (and only as required) to give effect to the amendments
expressly provided for in this Eighth Amendment. Each and every one of the Loan
Documents shall be deemed to have been amended by this Eighth Amendment as if
such Loan Documents had been specifically amended by separate instrument. This
Eighth Amendment shall be a Loan Document, and all references in any Loan
Document to the "Loan Documents" shall refer to the Loan Documents, as
previously amended by the First, Second, Third, Fourth, Fifth, Sixth and Seventh
Amendments to Loan Documents, and as further amended by this Eighth Amendment.
7. No other Amendments, etc. Except as expressly set forth above, the
Loan Agreement, each of the Notes, and all of the other Loan Documents shall
remain in full force and effect as originally executed and delivered by the
parties, as previously amended by the First, Second, Third, Fourth, Fifth, Sixth
and Seventh Amendments to Loan Documents, and as further amended by this Eighth
Amendment, and are hereby ratified and affirmed by the undersigned.
IN WITNESS WHEREOF, the parties have executed this Eighth Amendment to
Loan Documents as of the day and year first above written.
WITNESSES:
/s/ Peter C. Canepa RIVIERA TOOL COMPANY
By: /s/ Kenneth K. Rieth
- ------------------------ --------------------
Kenneth K. Rieth, President
/s/ Peter C. Canepa OLD KENT BANK
By: /s/ Gilbert A. Segovia
- ------------------------ ----------------------
Gilbert A. Segovia, Vice President
22
<PAGE> 1
EXHIBIT 10(R)
FIRST RESTATED LOAN AGREEMENT AND $1,000,000 TERM LOAN NOTE
FIRST RESTATED LOAN AGREEMENT
This First Restated Loan Agreement (the "Restated Loan Agreement" or
this "Agreement") is made as of August 31, 1999, between OLD KENT BANK, a
Michigan banking corporation (the "Bank"), One Vandenberg Center, Grand Rapids,
Michigan 49503, and RIVIERA TOOL COMPANY, a Michigan corporation (the
"Borrower"), 5460 Executive Parkway, Grand Rapids, Michigan 49512.
RECITALS:
A. The Bank and the Borrower are parties to a Loan Agreement dated June
12, 1997 (the "Loan Agreement"), as amended by a First Amendment to Loan
Documents dated December 31, 1997 (the "First Amendment"), a Second Amendment to
Loan Documents dated February 15, 1998 (the "Second Amendment"), a Third
Amendment to Loan Documents dated August 14, 1998 (the "Third Amendment"), a
Fourth Amendment to Loan Documents dated August 14, 1998 (the "Fourth
Amendment"), a Fifth Amendment to Loan Documents dated October 31, 1998 (the
"Fifth Amendment"), a Sixth Amendment to Loan Documents dated January 1, 1999
(the "Sixth Amendment"), a Seventh Amendment to Loan Documents dated as of
February 27, 1999 (the "Seventh Amendment"), and an Eighth Amendment to Loan
Documents dated as of March 31, 1999 (the "Eighth Amendment"), pursuant to which
the Bank agreed, subject to the terms and conditions set forth in the Loan
Agreement and the Loan Documents (as defined in the Loan Agreement), as so
amended, to extend to the Borrower certain credit facilities.
B. The Bank and the Borrower wish to restate and replace the Loan
Agreement, as amended by the First Amendment through the Eighth Amendment, with
this Agreement. This Agreement shall replace and supersede, in their entirety,
the Loan Agreement and the First Amendment through the Eighth Amendment, but all
of the other documents evidencing or securing any of the Borrower's existing
indebtedness or obligations to the Bank (collectively the "Existing Loan
Documents") shall, except as otherwise provided in this Agreement, remain in
full force and effect, without amendment. All references in any of the Existing
Loan Documents to the "Loan Agreement" shall be deemed references to this
Agreement.
C. As of the date of this Agreement, the Borrower's outstanding
indebtedness to the Bank is evidenced by: (i) a Revolving Line of Credit Note
dated June 12, 1997 in the stated principal amount of $10,000,000.00 (the
"Revolving L/C Note", a copy of which is attached hereto as Exhibit A, which
evidences the "Revolving L/C Loan" incurred by the Borrower pursuant to the
original Loan Agreement); (ii) the Existing Equipment Term Loan Note dated June
12, 1997 in the stated principal amount of $3,250,000.00 (the "Existing
Equipment Term Loan Note", a copy of which is attached hereto as Exhibit B,
which evidences the "Existing Equipment Term Loan" incurred by the Borrower
pursuant to the original Loan Agreement); (iii) an Equipment Term Loan Note
dated January 1, 1999 in the stated principal amount of $4,000,000.00 (the
"Equipment Term Loan Note", a copy of which is attached hereto as Exhibit C,
which evidences the "Equipment Term Loan" incurred by the Borrower pursuant to
the Sixth Amendment; and (iv) a Non-Revolving 1999 Equipment Line of Credit Note
dated April 20, 1999 in the stated principal amount of $3,271,000.00 (the "1999
Equipment L/C Note", a copy of which is attached hereto as Exhibit D, which
evidences the "1999 Equipment L/C Loan" incurred by the Borrower pursuant to the
Eighth Amendment). All of the collateral that secures the Borrower's existing
indebtedness and obligations to the Bank shall continue to secure such
indebtedness and obligations and any and all future indebtedness and obligations
of the Borrower to the Bank.
D. At the Borrower's request, the Bank has agreed to extend to the
Borrower, in addition to the credit facilities referred to in Recital C above, a
term loan in the principal amount of $1,000,000.00 (the "$1,000,000.00 Term
Loan", which shall be evidenced by a Promissory Note of even date herewith in
substantially the form attached hereto as Exhibit E (the "$1,000,000.00 Term
Loan Note"). The Collateral that secures the indebtedness
23
<PAGE> 2
referred to in Recital C shall secure, in addition to such indebtedness, the
indebtedness and obligations evidenced by: (i) the $1,000,000.00 Term Loan Note;
and (ii) this Agreement.
The parties agree as follows:
SECTION 1 - DEFINITIONS
As used in this Agreement, unless the context otherwise requires, the
following terms have the following meanings:
1.1 "Affiliate" means (a) any person, corporation, partnership, limited
partnership or other legal entity who at any time during which any indebtedness
of the Borrower to the Bank under this Agreement remains outstanding owns ten
percent (10%) or more of the Borrower's outstanding capital stock, and (b) any
corporation, partnership, limited partnership or other legal entity of which the
Borrower owns ten percent (10%) or more of the outstanding voting power.
1.2 "Agreement" means this Restated Loan Agreement, as now and
hereafter amended.
1.3 "Asset Sale" means the sale, transfer or other disposition by the
Borrower outside the ordinary course of the Borrower's business (including,
without limitation, (a) transfer or other disposition by way of merger or
consolidation, (b) sale-leaseback, or (c) a transaction that is the equivalent
of a mortgage or pledge), in any transaction or group of transactions that are
part of a common plan (collectively, a "sale"), of any asset or interest therein
to any person or entity.
1.4 "Business Day" means any day, excluding (a) Saturday, (b) Sunday,
and (c) any day that (i) is a legal holiday under the laws of the State of
Michigan, or (ii) is a day on which banking institutions located in Michigan are
authorized or required by law or other governmental action to close.
1.5 "Capitalized Lease Obligation" means any obligation of the Borrower
to pay future rentals under a lease which, in accordance with GAAP, is required
to be shown as a liability on the balance sheet of the Borrower.
1.6 "Capital Expenditure" means an expenditure of the Borrower that
could constitute a capital expenditure under GAAP or the Internal Revenue Code
of 1986, as amended.
1.7 "Collateral" means all of the real and personal property now or
hereafter serving as security for the obligations of the Borrower to the Bank,
as described in Section 5 below.
1.8 "Contamination" or "Contaminated" means, when used with reference
to any real or personal property, that a Hazardous Substance is present on or in
the property in any amount or level.
1.9 "Current Assets" and "Current Liabilities" mean, at any time, all
assets or liabilities, respectively, that, in accordance with GAAP, should be
classified as current assets or current liabilities, respectively, on a balance
sheet of the Borrower.
1.10 "Debt Service" means, for any period, the current portion of the
Borrower's long-term debt plus interest expense.
1.11 "EBITDA" means, for any period, Borrower's earnings before
interest, taxes, depreciation and amortization.
1.12 "Eligible Accounts Receivable" means the aggregate of the
Borrower's accounts receivable from any source other than: (a) accounts
receivable which remain unpaid for more than 120 days (180 days with written
approval from the Bank) from the earlier of the original invoice date or the
date of shipment of the goods that gave
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rise to the accounts receivable; (b) accounts receivable with respect to which
the account debtor is an officer, employee or agent of Borrower; (c) accounts
receivable which arise under arrangements known as a sale and return or
guaranteed sale, a sale on consignment, approval, or C.O.D., or on such other
terms by reason of which the payment by the account debtor may be conditional;
(d) accounts receivable with respect to which the account debtor is located
outside the continental United States or Canada and not supported by credit
insurance or letter of credit; (e) accounts receivable with respect to which the
account debtor is the United States or any department, agency or instrumentality
of the United States, any state of the United States or any city, town,
municipality or division thereof; (f) accounts receivable with respect to which
Borrower is or may become liable to the account debtor thereof for goods or
services rendered or loans made by such account debtor to Borrower; (g) accounts
receivable which are due more than thirty (30) days after the date the invoice
is issued (not due date), i.e., accounts receivable which arise from a "dated
invoice"; (h) accounts receivable with respect to which the Bank reasonably
believes the collateral value thereof to be impaired or with respect to which
the Borrower has received notice of an inability of the account debtor to pay
its debts as they mature; (i) accounts receivable which are not owned by the
Borrower or which are subject to any prior security interest or claim in favor
of a person other than the Bank; and (j) unless otherwise approved by the Bank
in writing, accounts receivable where 25% or more of the total receivable
balance remains unpaid for more than 120 days (180 days with written approval
from the Bank) from the earlier of the original invoice date or the date of
shipment of the goods that gave rise to the account receivable.
1.13 "ERISA" means the Employee Retirement Income Security Act of 1974,
as now and hereafter amended, together with all regulations issued pursuant
thereto.
1.14 "Environmental Laws" means all applicable laws, ordinances, rules,
regulations, and orders that regulate or are intended to protect public health
or the environment, or that establish liability for the investigation, removal,
or clean up of, or damage caused by any Contamination including, without
limitation, any law, ordinance, rule, regulation, or order that regulates, or
prescribes requirements for, air quality, water quality, or the disposition,
transportation, or management of waste materials or toxic substances.
1.15 "Five (5)-Year Treasury Rate" means, with respect to a Loan made
pursuant to this Agreement as to which interest is to be calculated with
reference to the Five (5)-Year Treasury Rate, the yield (as quoted in the Wall
Street Journal or comparable source) on United States Treasury bills, notes or
bonds having maturities of five (5) years (or as nearly so as possible) from the
Interest Rate Determination Date. The Five (5)-Year Treasury Rate, as so
determined, will be fixed when calculating the interest rate on the Loan with
respect to which it applies until the date of maturity of such Loan.
1.16 "Funding Date" means a Business Day on which the Borrower has
requested in accordance with this Agreement that a Loan advance be made
hereunder.
1.17 "GAAP" means generally accepted accounting principles as in
existence on the date of this Agreement, consistently applied.
1.18 "Hazardous Substances" means any substance or waste which is (a)
included in the definition of "hazardous substance" in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 USC Sec.
9601, et seq,; (b) included in the definition of "hazardous substance" in the
Michigan Environmental Response Act, MCLA Sec. 299.601, et seq.; (c) included in
the definition of "hazardous waste" in the Resource Conservation and Recovery
Act, 42 USC Sec. 6901, et seq.; or (d) included in the definition of the same or
any similar term found within any local, state or federal law, statute, rule, or
regulation, including, without limitation, asbestos and polychlorinated
biphenyls.
1.19 "Indebtedness" means indebtedness for borrowed money, indebtedness
representing the deferred purchase price of property or services (excluding
indebtedness under normal trade credit for property or services purchased in the
normal course of operations), obligations under notes payable or drafts accepted
representing extensions of credit, indebtedness (whether or not assumed) secured
by mortgages, security interests, or other liens
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on property owned by the Borrower, and any Capitalized Lease Obligation;
deferred rent payable under the lease listed on Schedule 7.10 to this Agreement
shall not constitute Indebtedness.
1.20 "Interest Rate Determination Date" means, with respect to a T-Bill
Rate Loan or a T-Bill Rate Advance, the second Business Day prior to the Funding
Date of a T-Bill Rate Loan or a T-Bill Rate Advance.
1.21 "Liabilities" means all Indebtedness that, in accordance with
GAAP, is required to be classified as liabilities on a balance sheet of the
Borrower.
1.22 "Loan Documents" means this Agreement, the Notes evidencing the
Borrower's indebtedness to the Bank incurred pursuant to this Agreement, each
and every Security Agreement pursuant to which the Bank holds a lien or security
interest for the Borrower's indebtedness to the Bank incurred pursuant to this
Agreement and each and every other document evidencing, securing or otherwise
relating to the Borrower's indebtedness to the Bank incurred pursuant to this
Agreement, and all amendments or modifications to or replacements of any of the
foregoing.
1.23 "Material Adverse Effect" means any material adverse effect
whatsoever upon (a) the validity, performance, or enforceability of any Loan
Document, (b) the properties, contracts, business operations, profits, or
condition (financial or otherwise) of the Borrower, or (c) the ability of the
Borrower to fulfill its obligations under the Loan Documents.
1.24 "Net Income" means, with respect to the Borrower for any period,
the net income (or loss) of the Borrower for such period taken as a single
accounting period determined in conformity with GAAP; provided that there shall
be excluded therefrom any after-tax gains or losses attributable to Asset Sales
to the extent such gains or losses exceed $250,000 in the aggregate during the
four fiscal quarters immediately preceding the date of measurement.
1.25 "Note" means any form of promissory note executed and delivered by
the Borrower pursuant to this Agreement, together with any renewals, extensions,
or modifications thereof, including without limitation each of the forms of
Promissory Note attached hereto as Exhibits A - E.
1.26 "Ordinary Course" means, with respect to the Borrower, any
activity performed in accordance with the Borrower's historical and customary
practices.
1.27 "Permitted Liens" means (a) security interests, mortgages, and
liens in favor of the Bank; (b) liens for taxes not delinquent or, in a
jurisdiction where payment of taxes is deferred during the period of any
contest, being contested in good faith by appropriate proceedings as prescribed
by law, with adequate reserves therefor being set aside on the Borrower's books;
(c) inchoate materialmens', mechanics', workmens', repairmens', or other like
liens arising in the Ordinary Course of business and, in each case, not
delinquent; (d) leases permitted under Section 7.10 of this Agreement; (e) the
pledge of the proceeds of a policy of insurance on the life of Kenneth K. Rieth;
and (f) liens securing any Indebtedness of the Borrower to third parties
permitted under Section 7.9(b) of this Agreement, but only to the extent such
liens encumber only the machinery or equipment acquired by the Borrower with the
proceeds of such Indebtedness to third parties.
1.28 "Plan" means an employee pension benefit plan with respect to
which the Borrower or any Affiliate is an "employer" or "party in interest," as
those terms are defined in ERISA.
1.29 "Prime Rate" means the variable rate of interest announced
publicly from time to time by the Bank to be its prime commercial lending rate.
Reference to the Prime Rate will not be affected by the fact that the Bank may
make loans at different rates from time to time with respect to the class of
loans for which the Prime Rate is established. Any interest rate under this
Agreement determined by reference to the Prime Rate shall be fully-
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floating, and any change in any of the interest rates chargeable hereunder
resulting from a change in the Prime Rate will become effective on the day on
which each change in the Prime Rate is effective.
1.30 "Prime Rate Advance" means any advance made by the Bank bearing
interest at rates determined by reference to the Prime Rate as provided in
Section 4.
