<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the fiscal year ended December 31, 1998
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the Transition Period from________to ______.
Commission File Number 0-13601
DURAKON INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Michigan 38-2492342
<S><C>
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
2101 N. Lapeer Road, Lapeer, Michigan 48446
Registrant's telephone number, including area code: (810) 664-0850
Securities registered pursuant to Section 12(b)of the Act: None
Securities registered pursuant to Section 12(g)of the Act: Common Stock, without par value (Title of
Class)
</TABLE>
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 such 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 the 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 registrant's voting stock held by
non-affiliates of the registrant as of March 18, 1999, computed by reference to
the last sale price for such stock on that date as reported on The Nasdaq Stock
Market, was $55,064,864.
At March 19, 1999, the number of shares outstanding of the registrant's
Common Stock, without par value, was 6,125,200.
Portions of the registrant's Proxy Statement for its 1999 Annual Meeting
of Shareholders have been incorporated by reference in Part III of this Annual
Report on Form 10-K.
================================================================================
<PAGE> 2
PART I
ITEM 1. BUSINESS
Durakon Industries, Inc. (the "Company") was incorporated in Michigan on
December 21, 1983, and is the successor by merger to Durakon, Inc. which was
incorporated in Michigan in 1979. The Company operates its business in two
segments, the Vehicle Accessories segment and the Towing & Recovery segment.
Vehicle Accessories Segment. This segment's principal product is a
one-piece, seamless pickup truck bedliner, custom engineered and molded in
various sizes to fit most domestic and foreign pickup trucks. A matching
protector is supplied with each bedliner to protect the truck's tailgate.
Bedliners are constructed of high-density polyethylene plastic, and are designed
to protect the entire bed area including the floor, front panel and sidewalls.
The Company markets bedliners under the Duraliner(R), AllStar(R) and Bodygard(R)
brand names and also manufactures for private labels. Purchasers of the
Duraliner(R) product also receive proprietary cargo restraining board pockets
(Duraloc(TM)), two tier stacking capability and other premium features.
The Company's marketing strategy for pickup truck bedliners is to
service the aftermarket through distributors of light truck accessories, camper
top manufacturers, retail chains and mass merchandisers as well as directly
servicing original equipment manufacturers. Management believes that purchasers
of light trucks generally prefer to purchase add-on accessories, such as a
pickup truck bedliner, at the time they purchase their truck. This allows
installation of the bedliner prior to delivery, before damage to the truck
occurs, and also permits the buyer to finance the bedliner in conjunction with
the truck.
The Company also manufactures and markets the DuraSport(TM) cargo liner,
a protective liner for back interiors of vans, sport utility vehicles and
passenger car trunks; van liners to protect the interiors of cargo vans; and
chassis cab covers. Other products manufactured for the Company on a proprietary
basis include the Durasport(TM) bedmat, a rubber mat designed to protect the
floor area of pickup truck beds and DuraTrunk(R), a high-density polyethylene
plastic storage container.
The Company disposed of its Duraliner USA network in 1998. The Company
had distributed products through its Duraliner USA network, which consisted of
nine warehouses located throughout the country. In addition to products
manufactured by and for the Company, Duraliner USA sold and distributed a
variety of other accessories such as hood protectors, bumpers and tonneau covers
manufactured by other companies.
Towing & Recovery Segment. Through its wholly-owned subsidiary Jerr-Dan
Corporation ("Jerr-Dan"), the Company manufactures and distributes rollback
carriers and tow trucks for use in the vehicle transportation, towing and
recovery industry.
Rollback carriers are fabricated from aluminum, steel and wood to
provide platforms, which hydraulically tilt to allow a vehicle to be loaded
thereon for transportation. Carriers equipped with a towbar attachment can tow
an additional vehicle behind the unit. Some models are also available with an
optional platform above the driver's cab enabling an additional vehicle to be
transported. The Wrangler(TM), Shark(TM), Vector(TM), Rustler(TM), Elite(TM),
and Stingray(TM) models are designed for transporting automobiles and light-duty
vehicles, while the Transporter(TM) and Super Series(TM) models, with deck
capacities up to 30,000 pounds, can also transport heavy equipment. Rollback
carriers are typically purchased by salvage dealers, towing companies,
automobile dealers, industrial equipment distributors, and antique and race car
owners.
Jerr-Dan also manufactures and markets towing and recovery equipment.
These products lift disabled vehicles by their wheels for general towing
applications. Wheel-lift trucks have supplanted the conventional hook and sling
equipment by providing for damage-free towing to vehicles with plastic front-end
components and/or front-wheel drive. Jerr-Dan's medium and heavy-duty units are
equipped with frame-fork attachments to enable a disabled vehicle to be picked
up by its front axle. Units are customarily supplied with boom and winch
features for use in vehicle recovery applications. Jerr-Dan's towing and
recovery line includes the HPL(TM), HDL(TM), and Powergrid(TM) models.
Jerr-Dan's marketing strategy is to compete nationally through its
independently-owned distributor network with innovative products of high quality
and superior customer service. Methods used to accomplish this objective include
advertising in trade journals, trade show participation, publication of the
Company's "Write-Carrier" magazine and utilization of the distributor/customer
in product development and improvement activities.
2
<PAGE> 3
Jerr-Dan's manufacturing operations include the machining and
fabrication of steel and aluminum parts and assemblies, and the manufacture of
hydraulic componentry. Jerr-Dan's products are assembled, tested and installed
on truck chassis purchased by Jerr-Dan or its customers, or sold in kit form for
installation by its distributors.
OTHER CORPORATE MATTERS
Employment. At December 31, 1998, the Company and its subsidiaries
employed 811 persons. Approximately 30% of its employees are covered by a
collective bargaining agreement with the International Union, United Automobile,
Aerospace and Agricultural Implement Workers of America. The most recent
agreement was ratified by the union on March 4, 1997, expires February 29, 2000,
and covers 242 employees at the Lapeer, Michigan plant.
Significant Customers. The Company's sales to Ford Motor Company
represented 12% of consolidated net sales in 1998. No other customer accounts
for more than 10% of consolidated net sales.
Competition. In the opinion of management, the competitive factors in
each industry in which the Company and its subsidiaries operate include brand
recognition, total quality, marketing support, price, customer service, prompt
delivery and reputation. The Company emphasizes all of these factors in its
operating strategy.
The Vehicle Accessories segment markets its products in the United
States and in selected foreign markets to independent aftermarket distributors
and original equipment manufacturers. The Company's primary competitor in all of
these markets is Penda Corporation, a privately owned company headquartered in
Portage, Wisconsin. While no market data is readily available, the Company
believes it has the largest share of the market for pickup truck bedliners.
There are many other manufacturers of pickup truck bedliners but the Company
believes that none of them maintains a market share comparable to the Company or
Penda.
In the Towing & Recovery segment, the Company primarily sells in the
United States. While the Company is not aware of any source of market data on
this industry, it believes that Miller Industries, Inc., a publicly held company
headquartered in Atlanta, Georgia has the largest market share. There are
several smaller manufacturers of towing and recovery equipment. The Company
believes it maintains the second largest market share in the towing and recovery
industry.
Patents. The Company has a policy of filing patent applications for its
important product designs and manufacturing methods. The Company's patents begin
to expire in 1999.
Backlogs. Neither the Vehicle Accessories segment nor the Towing &
Recovery segment maintain a sales backlog as sales orders are generally filled
within one month.
Raw Materials. Raw materials used in the production of the Company's
products are available from several sources. Management believes that its
present sources and adequate replacement sources will be available to meet the
Company's anticipated demand for the foreseeable future. High-density
polyethylene resin, which is the principal raw material of the Vehicle
Accessories segment, is subject to significant price fluctuation.
Regulatory Requirements. The Company, as a manufacturer utilizing
plastic substances, is subject to provisions of state and federal laws governing
discharges of pollutants into the environment and the exposure of employees to
harmful substances. The Company believes that it is currently in compliance with
such applicable provisions and that continued compliance will not require
material capital expenditures.
ITEM 2. PROPERTIES ($ in 000's)
Vehicle Accessories Segment. The Company has two domestic manufacturing
locations for pickup truck bedliners. The largest one is owned, the other
facility is leased. The owned facility is a 326,800 square foot building complex
on 135 acres of land in Lapeer, Michigan. This facility also houses the
Company's warehouse facility, distribution center and administrative offices.
The leased facility is 102,000 square feet on seven acres of land in Clinton,
Tennessee. The lease expires in 2003; rental under this lease was approximately
$255 in 1998. Additional warehousing space of 20,000 square feet is leased in
Greenbrier, Tennessee.
The Company's Mexican subsidiary leases a 47,000 square foot
manufacturing facility in Lerma, Mexico. Rental under this lease agreement was
$118 during 1998.
3
<PAGE> 4
In 1998 the Company disposed of six leased locations. The Company is
still obligated under leases for three locations; one operates as a consignment
warehouse, located in Westland, Michigan and the other two locations, which are
located in Ft. Lauderdale and Lakeland, Florida have been sub-let to a third
party.
Towing & Recovery Segment. The Company owns a 112,000 square foot
manufacturing facility located on 12.5 acres of land in Greencastle,
Pennsylvania. This location also houses storage facilities and administrative
offices.
The Company leases two additional manufacturing and assembly facilities
in Greencastle, Pennsylvania. A 126,000 square foot manufacturing building on 10
acres has an annual rent of $360 with a lease expiration of June 30, 2011. A
research and development location of approximately 6,000 square feet with an
annual rent of $25 is leased on a month-to-month basis.
Additional warehousing and assembly space of 60,000 square feet is
leased in Las Vegas, Nevada to provide inventory availability for Jerr-Dan's
western distributors. Annual rent was $349 in 1998. This lease expires July 31,
2000.