1.31 "Stockholders' Equity" means, at any time, the sum of the
following accounts set forth in a balance sheet of the Borrower, prepared in
accordance with GAAP: (a) the par or stated value of all outstanding capital
stock; (b) capital surplus; and (c) retained earnings.
1.32 "Tangible Net Worth" means, at any time, Stockholders' Equity,
less the sum of: (a) goodwill, including any amounts, however designated on a
balance sheet of the Borrower, representing the excess of the purchase price
paid for assets or stock acquired over the value assigned thereto on the books
of the Borrower; (b) patents, trademarks, trade names, and copyrights; (c) loans
and advances to, or amounts otherwise due from, the Borrower's stockholders,
directors, officers, or employees or any of them to the extent the sum of such
loans and advances exceeds $50,000; and (d) other intangible assets.
1.33 "T-Bill Rate Loan" and "T-Bill Rate Advance" mean a Loan or Loan
advance bearing interest at the Five (5)-Year Treasury Rate.
1.34 "To Borrower's Knowledge" means the actual knowledge, after due
inquiry, of Kenneth K. Rieth or Peter C. Canepa, and their respective successors
in office.
1.35 "Work in Process Inventory" means "work in process", as that term
is customarily used in the tool and die industry. In any event, Work in Process
Inventory shall include "Contracts in Process" and shall not include
"Inventories", as such asset categories historically have been identified on the
Borrower's balance sheet.
1.36 "Working Capital" means Current Assets minus Current Liabilities.
SECTION 2 - WARRANTIES AND REPRESENTATIONS
To induce the Bank to enter into this Agreement and to make the Loans,
the Borrower represents and warrants to the Bank that the following statements
are true, correct and accurate both before and after giving effect to the
transactions contemplated by the Loan Documents:
2.1 The Borrower is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Michigan. The Borrower is duly
qualified and authorized to do business, and is in good standing as a foreign
corporation, in all jurisdictions in which the failure to be so qualified or
authorized to do business would have a Material Adverse Effect.
2.2 The Borrower has all requisite corporate power and authority and
all necessary licenses and permits to own and operate its properties and to
carry on its business as now conducted and as it contemplates that business to
be conducted in the future. The Borrower is in compliance with all laws, rules,
and regulations, the non-compliance with which would have a Material Adverse
Effect.
2.3 All financial statements of the Borrower that have been delivered
to the Bank, including the internally prepared financial statements for the
period ending May 31, 1999, have been prepared in accordance with GAAP and
present fairly the financial position of the Borrower as of the dates indicated,
and the results of its operations for the periods indicated. No changes having a
Material Adverse Effect have occurred since the date of the most recent of such
financial statements. Except as expressly set forth in such financial
statements, the Borrower has no material contingent liability or liability for
taxes, long-term lease or unusual forward or long-term commitment.
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<PAGE> 6
2.4 Neither this Agreement nor the financial statements referred to in
Section 2.3 above, nor any other written statement furnished by or on behalf of
the Borrower to the Bank in connection with the negotiation of the Loans
provided for herein, contains any untrue statement of a material fact or omits a
material fact necessary to make the statements contained therein or herein not
misleading. To Borrower's Knowledge, there is no fact that the Borrower has not
disclosed to the Bank in writing that has, or in the future is likely to have, a
Material Adverse Effect.
2.5 There are no proceedings pending, or to Borrower's Knowledge
threatened, before any court, governmental authority, or arbitration board or
tribunal, against or affecting the Borrower, the outcome of which may reasonably
be expected to have a Material Adverse Effect. The Borrower is not in default
with respect to any order, judgment, or decree of any court, governmental
authority, or arbitration board or tribunal.
2.6 All of the outstanding capital stock of the Borrower is validly
issued, fully paid and nonassessable.
2.7 The Borrower has good and marketable title to all of the assets
that it purports to own, including the assets described in the financial
statements referred to in Section 2.3 hereof, free and clear from all liens,
encumbrances, security interests, claims, charges, and restrictions whatever,
except Permitted Liens. The Borrower owns no real property. All real property
leased by the Borrower is suitable for its current intended purposes and is
served by such utilities and has such access to public roadways and other
transportation structures and systems as are necessary for the proper and
efficient use, operation and maintenance thereof. The Borrower enjoys peaceful
and undisturbed possession under all real property leases to which it is a
party, and all such leases are valid and subsisting and in full force and effect
and no default (nor any event which, with notice or lapse of time or both, would
constitute such a default) has occurred or is continuing under any of such
leases on the part of the Borrower or, to Borrower's Knowledge, on the part of
the landlord. There have been no renewals or extensions of or supplements,
modifications or amendments to any of such leases except as previously disclosed
in writing to the Bank.
2.8 The Borrower owns and controls all of the patents, trademarks,
service marks, trade names, copyrights, licenses, and rights necessary for the
present and planned future conduct of its business, without any conflict with
the right of any other person, firm, or corporation.
2.9 The Borrower has full corporate power and authority to execute,
deliver, and perform the Loan Documents; the execution, delivery, and
performance of the Loan Documents required to be given hereunder by the Borrower
have been duly authorized by appropriate corporate action of the Borrower and
will not violate the provisions of the articles of incorporation or bylaws of
the Borrower or of any law, rule, judgment, order, agreement, or instrument to
which the Borrower is a party or by which it is bound, or to which any of its
assets are subject, nor do the same require any approval or consent of any
public authority or other third party; and the Loan Documents have been duly
executed and delivered by, and are the valid and binding obligations of, the
parties thereto, enforceable in accordance with their terms.
2.10 All tax returns required to be filed by the Borrower in any
jurisdiction have been filed, and all taxes, assessments, fees, and other
governmental charges upon the Borrower or upon its assets, income, or franchises
have been paid before the time that those taxes became delinquent. The Borrower
knows of no proposed additional tax assessment against it.
2.11 The Borrower has no investments in the securities of any other
corporation or business entity. The Borrower does not intend to carry or
purchase any "margin security" within the meaning of Regulation U of the Board
of Governors of the Federal Reserve System, 12 C.F.R. Chapter II.
2.12 Attached hereto as Schedule 2.12 is a list of all Plans. No Plan
has been terminated since the effective date of ERISA. No Plan is a
"multi-employer plan" within the meaning of Section 3(37)(A) of ERISA.
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No "accumulated deficiency" (within the meaning of Section 412 of ERISA) or
"reportable event" (as defined in Title IV of ERISA) has occurred with respect
to any Plan. Neither the Borrower nor any Affiliate has incurred any material
liability to the Pension Benefit Guaranty Corporation ("PBGC") or otherwise
under ERISA. The PBGC has not started or threatened to institute a proceeding
against the Borrower or any Affiliate under ERISA.
2.13 All of the Borrower's assets, operations and activities are in
compliance with all Environmental Laws; and none of the Borrower's property is
(a) in violation of Environmental Laws, (b) Contaminated by, or the site of, the
disposal or release of any Hazardous Substance; (c) the source of any
Contamination of any adjacent property or of any groundwater or surface water;
or (d) the source of any air emissions in excess of any legal limit now or
hereafter in effect. There is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice of violation or deficiency, investigation,
proceeding, notice or demand letter pending or, to Borrower's Knowledge,
threatened against the Borrower under any Environmental Law which could
reasonably be expected to result in a fine, penalty or other cost or expense.
2.14 The execution, delivery and performance by the Borrower of each
Loan Document, the issuance, delivery and performance of the Notes, and the
consummation of the transactions contemplated hereby or related hereto do not
and will not (a) conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any contractual obligation of
the Borrower, (b) result in or require the creation or imposition of any lien
(other than liens in favor of the Bank) upon any of its properties or assets, or
(c) require any approval of stockholders that has not been obtained or any
approval or consent of any person under any actual or purported contractual
obligation of the Borrower.
2.15 The Borrower is not in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in any
actual or purported contractual obligation of the Borrower, and no condition
exists that, with the giving of notice or the lapse of time or both, would
constitute such a default, which default could have a Material Adverse Effect.
SECTION 3 - THE LOANS
3.1 Subject to the terms and conditions of this Agreement and the other
Loan Documents, and so long as there shall not have occurred any Event of
Default as defined in Section 9 hereof, or any event which with the giving of
notice or lapse of time, or both, would constitute an Event of Default, the Bank
shall extend to the Borrower the following loans:
(a) Revolving L/C Loan
Loan Maximum: $10,000,000.00
Availability: At no time shall the outstanding
balance of the Revolving L/C Loan
exceed the lesser of (1) the Loan
Maximum, or (2) the sum of (a) 85%
of Eligible Accounts Receivable
plus (b) the lesser of (i)
$4,500,000, or (ii) 40% of the Work
in Process Inventory.
Payments: To be repaid in accordance with the
Revolving L/C Loan Note, in
substantially the form attached to
this Agreement as Exhibit A. All
payments shall made by
automatically debiting an account
maintained by the Borrower at the
Bank and specified by the Borrower
in writing to be used for such
purpose.
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Interest Rate: As set forth in Section 4 below.
Unused Fee: The Borrower shall pay the Bank an
annual fee in an amount equal to
one-quarter (1/4) of one (1)
percentage point (i.e., 25 basis
points) of the amount by which
$10,000,000.00 exceeds the average
outstanding principal balance of
the Revolving L/C Loan during the
twelve (12)-month period beginning
September 1, 1999, and ending
August 31, 2000. For the period
beginning on September 1, 1999, and
ending December 1, 2000 (such
period is referred to as the "Stub
Period"), the Borrower shall pay
the Bank a fee in an amount equal
to (1) the product obtained by
multiplying one-quarter (1/4) of
one (1) percentage point (i.e., 25
basis points) by the amount by
which $10,000,000 exceeds the
average outstanding principal
balance of the Revolving L/C Loan
during the Stub Period multiplied
by (2) a fraction, the numerator of
which shall be equal to the number
of days in the Stub Period and the
denominator of which shall be 360.
Maturity: December 1, 2000.
Purpose: General Working Capital.
(b) Existing Equipment Term Loan
Loan Maximum: $3,250,000
Payments: To be repaid in accordance with the
Existing Equipment Term Loan Note,
in substantially the form attached
to this Agreement as Exhibit B. All
payments shall made by
automatically debiting an account
maintained by the Borrower at the
Bank and specified by the Borrower
in writing to be used for such
purpose.
Interest: As set forth in Section 4 below.
Maturity: July 19, 2002, or as otherwise
provided in the Existing Equipment
Term Loan Note.
(c) Equipment Term Loan
Loan Maximum: $4,000,000.
Payments: To be repaid in accordance with the
Equipment Term Loan Note, in
substantially the form attached to
this Agreement as Exhibit C. All
payments shall made by
automatically debiting an account
maintained by the Borrower at the
Bank and specified by the Borrower
in writing to be used for such
purpose.
Interest: As set forth in the Equipment Term
Loan Note.
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Maturity: December 31, 2003, or as otherwise
provided in the Equipment Term Loan
Note.
Purpose: To refinance the indebtedness
formerly evidenced by the
Non-Revolving Equipment L/C Loan
Note, issued pursuant to the Loan
Agreement. The Bank shall no longer
be required to make and the
Borrower shall no longer be
entitled to receive advances of the
Non-Revolving Equipment L/C Loan,
as defined in the Loan Agreement.
(d) 1999 Equipment L/C Loan
Loan Maximum: $3,271,000
Availability: Advances of the 1999 Equipment L/C
Loan shall be conditioned upon the
Borrower's compliance with Sections
10 and 11 of this Agreement and
shall be subject to the limitations
provided therein (specifically
including but not limited to
Section 11.1 of this Agreement).
Under no circumstances shall the
Bank have any obligation to make
principal advances of the 1999
Equipment L/C Loan after September
30, 1999. The Borrower acknowledges
that the Bank shall at no time ever
be obligated to advance to the
Borrower more than a total of
$3,271,000 under the 1999 Equipment
L/C Loan, and that the 1999
Equipment L/C Loan is not a
revolving loan. Once repaid,
amounts borrowed under the 1999
Equipment L/C Loan may not be
re-borrowed.
Payments: To be repaid in accordance with the
1999 Equipment L/C Note, in
substantially the form attached to
this Agreement as Exhibit D. All
payments shall made by
automatically debiting an account
maintained by the Borrower at the
Bank and specified by the Borrower
in writing to be used for such
purpose.
Interest Rate: As set forth in the 1999 Equipment
L/C Note.
Maturity: November 1, 2004, or as otherwise
provided in the 1999 Equipment L/C
Note.
Purpose: Acquisition of equipment.
(e) $1,000,000.00 Term Loan
Loan Maximum: $1,000,000.00
Availability: To be fully advanced upon the
execution and delivery of this
Agreement. After the initial
advance, no further advances shall
be available. The Borrower
acknowledges that the Bank shall at
no time ever be obligated to
advance to the Borrower more than a
total of $1,000,000.00 under the
$1,000,000.00 Term Loan, and that
the $1,000,000.00 Term Loan is not
a
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revolving loan. Once repaid,
amounts borrowed under the
$1,000,000.00 Term Loan may not be
re-borrowed.
Payments: To be repaid in accordance with the
$1,000,000.00 Term Loan Note,
substantially in the form attached
to this Agreement as Exhibit E. All
payments shall made by
automatically debiting an account
maintained by the Borrower at the
Bank and specified by the Borrower
in writing to be used for such
purpose.
Interest Rate: As set forth in the $1,000,000.00
Term Loan Note.
Maturity: September 1, 2004, or as otherwise
provided in the $1,000,000.00 Term
Loan Note.
Purpose: Acquisition of machinery and
equipment and pay down Revolving
L/C Loan.
3.2 The Revolving L/C Loan, the Existing Equipment Term Loan, the
Equipment Term Loan, the 1999 Equipment L/C Loan and the $1,000,000.00 Term Loan
may each be referred to in this Agreement as a "Loan", and are collectively
referred to in this Agreement as the "Loans", and the Revolving L/C Note, the
Existing Equipment Term Loan Note, the Equipment Term Loan Note, the 1999
Equipment L/C Note and the $1,000,000.00 Term Loan Note may each be referred to
in this Agreement as a "Note", and are collectively referred to in this
Agreement as the "Notes". Each of the Loans is subject to the terms and
conditions contained in this Agreement and all of the other Loan Documents.
SECTION 4 - INTEREST RATES AND ADVANCE PROCEDURES
4.1 The Borrower may elect, subject to the terms of this Agreement, to
have the Revolving L/C Loan and the Existing Equipment Term Loan bear interest
as follows:
(a) The unpaid principal balance of the Revolving L/C Loan may
bear interest at a rate that is equal to: (i) the Prime Rate minus 25 basis
points (such interest rate is referred to below as the "Prime-Based Index"); or
(ii) 225 basis points plus the LIBOR (London Inter-bank Offered Rate) for the
applicable LIBOR Period described in paragraph (c) below (such interest rate is
referred to below as the "LIBOR-Based Index"). In the absence of an effective
election by the Borrower to have the interest rate on all or part of the
Revolving L/C Loan determined on the basis of the LIBOR-Based Index, interest on
such indebtedness shall be determined on the basis of the Prime-Based Index.
(b) The unpaid principal balance of the Existing Equipment
Term Loan may bear interest at a rate that is equal to: (i) the Prime-Based
Index; or (ii) the LIBOR-Based Index; or (iii) 250 basis points plus the Five
(5)-Year Treasury Rate on the Interest Rate Determination Date (such interest
rate is referred to below as the "5-Year Treasury-Based Index"). In the absence
of an effective election by the Borrower to have the interest rate on all or
part of the Existing Equipment Term Loan determined on the basis of the
LIBOR-Based Index or the 5-Year Treasury-Based Index, interest on such
indebtedness shall be determined on the basis of the Prime-Based Index.
(c) The applicable LIBOR Period for any indebtedness under
this Agreement for which interest is determined on the basis of the LIBOR-Based
Index shall be one of the following, as specified in writing by the Borrower
when giving notice to the Bank pursuant paragraph (g) below: (i) loans having
30-day maturities, (ii) loans having 60-day maturities, and (iii) loans having
90-day maturities; provided, however, that the Borrower may not select a LIBOR
Period that extends beyond the maturity date for the pertinent Loan.
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(d) For any Loan as to which the Borrower elects the
LIBOR-Based Index, the original principal amount with respect to which interest
may be determined on the basis of the LIBOR-Based Index shall be not less than
$500,000, or whole multiples of that amount, as specified in writing by the
Borrower when giving notice to the Bank pursuant to paragraph (g) below.
(e) Subject to compliance with paragraph (d) above, the
Borrower may elect to divide the unpaid principal balance of a Loan into two or
more segments (each such segment is referred to as a "Loan Segment"), and to
have interest as to one Loan Segment determined on the basis of the Prime-Based
Index and interest as to the other Loan Segment(s) determined on the basis of
the LIBOR-Based Index; different LIBOR Periods may be used for each Loan Segment
as to which the LIBOR-Based Index has been designated.
(f) If the Borrower elects to have interest for the Existing
Equipment Term Loan determined on the basis of the 5-Year Treasury-Based Index,
such election must be made as to the entire principal balance of such Loan.
(g) To make an election to have the interest on the Borrower's
indebtedness to the Bank determined on the basis of the LIBOR-Based Index, the
Borrower shall give the Bank written notice on the Bank's standard request form
from time to time (the Borrower acknowledges receipt of a copy of the Bank's
current form for such purpose, and the Bank shall furnish the Borrower with any
revisions thereof not less than ten (10) Business Days prior to requiring their
use. Any such election shall become effective upon the later of: (i) the third
(3rd) Business Day after the Bank's receipt of such written notice or (ii) the
funding date specified in such written notice.
(h) The Borrower may prepay, in whole or in part, a Loan or
Loan Segment with respect to which interest in determined on the basis of the
LIBOR-Based Index; provided, however that simultaneously with making any such
prepayment, the Borrower shall pay, in addition to the accrued interest on the
amount prepaid through the date of prepayment, an amount equal to the interest
that would have accrued through the applicable LIBOR Period on the principal
amount so prepaid.
(i) During the continuation of an Event of Default under the
Loan Agreement, the Borrower shall have no right to change the rate at which
interest is payable on the outstanding indebtedness under any of the Loans.
4.2 The Borrower shall give the Bank notice of its request for each
Loan advance (each a "Notice of Borrowing") not later than 12:00 noon, Grand
Rapids, Michigan time, on the date such advance is requested to be made. The
Notice of Borrowing shall state whether the advance is requested under the
Revolving L/C Loan or the 1999 Equipment L/C Loan. Subject to the terms and
conditions of this Agreement, the proceeds of each such requested advance shall
be made available to the Borrower by depositing the proceeds thereof, in
immediately available funds, in an account maintained and designated by Borrower
at an office of the Bank.
4.3 Except in the case of the initial Loan advances, for which the
applicable basis for determining the rate of interest must have been provided in
writing to the Bank not less than three Business Days prior to such advances,
and subject to the terms and conditions of this Agreement, the applicable basis
for determining the rate of interest with respect to advances under the Existing
Equipment Term Loan shall be selected by the Borrower at the time a Notice of
Borrowing is given pursuant to Section 4.2.
4.4 Unless otherwise requested in writing by the Borrower, the interest
rate on all Loans shall be determined with reference to the Prime Rate.
4.5 Notwithstanding anything to the contrary contained in the Loan
Documents, following acceleration or maturity of any Indebtedness evidenced by a
Note, the outstanding principal balance of such Loan will bear interest at the
rate of 300 basis points above the rate that would otherwise be in effect.
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4.6 The Borrower may prepay any part of the principal balance of a
Prime Rate Advance at any time, without prior notice to the Bank and without
prepayment penalty or premium. The Borrower may prepay all or any part of the
principal balance of a T-Bill Rate Advance on one (1) Business Day's notice
provided that, in addition to all principal, interest and costs owing at the
time of prepayment, there shall be due and owing from the Borrower a prepayment
premium in an amount equal to:
(a) Five percent (5%) of the principal amount paid, if the
T-Bill Rate Advance is paid more than 48 months prior to its scheduled maturity;
(b) Four percent (4%) of the principal amount paid, if the
T-Bill Rate Advance is paid more than 36 months but less than 49 months prior to
its scheduled maturity;
(c) Three percent (3%) of the principal amount paid, if the
T-Bill Rate Advance is paid more than 24 months but less than 37 months prior to
its scheduled maturity;
(d) Two percent (2%) of the principal amount paid, if the
T-Bill Rate Advance is paid more than 12 months but less than 25 months prior to
its scheduled maturity; and
(e) One percent (1%) of the principal amount paid, if the
T-Bill Rate Advance is paid 12 months, or less, prior to its scheduled maturity.
Notwithstanding the foregoing, the Borrower shall not be
obligated to pay a prepayment premium if the Indebtedness evidenced by a Note is
prepaid after acceleration by the Bank.
4.7 Any amounts applied to the outstanding principal of a T-Bill Rate
Advance prior to its maturity or acceleration shall be deemed to be a prepayment
of principal to which the prepayment notice and premium provisions of this
Agreement shall apply. Prior to maturity or acceleration of any Indebtedness
under this Agreement, amounts repaid by the Borrower shall be applied to the
outstanding indebtedness under this Agreement as designated by the Borrower. If,
prior to maturity or acceleration of any Indebtedness under this Agreement, the
Borrower fails to designate how Loan repayments should be applied, the Loan
repayments automatically shall be applied first to interest, then to Prime Rate
Advances principal, and then to T-Bill Rate Advances principal. Any Loan
repayments received by the Bank after maturity or acceleration of any
Indebtedness under this Agreement may be applied by the Bank in any manner
determined by the Bank, in its sole discretion.
4.8 Interest on advances shall be computed on the basis of a 360-day
year and the actual number of days elapsed in the period during which it
accrues. In computing interest on any advance, the date of the making of the
advance shall be included and the date payment is received shall be excluded;
provided that if an advance is repaid on the same day on which it is made, one
day's interest shall be paid on that advance.
4.9 The Borrower acknowledges that the Bank shall at no time ever be
obligated pursuant to this Agreement to advance to the Borrower more than (a) a
total of $3,250,000 under the Existing Equipment Term Loan, (b) a total of
$4,000,000 under the Equipment Term Loan, (c) $3,271,000 under the 1999
Equipment L/C Loan, and (c) $1,000,000 under the $1,000,000.00 Equipment Term
Loan, and that the Existing Equipment Term Loan, the Equipment Term Loan, the
1999 Equipment L/C Loan and the $1,000,000.00 Term Loan are not revolving loans.
Once repaid, amounts borrowed under the Existing Equipment Term Loan, the
Equipment Term Loan, the 1999 Equipment L/C Loan and the $1,000,000.00 Term Loan
may not be reborrowed.
4.10 Subject to the terms and conditions of this Agreement, amounts
borrowed under the Revolving L/C Loan may be repaid and reborrowed.
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SECTION 5 - SECURITY
5.1 Without limiting the terms and conditions of any of the Loan
Documents, to secure payment of all obligations and indebtedness of the Borrower
to the Bank under this Agreement and all other indebtedness and obligations now
and hereafter owing by the Borrower to the Bank, the Borrower shall execute and
deliver to the Bank:
(a) security agreements, in form and substance satisfactory to
the Bank, granting to the Bank valid first security interests in all accounts
receivable, machinery, equipment, inventory, furniture and trade fixtures of the
Borrower, and all additions thereto and substitutions, increments, proceeds and
products thereof;
(b) an assignment of a policy of life insurance on the life of
Kenneth K. Rieth in the amount of $3,000,000 (such life insurance policy shall
be acceptable in form and substance to the Bank and shall be issued by a life
insurance company approved by the Bank); and
(c) all financing statements, assignments, document of title,
and other documents, agreements, and instruments as the Bank may reasonably
request in connection with the creation, perfection and priority of any security
described above.
5.2 To further secure payment of the Loans and all of the Borrower's
liabilities and obligations to the Bank, the Borrower grants to the Bank a
continuing security interest in (a) all securities and other property of the
Borrower in the custody, possession or control of the Bank (other than property
held by the Bank solely in a fiduciary capacity) and (b) all balances of deposit
accounts of the Borrower with the Bank. The Bank shall have the right at any
time after an Event of Default, or any event which with the giving of notice or
lapse of time, or both, would constitute an Event of Default, to apply its own
debt or liability to the Borrower in whole or partial payment of such Loans or
other present or future liabilities, without any requirement of mutual maturity.
5.3 Any of the Borrower's other property in which the Bank has a
security interest to secure payment of any other debt, whether absolute,
contingent, direct or indirect, including the Borrower's guaranties of the debts
of others, shall also secure payment of and be part of the collateral for the
Loans.
SECTION 6 - AFFIRMATIVE COVENANTS
From the date hereof and until the Bank has no further obligation to
extend Loans hereunder and all Loans provided for under this Agreement have been
fully paid, the Borrower shall:
6.1 Furnish to the Bank whatever information, books, and records the
Bank may reasonably request, including at a minimum:
(a) within 90 days after the end of each of the Borrower's
fiscal years, beginning with its fiscal year ending August 31, 1999, an audited
financial report prepared in accordance with GAAP by independent certified
public accountants satisfactory to the Bank, containing the Borrower's balance
sheet as of the end of that year, its related profit and loss, and a statement
of shareholder's equity for that year, its statement of cash flows for that
year, together with any management letter prepared by those certified public
accountants, and such comments and financial details as are customarily included
in reports of like character and the unqualified opinion of the certified public
accountants as to the fairness of the statements therein, and together with such
written assurances as the Bank may reasonably request from the Borrower's
independent certified public accountants to confirm the Bank's entitlement to
rely upon such audited financial report and accompanying materials;
(b) within 21 days after the end of each calendar month,
beginning with August 31, 1999, a financial report, the accuracy of which is
certified to by the President or the Chief Financial Officer of the Borrower,
prepared in accordance with GAAP, containing the Borrower's balance sheet as of
the end of such period and its income statement showing the results of its
operations for the portion of its fiscal year then elapsed;
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(c) weekly compliance reports in the form attached as Exhibit
F to this Agreement, due no later than Monday for the week ending the preceding
Friday, the accuracy of which is certified to by the Chief Financial Officer of
the Borrower;
(d) monthly work in process reports, due no later than the 7th
day of each month for the preceding month, the accuracy of which is certified to
by the Chief Financial Officer of the Borrower; and
(e) within 30 days after the end of each fiscal quarter,
beginning with August 31, 1999, a certificate executed by the Chief Financial
Officer of the Borrower stating whether all of the financial covenants contained
in this Agreement are satisfied, showing the calculations for making such
determinations, and otherwise in a form acceptable to Bank.
6.2 Promptly inform the Bank of any occurrence that is an Event of
Default as defined in Section 9 hereof or that, with the giving of notice or the
lapse of time, or both, would be an Event of Default and of any other occurrence
which has a Material Adverse Effect; grant to the Bank or its representatives
the right to examine its books and records or the Collateral at any reasonable
time or times; maintain complete and accurate books and records of its
transactions in accordance with good accounting practices; and furnish to the
Bank any information that it may reasonably request concerning the Borrower's
financial affairs within 10 days after receipt of a request for that
information.
6.3 Maintain insurance, including, but not limited to, fire and
extended coverage insurance, workers' compensation insurance, and casualty and
liability insurance with responsible insurance companies on such of its
properties and against such risks and in such amounts as is customarily
maintained by similar businesses; furnish to the Bank upon its request the
details with respect to that insurance and satisfactory evidence of that
insurance coverage; and, within 30 days after receipt of a written request from
the Bank, obtain any additional insurance that the Bank may reasonably request.
Each insurance policy required under this Section shall be so written or
endorsed as to make losses, if any, payable to the Borrower and the Bank as
their respective interests may appear and shall include, where appropriate, a
mortgage clause or endorsement in favor of the Bank in form and substance
satisfactory to the Bank.
6.4 Pay and discharge, as often as the same may become due and payable,
all taxes, assessments and other governmental monetary obligations, of whatever
nature, that may be levied or assessed against it or any of its properties,
unless and to the extent only that in a jurisdiction where payment of taxes and
assessments is abated during the period of any contest, those taxes or
assessments shall be contested in good faith by appropriate proceedings and that
the Borrower shall have set aside on its books adequate reserves with respect to
those taxes and assessments.
6.5 Pay and perform at the time such payment or performance is due, all
indebtedness and obligations owing by it, and pay all claims (including, without
limitation, claims for labor, services, materials and supplies) for sums which
have become due and payable, except any indebtedness, obligation or claim being
contested in good faith by appropriate proceedings and for which the Borrower
shall have set aside on its books adequate reserves with respect to such
indebtedness, obligation or claim.
6.6 Maintain its corporate existence in good standing in the State of
Michigan and its qualification in good standing in every other jurisdiction in
which the failure to be so qualified or authorized to do business would have a
Material Adverse Effect; continue to conduct and operate its business
substantially as presently conducted and operated; and comply with all
governmental laws, rules, regulations, and orders applicable to it, the failure
to comply with which would or may have a Material Adverse Effect.
6.7 Act prudently and in accordance with customary industry standards
in managing or operating its assets, properties, business, and investments; and
keep in good working order and condition, ordinary wear and tear excepted, all
of its assets and properties that are necessary to the conduct of its business.
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6.8 Maintain Tangible Net Worth (the applicable amount for each date of
determination being referred to herein as the "Minimum Net Worth") of not less
than: (a) $14,500,000.00 for the period beginning on the date of this Agreement
and ending on August 30, 2000; and (b) $15,000,000.00 for the period beginning
on August 31, 2000 and continuing thereafter until all of the Borrower's
indebtedness to the Bank has been repaid in full, with interest.
6.9 Maintain Working Capital of not less than $9,000,000.
6.10 Maintain a ratio of total Liabilities to Tangible Net Worth of not
more than 1.2:1.
6.11 Maintain a ratio of EBITDA to Debt Service for the trailing
12-month period of not less than 1.5:1.
6.12 Maintain all of its commercial deposit accounts with the Bank.
6.13 Comply in all material respects with the requirements of ERISA,
including, without limitation, all provisions regarding minimum funding
requirements and requirements as to plan termination insurance; furnish to the
Bank, upon the Bank's request, a copy of each annual report and annual return,
as well as all schedules and attachments required to be filed with the
Department of Labor or the Internal Revenue Service pursuant to ERISA in
connection with each of its Plans for each Plan year; notify the Bank
immediately of any fact, including, but not limited to, any "reportable event"
(as defined in Title IV of ERISA) arising in connection with any of its Plans,
that might be grounds for termination thereof by the PBGC or for the appointment
by the appropriate United States District Court of a trustee to administer the
Plan, together with a statement, if requested by the Bank, as to the reason
therefor and the action, if any, proposed to be taken with respect thereto; and
furnish to the Bank, upon its request, any additional information concerning any
of its Plans that the Bank may reasonably request.
6.14 Notify the Bank in writing within 10 days after receipt whenever
the Borrower receives written notice of (a) the commencement of formal
proceedings or any investigation by a federal or state environmental agency
against the Borrower regarding the Borrower's compliance with Environmental
Laws, or (b) any other judicial or administrative proceeding or litigation
commenced by or against the Borrower, or (c) any other potential liability or
claim regarding the Borrower's compliance with Environmental Laws, in each case,
as a possible result of which (i) the loss by, or liability of, the Borrower
could exceed $100,000, or (ii) the operations of the Borrower could be
materially affected.
6.15 Promptly provide to the Bank copies of any correspondence received
by the Borrower from any governmental authority regarding any alleged violation
of law by the Borrower that could have a Material Adverse Effect.