Adequacy of Facilities and Production Capacity. In the opinion of
management, the facilities and manufacturing capacity for both business segments
are adequate to operate at current market conditions.
ITEM 3. LEGAL PROCEEDINGS
The Company is engaged from time to time in various litigation incident
to both segments of its business. Much of such litigation is covered in whole or
in part by insurance. Management of the Company believes that the Company is not
at present a party to any legal proceedings, which if decided in a manner
adverse to the Company, would be likely to have a material adverse effect on the
Company's results of operations or financial condition. The Company is a party
to the class action lawsuits described below.
Class Action Lawsuits
In the fourth quarter of 1996 and the first quarter of 1997, nine class
action lawsuits were filed in state and federal courts against the Company and
various other manufacturers of pickup truck bedliners. Four of those cases were
dismissed voluntarily and one was dismissed for failure to prosecute. The four
pending cases are Tennyson Smith, et al. V. Durakon Industries, Inc., et al.,
filed in the Circuit Court of Genesee County, Alabama on November 7, 1996; Susan
Stricklett, et al. V. Durakon Industries, Inc., et al., filed in Champaign
County, Illinois on November 7, 1996; Joseph Jetton et al. v. Durakon
Industries, Inc., filed in the United States District Court for the Eastern
District of Missouri on November 8, 1996; and Jimmy E. Brown, et al. v. Durakon
Industries, Inc., et. al., filed in the United States District Court for the
Southern District of Mississippi, Hattiesburg Division on November 6, 1996.
The foregoing cases are purportedly brought on behalf of all owners of
pickup truck bedliners made by the defendant manufacturers. None of these cases
seek damages for personal injuries. The complaints allege that the bedliners
manufactured by the defendants are defective and unreasonably dangerous because
the bedliners supposedly prevent the discharge of static electricity which can
accumulate on or in portable fuel containers and thereby create the potential
for an explosion if a container is filled with fuel while sitting on a bedliner.
The complaints allege that the defendants were aware of the alleged danger but
failed to provide a proper warning. The complaints filed in these cases, while
not identical, raise substantially similar legal theories, primarily claims of
breach of warranty, fraudulent misrepresentation, negligent misrepresentation,
negligence and strict liability in tort. The plaintiffs seek damages in
unspecified amounts and equitable relief, including a recall and replacement of
all bedliners, or a refund, and notification to all bedliner owners of the
purported danger. The complaints either request punitive damages or reserve the
right to seek punitive damages at a later date. The complaints all seek an award
of attorney's fees and costs.
The Company believes the claims in these lawsuits are without merit and
it has specifically denied any fault or omission or any liability or violation
of the law in connection with the claims asserted therein. However, due to the
uncertainties of litigation, especially where jury trials are involved, and the
cost and distraction of defending multiple lawsuits in various jurisdictions,
the Company has determined that it would be in its best interest to explore the
possibility of settlement. Settlement negotiations have resulted in a tentative
agreement to settle all the cases, but the final terms of a settlement agreement
have not been agreed upon and no agreement has
4
<PAGE> 5
been signed by any of the parties. If and when the parties enter into a
settlement agreement, it will be subject to review and approval by one or more
courts.
There can be no assurance that a settlement will be reached or, if
reached, that it will receive court approval. If a final settlement is not
reached, or if a settlement agreed to by the parties were not approved by the
court, the Company intends to vigorously defend these lawsuits.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
No matters were submitted to a vote of shareholders during the fourth
quarter of the fiscal year covered by this Report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock is traded on the Nasdaq Stock Market under
the symbol "DRKN". The following table sets forth the high and low sale prices
reported on the Nasdaq Stock Market for the quarterly periods indicated:
<TABLE>
<CAPTION>
1998 1997
Quarter High Low Quarter High Low
------- ---- --- ------- ---- ---
<S> <C> <C> <C> <C> <C>
First $ 9 1/4 $ 7 First $15 $10 3/4
Second 11 1/4 9 1/4 Second 11 1/2 9 1/4
Third 13 9 Third 9 1/2 8 1/2
Fourth 11 1/2 9 1/2 Fourth 9 3/4 7 3/4
</TABLE>
On March 18, 1999, the last available sale price for shares of the
Common Stock of the Company, as reported on the Nasdaq Stock Market, was
$12.375. As of such date, the approximate number of record holders of the Common
Stock was 307.
Durakon has not paid a dividend on the Common Stock since the date on
which the Common Stock was first offered to the public. The Company's policy is
not to pay dividends, but to use excess cash to fund future growth.
5
<PAGE> 6
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below have been
derived from the Company's Consolidated Financial Statements which have been
audited by PricewaterhouseCoopers LLP, and should be read in conjunction with
the Consolidated Financial Statements and related Notes.
<TABLE>
<CAPTION>
1998 1997 1996 1995(1) 1994
---- ---- ---- ------- ----
($ in 000's, except per
share amounts)
<S> <C> <C> <C> <C> <C>
OPERATIONS STATEMENT DATA:
Net sales $192,358 $179,908 $183,628 $172,051 $144,483
Operating income 12,354 735 13,133 5,171 19,487
Interest income, net 411 69 629 358 427
Net income 7,909 1,103 8,904 2,299 12,101
Net income per common share - Basic 1.28 .18 1.36 .35 1.86
Net income per common share - Diluted 1.27 .18 1.34 .35 1.82
BALANCE SHEET DATA:
Working capital $ 41,767 $ 31,681 $ 35,150 $ 25,696 $ 25,539
Total assets 87,768 83,092 84,079 78,869 75,542
Long-term obligations 801 554 795 1,572 2,641
Shareholders' equity 68,903 62,286 65,760 56,556 54,237
PERCENTAGES AND RATIOS:
Gross profit 18.1% 16.9% 21.6% 21.1% 29.0%
Return on sales 4.1% .6% 4.8% 1.3% 8.4%
Current ratio 3.6 2.7 3.2 2.3 2.4
Ratio of long-term obligations to
total capitalization .01 .01 .01 .03 .05
</TABLE>
(1) Includes pre-tax charges of $2,900 for the loss on disposition of the ZZ
Wheelz subsidiary, $1,455 for re-engineering and consolidation of pickup
truck bedliner manufacturing operations, and $1,103 related to
settlement of a patent issue and write-off of a license agreement.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion relating to the three years ended December 31,
1998, should be read in conjunction with the Company's Consolidated Financial
Statements and related Notes:
CORPORATE DEVELOPMENT. In 1998, the Company disposed of all distribution
warehouse operations that sold vehicle accessories under the names "Duraliner
USA" and "Duraliner of California".
In November 1998, Jerr-Dan introduced its new light-duty wrecker, the
HIP40. Designed primarily for the export market, this composite-body unit is
also targeted as a domestic entry-level product. The HIP40's innovative design
enables the wrecker body to fit a large range of chassis sizes with minimal
modification.
In March 1998, the DeWalt(TM) heavy-duty wrecker was discontinued and
replaced with a composite body unit, the HDL (TM). With this introduction, the
payload capacity was upgraded from 50 to 55 tons. This unit, together with the
HIP40, further complements the Company's range of towing and recovery equipment
and continues the trend towards lighter, rust-resistant models.
In December 1997, Jerr-Dan closed its Channelview, Texas manufacturing
facility. Production of the DeWalt(TM) heavy-duty towing and recovery vehicles
was moved to the Greencastle, Pennsylvania location.
6
<PAGE> 7
In January 1997, the Vehicle Accessories segment was awarded the Ford
bedliner contract. The Company distributes light-truck bedliners to Ford
dealerships in the United States, Canada and Mexico. The contract will be up for
renewal December 31, 2000.
In July 1996, Jerr-Dan leased approximately 126,000 square feet of
additional manufacturing space to accommodate the production of its new
medium-duty towing vehicle. Several innovative and patentable features are
incorporated into this product including an industry-first, corrosion-resistant
composite body.
NET SALES. ($ in 000's) The following table summarizes net sales by
business segment for the last three years:
<TABLE>
<CAPTION>
Segment 1998 % 1997 % 1996 %
- ------- ---- - ---- - ---- -
<S> <C> <C> <C> <C> <C> <C>
Vehicle Accessories $ 92,122 48% $ 92,250 51% $ 85,109 46%
Towing & Recovery 100,236 52% 87,658 49% 98,519 54%
-------- ---- --------- ---- -------- ----
Total $192,358 100% $179,908 100% $183,628 100%
======== ==== ========= ==== ======== ====
</TABLE>
Net sales increased 7% to $192,358 in 1998 versus 1997. In 1997 sales
decreased 2% to $179,908 compared to 1996.
In the Vehicle Accessories segment, 1998 net sales decreased $128 or
0.1% from 1997. Bedliner unit sales increased 0.4% from 1997. Unit volume
increased for OEM Ford, which was partially offset by a decrease in unit volume
for domestic aftermarket and international markets. Ford bedliner units
increased 80% over 1997. While this continues to be a strong line of business
for the Company, management does not expect the Ford unit volume to increase so
dramatically in subsequent years. Domestic aftermarket unit volume decreased
13%, primarily due to the disposition of "Duraliner USA" operations.
International unit volume was down 14% due to weak economies in South America.
In 1997, net sales increased $7,141 or 8% from 1996. Bedliner unit sales
increased 11.7% from the prior year primarily due to the Ford business. Ford
contributed to an increase in OEM unit volume of 97% versus 1996. International
unit sales increased by 52% in 1997 compared to 1996. Aftermarket unit sales
decreased 16% in 1997 compared to 1996. Average bedliner net selling prices were
down 2.6% from 1996 due to the increased domestic aftermarket competition and
OEM-Ford volume, which carries a lower selling price than average aftermarket
products.