6.16 At all times preserve, renew and keep in full force and effect the
rights, licenses, permits, franchises, agency agreements, trade names, patents,
trademarks, copyrights, licenses and service marks, the loss of which could have
a Material Adverse Effect.
6.17 Permit representatives of the Bank, during the Bank's normal
business hours, to enter the Borrower's premises, review the Borrower's business
records, and interview the Borrower's employees as reasonably required by the
Bank to conduct periodic audits of the Borrower's business and the Borrower's
compliance with its obligations under this Agreement.
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SECTION 7 - NEGATIVE COVENANTS
From the date hereof and until all Loans provided for under this
Agreement are fully paid and the Bank has no further obligation to extend loans
hereunder, the Borrower agrees that it will not, without the prior written
consent of the Bank, which may not be unreasonably withheld:
7.1 Create or permit to exist any lien, mortgage, pledge, attachment,
garnishment, execution, or other legal process, or encumbrance on any of its
assets to any party, except Permitted Liens.
7.2 Sell, lease, transfer or otherwise dispose of any asset (including,
without limitation, (a) transfer or other disposition by way of merger or
consolidation, (b) sale-leaseback, or (c) a transaction that is the equivalent
of a mortgage or pledge), except in the Ordinary Course of its business as
conducted on the date of this Agreement.
7.3 Guarantee, endorse, assume, or otherwise incur or suffer to exist
any contingent liability in respect of, any obligation of any other person,
firm, or corporation, except by the endorsement of negotiable instruments for
deposit or collection in the Ordinary Course of business.
7.4 Purchase or otherwise acquire all, or substantially all, of the
assets, obligations, or capital stock of or any other interest in any other
person, firm, or corporation.
7.5 Purchase or acquire any securities of, or make any liens or
advances to, or investments in, any person, firm or corporation, except
obligations of the United States Government, open market commercial paper rated
one of the top two ratings by a rating agency of recognized standing, or
certificates of deposit in insured financial institutions.
7.6 Purchase, retire, redeem, or otherwise acquire any of its shares of
capital stock or declare or pay dividends or make any other distribution of its
assets, by reduction of capital or otherwise; provided, however, that the
Borrower may declare and pay stock (i.e., non-cash) dividends without the Bank's
consent if such actions will not cause the Borrower to be in breach of any other
covenant, term or provision of the Loan Documents.
7.7 Subordinate any indebtedness owing to the Borrower by any person,
firm, or corporation to indebtedness of that person, firm, or corporation owing
to any other person, firm, or corporation.
7.8 Engage, directly or indirectly, in any line of business other than
the lines of business presently engaged in by the Borrower or a line of business
related thereto.
7.9 Issue, incur, assume, or permit to remain outstanding any
Indebtedness, other than Indebtedness (a) owing to the Bank, and (b) owing to
others in connection with the Borrower's acquisition of machinery or equipment;
provided, however, that Indebtedness to others shall be permitted under clause
(b) of this Section 7.9 only if (i) such Indebtedness was incurred by the
Borrower after the date of this Agreement, and (ii) prior to incurring such
Indebtedness, the Borrower submitted to the Bank a written description of the
economic terms of the proposed financing transaction and the Bank failed, within
two Business Days after receipt of such written description, to agree to offer
such financing to the Borrower on equivalent or better terms from the Borrower's
perspective, and (iii) the proposed financing transaction thereafter was
consummated on the terms set forth in the written description thereof submitted
by the Borrower to the Bank, and (iv) the incurrence of such Indebtedness by the
Borrower will not cause a breach of any other provision of this Agreement.
7.10 Use or acquire the use or possession of any real or personal
property from any person under any lease or lease arrangement, except (i) leases
or lease arrangements in existence as of the date of this Agreement and
identified in Schedule 7.10 to this Agreement, (ii) any financing leases
authorized in Section 7.9, and (iii) any other lease which (a) has a term of
less than 7 years, and (b) provides for less than $250,000 in total payments by
the Borrower during each year of the term thereof. The Borrower shall from time
to time provide to the Bank copies of any leases entered into by the Borrower,
together with any amendments thereto, upon request of the Bank.
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7.11 Become a contributing employer with respect to a multi-employer
employee benefit plan within the meaning of Section 3(37)(A) of ERISA (29 U.S.C.
ss.1002), as amended, by Section 302 of the Multi-Employer Pension Plan
Amendments Act of 1980; or establish for any of its employees any employee
benefit plan that has, or may in the future incur, any unfunded past service
liability.
7.12 Change its fiscal year or method of accounting except as required
by GAAP, as hereafter modified.
7.13 Change its name without prior written approval from the Bank;
except that the Borrower may change its name if the Borrower has given 60 days'
prior written notice of the name change and has taken such action as the Bank
deems necessary to continue the perfection of the security interests and liens
granted to the Bank under the Loan Documents.
SECTION 8 - APPLICATION OF PROCEEDS
The proceeds of each Loan shall be used by the Borrower solely for the
purpose set forth for such Loan in Section 3, and for no other purpose.
SECTION 9 - EVENTS OF DEFAULT AND REMEDIES
9.1 The following events shall constitute an "Event of Default" under
this Agreement, the occurrence of which shall entitle the Bank to pursue any and
all rights and remedies available to it under this Agreement, the Notes, the
other Loan Documents, and under applicable law. The Bank's rights and remedies
are cumulative and may be exercised concurrently or successively from time to
time. Any action by the Bank against any property or party shall not serve to
release or discharge any other security, property or party in connection with
this transaction. The Events of Default are as follows:
(a) Failure to pay the principal or interest on any loan
provided for under this Agreement when and as the same shall be due and payable,
whether by acceleration or otherwise, provided in each case that such default
has not been cured prior to the expiration of 10 days following the date of
personal delivery or mailing of written notice of such default to the Borrower.
(b) Failure to pay the principal or interest on any other
indebtedness now or hereafter owed by the Borrower to the Bank as the same shall
be due and payable, whether by acceleration or otherwise, provided in each case
that such default has not been cured prior to the expiration of 10 days
following the date of personal delivery or mailing of written notice of such
default to the Borrower.
(c) Failure to observe, perform and comply with any of the
Borrower's obligations under any Loan Document or failure to observe, perform
and comply with any of the Borrower's other obligations under any other document
that evidences, secures or otherwise relates to indebtedness of the Borrower to
the Bank, whether arising under this Agreement or otherwise, and failure to
observe, perform and comply with any and all other agreements between the
Borrower and the Bank to be observed, performed or complied with by the
Borrower; provided that such default has not been cured prior to the expiration
of 20 days following the date of personal delivery or mailing of written notice
of such default.
(d) Failure to pay any Indebtedness or trade debt of the
Borrower to any third party (i) when due upon agreed upon terms, unless a grace
period applies or the Borrower satisfies the conditions described in 9.1(d)(iii)
below, (ii) upon the expiration of an applicable grace period, unless the
Borrower satisfies the conditions described in 9.1(d)(iii), or (iii) provided
that the payment of such Indebtedness or trade debt is being contested in good
faith by appropriate proceedings, and the Borrower shall have set aside on its
books adequate reserves with respect to such Indebtedness or debt, at the time
that a final non-appealable decision is rendered in such proceedings.
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(e) The discovery by the Bank of any material inaccuracy in
any statement, assurance, representation, covenant, warranty, term or condition
by the Borrower contained in this Agreement or in any document delivered or to
be delivered by or on behalf of the Borrower pursuant to this Agreement, or in
any other Loan Document, or in any other agreement between the Borrower and the
Bank.
(f) The filing of a petition by or against the Borrower or any
other obligor of any Loan seeking relief under the Federal Bankruptcy Code, 11
U.S.C. ss. 101, et seq., and any amendments thereto (the "Code"), or any similar
law or regulation, whether federal, state or local, not dismissed within 30
days.
(g) The commencement of a proceeding by or against the
Borrower or other obligor of a Loan under any statute or other law providing for
an assignment for the benefit of creditors, the appointment of a receiver, or
any other similar law or regulation, whether federal, state or local, not
dismissed within 30 days.
(h) The garnishment, attachment, levy or other similar action
taken by or on behalf of any creditor of the Borrower or any of its properties
which could have a Material Adverse Effect.
(i) The determination by the Bank or any one of its agents or
representatives that there exists any Hazardous Substances in violation of any
Environmental Laws on, in or under any of the collateral in which the Bank holds
an interest as security for any loan made pursuant to this Agreement.
9.2 Upon the occurrence of any Event of Default set forth in
subsections 9.1(a) through 9.1(i) above, at the option of the Bank, the Bank's
obligation to make additional loan advances under this Agreement shall terminate
and the Bank shall have the right to declare all or any part of the unpaid
principal balance of, and accrued interest on, outstanding loans hereunder to be
immediately due and payable, without presentment, demand, or notice of any kind,
all of which are hereby expressly waived by the Borrower.
9.3 Upon the occurrence of any Event of Default set forth in
subsections 9.1(a) through 9.1(i) above, the Bank shall have the right to
exercise any and all remedies that it may have for default under any Loan
Document or at law or in equity, and such remedies may be exercised concurrently
or separately until each and every one of the Borrower's obligations under the
Loan Documents has been fully satisfied. In connection with the enforcement of
any such remedies of the Bank, the Bank and its employees, attorneys, agents,
and other persons and entities designated by the Bank, shall have the right,
without notice, to enter the Borrower's plant and other places of business for
such purposes as may be reasonably required to permit the Bank to preserve,
protect, take possession of and/or sell or otherwise dispose of any Collateral,
and to store the Collateral at the Borrower's plant and other places of
business, without charge, for such periods as may be determined by the Bank.
SECTION 10 - CONDITIONS PRECEDENT TO ADVANCES UNDER THE LOANS.
In addition to the other conditions precedent to advances described in
this Agreement, each Loan advance requested under this Agreement shall be
subject to prior satisfaction of the following conditions:
10.1 The representations and warranties contained herein and in the
other Loan Documents shall be true, correct and accurate in all material
respects on and as of the Funding Date of such requested advance.
10.2 No event shall have occurred and be continuing or would result
from the consummation of such borrowing or the application of the proceeds
thereof that would constitute a default, or any circumstance with which the
passing of time or the giving of notice could constitute a default, under this
Agreement or any Loan Document.
10.3 The Borrower shall have performed in all material respects all
agreements and satisfied all conditions that this Agreement and each other Loan
Document provides shall be performed by it on or before such Funding Date.
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10.4 No order, judgment or decree of any court, arbitrator or
governmental authority shall purport to enjoin or restrain the Bank from making
such advance.
10.5 There shall not be pending or, to Borrower's Knowledge threatened,
any action, suit, proceeding, governmental investigation or arbitration against
or affecting the Borrower or any property of the Borrower, and there shall have
occurred no development in any such action, suit, proceeding, governmental
investigation or arbitration previously disclosed to the Bank pursuant to this
Agreement, that, in the opinion of the Bank, would in any such case, reasonably
be expected to have a Material Adverse Effect upon the Borrower. No injunction
or other restraining order shall have been issued and no hearing to cause an
injunction or other restraining order shall be pending or noticed with respect
to any action, suit or proceeding seeking to enjoin or otherwise prevent the
consummation of, or to recover any damages or obtain relief as a result of, this
Agreement or the making of Loans hereunder.
10.6 Since the date of the most recent financial statements submitted
to the Bank by or on behalf of the Borrower, nothing shall have occurred or
become known which the Bank shall have determined has a Material Adverse Effect
upon the Borrower.
10.7 The Bank shall have received a Notice of Borrowing at the time and
in form required by Section 4.2 above. The furnishing by the Borrower of a
Notice of Borrowing shall be deemed to constitute a representation and warranty
of the Borrower to the effect that all the conditions set forth in this
Agreement for the requested advance are satisfied as of the date of delivery and
will be satisfied on the applicable Funding Date.
SECTION 11 - LIMITATION ON ADVANCES OF 1999 EQUIPMENT L/C LOAN.
Notwithstanding anything to the contrary contained herein or in any of
the other Loan Documents, the 1999 Equipment L/C Loan is subject to the
following additional terms and conditions:
11.1 The principal amount of each 1999 Equipment L/C Loan advance shall
not exceed an amount equal to one hundred percent (100%) of the Borrower's
actual cost for the equipment that will be purchased with the proceeds of such
advance (excluding tax, insurance, delivery and set-up charges, the cost of
maintenance contracts, and any other costs not paid or payable by the Borrower
to the equipment manufacturer as a direct cost of acquiring the equipment).
11.2 The proceeds of each 1999 Equipment L/C Loan advance shall be
advanced by the Bank to the Borrower only after (i) receipt by the Bank of such
security agreements and financing statements (or supplements or amendments
thereto) covering the equipment, duly executed by the Borrower, (ii) receipt by
the Bank of such other documents as the Bank may reasonably require to create
and perfect its security interest therein, together with such evidence as the
Bank may reasonably require in order to establish the cost of such equipment to
the Borrower and that the equipment is completed and ready for shipment to the
Borrower, and (iii) the Borrower's compliance with the conditions described in
Section 10 above.
SECTION 12 - ACCEPTANCE OF PROCEEDS.
The acceptance of the proceeds of each Loan shall constitute the
representation and warranty by the Borrower to the Bank that all of the
applicable conditions specified herein have been satisfied as of that time,
except for such conditions that have been expressly waived in writing hereunder
by the Bank.
41
<PAGE> 20
SECTION 13 - MISCELLANEOUS
13.1 The Borrower shall pay all out-of-pocket expenses incurred by the
Bank in connection with making and collecting the Loans and enforcing the Loan
Documents, including, but not limited to, reasonable attorneys' fees relating to
(a) the enforcement, or attempted enforcement, of any provision of any of the
Loan Documents, (b) the collection of any of the Loans, and (c) the foreclosure
of any security interests or other liens given with respect thereto.
Notwithstanding the foregoing, the Borrower shall not be obligated to pay more
than $4,500 in attorneys' fees incurred by the Bank in connection with making
the Loans (as contrasted with collecting the Loans, foreclosing the liens and
security interests securing the Loans, and otherwise enforcing or attempting to
enforce the Loan Documents, as to which the Borrower shall be obligated to pay
all reasonable attorneys' fees and other costs incurred by the Bank, in addition
to reimbursing the Bank for reasonable attorneys' fees, not to exceed $4,500, in
connection with making the Loans).
13.2 The Borrower acknowledges that the Bank has and shall have the
right, upon an Event of Default, or any event which with the giving of notice or
lapse of time, or both, would constitute an Event of Default, to set off any
indebtedness from time to time owing to the Borrower by the Bank, including any
indebtedness represented by any account maintained with the Bank by the
Borrower, against any indebtedness that shall at any time be due and payable by
the Borrower to the Bank.
13.3 Each and every right granted to the Bank hereunder or under any
other document delivered hereunder, or in connection herewith, or allowed it by
law or equity, shall be cumulative and may be exercised from time to time. No
failure on the part of the Bank to exercise, and no delay in exercising, any
right shall operate as a waiver thereof or as a waiver of any other right. No
single or partial exercise by the Bank of any right or remedy shall preclude any
other future exercise of it or the exercise of any other right or remedy. No
waiver or indulgence by the Bank of any default shall be effective unless in
writing and signed by the Bank, nor shall a waiver on one occasion be construed
as a bar to or waiver of that right on any future occasion. This Agreement may
not be amended except by a writing signed by all the parties hereto.
13.4 The relationship between the Borrower and the Bank is solely that
of borrower and lender. The Bank has no fiduciary responsibilities to the
Borrower as a result of this Loan Agreement, the Loan Documents or the
consummation of the transactions contemplated hereby or thereby. The Bank does
not undertake any responsibility to the Borrower to review or inform the
Borrower of any matter in connection with any phase of the Borrower's business
or operations. The Borrower shall rely entirely upon its own judgment with
respect to its business, and any review, inspection, supervision, or information
supplied to the Borrower by the Bank is for the protection of the Bank and
neither the Borrower nor any third party is entitled to rely thereon.
13.5 This Agreement is made in the State of Michigan. The validity of
this Agreement, and the validity of any documents incorporated herein or
executed in connection herewith, and the construction, interpretation and
enforcement thereof, and the rights of the parties thereto, shall be determined
under and construed in accordance with the internal laws of the State of
Michigan, without regard to principles of conflicts of law.
13.6 Any and all notices or other communications required or permitted
under this Agreement shall be in writing, and shall be served either personally
or by certified United States mail with postage thereon full prepaid addressed
to the Borrower as:
Riviera Tool Company
5460 Executive Parkway
Grand Rapids, Michigan 49512
Attention: Kenneth K. Rieth, President
42
<PAGE> 21
and to the Bank as:
Old Kent Bank
One Vandenberg Center
Grand Rapids, MI 49503
Attention: Gilbert A. Segovia, Vice President
or such other place or places as any party shall designate by written notice
served upon other parties.
13.7 This Agreement shall be binding upon and shall inure to the
benefit of the Borrower and the Bank and their respective successors and
assigns; provided, however, the Borrower may not assign, transfer, hypothecate
or otherwise dispose of its rights hereunder or in connection herewith or any
interest herein (voluntarily, by operation of law, as security, by gift or
otherwise) without the prior written consent of the Bank, which consent may be
withheld in the sole discretion of the Bank. There are no third party
beneficiaries of this Agreement. The Bank may assign, negotiate, pledge or
otherwise hypothecate all or any portion of this Agreement, or grant
participations herein and in the Loan Documents, or in any of its rights or
security hereunder or thereunder, including, without limitation, the instruments
securing the Borrower's obligations hereunder, provided, however, that the Bank
promptly will inform the Borrower of any such assignment, negotiation, pledge or
other hypothecation and of the parties involved therewith and, provided further,
that no such assignment, negotiation, pledge or other hypothecation by the Bank
will relieve the Bank of its obligation under this Agreement. In connection with
any assignment or participation, the Bank may disclose to the proposed assignee
or participant any information that the Borrower is required to deliver to the
Bank pursuant to this Agreement. Notwithstanding the foregoing, the Bank shall
not assign all or any portion of its right or interest under the Loan Documents
to Bank One or any person who is a successor in interest to Bank One. The
Borrower acknowledges that the Bank has granted a participation in the Revolving
L/C Loan and the Existing Equipment Term Loan to be made pursuant to this
Agreement, and in all related Loan Documents, to Norwest Bank Minnesota,
National Association, and the Borrower consents thereto.
13.8 The Borrower waives and releases any and all right that it may
have to require that the Bank marshal any of the collateral in which it holds an
interest as security for a loan made pursuant to this Agreement. The Borrower
shall upon the request of the Bank promptly execute and deliver to the Bank a
written statement, in form and substance reasonably satisfactory to the Bank,
identifying all of the collateral in which the Bank holds an interest as
security for a loan made pursuant to this Agreement. The Bank may file or record
such written statements in the appropriate public records as determined by the
Bank in its sole and absolute discretion.
13.9 Upon any change in generally accepted accounting principles that,
if reflected in the financial statements or covenants required or established in
this Agreement, would have a material effect on such statements or covenants,
either party may request that the parties enter into negotiations to amend the
financial covenants or other terms of this Agreement so as to equitably reflect
such changes with the desired result that the criteria for evaluating the
Borrower's financial condition shall be the same after such changes as if the
changes had not been made.
13.10 Should any part, term or provision of this Agreement, or of any
documents incorporated herein or executed in connection herewith, be determined
by the courts to be illegal, unenforceable or in conflict with any law of the
State of Michigan, federal law or any other applicable law, the validity and
enforceability of the remaining portions or provisions of such document(s) shall
not be affected thereby.
13.11 The Borrower shall execute any and all additional or supplemental
documentation, and provide such further assistance and assurances as the Bank
may reasonably require, to give full effect to the terms, conditions and
intentions of this Agreement.
13.12 Time is of the essence with respect to all provisions of this
Agreement.
43
<PAGE> 22
13.13 The headings in this Agreement have been inserted for convenience
only and shall not affect the meaning or interpretation of this Agreement.
13.14 This Agreement may be executed in one or more counterparts, each
of which shall be considered an original and all of which shall constitute the
same instrument.
44
<PAGE> 23
13.15 This Agreement contains the entire agreement of the parties
hereto with respect to the subject matter hereof. The parties hereto shall not
be bound by any other different, additional or further agreements or
understandings except as consented to in writing by them.
13.16 The Recitals are incorporated into and form a part of this
Agreement.
13.17 The Bank and the Borrower, after consulting or having had the
opportunity to consult with counsel, knowingly, voluntarily and intentionally
waive any right either of them may have to a trial by jury in any litigation
based upon or arising out of this Agreement or any related instrument or
agreement or any of the transactions contemplated by this Agreement or any
course of conduct, dealing, statements (whether oral or written), or actions of
either of them. Neither the Bank nor the Borrower shall seek to consolidate, by
counterclaim or otherwise, any such action in which a jury trial has been waived
with any other action in which a jury trial cannot be or has not been waived.
These provisions shall not be deemed to have been modified in any respect or
relinquished by either the Bank or Borrower except by a written instrument
executed by both of them.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
WITNESSES:
/s/Peter C. Canepa RIVIERA TOOL COMPANY
- --------------------
/s/ Marcia J. Shumate By: /s/ Kenneth R. Rieth
- ---------------------- ----------------------
Kenneth R. Rieth, President
OLD KENT BANK
- -----------------------------
By: /s/ Gilbert A. Segovia
- ----------------------------- -----------------------
Gilbert A. Segovia, Vice President
45
<PAGE> 24
SCHEDULE 2.12
RIVIERA DIE & TOOL CASH OR DEFERRED COMPENSATION PLAN
46
<PAGE> 25
SCHEDULE 7.10
REAL AND PERSONAL PROPERTY OPERATING LEASES
1. IBM Cadam and Catia software (license and maintenance).
2. Greenbrook Limited Partners/Riviera, a Michigan limited partnership and
Riviera Die & Tool, Inc. lease under agreement 11/01/88.
47
<PAGE> 26
THIS NOTE HAS BEEN EXECUTED AND DELIVERED PURSUANT TO THE FIRST
RESTATED LOAN AGREEMENT BETWEEN THE BORROWER AND THE BANK DATED AS OF
AUGUST 31, 1999; SUCH LOAN AGREEMENT, TOGETHER WITH ALL FUTURE
AMENDMENTS, RENEWALS AND REPLACEMENTS THEREOF, IF ANY, IS REFERRED TO
AS THE "LOAN AGREEMENT"). REFERENCE IS MADE TO THE LOAN AGREEMENT FOR,
AMONG OTHER THINGS, A STATEMENT OF THE OCCURRENCES WHICH MAY CONSTITUTE
AN EVENT OF DEFAULT UNDER THIS NOTE.
$1,000,000.00 TERM LOAN NOTE
(Fixed Rate)
$1,000,000.00 August 31, 1999
For value received, RIVIERA TOOL COMPANY, a Michigan corporation (the
"Borrower"), promises to pay to the order of OLD KENT BANK, a Michigan banking
corporation (the "Bank"), the principal sum of ONE MILLION AND NO/100 DOLLARS
($1,000,000.00), plus interest on the outstanding principal indebtedness
evidenced hereby from time to time at the rate of 8.04% per year, simple
interest, except during default.
Following maturity or acceleration of the indebtedness evidenced by
this Note, the interest rate on the entire principal balance of this Note shall
be 300 basis points higher than the interest rate otherwise in effect. In
addition, if any payment required hereby is not made within 15 days of its due
date, the Borrower shall be liable for a late payment charge in an amount equal
to five (5%) percent of the monthly payment due, except that in no event shall
the late payment charge exceed $2,000.00. The late payment charge shall apply
individually to all payments past due, without proration. All such default
interest and late payment charges, if any, shall be paid upon demand by the
holder hereof.
The indebtedness evidenced by this Note, unless sooner prepaid or
accelerated as provided in the Loan Agreement, shall be paid in monthly
installments of principal in the amount of SIXTEEN THOUSAND SIX HUNDRED
SIXTY-SIX AND 66/100 DOLLARS ($16,666.66) each (except that the principal
payment due on the scheduled maturity date of this Note shall be an amount equal
to the then outstanding principal balance of the indebtedness evidenced by this
Note) plus accrued and unpaid interest on the outstanding principal balance of
the indebtedness evidenced by this Note. Such payments of principal and interest
shall be due and payable on the first (1st) day of each month, beginning October
1, 1999. The principal balance of the indebtedness represented by this Note, and
all accrued and unpaid interest thereon, shall in any event be due and payable
on September 1, 2004, unless sooner accelerated by the Bank pursuant to the Loan
Agreement.
The indebtedness evidenced by this Note may be prepaid in whole or in
part on one (1) Business Day's notice; provided that, in addition to all
principal, interest and costs owing at the time of prepayment, there shall be
due and owing from the Borrower a prepayment premium in an amount equal to:
(a) Three percent (3%) of any principal prepayment made
on or prior to August 31, 2002;
(b) Two percent (2%) of any principal prepayment made on
or after September 1, 2002 and prior to September 1,
2003;
(c) One percent (1%) of any principal prepayment made on
or after September 1, 2003 and prior to September 1,
2004.
Notwithstanding the foregoing, the Borrower shall not be obligated to
pay a prepayment premium if the indebtedness evidenced by this Note is prepaid
after acceleration by the Bank.
All payments hereunder shall be made in lawful money of the United
States of America to the Bank at its principal office in Grand Rapids, Michigan,
or at such other place as the holder hereof may from time to time specify.
Upon the occurrence of an Event of Default under the Loan Agreement
that has not been cured after notice and within the applicable grace period set
forth in the Loan Agreement, the entire principal balance of this Note remaining
at that time unmatured,
48
<PAGE> 27
together with all accrued interest thereon, shall, at the election of the holder
hereof and without notice of such election and without demand or presentment,
become immediately due and payable, anything contained herein or in any other
document or instrument to the contrary notwithstanding.
Neither the failure of the holder hereof promptly to exercise its right
to declare the outstanding principal and accrued and unpaid interest and other
charges hereunder to be immediately due and payable, nor failure to exercise any
other right or remedy the holder may have for default, nor the acceptance by the
holder of late or partial payments, nor the failure of the holder to demand
strict performance of any obligation of the Borrower hereunder, shall constitute
a waiver of any such rights while such default continues, nor a waiver of any
such rights in connection with any future default on the part of the Borrower
hereunder. Further, acceptance by the holder of partial payments following due
acceleration of the indebtedness evidenced hereby shall not constitute a waiver
by the holder of the acceleration of such indebtedness or of any other right or
remedy otherwise available to the holder in such circumstance.
The Borrower waives presentment, protest and demand, notice of protest,
demand, dishonor and nonpayment of this Note.
The Borrower agrees to pay all costs incurred by the holder, including
without limitation costs of collection and reasonable attorney's fees, in case
the principal of this Note or any payment of interest thereon is not paid at the
respective due date or maturity thereof, or in case it becomes necessary to
protect the security for this Note, whether suit is brought or not, or in case
of any other default under this Note.
Any payment (including prepayments) upon this Note shall be applied
first to any expenses, charges or fees then due and payable to the Bank in
connection with the indebtedness evidenced hereby or any collateral for such
indebtedness, then to any accrued and unpaid interest hereunder, and then to the
unpaid principal balance.
All payments due under this Note shall be paid by automatic deduction
of the amount due from account number 750-599-947-9 maintained by the Borrower
at the Bank. The Borrower irrevocably authorizes the Bank to make such
deductions when such payments are due.
In no event shall the Borrower be required to make any payment
hereunder which would violate any applicable law regulating or limiting the rate
of interest that the holder of the Note may lawfully charge or collect. In the
event any such payment is made by or for the account of the Borrower, such
payment shall, to the extent it exceeds the maximum payment that the holder
hereof lawfully may charge or collect, be applied toward reduction of the
principal balance hereof.
This Note is secured by a first lien on certain of the Borrower's
accounts receivable, machinery, equipment, furniture and fixtures, as set forth
in the Loan Agreement and in one or more Security Agreements between the Bank
and the Borrower dated June 12, 1997, all of which are incorporated herein by
reference.
This Note shall be governed by and enforced and construed in accordance
with the laws of Michigan. The invalidity, illegality or unenforceability of any
one or more of the provisions hereof shall not affect the validity, legality or
enforceability of the remaining provisions hereof, all of which shall remain in
full force and effect.
RIVIERA TOOL COMPANY
By: /s/ Kenneth K. Rieth
----------------------
Kenneth K. Rieth, President
49
<PAGE> 1
EXHIBIT 13
FINANCIAL OVERVIEW
Selected Financial Data
The following selected financial data should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Financial Statements and related Notes contained herein.