In the Towing and Recovery segment, 1998 sales increased $12,578 or 14%
from 1997. The increase reflects a 10% increase in sales of manufactured
equipment and service and an 18% increase in sales of truck chassis. Unit sales
of rollback carriers increased 15%, while unit sales of tow truck bodies
decreased by 8%. Average net selling prices for both rollback carriers and tow
truck were 4% higher than in 1997. The higher selling prices are attributable to
a modest price increase in the first quarter of 1998 and a shift in sales mix
toward more expensive models. In 1997, net sales decreased $10,861 or 11% from
1996 due to the loss of three distributors that were purchased by a competitor.
The decrease reflected a 7% decline in sales of manufactured equipment and
service and a 14% decline in sales of truck chassis. Unit sales of rollback
carriers decreased by 18% while the decrease in unit sales of tow vehicle bodies
was 5%. Average net selling prices for rollback carriers were 2% higher in 1997
than in 1996, primarily due to sales mix. Average net selling prices of tow
vehicle bodies were 22% higher in 1997 than in 1996 reflecting a greater
proportion of sales of medium-duty tow vehicle bodies. There were no sales price
increases in 1997.
GROSS PROFIT. ($ in 000's) The following table summarizes gross profit
in dollars and as a percent of sales by segment for the last three years:
<TABLE>
<CAPTION>
Segment 1998 % 1997 % 1996 %
- ------- ---- - ---- - ---- -
<S> <C> <C> <C> <C> <C> <C>
Vehicle Accessories $ 23,320 25% $ 20,007 22% $ 24,946 29%
Towing & Recovery 11,498 12% 10,346 12% 14,732 15%
-------- --- -------- --- -------- ---
Total $ 34,818 18% $ 30,353 17% $ 39,678 22%
======== === ======== === ======== ===
</TABLE>
In the Vehicle Accessories segment, gross margin in 1998 was 25%
compared to 22% in 1997. Higher margins were attributable to improved
manufacturing efficiencies and decreased cost for high-density polyethylene
resin. In 1997, gross margin in the Vehicle Accessories segment decreased from
29% to 22%.
7
<PAGE> 8
Margins were down due to lower net average selling prices, which were caused by
competition along with lower average margins on OEM sales. Freight costs were
$2.9 million higher in 1997 versus 1996 primarily due to distribution costs for
a major OEM.
In the Towing and Recovery segment, gross margin in 1998 was 12%, which
was even with 1997. The margin on manufactured equipment and service was 20% in
1998, down 1% from 1997, which reflects the impact of increased sales of lower
margin rollback carriers in 1998, and the cost of product enhancements which
were not passed on to customers. In 1997 gross margin was 12% compared to 15% in
1996. The gross margin on manufactured equipment and service was 21% in 1997,
down 5% from 1996, which reflected the impact of increased sales of lower-margin
towing vehicles in 1997. Lower sales volumes in 1997 also had the effect of
reducing gross margins due to less favorable absorption of fixed overhead costs
than in 1996. Margins on rollback carriers and light-duty tow trucks decreased
by 3% on a year to year basis.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. ($ in 000's) The following
table presents selling, general and administrative expenses by business segment
and as a percent of net sales for the last three years:
<TABLE>
<CAPTION>
% Net % Net % Net
Segment 1998 Sales 1997 Sales 1996 Sales
- ------- ---- ----- ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
Vehicle Accessories $ 14,817 16% $ 19,930 22% $ 17,949 21%
Towing & Recovery 7,647 8% 9,688 11% 8,596 9%
-------- --- -------- --- -------- ---
Total $ 22,464 12% $ 29,618 16% $ 26,545 14%
======== === ======== === ======== ===
</TABLE>
Selling, general and administrative expenses (SG&A) were 24% lower in
1998 compared to 1997, and four points lower as a percentage of net sales. In
1997, SG&A expenses were 12% higher than in 1996, and two points higher as a
percentage of net sales.
In the Vehicle Accessories segment, 1998 SG&A was $5,113 lower than in
1997 and as a percentage of net sales was six percentage points lower. The
decrease in SG&A was due to the disposition of the Duraliner USA operations,
reduced legal expenses, and reduced spending resulting from the 1997 profit
improvement programs which was partially offset by year 2000 compliance
expenditures. In 1997, SG&A was $1,981 higher than in 1996 and as a percentage
of sales was one point higher. The increase in SG&A was primarily due to legal
reserves associated with the nine class action lawsuits filed against the
Company and various other manufacturers of pickup truck bedliners. In addition,
professional fees, relating largely to the Company's profit improvement program,
adversely impacted 1997 SG&A.
In the Towing & Recovery segment, 1998 SG&A was $2,041 lower than 1997
and 3% lower as a percentage of net sales. The decrease is attributable to cost
containment efforts, consolidation of operations in Greencastle, Pennsylvania,
and closure of the DeWalt facility in Channelview, Texas. In 1997 SG&A was
$1,092 higher than in 1996 and 2% higher as a percentage of net sales. The
increase was due to costs associated with the closing of the DeWalt facility in
Channelview, Texas. The remainder of the increase in SG&A was attributable to
the expansion of the Company's product engineering capability and promotional
expenses related to the medium-duty towing vehicle product.
INTEREST INCOME, NET. ($ in 000's) Net interest income was $411 in 1998,
$69 in 1997, and $629 in 1996. The increase in net interest income was due to a
higher average cash balance. The decrease in net interest income in 1997 was a
direct result of lower average cash balances during 1997 compared to 1996.
OTHER INCOME/(EXPENSE), NET. ($ In 000's) Other net expense in 1998 was
$386 versus other net expense of $114 in 1997 and other net income of $59 in
1996. In 1998, other net expense was largely due to a loss on disposal of fixed
assets and other expenses related to the Mexican operation. In 1997, other net
expense primarily related to a loss on disposal of fixed assets. In 1996, other
income related primarily to a gain on disposal of fixed assets and Duramex
royalties.
MINORITY INTEREST. ($ in 000's) Minority interest reflects the minority
shareholders' portion of the net income of Duramex that began operations in
April 1993, as well as Duraliner of California, a joint venture formed in June
1997. The minority interest was $288 in 1998 compared to $247 and $124 in 1997
and 1996, respectively.
PROVISION FOR INCOME TAXES. The Company's effective tax rate was 35% in
1998, (149%) in 1997, and 35% in 1996. The effective tax rate in 1998 was equal
to the statutory rate. In 1997, the Internal Revenue Service
8
<PAGE> 9
completed its audits of the Company's 1993, 1994 and 1995 tax returns. Upon
completion of the audits, the Company reversed the amount accrued in excess of
the adjustment required as a result of the audits. The effective tax rate in
1996 was equal to the statutory rate.
NET INCOME. ($ in 000's) Net income was $7,909 in 1998, $1,103 in 1997,
and $8,904 in 1996. The increase of $6,806 in 1998 was primarily due to higher
sales in Towing and Recovery segment, manufacturing efficiencies and lower resin
cost in the Vehicle Accessories segment and reduced SG&A in both segments. The
decrease of $7,801 in 1997 was primarily due to lower gross margins in both
business segments, lower average net selling prices in the Vehicle Accessories
segment, lower sales in the Towing and Recovery segment due to the loss of three
distributors which were purchased by a competitor, and professional fees
associated with implementing a profit improvement program.
YEAR 2000. Computer software that uses two digits rather than four to
identify the applicable year may be unable to interpret appropriately the
calendar Year 2000, and thus could cause disruption of normal business
activities. The Company uses software in various aspects of its business,
including manufacturing, product development and many administrative functions,
and much of this software will be unable to interpret the Calendar Year 2000
appropriately unless it is modified or replaced.
The Company is addressing this Year 2000 issue with a corporate-wide
initiative. The initiative includes the identification of affected software, the
development of a plan for correcting that software in the most effective manner,
the implementation of that plan and the monitoring of that implementation. The
program also includes communications with the Company's significant suppliers
and customers to determine the extent to which the Company's systems are
vulnerable to any failures by them to address the Year 2000 issue. In most
instances, the Company has older software with Year 2000 compliant programs and
systems. Although the timing of these replacements is influenced by the Year
2000 issue, in most instances they will involve capital expenditures that would
have occurred in the normal course of business. The Company expects that all of
the modifications and replacements will be in place before the end of second
quarter of 1999.
Given the information available at this time, management
currently anticipates that the amount the Company will spend to modify or
replace software in order to remediate the Year 2000 issue should not have a
materially adverse effect on the Company's liquidity or results of operations.
The Company incurred approximately $.7 million and committed to $.5 million
capital lease in 1998 relating to the assessment and implementation of the Year
2000 compliant programs and systems, and estimates the Company will not spend
more than $1.7 million for Year 2000 remediation. At year-end the
Vehicle Accessories segment was substantially complete and the Towing and
Recovery segment was approximately one-third complete with the Year 2000
implementation.
The Company does not currently have contingency plans in place. Such
contingency plans will be developed in the second quarter, should the current
implementation plans fall behind schedule. As the Year 2000 project continues,
the Company may discover additional Year 2000 problems, may not be able to
develop, implement, or test remediation or contingency plans, or may find that
the costs of these activities exceed current expectations. In many cases, the
Company must rely on assurance from suppliers that new and upgraded information
systems as well as key services will be Year 2000 compliant. While the Company
plans to validate supplier representations, it cannot be sure that its efforts
will be adequate, or that, if problems are identified, they will be addressed in
a timely and satisfactory manner. Even if the Company completes all of its
assessments, implements and tests all remediation plan, in a manner believed to
be adequate, and develops contingency plans believed to be adequate, some
problems may not be identified or corrected in time to prevent materially
adverse consequences or business interruptions to the Company.