All amounts are in thousands, except per share data.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-------------------------------------------------------------
STATEMENT OF OPERATION DATA: 1995 1996 1997 1998 1999
- ---------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales ....................................... $ 19,042 $ 18,334 $ 21,960 $ 22,581 $ 22,821
Gross Profit ................................ 926 3,398 5,128 5,484 5,875
Income (loss) from Operations ............... (976) 2,043 3,424 3,821 3,856
Interest Expense ............................ 1,589 1,670 1,211 244 343
Other Income ................................ 106 227 45 -- 169
Other Expense ............................... 160 -- 406 132 --
Income (loss) before income taxes ........... (2,620) 600 1,851 3,445 3,682
Income Taxes (Benefits) ..................... (1,005) 204 667 1,040 1,252
-------- -------- -------- -------- --------
Net Income (loss) ........................... (1,615) 396 1,185 2,405 2,430
-------- -------- -------- -------- --------
Dividends ................................... 35 29 7 202 --
-------- -------- -------- -------- --------
Net Income (loss) available for common shares $ (1,650) $ 367 $ 1,178 $ 2,203 $ 2,430
======== ======== ======== ======== ========
Basic Earnings (loss) per common share ..... $ (1.08) $ .24 $ .57 $ .82 $ .76
======== ======== ======== ======== ========
Basic common shares outstanding ............. 1,533 1,533 2,067 2,686 3,219
======== ======== ======== ======== ========
Diluted Earnings (loss) per common share ... $ (1.05) $ .24 $ .57 $ .76 $ .76
======== ======== ======== ======== ========
Diluted common shares outstanding ........... 1,533 1,533 2,065 3,138 3,219
======== ======== ======== ======== ========
OTHER DATA:
- -----------
Depreciation & amortization ................. $ 1,438 $ 1,272 $ 1,298 $ 1,292 $ 1,579
======== ======== ======== ======== ========
<CAPTION>
AS OF AUGUST 31,
---------------------------------------------------------------
BALANCE SHEET DATA: 1995 1996 1997 1998 1999
- ------------------- --------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Working Capital ........................... $ (7,149) $ (6,851) $ 6,982 $ 11,297 $ 10,981
Total Assets .............................. 19,414 20,432 20,056 27,696 33,928
Current Portion of Long-Term Debt & Capital
Leases .................................... 2,256 1,336 650 877 1,889
Revolving Line of Credit .................. 6,866 10,242 4,711 3,863 2,032
Long-term Capital Leases & Term Debt, less
current portion ........................... 1,830 1,002 3,142 4,334 7,207
Redeemable Preferred Stock ................ 111 139 -- -- --
Common Stockholder's Equity ............... 3,120 3,487 9,722 15,882 18,312
</TABLE>
50
<PAGE> 2
The following table is derived from the Company's Statement of Operations and
sets forth, for the periods indicated, selected operating data as a percentage
of sales.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31,
---------------------------------------------------------------
STATEMENT OF OPERATION DATA: 1995 1996 1997 1998 1999
- ---------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Sales ................................... 100% 100% 100% 100% 100%
Gross Margin ................................ 5 19 23 24 26
Income (Loss) from Continuing Operations ... (5) 11 16 17 17
Interest Expense ............................ 8 9 6 1 1
Other Income ................................ -- 1 -- -- --
Other Expense ............................... -- -- 2 -- --
Income (loss) before income taxes ........... (14) 3 8 16 16
Federal Income Tax (Benefit) ................ (5) 1 3 5 5
--------- --------- --------- --------- ---------
Net Income (Loss) ........................... (9)% 2% 5% 11% 11%
--------- --------- --------- --------- ---------
Dividends ................................... -- -- -- 1 --
--------- --------- --------- --------- ---------
Net Income (Loss) available for Common
Shares..................................... (9)% 2% 5% 10% 11%
========= ========= ========= ========= =========
OTHER DATA:
- -----------
Depreciation and Amortization ............... 8% 7% 6% 6% 7%
========= ========= ========= ========= =========
</TABLE>
Quarterly Financial Data
The following is a condensed summary of quarterly results of operations for
1997, 1998 and 1999 (in thousands, except per share data):
<TABLE>
<CAPTION>
BASIC DILUTED
NET INCOME --------------------- -------------------------
AVAILABLE FOR EARNINGS COMMON EARNINGS COMMON
GROSS OPERATING NET COMMON PER SHARES PER SHARES
REVENUES PROFIT INCOME INCOME SHARES SHARE OUTSTANDING SHARE OUTSTANDING
-------- ------- --------- ------- ------------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997: First..... $ 5,480 $ 1,085 $ 654 $ 176 $ 172 $ .11 1,533 $ .11 1,533
- -----
Second.... 5,405 1,105 666 159 157 .10 1,533 .10 1,533
Third..... 5,001 1,085 730 247 244 .10 2,547 .10 2,593
Fourth.... 6,074 1,853 1,374 603 605 .23 2,609 .23 2,609
------- ------- ------- ------- ------- ---------- ------- ------------ -------
Total $21,960 $ 5,128 $ 3,424 $ 1,185 $ 1,178 $ .57 2,067 $ .57 2,065
======= ======= ======= ======= ======= ========== ======= ============ =======
1998: First..... $ 5,444 $ 1,260 $ 756 $ 415 $ 331 $ .15 2,170 $ .14 2,893
- -----
Second.... 6,096 1,662 1,103 526 408 .19 2,118 .16 3,219
Third..... 6,878 1,846 1,297 714 714 .22 3,219 .22 3,219
Fourth.... 4,163 716 665 750 750 .22 3,219 .22 3,219
------- ------- ------- ------- ------- ---------- ------- ------------ -------
Total $22,581 $ 5,484 $ 3,821 $ 2,405 $ 2,203 $ .82 2,686 $ .76 3,137
======= ======= ======= ======= ======= ========== ======= ============ =======
1999: First..... $ 5,557 $ 1,341 $ 906 $ 518 $ 518 $ .16 3,219 $ .16 3,219
- -----
Second.... 5,071 1,632 1,081 695 695 .22 3,219 .22 3,219
Third..... 6,445 1,939 1,389 805 805 .25 3,219 .25 3,219
Fourth.... 5,748 963 480 412 412 .13 3,219 .13 3,219
------- ------- ------- ------- ------- ---------- ------- ------------ -------
Total $22,821 $ 5,875 $ 3,856 $ 2,430 $ 2,430 $ .76 3,219 $ .76 3,219
======= ======= ======= ======= ======= ========== ======= ============ =======
</TABLE>
51
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL OVERVIEW
The Company is a 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 DaimlerChrysler AG, Ford Motor Company,
General Motors Corporation and their tier one suppliers.
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's Financial Statements and the Notes thereto included elsewhere herein.
FISCAL 1999 COMPARED TO FISCAL 1998
Revenue. Total revenue for 1999 increased from approximately $22.6 million
in 1998 to $22.8 million in 1999. The increase in 1999 sales was due to the
Company's increase in securing contracts during 1998 and 1999. Prior to the 1998
and 1999 capital expansion the Company was operating at near full capacity
resulting in minor revenue increases. With the expansion the Company has
increased its capacity to approximately $35.0 million and has begun marketing
such additional capacity. The Company expects the anticipated increase in
revenues and gross profit to more than offset the depreciation and interest
expense resulting from the 1998 and 1999 capital expansion.
Cost of Goods Sold. Cost of goods sold decreased from $17.1 million for
1998 to $16.9 million for 1999. As a percent of sales, cost of goods sold
decreased from 75.7% for 1998 to 74.3% for 1999. Of the cost of goods sold,
direct costs were $9.2 million, 40.2% of sales, in 1999 as compared to $10.4
million, 45.9% of sales, in 1998. The largest direct cost decrease was in
outside machining expense, a decrease of $876,000 or 3.8% of sales, as a result
of the Company benefiting from the upgrades of the Company's machine tools
during 1998. These upgrades resulted in a more efficient and cost effective
manufacturing process while increasing the Company's machining capacity. Direct
labor expense decreased by $642,000 for 1999 as compared to 1998. This decrease
was a result of the Company experiencing reduced direct labor hours of 14,000
hours and 6,400 in overtime requirements in 1999, as compared to 1998. These
decreases were offset by increases in outside pattern expense of $380,000 and
prototype parts purchased of $70,000, as compared to 1998. The increase in
pattern expense was due to the Company's product mix in 1999 when compared to
1998. The increase in prototype purchased parts was due to limited press
capacity during the installation of new presses during 1999, which required
outsourcing of some prototype part production.
Engineering expense was constant at approximately $1.6 million for 1998 and
1999. As a percent of sales, engineering expense was 7.1% in 1999 as compared to
7.3% in 1998.
Manufacturing overhead was $6.1 million or 26.9% of sales in 1999 as
compared to $5.1 million or 22.5% of sales in 1998. This increase of $1.0
million was largely due to a $702,000 increase in depreciation expense in 1999
as compared to 1998 because of the Company's capital expansion. Other increases
include, $130,000 in manufacturing supplies expense, $64,000 in property taxes
as a result of the increase in machinery and equipment and the expiration of
certain tax abatements, $67,000 in perishable tooling expense as a result of
increased internal machining hours, and $43,000 in employee medical insurance
expense.
Selling and Administrative Expense. Selling and administrative expense
increased to $2.0 million for 1999 as compared to $1.7 million for 1998. As a
percent of sales, selling and administrative expense increased from 7.4% in 1998
to 8.8% in 1999. The largest administrative expense increases in 1999 were
$155,000 in office salaries, $65,000 in supervision salaries, $73,000 in
deferred compensation/401(k) expense, $61,000 in the State of Michigan Single
Business Tax and $40,000 in insurance expense. During 1999 these increases were
offset by decreases in general expenses of $46,000 in legal and professional
fees, $41,000 in amortization expense, $53,000 in other state income taxes, and
$26,000 in leased equipment expense. Selling expenses increases included $60,000
in sales salaries and $25,000 in travel expenses offset by a $33,000 decrease in
sales commission expense.
Interest Expense. Interest expense increased from $244,000 in 1998 to
$344,000 in 1999 and 1.1% in 1998 to 1.5% in 1999, as a percent of sales. This
increase was due to higher average debt levels during 1999 incurred as a result
of the Company's capital expansion.
52
<PAGE> 4
During 1998 and 1999 the Company capitalized interest cost associated with its
construction in process of $394,664 and $601,330, respectively.
Other Income/Expense. Other expense for 1998 represents a negotiated
settlement for penalties and interest for late payment of 1995 and 1996 state
income taxes. Other income for 1999 largely represents a $140,000 gain as a
result of a settlement of certain litigation.
FISCAL 1998 COMPARED TO FISCAL 1997
Revenue. Total revenue for 1998 increased by 3% from approximately $21.9
million in 1997 to $22.6 million in 1998. The increase in 1998 sales was due to
the Company's increase in securing contracts awarded during 1998. Additionally,
the Company's August 31, 1998 contract backlog was 31% higher than as of August
31, 1997. These contracts will be completed and recognized as revenue during
fiscal years 1999 and 2000. The Company's contracts in process, as of August 31,
1998, were approximately $7.3 million higher than as of August 31, 1997. These
contracts will be completed and recognized as revenue during fiscal years 1999
and 2000.
Cost of Goods Sold. Cost of goods sold increased from $16.8 million in 1997
to $17.1 million in 1998, an increase of 2%. As a percent of sales, cost of
goods sold decreased from 76.6% for 1997 to 75.7% for 1998. Of the cost of goods
sold, direct costs were $10.4 million, 46.1% of sales, in 1998 as compared to
$9.6 million, 43.6% of sales, in 1997. The largest direct cost increase was in
the outside machining services expense, $1.1 million or 4.9% of sales in 1998 as
compared to $321,000 or 1.5% of sales in 1997. This increase was largely due to
the Company rebuilding and upgrading its machining equipment during 1998, this
lowered the Company's internal machining capacity and resulted in increased
outsourced machining expense. Upon completion of the machining equipment rebuild
and upgrade, the Company's machining capacity and efficiency will improve. The
largest direct cost decreases in 1998 were in prototype parts purchased expense,
a decrease of $150,000 or .7% of sales, and direct labor expense, a decrease of
$131,600 or .6% of sales.
Engineering expense was $1.7 million or 7.5% of sales in 1998 as compared
to $1.6 million or 7.1% of sales in 1997. The increase in engineering expense
was due to the Company increasing its engineering personnel to fulfill the
Company's increased engineering requirements.
Manufacturing overhead was $5.1 million or 22.6% of sales in 1998 as
compared to $5.7 million or 26.0% of sales in 1997. This decrease of $.6 million
in 1998 as compared to 1997 was largely due to a $327,300 decrease in
depreciation expense in 1998 as compared to 1997. This was due to the Company
selling certain equipment during 1998 which was in service and depreciated for
all of 1997. Other decreases include a $224,100 in perishable tooling expense in
1998 as a result of the Company improving its usage and purchase of such
tooling, $84,400 in equipment rentals, $84,600 in machinery repairs and
maintenance, $28,900 in workers compensation expense and $29,300 in utilities
expense.
Selling and Administrative Expense. Selling and administrative expense
remained consistent at $1.7 million per year for 1997 and 1998. As a percent of
sales, selling and administrative expense decreased from 7.8% in 1997 to 7.5% in
1998. The largest administrative expense decreases in 1998 were in office
salaries of $187,900, legal and professional expense of $47,000, insurance
expense of $35,500, computer maintenance expense of $22,600 and state tax
expense of $147,900. During 1998, increases in administrative expenses were in
public company expenses of $144,400, supervision salaries of $38,000, and
Directors and Officers insurance of $34,500. Selling expenses increases were in
sales salaries of $80,900, travel expenses of $38,000, and sales commissions
expense of $33,700.
Interest Expense. Interest expense decreased from $1.2 million in 1997
to $.2 million in 1998 and as a percent of sales, interest expense decreased
from 5.5% in 1997 to 1.1% in 1998. This decrease was due to lower average debt
levels during 1998 as compared to 1997 and reduction in interest rates.
Other Expense. Other expense during 1997 included $150,000 of bank fees
paid to the Company's former primary lender as well as $75,700 in debt
prepayment fees, $27,300 in tax agency penalties and $101,000 in late charges on
its facility lease. For 1998, other expense represents a negotiated settlement
for penalties and interest for late payment of 1995 and 1996 state income taxes.
53
<PAGE> 5
FEDERAL INCOME TAX.
The Company's effective income tax rates were 36%, 30% and 34% for the
years ended August 31, 1997, 1998 and 1999, respectively. As of August 31, 1999
the provision for federal income taxes was $1,251,824 of which $645,922 was
current expense and $605,902 was deferred expense. The Company had approximately
$187,000 of alternative minimum tax credits as of August 31, 1999, the use of
which does not expire.
LIQUIDITY AND CAPITAL RESOURCES.
The Company's needs for capital over the periods presented have increased
primarily to acquire fixed assets and to finance the increase in trade accounts
receivable and contracts in process. The Company has financed these needs over
the period presented through internally generated funds and bank financing. The
Company anticipates less than $1.0 million in capital expenditures for fiscal
2000.
The Company's total bank debt as of August 31, 1999, is $11,129,051, of
which $1,889,415 is short-term and the balance long-term. The Company has a
$10.0 million Revolving Line of Credit with a balance outstanding of $2,032,494,
a $1,841,667 Term Note, a $3,611,108 Term Note, a $3,271,000 Non-Revolving
Equipment Line of Credit with an outstanding balance of $2,643,782 and a
$1,000,000 Term Note. The interest rate on the financing is prime rate less .25
percent, except for the $3,611,108 Term Note Payable and the $1,000,000 Term
Note Payable which are at fixed rates of 7.26% and 8.04%, respectively. 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 fiscal 2000. 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.
YEAR 2000.
The Company has completed its review and testing of its computer systems
and has concluded that all such systems are year 2000 compliant. The Company
primarily utilizes computer technology in its CAD design, Numerically Controlled
programming and its manufacturing information systems.
The Company continues to review for any year 2000 compliance issues that
customers or suppliers may encounter with their own systems. Management believes
that any customer or supplier year 2000 issues will not have a material effect
on the Company's operations. However there can be no absolute assurances that
there will not be a materially adverse effect on the Company if third parties do
not resolve their year 2000 issues.
INFLATION.
The Company has no long-term, fixed price supply contracts. Although the
average set of dies takes approximately ten months from inception to shipment,
any significant direct material costs are incurred at the beginning of the die
manufacturing process. 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.
54
<PAGE> 6
Riviera Tool Company
Balance Sheets
<TABLE>
<CAPTION>
August 31
----------------------------
ASSETS Note 1998 1999
------ ------------- -------------
<S> <C> <C> <C>
Current Assets
Cash............................................ $ 4,206 $ 113,183
Accounts receivable............................. 1 1,609,272 6,821,519
Costs and estimated gross profit in excess
of billings on contracts in process.......... 4 11,299,961 7,829,744
Inventories..................................... 5 405,566 451,167
Prepaid expenses and other current assets....... 172,054 84,189
------------- -------------
Total current assets................... 13,491,059 15,299,802
Property, Plant and Equipment, net.............. 6 13,237,501 17,941,659
Perishable Tooling.............................. 1 743,966 550,634
Other Assets.................................... 223,869 135,770
------------- -------------
Total assets........................... $ 27,696,395 $ 33,927,865
============= =============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt............... 7 $ 876,555 $ 1,889,415
Accounts payable................................ 1,113,113 1,398,483
Accrued liabilities............................. 204,682 1,030,984
------------- -------------
Total current liabilities.............. 2,194,350 4,318,882
Long-Term Debt, net of current portion.......... 7 8,196,641 9,239,636
Accrued Lease Expense........................... 9 643,040 671,073
Deferred Tax Liability.......................... 8 780,376 1,386,278
------------- -------------
Total liabilities...................... 11,814,407 15,615,869
Preferred Stock -- no par value,
$100 mandatory redemption value:
Authorized--5,000 shares
Issued and outstanding--no shares............ -- --
Preferred Stock-- no par value,
Authorized -- 200,000 shares
Issued and outstanding-- no shares.......... -- --
Common Stockholders' Equity
Common stock -- no par value,
Authorized -- 9,798,575 shares
Issued and outstanding -- 3,065,499 at
August 31, 1998 and 3,218,744 at
August 31,1999 ............................. 2 13,496,937 14,512,185
Retained earnings............................. 2,385,051 3,799,811
------------- -------------
Total common stockholders' equity...... 15,881,988 18,311,996
------------- -------------
Total liabilities and stockholders' equity...... $ 27,696,395 $ 33,927,865
============= =============
</TABLE>
See Notes to Financial Statements
55
<PAGE> 7
Riviera Tool Company
Statements of Income
<TABLE>
<CAPTION>
Year Ended August 31
---------------------------------------------
Note 1997 1998 1999
----- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales
Trade............................................... 3 $ 21,108,195 $ 22,203,755 $ 22,820,998
Related party....................................... 851,979 377,433 --
------------- ------------- -------------
Total Sales............................................ 21,960,174 22,581,188 22,820,998
Cost of Sales.......................................... 16,831,905 17,096,967 16,946,076
------------- ------------- -------------
Gross Profit........................................... 5,128,269 5,484,221 5,874,922
Selling and Administrative Expenses.................... 1,703,884 1,663,340 2,019,195
------------- ------------- -------------
Income From Operations................................. 3,424,385 3,820,881 3,855,727
Other Income (Expense):
Interest expense....................................