9
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES ($ in 000's)
At year-end 1998, the Company's cash balance was $15,433, compared to
$7,907 at year-end 1997 and $8,597 at year-end 1996. The current ratio was 3.6
at December 31, 1998 versus 2.7 in 1997 and 3.2 in 1996. During 1998, cash of
$11,252 was provided by operations versus $9,780 in 1997 and $3,350 in 1996.
Cash used in investing activities in 1998 was $2,704 compared to $5,404 in 1997
and $5,774 in 1996. In 1998 the main use of cash was the purchased 120,092
shares of outstanding common stock in open market transactions at an average
price of $9.87 per share. In 1997, the primary uses of cash were purchases of
equipment relating to production and the repurchases and retirement of 400,000
shares of outstanding common stock at a price of $13 per share.
The Company's anticipated internal cash flow is expected to provide
sufficient liquidity to fund its near-term working capital needs. The Company
believes that its long-term working capital and other investment needs will be
satisfied through its internal cash flow and future borrowings, if necessary.
The Company also maintains a $20,000 revolving credit facility. There were no
borrowings against this facility as of December 31, 1998. However, letters of
credit have been issued against the credit line totaling $1,450 at December 31,
1998.
The Company intends to spend approximately $3.6 million in 1999 and $3.5
million in 2000 for capital associated with a new product to be sold to one of
the "Big Three" automotive companies beginning in the year 2001.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial information included
in this Report are set forth on the Index to Consolidated Financial Statements
and Financial Statement Schedule appearing on page F-1 of this Report.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
The information called for by the items within this part will be
included in the Company's 1998 Proxy Statement, and is incorporated herein by
reference, as follows:
<TABLE>
<CAPTION>
Captions(s) in 1998
Proxy Statement
---------------
<S> <C>
ITEM 10. Directors and Executive Officers of the "Election of Directors", "Other Information
Registrant Relating To Directors" and "Executive Officers"
ITEM 11. Executive Compensation "Compensation of Executive Officers and Directors"
ITEM 12. Security Ownership of Certain "Election of Directors"
Beneficial Owners and Management
ITEM 13. Certain Relationships and Related "Certain Transactions with Management"
Transactions
</TABLE>
10
<PAGE> 11
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULE AND
REPORTS ON FORM 8-K.
(a) 1. Financial Statements:
The financial statements filed with this Report are listed on
page F-1.
2. Financial Statement Schedule:
The financial statement schedule filed with this Report is listed
on page F-1. Other financial statement schedules, for which
provision is made in the applicable accounting regulations of the
Securities and Exchange Commission, are not required under the
related instructions or are inapplicable and, therefore, have
been omitted.
3. Exhibits:
The exhibits filed with this Report are listed on the "Exhibit
Index" on page E-1.
(b) Reports on Form 8-K.
The Company was not required to file any current reports on Form
8-K during the quarter ended December 31, 1998, and none was
filed during that period.
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the registrant has caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized, on March 18, 1999.
DURAKON INDUSTRIES, INC.
By: /s/ David W. Wright
-----------------------------------
David W. Wright, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated on March 18, 1999.
Signature Title
/s/David W. Wright Director (Principal Executive Officer)
- ---------------------------------------
David W. Wright
/s/James C. Smith Secretary and Treasurer - Corporate
- -------------------------------------- Controller
James C. Smith
/s/David Aronow Director
- ---------------------------------------
David Aronow
/s/Phillip Wm. Fisher Director
- ---------------------------------------
Phillip Wm. Fisher
/s/ Richard J. Jacob Director
- ---------------------------------------
Richard J. Jacob
/s/ Robert M. Teeter Director
- ---------------------------------------
Robert M. Teeter
<PAGE> 13
DURAKON INDUSTRIES, INC. AND SUBSIDIARIES
INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of Durakon Industries, Inc. are
referred to in Item 8:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants F-2
Consolidated Balance Sheets - December 31, 1998 and 1997 F-3
Consolidated Statements of Income - Years ended
December 31, 1998, 1997, and 1996 F-4
Consolidated Statements of Shareholders' Equity - Years
ended December 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Cash Flows - Years ended
December 31, 1998, 1997 and 1996 F-6
Notes to consolidated financial statements F-7 to F-18
The following consolidated financial statement schedule of Durakon Industries,
Inc. is included herein:
Schedule II -- Valuation and qualifying accounts S-1
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
F-1
<PAGE> 14
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Durakon Industries, Inc.:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1), present fairly, in all material respects, the
financial position of Durakon Industries, Inc. and its subsidiaries at December
31, 1998 and 1997, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule listed in the index appearing under Item 14(a)(2)
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
February 19, 1999
F-2
<PAGE> 15
DURAKON INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
($ in 000's)
<TABLE>
<CAPTION>
1998 1997
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and equivalents $ 15,433 $ 7,907
Accounts receivable, less allowances of $1,005 and $1,252 22,743 20,039
Inventories 16,177 16,748
Prepaid expenses and other current assets 1,532 2,401
Deferred income taxes 1,685 2,973
-------- --------
Total current assets 57,570 50,068
Property, plant and equipment less accumulated depreciation
of $29,479 and $26,765 19,945 21,943
Goodwill 9,923 10,601
Patents, less accumulated amortization of $2,070 and $1,939 139 270
Other assets 191 210
-------- --------
TOTAL ASSETS $ 87,768 $ 83,092
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations $ 271 $ 248
Accounts payable 9,301 10,308
Other current liabilities 6,231 7,831
-------- --------
Total current liabilities 15,803 18,387
-------- --------
Long-term obligations 801 554
Deferred income taxes 1,727 1,184
Minority interest 534 681
-------- --------
Total long-term liabilities 3,062 2,419
-------- --------
Shareholders' equity:
Preferred stock, $1 par value - 100,000 shares authorized; none issued -- --
Common stock, without par value - 15,000,000 shares authorized;
6,125,200 and 6,245,292 shares issued and outstanding 16,059 17,244
Accumulated other comprehensive loss (397) (290)
Retained earnings 53,241 45,332
-------- --------
Total shareholders' equity 68,903 62,286
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 87,768 $ 83,092
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 16
DURAKON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
($ in 000's, except per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales $ 192,358 $ 179,908 $ 183,628
Cost of products sold 157,540 149,555 143,950
--------- --------- ---------
Gross profit 34,818 30,353 39,678
Selling, general and
administrative expenses 22,464 29,618 26,545
--------- --------- ---------
Operating income 12,354 735 13,133
Interest income 540 199 778
Interest expense (129) (130) (149)
Other income/(expense), net (386) (114) 59
Minority interest (288) (247) (124)
--------- --------- ---------
Income before income taxes 12,091 443 13,697
Provision/(benefits) for income taxes 4,182 (660) 4,793
--------- --------- ---------
Net income $ 7,909 $ 1,103 $ 8,904
========= ========= =========
Basic earnings per share of common stock $ 1.28 $ 0.18 $ 1.36
========= ========= =========
Diluted earnings per share of common stock $ 1.27 $ 0.18 $ 1.34
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 17
DURAKON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
($ in 000's, except shares)
<TABLE>
<CAPTION>
Shares Equity
---------- --------------------------------------------------------------
Accumulated
Other Total
Common Common Retained Comprehensive Shareholders'
Stock Stock Earnings Loss Equity
---------- -------- -------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 6,520,292 $ 21,506 $ 35,325 $ (275) $56,556
---------- -------- -------- -------- -------
Comprehensive income
Net Income 8,904 8,904
Foreign currency translation (14) (14)
-------
Total Comprehensive Income 8,890
Exercise of stock options 45,000 146 146
Tax benefit of exercised options 168 168
---------- -------- -------- -------- -------
Balance at December 31, 1996 6,565,292 $ 21,820 $ 44,229 $ (289) $65,760
---------- -------- -------- -------- -------
Comprehensive income
Net Income 1,103 1,103
Foreign currency translation (1) (1)
-------
Total Comprehensive Income 1,102
Exercise of stock options 80,000 409 409
Tax benefit of exercised options 215 215
Repurchase of shares (400,000) (5,200) (5,200)
---------- -------- -------- -------- -------
Balance at December 31, 1997 6,245,292 $ 17,244 $ 45,332 $ (290) $62,286
---------- -------- -------- -------- -------
Comprehensive income
Net Income 7,909 7,909
Foreign currency translation (107) (107)
-------
Total Comprehensive Income 7,802
Repurchase of shares (120,092) (1,185) (1,185)
---------- -------- -------- -------- -------
Balance at December 31, 1998 6,125,200 $ 16,059 $ 53,241 ($397) $68,903
========== ======== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 18
DURAKON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
($ in 000's)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 7,909 $ 1,103 $ 8,904
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,692 4,984 4,179
Increase/(decrease) in minority interest, net (147) 506 116
Increase/(decrease) in deferred income taxes 1,831 (379) 1,153
Gain/(loss) on disposal of property, plant and equipment (181) 74 (36)
Net decrease/(increase) of other assets 19 (18) (82)
Increase/(decrease) due to changes in operating assets and liabilities:
Accounts receivable (2,704) 136 (2,711)
Inventories 571 1,679 (6,282)
Prepaid expenses and other current assets 869 (396) (859)
Accounts payable (1,007) 368 (124)
Accrued expenses and other current liabilities (1,600) 1,723 (908)
-------- -------- --------
Net cash provided by operating activities 11,252 9,780 3,350
-------- -------- --------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property, plant and equipment (2,827) (5,622) (5,932)
Proceeds from sale of property, plant and equipment 123 188 158
-------- -------- --------
Net cash used in investing activities (2,704) (5,434) (5,774)
-------- -------- --------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Decrease in long-term debt (265) (244) (1,868)
Borrowing of long-term debt 535 -- --
Repurchase of common stock (1,185) (5,200) --
Cash proceeds from exercise of stock options -- 409 146
-------- -------- --------
Net cash used in financing activities (915) (5,035) (1,722)
-------- -------- --------
Effect of exchange rate changes on cash (107) (1) (14)
-------- -------- --------
CASH AND EQUIVALENTS:
Increase/(decrease) for year 7,526 (690) (4,160)
Balance, beginning of year 7,907 8,597 12,757
-------- -------- --------
BALANCE, END OF YEAR $ 15,433 $ 7,907 $ 8,597
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 19
DURAKON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Durakon
Industries, Inc.,"The Company", and its domestic subsidiaries and foreign
majority-owned subsidiary, "Duramex". All significant intercompany
accounts and transactions have been eliminated.