(1,211,287) (244,231) (343,484)
Other............................................... (406,368) (101,871) 166,316
Gain/(loss) on asset sales.......................... 44,651 (29,698) 3,273
------------- ------------- -------------
Total Other Expense, net................................ (1,573,004) (375,800) (173,895)
------------- ------------- -------------
Income-- Before Taxes on Income......................... 1,851,381 3,445,081 3,681,832
------------- ------------- -------------
Income Tax Expense...................................... 666,600 1,039,976 1,251,824
------------- ------------- -------------
Net Income.............................................. 1,184,781 2,405,105 2,430,008
------------- ------------- -------------
Dividends and Accretion on Preferred Stock.............. 2 7,228 202,108 --
------------- ------------- -------------
Net Income Available for Common Shares.................. $ 1,177,553 $ 2,202,997 $ 2,430,008
============= ============= =============
Basic Earnings Per Common Share......................... $ .57 $ .82 $ .76
============= ============= =============
Basic Common Shares Outstanding......................... 1 2,067,188 2,686,176 3,218,744
Diluted Earnings Per Common Share....................... $ .57 $ .76 $ .76
============= ============= =============
Diluted Common Shares Outstanding....................... 1 2,064,803 3,137,535 3,218,744
</TABLE>
See Notes to Financial Statements
56
<PAGE> 8
Riviera Tool Company
Statements of Common Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock Retained Total
------------------------- Earnings/ Shareholders'
Note Shares Amount (Deficit) Equity
---- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance-- September 1, 1996......................... 1,460,000 $ 4,392,752 $ (905,499) $ 3,487,253
--------- ----------- ----------- ------------
Increase to redeemable preferred stock.............. -- -- (7,228) (7,228)
Preferential Common Stock Dividend.................. 2 -- -- (90,000) (90,000)
Sale of Common Stock................................ 2 1,025,000 5,147,127 -- 5,147,127
Net Income.......................................... -- -- 1,184,781 1,184,781
--------- ----------- ----------- ------------
Balance-- August 31, 1997........................... 2,485,000 $ 9,539,879 $ 182,054 $ 9,721,933
--------- ----------- ----------- ------------
Conversion of 8% Cumulative
Convertible Preferred Stock....................... 2 1,310,499 6,957,058 -- 6,957,058
Purchase of Common Stock............................ 2 (730,000) (3,000,000) -- (3,000,000)
Preferred Stock Dividends........................... 2 -- -- (202,108) (202,108)
Net Income.......................................... -- -- 2,405,105 2,405,105
--------- ----------- ----------- ------------
Balance-- August 31, 1998........................... 3,065,499 $13,496,937 $ 2,385,051 $ 15,881,988
--------- ----------- ----------- ------------
Net Income.......................................... -- -- 2,430,008 2,430,008
5% Common Stock Dividend............................ 2 153,245 1,015,248 (1,015,248) --
--------- ----------- ----------- ------------
Balance-- August 31, 1999........................... 3,218,744 $14,512,185 $ 3,799,811 $ 18,311,996
========= =========== =========== ============
</TABLE>
See Notes to Financial Statements
57
<PAGE> 9
Riviera Tool Company
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended August 31
-----------------------------------------------
1997 1998 1999
------------ ------------- ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income ........................................................ $ 1,184,781 $ 2,405,105 $ 2,430,008
Adjustments to reconcile net income to net cash from operating
activities:
Depreciation and amortization................................. 1,298,200 1,291,611 1,578,557
(Gain) loss on sale of machinery and equipment................ 16,889 26,717 (3,273)
Amortization of deferred gain................................. (61,540) -- --
Deferred taxes................................................ 538,700 927,976 605,902
Bad debt expense.............................................. (75,000) (100,000) --
Decrease (increase) in assets:
Accounts receivable........................................ 528,654 3,306,271 (5,212,247)
Costs and estimated gross profit in
Excess of billings on contracts in process................ (1,588,535) (7,344,003) 3,470,217
Inventories................................................ (23,267) 63,174 (45,601)
Perishable tooling......................................... 186,673 (171,381) 193,332
Prepaid expenses and other current assets.................. (17,344) 95,500 87,865
Increase (decrease) in liabilities:
Accounts payable........................................... (1,672,635) (128,130) 285,370
Accrued lease expense...................................... 46,725 37,380 28,033
Accrued liabilities........................................ (57,347) (430,242) 826,302
------------ ------------- ------------
Net cash provided by (used in) operating activities....... 304,954 (20,022) 4,244,465
------------ ------------- ------------
Cash Flows from Investing Activities
Proceeds from sale of property, plant and equipment............... 25,200 1,084,356 102,650
(Increase) decrease in other assets............................... 278,589 (76,919) 109,000
Purchases of property, plant and equipment........................ (792,580) (5,958,962) (6,402,994)
------------ ------------- ------------
Net cash used in investing activities..................... (488,791) (4,951,525) (6,191,344)
------------ ------------- ------------
Cash Flows from Financing Activities
Net borrowings (repayments) on revolving credit line.............. (10,241,503) -- (1,830,380)
Proceeds from issuance of long-term debt.......................... 9,904,848 2,718,655 4,925,128
Principal payments on long-term debt.............................. (3,862,305) (1,497,852) (1,038,892)
Principal payments under capital lease obligations................ (528,030) -- --
Redemption of preferred stock..................................... (142,500) -- --
Sale of common stock.............................................. 5,147,127 -- --
Sale of convertible preferred stock............................... -- 6,957,058 --
Redemption of common stock........................................ -- (3,000,000) --
Common stock cash dividends paid.................................. (90,000) -- --
Preferred stock cash dividends paid............................... (3,800) (202,108) --
------------ ------------- ------------
Net cash provided by financing activities.................. 183,837 4,975,753 2,055,856
------------ ------------- ------------
Net Increase in Cash................................................ -- 4,206 108,977
------------ ------------- ------------
Cash-- Beginning of Year............................................ -- -- 4,206
Cash-- End of Year.................................................. $ -- $ 4,206 $ 113,183
============ ============= ============
Other Cash Flow Items:
Interest paid....................................................... $ 1,253,563 $ 557,334 $ 924,331
Income taxes paid................................................... 1,871 429,583 252,490
</TABLE>
See Notes to Financial Statements
58
<PAGE> 10
Riviera Tool Company
Notes to Financial Statements
NOTE 1 -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
- - NATURE OF BUSINESS.
Riviera Tool Company (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 DaimlerChrysler AG,
Ford Motor Company and General Motors Corporation and their tier one
suppliers of sheet metal stamped parts and assemblies.
- - REPORTING ENTITY.
In October 1996, the Company executed an agreement and plan of merger.
Under the provisions of the agreement, Riviera Die & Tool, Inc., merged
with and into Riviera Tool Company, owner of 100% of its Common Stock, as
the survivor corporation. Concurrently with such merger, the By-Laws and
Articles of Incorporation were 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 immediately after the merger in October, 1996:
- 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 were reported on a consolidated basis for more than five
years prior to the merger. Therefore, the merger had 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.
- - EARNINGS PER SHARE.
The Company presents earnings per share in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share",
which requires presentation of basic and diluted earnings per share
together with disclosure of how the per share amounts were computed.
Basic earnings per share excludes dilution and is computed by dividing
income available to common shareholders by the weighted-average common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised.
- - USE OF ESTIMATES.
The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Although management believes the
estimates are reasonable, 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.
- - 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, 1998 and 1999, the Company had no reserve for
uncollectible accounts receivable and had $0 and $650,000 of unbilled
accounts receivable, respectively.
- - INVENTORIES.
Inventories are recorded at the lower-of-cost (first-in, first-out method),
or market.
59
<PAGE> 11
Riviera Tool Company
Notes to Financial Statements
NOTE 1 -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
- - PROPERTY, PLANT AND EQUIPMENT.
Property, plant and equipment are recorded at cost. Depreciation is
computed using the straight-line method over the useful life of the asset
for financial reporting purposes as follows:
<TABLE>
<CAPTION>
USEFUL
ASSET LIVES
----- -----
<S> <C>
- Leasehold Improvements...................... 7-20
- Office Furniture and fixtures............... 3-10
- Machinery and Equipment..................... 5-20
- Computer Equipment and Software............. 5-20
- Transportation Equipment.................... 5-10
</TABLE>
Expenditures for maintenance and repairs are charged to expense as
incurred. The Company capitalizes interest cost associated with
construction in process.
- - PERISHABLE TOOLING.
Certain perishable tools are 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.
- - INCOME TAXES.
Deferred income tax assets and liabilities are computed for differences
between the financial statement and tax bases of assets and liabilities
that will result in taxable or deductible amounts in the future. Such
deferred income tax asset and liability computations are based upon enacted
tax laws and rates applicable to periods in which the differences are
expected to affect taxable income. Valuation allowances are established
when necessary to reduce deferred tax assets to the amounts expected to
be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets
and liabilities.
- - DERIVATIVE AND HEDGING ACTIVITIES.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
("SFAS 133"), Accounting for Derivative Instruments and Hedging Activities,
effective for the Company's fiscal year ending August 31, 2001. SFAS 133
expands the definition of the types of contracts considered to be
derivatives, requires all derivatives to be recognized in the balance sheet
as either assets or liabilities measured at their fair market value and
sets forth conditions in which a derivative instrument may be designated as
a hedge. SFAS 133 further requires that changes in the fair value of
derivatives be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to be recorded at either
comprehensive income or to offset related results on the hedged item in
earnings. The Company`s use of derivatives is limited, but it has not
quantified the effects of adopting SFAS 133 at this time.
- - STOCK-BASED COMPENSATION.
The Company has adopted SFAS No. 123 ("SFAS 123"), Accounting for
Stock-based Compensation, and as permitted by this standard, will continue
to apply the recognition and measurement principles prescribed under
Accounting Principles Board Opinion No, 25, Accounting for Stock Issued to
Employees, to its stock-based compensation (see Note 11).
- - BUSINESS SEGMENT REPORTING.
The Company has adopted SFAS No. 131 ("SFAS 131"), Disclosures about
Segments of an Enterprise and Related Information, which requires companies
to report certain information about their operating segments, products,
geographic areas of operation and major customers. However, based on the
nature of its operations and products, the Company considers its business
to be a single operating segment.
NOTE 2 -- STOCKHOLDERS INVESTMENT
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.
60
<PAGE> 12
Riviera Tool Company
Notes to Financial Statements
NOTE 2 -- STOCKHOLDERS INVESTMENT - CONTINUED
In March, 1997, the Company sold 1,010,000 shares of Common Stock through an
initial public offering on the American Stock Exchange, at a price of $7.00 per
share (the "Offering"). The Company received net proceeds of approximately $5.1
million from the Offering. The net proceeds were used to reduce previously
incurred debt. In June, 1997, the Company sold 15,000 shares of common stock in
connection with a consulting agreement entered into with a financial consultant.
In October, 1997, the Company issued and sold 80,000 shares of 8% Cumulative
Convertible Preferred Stock (the "Preferred Shares") at $100.00 per share. The
Company received net proceeds of approximately $6.9 million, net of offering
costs, from this offering. With a portion of the proceeds from this sale, the
Company exercised its option to purchase and retired all 730,000 shares of
common stock held by Motor Wheel Corporation for $3.0 million or $4.11 per
share.
Dividends on the 8% Cumulative Convertible Preferred Stock were to be paid at an
annual rate of 8% payable quarterly, in arrears, at a rate of $2.00 per share
per quarter, commencing December 31, 1997. Of the 80,000 Preferred Shares
issued, 67,500 preferred shares were convertible into Common Stock for the
number of shares of Common Stock per share equal to $100 divided by $6.00. The
remaining 12,500 preferred shares were convertible into Common Stock for the
number of shares of Common Stock per share equal to $100 divided by $6.7375. All
the Preferred Shares outstanding were automatically converted into Common Stock
when the average closing price for the Common Stock on the American Stock
Exchange for 10 consecutive trading days was equal to or greater than $10 per
share (which occurred during the trading period of November 20 and December 4,
1997). The Company was not required to issue fractional shares in connection
with the conversion and a cash payment was made in lieu thereof. On January 9,
1998, the Company registered 1,461,529 shares of Common Stock under the
Securities Act of 1933. These common shares were issuable upon conversion of the
8% Cumulative Convertible Preferred Stock. On January 10, 1998, the Company sent
notice to all holders of the 8% Cumulative Convertible Preferred Stock that all
such preferred shares outstanding would be automatically converted into Common
Stock on or before February 11, 1998, under the mandatory conversion provision.
The Company, on February 11, 1998, converted all 80,000 shares of the 8%
Cumulative Convertible Preferred Stock into 1,310,499 of common stock. The
dividend expense for the year ended August 31, 1998 represents the dividends
paid on the 80,000 shares of 8% Cumulative Convertible Preferred Stock between
the issuance date and the conversion date.
On November 2, 1998, the Company's Board of Directors declared a five percent
common stock dividend, payable on December 18, 1998, to all shareholders of
record on November 17, 1998. All share and per share data presented for fiscal
1997 and 1998 have been adjusted to give effect to the five percent dividend.
NOTE 3 -- SALES TO MAJOR CUSTOMERS
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
-------------------------------------------------------------------
1997 % 1998 % 1999 %
---------- ------- ----------- ------- ----------- --
<S> <C> <C> <C> <C> <C> <C>
General Motors....................................... $ 886 4% $ 5,285 23% $ 5,744 25%
DaimlerChrysler AG................................... 8,890 40 2,363 10 5,171 23
Navistar International............................... -- -- -- -- 3,959 17
Oxford Automotive.................................... -- -- -- -- 2,968 13
Ford Motor Company................................... 3,411 16 62 -- 94 --
Motor Wheel Corporation ............................. 852 4 378 2 -- --
Flex-n-Gate.......................................... 3,193 15 3,230 14 -- --
A.G. Simpson......................................... -- -- 2,605 12 -- --
Autodie International................................ -- -- 4,191 19 10 --
Others............................................... 4,728 21 4,467 20 4,875 22
---------- ------- ----------- ------- ----------- ---
Total Sales..................................... $ 21,960 100% $ 22,581 100% $ 22,821 100%
========== ======= =========== ======= =========== ===
</TABLE>
Outstanding accounts receivable from three of these customers represented
approximately 51 percent at August 31, 1998 and approximately 74 percent at
August 31, 1999 of the total accounts receivable.
61
<PAGE> 13
Riviera Tool Company
Notes to Financial Statements
NOTE 4 -- COSTS AND BILLINGS ON CONTRACTS IN PROCESS
<TABLE>
<CAPTION>
AUGUST 31
-----------------------------
1998 1999
------------- -------------
<S> <C> <C>
Costs and billings on contracts in process are as follows: $ 14,949,213 $ 11,882,615
Costs incurred on contracts in process under the percentage-of-completion method..... 1,450,000 3,418,400
Estimated gross profit............................................................... ------------ -------------
16,399,213 15,301,015
Total........................................................................... 7,532,371
Less progress payments received and progress billings to date........................ 5,099,252
-- 61,100
Plus costs incurred on contracts in process under the completed contract method...... ------------- --------------
$ 11,299,961 $ 7,829,744
Costs and estimated gross profit in excess of billings on contracts in process....... ============= ==============
</TABLE>
Included in estimated gross profit for 1998 and 1999 are jobs with estimated
losses accrued of $309,565 and $60,912, respectively.
NOTE 5-- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
AUGUST 31
------------------------------
1998 1999
------------- -------------
<S> <C> <C>
Raw material stock..................................................................... $ 234,424 $ 322,838
Small tools and supplies............................................................... 171,142 128,329
------------- -------------
Total......................................................................... $ 405,566 $ 451,167
============= =============
</TABLE>
NOTE 6 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
AUGUST 31
-----------------------------
1998 1999
------------- ------------
<S> <C> <C>
Land and leasehold improvements........................................................ $ 1,453,539 $ 1,635,476
Office furniture and fixtures.......................................................... 203,514 203,514
Machinery and equipment................................................................ 11,594,436 21,781,835
Computer equipment and software........................................................ 1,518,214 1,923,856
Transportation equipment............................................................... 126,365 126,365
Construction in process................................................................ 5,283,903 434,269
------------ ------------
Total cost........................................................................ 20,179,971 26,105,315
Accumulated depreciation and amortization............................................. 6,942,470 8,163,656
------------ ------------
Property, plant and equipment, net................................................ $ 13,237,501 $ 17,941,659
============ ============
Depreciation & amortization expense................................................... $ 1,291,611 $ 1,578,557
============ ============
</TABLE>
As of August 31, 1998, the Company had $5,283,903 of construction in process.
These costs represent costs related to the purchase and installation of four
large stamping presses and other machinery, which were completed and placed in
service in July 1999 for a total cost of $10,709,823, including interest
capitalized interest of $394,664 and $601,330 in 1998 and 1999, respectively.
NOTE 7 -- LONG-TERM DEBT
The Company's long-term debt, which is subject to certain covenants discussed
below, consist of the following:
<TABLE>
<CAPTION>
AUGUST 31
---------------------------
LONG-TERM DEBT 1998 1999
----------- -----------
<S> <C> <C>
- - Revolving bank working capital credit line, collateralized by substantially
all assets of the Company, provides for borrowing, subject to certain
collateral requirements of up to $10.0 million, and bears interest, payable
monthly, at .25% below the bank's prime rate or Libor plus 2.25% (as of
August 31, 1999 an effective rate of 8.0%), due January 1, 2001. The
agreement requires a commitment fee of .25% per annum on the average daily
unused portion of the revolving credit line........................................ $ 3,862,874 $ 2,032,494
- - Note payable to bank, collateralized by substantially all assets of the
Company, payable in monthly installments of $54,166.67 plus interest .25%
below the bank's prime rate or Libor plus 2.25% (as of August 31, 1999 an
effective rate of 8.0%), due July 19, 2002... ..................................... 2,491,667 1,841,667
</TABLE>
62
<PAGE> 14
Riviera Tool Company
Notes to Financial Statements
NOTE 7 -- LONG-TERM DEBT - CONTINUED
<TABLE>
<S> <C> <C> <C>
- - 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% below the bank's prime rate
or Libor plus 2.25% (8.25% as of August 31, 1998), due in monthly
installments over six years from date of borrowing increment..................... 2,718,655 --
- - Note payable to bank, collateralized by specific assets of the Company,
payable in monthly installments of $55,566, plus simple interest of 7.26%,
due December 31, 2003............................................................ -- 3,611,108
- - Non-revolving, $3,271,000 equipment line of credit, collateralized by
specific assets of the Company, payable in monthly installments of $38,941
plus interest of .25% below the bank's prime rate (as of August 31, 1999 an
effective rate of 8.0%), due November 1, 2004.................................... 2,643,782
- - Note payable to bank, collateralized by specific assets of the Company,
payable in monthly installments of $16,666 plus simple interest of 8.04%,
due September 1, 2004............................................................ -- 1,000,000
---------- -------------
Total long-term debt......................................................... 9,073,196 11,129,051
Less current portion......................................................... 876,555 1,889,415
---------- -------------
Long-term debt-- Net......................................................... $8,196,641 $ 9,239,636
========== =============
</TABLE>
Minimum scheduled principal payments on long-term debt to maturity as of August
31, 1999, are as follows:
<TABLE>
<S> <C>
2000........................................................................ $ 1,889,415
2001........................................................................ 4,016,458
2002........................................................................ 1,875,631
2003 ....................................................................... 1,333,964
2004 ....................................................................... 1,333,964
2005 and after.............................................................. 679,619
===========
Total.......................................... $11,129,051
===========
</TABLE>
The debt 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 with its covenants.
The estimated fair value of the Company's notes payable and long-term debt
approximates its carrying amount.
NOTE 8 -- FEDERAL INCOME TAXES
The provision for federal income taxes is as follows:
<TABLE>
<CAPTION>
AUGUST 31
--------------------------------------
1997 1998 1999
---------- ---------- -----------
<S> <C> <C> <C>
Current expense.................................... $ 127,900 $ 112,000 $ 645,922
Deferred expense................................... 538,700 927,976 605,902
---------- ---------- -----------
Total tax expense.................... $ 666,600 $1,039,976 $ 1,251,824
========== ========== ===========
</TABLE>
The difference between the federal statutory tax rate and the Company's
effective rate was:
<TABLE>
<CAPTION>
AUGUST 31
--------------------------------
1997 1998 1999
------- --------- ---------
<S> <C> <C> <C>
Federal statutory tax rate................................... 34.0% 34.0% 34.0%
Increase (reduction) in income taxes relating to:
Effect of decreasing the valuation allowance................. -- (6.0) --
Other items.................................................. 2.0 2.0 --
------- --------- ---------
Effective tax rate................................. 36.0% 30.0% 34.0%
======= ========= =========
</TABLE>
63
<PAGE> 15
Riviera Tool Company
Notes to Financial Statements
NOTE 8 -- FEDERAL INCOME TAXES - CONTINUED
The details of the net deferred tax liability are as follows:
<TABLE>
<CAPTION>
AUGUST 31
-----------------------------
1998 1999
------------ ------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation......................................................... $(1,798,676) $ (1,847,122)
----------- -------------
Deferred tax assets:
Alternative minimum tax credit carryforward.......................... 250,000 187,000
Accrued lease expense................................................ 218,600 228,100
Deferred Compensation and other items................................ 42,100 45,744
Net operating loss carryforward...................................... 335,800 --
Investment tax credit carryforward................................... 171,800 --
----------- -------------
Total deferred tax assets................................ 1,018,300 460,844
----------- -------------
Net deferred tax liability............................... $ (780,376) $ (1,386,278)
=========== =============
</TABLE>
The valuation allowance for net deferred tax assets decreased by $41,800 in 1997
and $204,900 in 1998. The Company has approximately $187,000 of alternative
minimum tax credits that do not expire.
NOTE 9 -- OPERATING LEASES
The Company has entered into a noncancellable operating lease agreement for
manufacturing and office facilities with a lease term that expires in October
2009. The agreement provides for annual lease payments plus an escalation of the
base rent of 1 percent in each of the first 10 years and 2 percent in each of
the second 10 years. The Company has an option to renew this lease for two
additional 10-year terms at a rate to be negotiated and has an option to acquire
the facility at fair market value. 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, 1997, 1998 and 1999, lease expense
exceeded cash payments made by $46,725, $37,380 and $28,033, respectively.
On May 25, 1994, the Company entered into a sublease agreement with an unrelated
company. The agreement commenced August 1, 1994, and expired on July 31, 1998.
The agreement provided for annual lease payments ranging from $216,000 to
$224,724 plus a pro-rata share (33.7 percent) of the facility's operating costs.
The agreement also contains two options to renew the lease for up to five years,
with annual lease payments ranging from $231,468 to $268,332. During the year
ended August 31, 1998, the tenant exercised the first option to extend the
sublease until July 31, 2000. The Company exercised its option to terminate the
sublease agreement on July 31, 2000.
The Company has various operating leases, including the noncancellable operating
lease noted above, for facilities that expire during the next 15 years. Rent
expense under these leases for the years ended August 31, 1997, 1998 and 1999
amounted to $1,134,625, $960,636 and $879,898, respectively.
The following is a schedule of future minimum rent payments and noncancellable
sublease income required under operating leases that have initial or remaining
noncancellable lease terms in excess of one year as of August 31, 1999:
<TABLE>
<CAPTION>
LEASE SUB-LEASE NET LEASE
PAYMENTS RECEIVABLE PAYMENT
------------- ------------ -------------
<S> <C> <C> <C>
2000................................................ $ 1,034,180 $ 238,412 $ 795,768
2001................................................ 1,052,870 -- 1,052,870
2002................................................ 1,071,560 -- 1,071,560
2003................................................ 1,090,250 -- 1,090,250
2004................................................ 1,108,940 -- 1,108,940
2005 and after...................................... 6,025,968 -- 6,025,968
------------ ------------ -------------
Total minimum payments required....... $ 11,383,768 $ 238,412 $ 11,145,356
============ ============ =============
</TABLE>
64
<PAGE> 16
Riviera Tool Company
Notes to Financial Statements
NOTE 10 -- RETIREMENT PLANS
The Company has a profit-sharing plan that covers substantially all employees.
The plan includes a 401(k) deferred-compensation option. The Company's policy is
to fund profit-sharing costs accrued on an annual basis. The plan, as
established, allows for discretionary contributions as determined annually by
the Company's Board of Directors. No discretionary contribution was made for the
years ended August 31, 1997, 1998, and 1999. The Company also matches and
contributes up to 15 percent of an employees' contributions, up to 2% of the
employee's annual wage. The Company's matching contributions to the plan for the
years ended August 31, 1997, 1998 and 1999, amounted to $90,879, $78,984 and
$101,689, respectively.
NOTE 11 -- STOCK OPTION PLANS
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 were reserved for issuance and
were intended to qualify as incentive stock options under the Internal Revenue
Code of 1986, as amended. During the year August 31, 1999, the Company granted
stock options for 45,000 shares to certain Company personnel under the option
plan at exercise prices equal to the market value of the stock on the date of
grant. The options vest in one year from the date of option grant and recipients
must be employed by the Company at the time of exercise.
The Company's 1998 Key Employee Stock Option Plan (the "Key Option Plan") was
adopted by the Board of Directors and approved by the shareholders on December
16, 1998. Under the Key Option Plan, 200,000 shares of Common Stock were
reserved for issuance and do not qualify as incentive stock options under the
Internal Revenue Code of 1986, as amended. During the year August 31, 1999, the
Company granted stock options for 54,000 shares to certain Company personnel and
Directors under the option plan at exercise prices equal to the market value of
the stock on the date of grant. The options vest in one year from the date of
option grant and recipients must be employed by the Company at the time of
exercise.
As permitted by SFAS No. 123, "Accounting for Stock-based Compensation", the
Company continues to apply the provisions of Accounting Principles Board Opinion
No. 25 which recognizes compensation expense under the intrinsic value method.
The compensation cost estimated under the fair value based method defined in
SFAS 123 is not significant.
A summary of the status of the Option Plan and Key Option Plan during the years'
presented is as follows (no stock options were granted previous to fiscal 1999
under the 1996 Stock Option Plan and the 1998 Key Employee Stock Option Plan):
<TABLE>
<CAPTION> Weighted
Average
1996 Stock Option Plan, as amended Shares Exercise Price
---------------------------------- --------------- ---------------
<S> <C> <C>
Outstanding at end of year, August 31, 1998.................... -- --
=============== ===============
Fiscal Year Ended August 31, 1999
Stock options granted........................................... 45,000 $6.625
Stock options exercised......................................... -- --
Stock options forfeited......................................... -- --
--------------- ---------------
Outstanding at end of year, August 31, 1999.................... 45,000 $6.625
=============== ===============
<CAPTION>
Weighted
1998 Key Employee Stock Option Plan Average
----------------------------------- Shares Exercise Price
--------------- ---------------
<S> <C> <C>
Outstanding at beginning of year, August 31, 1998............... -- --
=============== ===============
Fiscal Year Ended August 31, 1999
Stock options granted........................................... 54,000 $6.625
Stock options exercised......................................... -- --
Stock options forfeited......................................... -- --
--------------- ---------------
Outstanding at end of year, August 31, 1999.................... 54,000 $6.625
=============== ===============
</TABLE>
65
<PAGE> 17
Report of Management
The management of Riviera Tool Company is responsible for the preparation of the
accompanying financial statements in conformity with generally accepted
accounting principles appropriate in the circumstances. Management is also
responsible for the determination of estimates and judgments used in the
financial statements, and the preparation of other financial information
included in this annual report to shareholders. The August 31, 1999 financial
statements have been audited by Deloitte & Touche LLP, independent auditors.
The management of the Company is responsible for and maintains an accounting
system and related internal controls that it believes are sufficient to provide
reasonable assurance that assets are safeguarded against unauthorized
acquisition, use or disposition, that transactions are executed and recorded in
accordance with management's authorization and that the financial records are
reliable for preparing financial statements. The concept of reasonable assurance
is based on the recognition that the cost of a system of internal control must
be related to the benefits derived and that the balancing of those factors
requires estimates and judgments. The system is evaluated by the independent
auditors in connection with their annual audit. Management responds to all
significant recommendations of the independent auditors and makes changes to the
systems where appropriate.
The Board of Directors has an Audit Committee of Directors who are not members
of management. The committee meets with management and the independent auditors
in connection with its review of matters relating to the company's annual
financial statements; the Company's system of internal controls, and the
services of the independent auditors. The Committee also periodically meets with
independent auditors, without management present, to discuss appropriate
matters. In addition, the independent auditors have full and free access to meet
with the Committee, with or without management representatives present, to
discuss the results of their audit, the adequacy of internal controls and the
quality of financial reporting.
/s/ Kenneth K. Rieth
- --------------------
Kenneth K. Rieth
President and Chief Executive Officer
/s/ Peter C. Canepa
- -------------------
Peter C. Canepa
Treasurer and Chief Financial Officer
66
<PAGE> 18
Independent Auditors' Report
Board of Directors and Stockholders
Riviera Tool Company
Grand Rapids, Michigan
We have audited the accompanying balance sheet of Riviera Tool Company as of
August 31, 1999, and the related statement of income, common stockholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit. The financial
statements of the Company for the years ended August 31, 1998 and 1997 were
audited by other auditors whose report, dated October 19, 1998, expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit 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 audit provide a reasonable basis for our opinion.
In our opinion, such 1999 financial statements present fairly, in all material
respects, the financial position of the Company at August 31, 1999, and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Grand Rapids, Michigan
November 3, 1999
67
<PAGE> 19
Independent Auditor's Report
Board of Directors and Stockholders
Riviera Tool Company
We have audited the accompanying balance sheet of Riviera Tool Company, as of
August 31, 1998, and the related statements of income, common stockholders'
equity and cash flows for the years ended August 31, 1997 and 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Riviera Tool Company at August
31, 1998, and the results of its operations and cash flows for the years ended
August 31, 1997 and 1998, in conformity with generally accepted accounting
principles.
PLANTE & MORAN, LLP
Grand Rapids, Michigan
October 19, 1998
68
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> AUG-31-1999
<CASH> 113,183
<SECURITIES> 0
<RECEIVABLES> 6,821,519
<ALLOWANCES> 0
<INVENTORY> 8,280,911
<CURRENT-ASSETS> 15,299,802
<PP&E> 26,105,315
<DEPRECIATION> 8,163,656
<TOTAL-ASSETS> 33,927,865
<CURRENT-LIABILITIES> 4,318,882
<BONDS> 9,239,636
0
0
<COMMON> 14,512,185
<OTHER-SE> 3,799,811
<TOTAL-LIABILITY-AND-EQUITY> 33,927,865
<SALES> 22,820,998
<TOTAL-REVENUES> 22,820,998
<CGS> 16,946,076
<TOTAL-COSTS> 18,965,271
<OTHER-EXPENSES> (169,589)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 343,484
<INCOME-PRETAX> 3,681,832
<INCOME-TAX> 1,251,824
<INCOME-CONTINUING> 2,430,008
<DISCONTINUED> 2,430,008
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,430,008
<EPS-BASIC> .76
<EPS-DILUTED> .76
</TABLE>