CASH AND EQUIVALENTS:
At December 31, 1998, 1997 and 1996, substantially all cash was held at
Comerica Bank.
For purposes of the statement of cash flows, cash and equivalents include
cash on hand, amounts due from banks and debt instruments purchased with
an original maturity of three months or less.
INVENTORIES:
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method for the Vehicle Accessories segment
and the last-in, first-out (LIFO) method for the Towing & Recovery
segment.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost. Depreciation is provided
on the straight-line method over the estimated useful lives of the assets.
Upon retirement or disposal of assets the costs and accumulated
depreciation are removed from the related accounts, and any gain or loss
is included in income.
INTANGIBLES:
Goodwill is being amortized using the straight-line method over a period
of 20 years. At each balance sheet date, management assesses whether there
has been an impairment in the carrying value of goodwill, primarily by
comparing current and projected sales, operating income and annual cash
flows with the carrying value of the assets. Purchase costs of patents are
being amortized using the straight-line method over the legal lives of the
patents, not to exceed 17 years.
RETIREMENT PLANS:
The Company has defined contribution retirement plans covering
substantially all employees. The Company's policy is to fund retirement
costs accrued.
INCOME TAXES:
Deferred income taxes are recorded to reflect the tax liability/benefit on
future years of differences between the tax basis and financial reporting
amount of assets and liabilities at each year-end.
FOREIGN CURRENCY TRANSLATION:
The assets and liabilities of the Company's foreign operation are
translated into U.S. dollars at current exchange rates, and revenues and
expenses are translated at average exchange rates for the year. Resulting
translation adjustments are reflected as a separate component of
shareholders' equity. Currency transaction gains and losses are reported
in income.
F-7
<PAGE> 20
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER SHARE OF COMMON STOCK:
Net income per share of common stock is calculated in accordance with
Statement of Financial Accounting Standards (FASB) No. 128.
SEGMENTS:
The Company adopted SFAS 131, "Disclosures about Segments of an Enterprise
and Related Information" in 1998. SFAS No. 131 established standards for
reporting information about operating segments that are used by management
for making operating decisions. The operating segments are managed
separately because each operating segment represents a strategic business
unit that offers different products and serves different markets. The
Company operates in two operating segments, Vehicle Accessories and Towing
& Recovery. Adoption of SFAS 131, had no impact on segments as previously
reported.
REPORTING:
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 revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
F-8
<PAGE> 21
DURAKON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVENTORIES
Inventories are summarized below ($ in 000's):
<TABLE>
<CAPTION>
December 31,
------------
1998 1997
---- ----
<S> <C> <C>
Raw materials and work in process ................................... $ 9,222 $ 8,279
Finished goods ...................................................... 6,955 8,469
------- -------
Total ............................................................... $16,177 $16,748
======= =======
</TABLE>
The LIFO method of inventory valuation is used to value the
inventory of the Towing & Recovery segment, which represented
approximately 56% of total inventory at December 31, 1998 and 49% at
December 31, 1997. The effect of LIFO adjustments was to reduce net
income by $333 in 1998 and $37 in 1997. At December 31, 1998 and
1997, the Company's LIFO reserve was $1,809 and $1,518,
respectively.
3. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment is shown below ($ in 000's):
<TABLE>
<CAPTION>
December 31,
------------
1998 1997
---- ----
<S> <C> <C>
Land .............................................................. $ 2,041 $ 2,033
Buildings ......................................................... 8,757 8,537
Machinery and equipment ........................................... 38,626 38,138
------- -------
Total property, plant and equipment ............................... 49,424 48,708
Less accumulated depreciation ..................................... 29,479 26,765
------- -------
Net property, plant and equipment ................................. $19,945 $21,943
======= =======
</TABLE>
Property, plant and equipment are stated at cost. Depreciable property
is depreciated over the estimated useful lives of the assets, using the
straight-line method for building and improvements at 20 to 25 years
and machinery and equipment 5 to 15 years.
F-9
<PAGE> 22
DURAKON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. OTHER CURRENT LIABILITIES
A summary of other current liabilities is shown below ($ in 000's):
<TABLE>
<CAPTION>
December 31,
------------
1998 1997
---- ----
<S> <C> <C>
Accrued compensation .................... $1,974 $1,585
Legal reserve ........................... 977 1,808
Workers' compensation ................... 213 524
Accrued income taxes .................... 877 605
Reserve for disposition of subsidiary and
distribution stores ................. 105 334
Commission and royalties ................ 267 417
Health insurance ........................ 374 424
Other ................................... 1,444 2,134
------ ------
Total ................................... $6,231 $7,831
====== ======
</TABLE>
5. RETIREMENT PLANS ($ in 000'S)
Employer contributions to the 401(k) retirement plans amounted to $580
in 1998, $572 in 1997, and $435 in 1996.
6. LEASES
Rental expense under operating leases approximated $2,587 in 1998,
$3,038 in 1997, and $2,539 in 1996. At December 31, 1998, future
minimum lease commitments under these leases were as follows:
Year ending December 31 ($ in 000's):
<TABLE>
<S> <C>
1999 ............................ $1,836
2000 ............................ 1,277
2001 ............................ 898
2002 ............................ 775
2003 and thereafter .............. 3,359
------
$8,145
------
</TABLE>
7. CONTINGENCIES ($ in 000'S)
Various legal actions and other claims are pending or could be asserted
against the Company. Litigation is subject to many uncertainties; the
outcome of individual litigated matters is not predictable with
assurance, and it is reasonably possible that some of these matters may
be decided unfavorably to the Company. It is the opinion of management
that the ultimate liability, if any, with respect to these matters will
not materially affect the financial position or results of operations
of the Company. The Company is contingently liable under the terms of
agreements covering certain of its customer's financing arrangements.
The agreements provide for the repurchase of products sold to customers
in the event of default by the customer to the financing company. The
contingent liability under these agreements was approximately $8,667
and $8,550 at December 31, 1998 and 1997, respectively. The Company has
incurred no material losses related to these agreements.
F-10
<PAGE> 23
DURAKON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LONG-TERM OBLIGATIONS($ in 000's):
Long-term obligations consisted of the following at December 31
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Duramex note payable to bank, interest at Libor plus 2.675%, which was
7.8% and 8.4% at December 31, 1998 and 1997, respectively, due in
semi-annual installments of $51 through 1999 ........................ 102 205
Loan payable to Pennsylvania Industrial Development Association,
interest at 2%, due in monthly installments of $3, through 2009 .... 312 339
Loan payable to Machinery and Equipment Loan Fund, interest at 2%,
due in monthly installments of $4, through 2001 .................... 142 187
Duramex note payable to bank, interest at Libor plus 2.675%, which was
7.8% and 8.4% at December 31, 1998 and 1997, respectively, due in
semi-annual installments of $33, through 1998 ....................... -- 71
Capital lease obligations through September 2003; monthly
installments of $10 including interest at 6% net of interest of $80.. 516 --
------ ------
Less current maturities .............................................. 271 248
------ ------
Total long-term obligations .......................................... $ 801 $ 554
====== ======
</TABLE>
Maturities of long-term obligations during the next five years are
$177, $184, $145, $121 and $171.
The Company maintains a $20,000 revolving credit facility with
Comerica Bank, which expires June 30, 2000. There were no borrowing
against this facility as of December 31, 1998. However, letters of
credit have been issued against the credit line totaling $1,450 at
December 31, 1998.
F-11
<PAGE> 24
DURAKON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company adopted the disclosure requirements of Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation", effective with the 1996 financial
statements. The Company, however, has elected to continue to measure
compensation cost using the intrinsic value method, in accordance
with APB Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees".
The Company has stock options outstanding under the 1988 Stock
Option Plan and the 1996 Stock Option Plan. Under the 1988 Stock
Option Plan, the Company has made available 500,000 shares of common
stock for key employees. The options vest and become exercisable in
equal annual installments, generally over a period of 4 years. In
the 1988 and 1996 plans, the options expire after a period of 10
years. Certain options, which were issued in 1995, were immediately
exercisable. At December 31, 1998, there were 163,234 shares that
remained available for grant under the 1988 plan.
Under the 1996 Stock Option Plan, the Company has made available
500,000 shares of common stock for key employees. The options vest
and become exercisable in equal annual installments as defined in
the agreements. At December 31, 1998, there were 248,000 shares that
remained available for grant under this plan.
In addition to the aforementioned plans, the Company has a stock
option agreement under which the Company has made available and
granted 100,000 shares of common stock for this agreement. During
1998, no options were exercised under this agreement
Information concerning stock options is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- ----------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Shares Price Shares Price Shares Price
-------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 347,500 $10.33 570,000 $11.01 468,334 $ 9.74
Options granted 148,000 $ 7.50 -- 150,000 $12.69
Options exercised -- -- 80,000 $ 5.11 45,000 $ 3.25
Options canceled 37,500 $16.00 142,500 $16.00 3,334 $12.25
Outstanding at December 31 458,000 $ 8.95 347,500 $10.33 570,000 $11.01
Exercisable at December 31 215,000 $ 8.32 205,000 $ 8.72 257,500 $ 7.44
</TABLE>
The fair value of options granted in 1998 and 1996 was estimated as
of the date of the grant using the Black-Scholes option-pricing
model with the following asumptions:
<TABLE>
<CAPTION>
1998 1996
---- ----
<S> <C> <C>
Estimated fair value per share of options granted during the year $ 3.50 $ 6.22
Assumptions:
Dividend yield 0% 0%
Common stock volatility 44.42% 45.34%
Risk-free rate of return 5.5% 6.3%
Expected option term (in years) 5 5
</TABLE>
F-12
<PAGE> 25
DURAKON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. ACCOUNTING FOR STOCK-BASED COMPENSATION (CONTINUED)
The Company has elected to continue applying the provisions of APB
25 and, accordingly, no stock option compensation cost is included
in income for the Stock Option Plans. Had stock option compensation
cost for these plans been determined based on the fair value at the
grant dates for awards under those Plans consistent with the
methodology of SFAS 123, the Company's net income and earnings per
share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ----------------------- -----------------------
As reported Pro forma As reported Pro forma As reported Pro forma
------------------------ ----------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Net Income (in 000's) $ 7,909 $ 7,362 $ 1,103 $ 626 $ 8,904 $ 8,286
Basic earnings per common share $ 1.28 $ 1.19 $ 0.18 $ 0.10 $ 1.36 $ 1.27
Diluted earnings per common share $ 1.27 $ 1.18 $ 0.18 $ 0.10 $ 1.34 $ 1.25
</TABLE>
The following table summarizes the status of the Company's stock
options outstanding and exercisable at December 31, 1998:
<TABLE>
<CAPTION>
---------------------------------------- ------------------------
Stock Options Stock Options
Outstanding Exercisable
---------------------------------------- ------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Shares Contractual Exercise Shares Exercise
Exercise Prices (000's) Life Price (000's) Price
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 3.25 - $ 7.49 100 2.6 $ 3.25 100 $ 3.25
$ 7.50 - $12.69 348 2.9 $10.45 105 $12.63
$12.70 - $16.00 10 5.0 $13.63 10 $13.63
-----------------------------------------------------------------------------------------
Total 458 215
-----------------------------------------------------------------------------------------
</TABLE>
F-13
<PAGE> 26
DURAKON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INCOME TAXES
The provisions for income taxes are summarized below ($ in 000's):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Federal income taxes:
Currently payable ......................................... $ 2,980 $ (54) $ 3,156
Deferred .................................................. 1,153 (610) 1,208
------- ------- -------
4,133 (664) 4,364
State income taxes .......................................... 49 4 429
Provision for income taxes .................................. $4,182 $ (660) $ 4,793
======= ======= =======
</TABLE>
Temporary differences which give rise to the deferred tax assets and
liabilities as of December 31, 1998 and 1997 are as follows ($ in
000's):
<TABLE>
<CAPTION>
1998 1997
---- ----
Deferred Deferred Tax Deferred Deferred Tax
Tax Asset Liability Tax Asset Liability
--------- ------------ --------- -------------
<S> <C> <C> <C> <C>
Depreciation and goodwill amortization -- $1,673 -- $1,342
Bad debt allowance ................... $ 315 -- $ 438 --
Inventory ............................ 338 -- 489 --
Litigation reserve ................... 324 -- 701 --
Reserve for disposition of subsidiary 44 -- 163 --
Vacation pay accrual ................. 241 -- 219 --
Reserve for returns and allowances ... 181 -- 199 --
Warranty reserve ..................... 91 -- 79 --
Patent amortization .................. 47 -- 95 --
Reserve employee health benefit
claims ...................... 242 -- 299 --
Other miscellaneous accrued and
prepaid expenses ................ (192) -- 449 --
------ ------ ------ ------
Total deferred taxes $1,631 $1,673 $3,131 $1,342
====== ====== ====== ======
</TABLE>
The consolidated income tax provision was different than the amount
computed using the United States statutory income tax rate for the
reasons set forth in the following table ($ in 000's):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Tax at the statutory rate .................................... $ 4,155 $ 177 $ 4,658
State income taxes ........................................... 49 3 279
Non-deductible loss from disposition of
subsidiary .................................... -- -- (114)
Research and development credits ............................. -- (118) --
Favorable settlement of various tax issues ................... -- (651) --
Other ........................................................ (22) (71) (30)
------- ------- -------
Provision for income tax ..................................... $ 4,182 $ (660) $ 4,793
======= ======= =======
Effective tax rate ........................................... 35% (149%) 35%
======= ======= =======
</TABLE>
During 1997 and 1996, The Internal Revenue Service completed its audits
of the Company's 1993, 1994 and 1995 tax returns. Upon completion of
the audits the Company reversed the amount accrued in excess of the
adjustment required as a result of the audits.
F-14
<PAGE> 27
DURAKON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. STATEMENT OF CASH FLOWS ADDITIONAL INFORMATION
Supplemental disclosures of cash flow information ($ in 000's):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 140 $125 $ 200
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,405 $275 $3,430
</TABLE>
Supplemental non-cash investing activities:
In 1998 there were no stock options exercised. In 1997 the Company
received a $215 tax benefit from exercise of stock options. In 1996
the Company received a $168 tax benefit from the exercise of stock
options.
12. OTHER INCOME AND (EXPENSE) ($ in 000'S)
Net other expense for 1998 of $386 represents primarily losses on
plant, property and equipment and other expenses related to the
Mexican operation.
Net other expense for 1997 of $114 represents primarily losses on
disposal of various plant, property and equipment.
Net other income for 1996 of $59 primarily represents $36 of a gain
on the sale of property, plant and equipment and $16 of Duramex
royalties.
F-15
<PAGE> 28
DURAKON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following presents financial data regarding the Company's
quarterly results of operations for 1998 and 1997 ($ in 000's, except
per share amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
1998:
Net sales. . . . . . . . . . . . . . . . . . . . . . $46,068 $50,449 $47,177 $48,664
Gross profit . . . . . . . . . . . . . . . . . . . . 8,497 9,460 7,792 9,069
Net income . . . . . . . . . . . . . . . . . . . . . 1,361 2,007 1,648 2,893
Basic earnings per share of common
stock. . . . . . . . . . . . . . . . . . . . . . . $ 0.22 $ 0.32 $ 0.27 $ 0.47
Diluted earnings per share of common
stock. . . . . . . . . . . . . . . . . . . . . . . $ 0.22 $ 0.32 $ 0.26 $ 0.47
1997:
Net sales . . . . . . . . . . . . . . . . . . . . . . $40,616 $46,198 $45,209 $47,885
Gross profit . . . . . . . . . . . . . . . . . . . . 7,476 8,145 6,742 7,990
Net income . . . . . . . . . . . . . . . . . . . . . 257 390 (634)(1) 1,090(2)
Basic earnings per share of common
stock. . . . . . . . . . . . . . . . . . . . . . . $ 0.04 $ 0.06 $ (0.10) $ 0.18
Diluted earnings per share of common
stock. . . . . . . . . . . . . . . . . . . . . . . $ 0.04 $ 0.06 $ (0.10) $ 0.18
</TABLE>
(1) Includes a $1.3 million inventory adjustment in the vehicle
accessories segment.
(2) Includes a $289 pre-tax charge to provide for anticipated costs
to terminate the Dewalt operation in Channelview, Texas and
reversal of $651 accrued in excess of the adjustment required as
a result of the settlement 1993, 1994 and 1995 tax audits.
F-16
<PAGE> 29
DURAKON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. EARNINGS PER SHARE
A reconciliation of the numerators and denominators used in the
"basic" and "diluted" EPS calculation follows ($ in 000's, except
shares):
<TABLE>
<CAPTION>
Year ended
December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income used for both "basic"
And "diluted" EPS calculation $ 7,909 $ 1,103 $ 8,904
Denominator:
Weighted average shares outstanding
for the period - used for "basic"
EPS calculation 6,160,584 6,254,804 6,540,450
Weighted average options outstanding
For the period 86,403 49,176 92,228
------ ------ ------
Weighted average shares outstanding
for the period - used for "diluted"
EPS calculation 6,246,987 6,303,980 6,632,678
</TABLE>
There were 210,000, 247,500, and 190,000 options outstanding as of
December 31, 1998, 1997, and 1996, respectively, which are not included
in the computation of diluted EPS because to do so would have been
antidilutive for the years then ended. Earnings per share for the year
ended December 31, 1996 have been restated to conform to SFAS No. 128.
F-17
<PAGE> 30
DURAKON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. SEGMENT REPORTING
The Company has determined the reportable operating segments to be
Vehicle Accessories and Towing and Recovery which is consistent with
FAS 14, "Financial Reporting for Segments of Business Enterprise". The
accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies. Management
evaluates their performance and business strategy based upon operating
income. The Vehicle Accessories segment manufactures and distributes
pickup truck bedliners and other vehicle accessories. The Towing &
Recovery segment manufactures and mounts systems on purchased and
customer-supplied truck chassis, which provide the converted trucks
with the ability to transport vehicles ranging in size from automobiles
to heavy equipment. The Company has no intersegment sales.
Information regarding the Company's segments follows ($ in 000's):
Operating Segments
<TABLE>
<CAPTION>
Vehicle Towing &
Accessories Recovery Total
----------- -------- -----
<S> <C> <C> <C>
1998
- ----
Total net sales $92,122 $100,236 $192,358
Operating Income 8,503 3,851 12,354
Identifiable Assets 62,717 25,051 87,768
Capital Expenditures 2,554 273 2,827
Depreciation/Amortization 4,405 1,287 5,692
1997
- ----
Total net sales $92,250 $ 87,658 $179,908
Operating Income 77 658 735
Identifiable Assets 58,312 24,780 83,092
Capital Expenditures 3,582 2,040 5,622
Depreciation/Amortization 3,844 1,140 4,984
1996
- ----
Total net sales $85,109 $ 98,519 $183,628
Operating Income 6,997 6,136 13,133
Identifiable Assets 56,290 27,789 84,079
Capital Expenditures 3,227 2,705 5,932
Depreciation/Amortization 3,413 766 4,179
</TABLE>
Information concerning principal geographic areas was as follows($ in 000's):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
United States $173,752 $158,817 $168,064
Foreign 18,606 21,091 15,564
-------- -------- --------
Total Consolidated Sales $192,358 $179,908 $183,628
======== ======== ========
</TABLE>
F-18
<PAGE> 31
DURAKON INDUSTRIES, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
($ in 000's)
<TABLE>
<CAPTION>
Balance at Charged to
beginning costs and Other Charges Balance at
Year Description of year expenses accounts add (deduct) end of year
- ---- ----------- --------------------------------------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
1998 Allowance for doubtful
accounts. . . . . . . . . . . . ($1,252) ($394) $641 (1) ($1,005)
Patents, net of accumulated
amortization. . . . . . . . . . $270 ($131) $139
Goodwill, net of accumulated
amortization. . . . . . . . . . $10,601 ($678) $9,923
1997 Allowance for doubtful
accounts. . . . . . . . . . . . ($637) ($853) $238 (1) ($1,252)
Patents, net of accumulated
amortization. . . . . . . . . . $406 ($136) $270
Goodwill, net of accumulated
amortization. . . . . . . . . . $11,278 ($677) $10,601
1996 Allowance for doubtful
accounts. . . . . . . . . . . . ($640) ($478) $481 (1) ($637)
Patents, net of accumulated
amortization. . . . . . . . . . $507 ($131) ($26)(3) $56 (2) $406
Non-compete, net of
accumulated amortization $143 ($143) $0
Goodwill, net of accumulated
amortization. . . . . . . . . . $13,870 ($676) ($1,916)(3) $11,278
</TABLE>
(1) Bad debts written off, net of recoveries.
(2) Amount represents addition to goodwill, patent and non-compete agreement.
(3) Adjustments to prior acquisitions within last 18 months.
S-1
<PAGE> 32
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description of Exhibit Page Number
- ------ ---------------------- -----------
<S> <C> <C>
3(a) Articles of Incorporation of Durakon Industries, Inc., as amended (4)
3(b) By-laws of Durakon Industries, Inc., as amended (4)
10.1 Employees' Retirement Savings Plan, as amended and restated (5)
10.5 $20,000,000 Revolving Credit Loan Agreement by and between
Durakon Industries, Inc. and Comerica Bank, dated October 17,
1994, as amended (2)
10.6 Amendment to Revolving Credit Agreement, dated June 30, 1997 (7)
10.20 Consulting Agreement, dated August 1, 1994, by and between
Durakon Industries, Inc. and Robert Teeter (2)
10.22 Non-Qualified Stock Option Agreement, dated August 5, 1991,
between Durakon Industries, Inc. and Robert Teeter (4)
10.26 Indemnity Agreement, dated June 11, 1991, between Durakon
Industries, Inc. and Phillip Wm. Fisher (4)
10.28 Indemnity Agreement, dated August 8, 1991, between Durakon
Industries, Inc. and Robert Teeter (4)
10.30 Indemnity Agreement, dated June 11, 1991, between Durakon
Industries, Inc. and David W. Wright (4)
10.31 Indemnity agreement, dated October 25, 1993, between Durakon
Industries, Inc. and Richard J. Jacob (3)
10.32 Indemnity Agreement, dated May 16, 1995, between Durakon
Industries, Inc. and James P. Kelly (1)
10.33 Indemnity Agreement, dated July 18, 1995, between Durakon
Industries, Inc. and David S. Aronow (1)
10.34 Employment Agreement, dated June 27, 1996, effective July 1,
1996, by and between Durakon Industries, Inc. and David Wright (6)
10.35 Non-Qualified Stock Option Agreement, dated June 27, 1996
between Durakon Industries, Inc. and David Wright (6)
10.36 Employment Agreement, dated July 1, 1996 by and between
Durakon Industries, Inc. and Jim Kelly (6)
</TABLE>
E-1
<PAGE> 33
<TABLE>
<CAPTION>
<S> <C> <C>
10.37 1996 Stock Option Plan (6)
10.40 Non-Qualified Stock Option Agreement, dated April 1, 1996 between
Durakon Industries, Inc. and David Wright (6)
10.41 Non-Qualified Stock Option Agreement, dated January 25, 1999
between Durakon Industries, Inc. and David S. Aronow *
10.42 Change of Control Agreement, dated March 1, 1999 between Durakon
Industries, Inc. and Craig B. Parr *
10.43 Change of Control Agreement, dated March 1, 1999 between Durakon
Industries, Inc. and James C. Smith *
10.44 Change of Control Agreement, dated March 1, 1999 between Durakon
Industries, Inc. and Jeffrey L. Weller *
21* Subsidiaries of the Registrant
23.1* Consent of Independent Accountants
27* Financial Data Schedule
* Filed with this Report
</TABLE>
(1) Previously filed under the corresponding Exhibit Number as an exhibit to
the Registrant's Annual Report on Form 10-K for the year ended December 31,
1995, and incorporated herein by reference.
(2) Previously filed under the corresponding Exhibit Number as an exhibit to
the Registrant's Annual Report on Form 10-K for the year ended December 31,
1994 and incorporated herein by reference.
(3) Previously filed under the corresponding Exhibit Number as an exhibit to
the Registrant's Annual Report on Form 10-K for the year ended December 31,
1993 and incorporated herein by reference.
(4) Previously filed under the corresponding Exhibit Number as an exhibit to
the Registrant's Annual Report on Form 10-K for the year ended December 31,
1991, and incorporated herein by reference.
E-2
<PAGE> 34
(5) Previously filed under the corresponding Exhibit Number as an exhibit to
the Registrant's Annual Report on Form 10-K for the year ended December 31,
1990, and incorporated herein by reference.
(6) Previously filed under the corresponding Exhibit Number as an exhibit to
the Registrant's Annual Report on Form 10-K for the year ended December 31,
1996, and incorporated herein by reference.
(7) Previously filed under the corresponding Exhibit Number as an exhibit to
the Registrant's Annual Report on Form 10-K for the year ended December 31,
1997, and incorporated herein by reference
E-3
<PAGE> 1
EXHIBIT 10.41
NONQUALIFIED STOCK OPTION AGREEMENT
To: Mr. David S. Aronow Dated as of: January 25, 1999
Pursuant to resolutions of the Compensation Committee of the Board of
Directors of Durakon Industries, Inc., a Michigan corporation (the
"Corporation"), the Corporation hereby grants to you an option (the "Option") to
purchase up to ten thousand (10,000) shares of the Corporation's Common Stock,
no par value (the "Shares"), at a price of Nine and 50/100 Dollars ($9.50) per
Share, upon the terms and conditions contained herein.
1. This Option may not be transferred or assigned by you during your
lifetime.
2. (a) Subject to the terms of this Paragraph 2, you may exercise
this Option at any time and from time to time after the date hereof.
(b) This Option shall expire (to the extent not previously
exercised) on the earlier of (i) the tenth anniversary date hereof or (ii) the
date you cease to be a member of the Board of Directors of the Corporation for
any cause other than death or permanent disability; provided, however, that if
your membership of the Board of Directors of the Corporation is terminated for
any reason other than death or permanent disability, or if you resign, you shall
have the right for a period not to exceed three months following such
termination or resignation, but in no event subsequent to the expiration date of
this Option, to exercise this Option.
(c) If your membership of the Board of Directors of the
Corporation is terminated due to your death, your personal representatives shall
have the right, on your behalf, for a period of one year following such
termination, but in no event subsequent to the expiration date of this Option,
to exercise this Option.
(d) If your membership of the Board of Directors of the
Corporation is terminated due to your permanent disability, you shall have the
right for a period of three months following such termination, but in no event
subsequent to the expiration date of this Option, to exercise this Option.
3. This Option may be exercised by giving a written notice to the
Treasurer of the Corporation. Such notice shall specify the number of Shares to
be purchased and shall be accompanied by payment in full of the aggregate Option
price for the number of Shares purchased and, unless a current Registration
Statement is in effect covering the sale to you of the Shares acquired upon
exercise of this Option, by a representation that the Shares are being acquired
for your own account, for investment purposes and not with a view to the resale
or distribution of the Shares and that any subsequent offer for sale or sale of
such Shares shall be made either pursuant to (a) a Registration Statement on an
appropriate form under the Securities Act of 1933, as amended (the "Securities
Act"), which Registration Statement has become effective and is current with
respect to the Shares being offered and sold, or (b) a specific exemption from
the registration requirements of the Securities Act, but in claiming such
exemption you shall, prior to any offer for sale of such Shares, obtain a
favorable written opinion from counsel for or approved by the Corporation as to
the availability of such exemption. The Corporation shall endorse an appropriate
legend referring to the foregoing restriction upon the certificate or
certificates representing any Shares issued or transferred upon exercise of this
<PAGE> 2
Option. Such exercise shall be effective only upon the actual receipt of such
written notice, of the aggregate Option price and of the representation
described above, and no rights or privileges of a shareholder of the Corporation
in respect of any of the Shares issuable upon the exercise of any part of this
Option shall inure to you, or to any other person entitled to exercise this
Option, unless and until certificates representing such Shares shall have been
issued.
4. If this Option shall be exercised subsequent to any stock
dividend, split-up, recapitalization, merger, consolidation, combination or
exchange of shares, separation, reorganization or liquidation of the Corporation
occurring after the date hereof, as a result of which (a) shares of any class,
or rights to purchase shares of any class, shall be issued in respect of
outstanding shares of Common Stock of the Corporation (or shall be issuable in
respect of securities convertible into shares of Common Stock) or (b) shares of
such Common Stock shall be changed into the same or a different number of shares
of the same or another class or classes, then the holder exercising this Option
shall receive, for the aggregate price paid upon such exercise, the aggregate
number and class of shares which such holder would have received if this Option
had been exercised immediately prior to such stock dividend, split-up,
recapitalization, merger, consolidation, combination or exchange of shares,
separation, reorganization or liquidation.
5. It is understood and agreed that nothing contained in this Option
shall confer upon you any right with respect to the continuation of your service
as a director of the Corporation, nor interfere in any way with the right of the
Corporation or its shareholders to terminate such relationship at any time.
6. If upon the exercise of this Option there shall be payable by the
Corporation any amount for income tax withholding, either you shall pay such
amount to the Corporation, or the amount of Common Stock delivered by the
Corporation upon exercise of this Option shall be appropriately reduced, to
reimburse the Corporation for such payment.
Very truly yours,
DURAKON INDUSTRIES, INC.,
a Michigan corporation
By: /s/ Phillip Wm. Fisher
------------------------------------------
Phillip Wm. Fisher
Chairman of the Board of Directors
AGREED TO AND ACCEPTED:
/s/ David S. Aronow
- --------------------------
David S. Aronow
Dated: 2-8-99
--------------------
2
<PAGE> 3
CONSENT IN LIEU OF SPECIAL MEETING
OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS OF DURAKON INDUSTRIES, INC.
The undersigned constitute all of the members of the Compensation
Committee of the Board of Directors of Durakon Industries, Inc., a Michigan
corporation (the "Company"). By the execution of this Consent, the Compensation
Committee consents to and authorizes the actions set forth in this Consent.
This Consent is in lieu of a formal special meeting of the Compensation
Committee and the resolutions adopted by this Consent will have the same force
and effect that such resolutions would have if they were adopted by a special
meeting of the Compensation Committee.
The Compensation Committee hereby consents to and adopts the
following recitals and resolutions:
WHEREAS, the Compensation Committee of the Board of
Directors is of the opinion that it is in the best interests
of the Company to grant a Nonqualified Stock Option to David
S. Aronow to purchase up to 10,000 shares of the Company's
Common Stock for a purchase price equal to the average of the
high and the low sale prices for the Company's Common Stock
on the date hereof;
NOW, THEREFORE, BE IT RESOLVED, that the Compensation
Committee of the Board of Directors of the Company hereby
authorizes the granting to David S. Aronow of a Nonqualified
Stock Option to purchase 10,000 shares of Common Stock; and
FURTHER RESOLVED, that the officers of the Company,
including the Chairman of the Board of Directors of the
Company, and any person authorized to act by any officer of
the Company, are hereby severally authorized and directed to
do such acts and to execute and deliver such documents and
other instruments (including, without limitation, an
appropriate stock option agreement) as any of them may deem
necessary, appropriate or advisable to carry into effect the
intent of the foregoing resolutions.
<PAGE> 4
The undersigned, constituting all of the members of the Compensation
Committee, have taken and adopted the foregoing actions and authorizations in
lieu of a formal special meeting of the Compensation Committee of the Board of
Directors.
Dated as of: January 25, 1999
/s/ Phillip Wm. Fisher
------------------------------------
Phillip Wm. Fisher
/s/ David S. Aronow
------------------------------------
David S. Aronow
-2-
<PAGE> 1
EXHIBIT 10.42
CHANGE OF CONTROL AGREEMENT
THIS CHANGE OF CONTROL AGREEMENT (this "Agreement") by and between
Durakon Industries, Inc., a Michigan corporation (the "Company"), with offices
at 2101 N. Lapeer Road, Lapeer, Michigan 48446-8799 and Craig B. Parr (the
"Executive"), an individual residing at 3605 Lake Shore Drive, Lapeer, Michigan
48446, dated as of the 1st day of March, 1999.
R E C I T A L S:
WHEREAS, the Company recognizes that the current business environment
makes it difficult to attract and retain highly qualified executives unless a
certain degree of security can be offered to such individuals against
organizational and personnel changes which frequently follow changes in control
of a corporation; and
WHEREAS, even rumors of acquisitions or mergers may cause executives to
consider major career changes in an effort to assure financial security for
themselves and for their families; and
WHEREAS, the Company desires to assure fair treatment of its executives
in the event of a Change in Control (as defined below) and to allow them to make
critical career decisions without undue time pressure and financial uncertainty,
thereby increasing their willingness to remain with the Company notwithstanding
the outcome of a possible Change in Control transaction; and
WHEREAS, the Company recognizes that its executives will be involved in
evaluating or negotiating any offers, proposals or other transactions which
could result in Changes in Control of the Company and believes that it is in the
best interest of the Company and its stockholders for such executives to be in a
position, free from personal financial and employment considerations, to be able
to assess objectively and pursue aggressively the interests of the Company's
stockholders in making these evaluations and carrying on such negotiations; and
WHEREAS, the Compensation Committee of the Board of Directors (the
"Committee") of the Company believes it is essential to provide the Executive
with compensation arrangements upon a Change in Control which are competitive
with those of other corporations, and in order to accomplish these objectives,
the Committee has caused the Company to enter into this Agreement.
NOW THEREFORE, the parties, for good and valuable consideration and
intending to be legally bound, agree as follows:
1. Operation and Term of Agreement. This Agreement shall be effective
immediately upon its execution. This Agreement may be terminated by the Company
upon 18 months advance written notice to the Executive; provided, however, that
after a Change in Control of the Company during the term of this Agreement, this
Agreement shall remain in effect
<PAGE> 2
until all of the obligations of the parties hereunder are satisfied and the
Protection Period has expired. Prior to a Change in Control, this Agreement
shall immediately terminate upon termination of the Executive's employment,
except in the case of such termination under circumstances set forth in Section
2(e) below.
2. Certain Definitions. For purposes of this Agreement, the following
definitions shall have the following meanings:
(a) "Cause" shall mean (i) actual dishonesty intended to result in
substantial personal enrichment at the expense of the Company, (ii) conviction
of a felony or (iii) repeated willful and deliberate failure or refusal to
perform the duties normally associated with the Executive's position which is
not remedied in a reasonable period of time after receipt of written notice from
the Company.
(b) "Change in Control" shall mean:
(i) on or after the date of execution of this Agreement, any
person (which, for all purposes hereof, shall include, without limitation, an
individual, sole proprietorship, partnership, unincorporated association,
unincorporated syndicate, unincorporated organization, trust, body corporate and
a trustee, executor, administrator or other legal representative) (a "Person")
or any group of two or more Persons acting in concert becomes the beneficial
owner, directly or indirectly, of securities of the Company representing, or
acquires the right to control or direct, or to acquire through the conversion of
securities or the exercise of warrants or other rights to acquire securities,
more than 50% of the combined voting power of the Company's then outstanding
securities; provided that for the purposes of the Plan, (A) "voting power" means
the right to vote for the election of directors, and (B) any determination of
percentage combined voting power shall be made on the basis that (x) all
securities beneficially owned by the Person or group or over which control or
direction is exercised by the Person or group which are convertible into
securities carrying voting rights have been converted (whether or not then
convertible) and all options, warrants or other rights which may be exercised to
acquire securities beneficially owned by the Person or group or over which
control or direction is exercised by the Person or group have been exercised
(whether or not then exercisable), and (y) no such convertible securities have
been converted by any other Person and no such options, warrants or other rights
have been exercised by any other Person; or
(ii) at any time subsequent to the date of execution of this
Agreement there shall be elected or appointed to the Board of Directors of the
Company (the "Board") any director or directors whose appointment or election by
the Board or nomination for election by the Company's shareholders was not
approved by a vote of at least a majority of the directors then still in office
who were either directors on the date of execution of this Agreement or whose
election or appointment or nomination for election was previously so approved;
or
(iii) a reorganization, merger, consolidation, combination,
corporate restructuring or similar transaction (an "Event"), in each case, in
respect of which the beneficial owners of the outstanding Company voting
securities immediately prior to such Event do not, following such Event,
beneficially own, directly or indirectly, more than 50% of the combined
2
<PAGE> 3
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors of the Company and any resulting Parent
in substantially the same proportions as their ownership, immediately prior to
such Event, of the outstanding Company voting securities; or
(iv) an Event involving the Company as a result of which 50%
or more of the members of the board of directors of the Parent or the Company
are not persons who were members of the Board immediately prior to the earlier
of (x) the Event, (y) execution of an agreement the consummation of which would
result in the Event, or (z) announcement by the Company of an intention to
effect the Event; or
(v) at any time subsequent to the date of this Agreement, if
(A) the Company or a subsidiary of the Company (including, without limitation,
Jerr-Dan Corporation) sell, convey or otherwise transfer to a third party
substantially all of the assets of the division or subsidiary by which the
Executive is then employed, or (B) the Company shall sell, convey or otherwise
transfer to a third party (including, without limitation, a transfer by way of
merger or share exchange) more than 50% of the voting securities of any
subsidiary of the Company (including, without limitation, Jerr-Dan Corporation)
by which Executive is then employed; or
(vi) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Change in Control has occurred.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(d) "Disability," for purposes of this Agreement, shall apply to
an Executive who has applied for and is determined to be eligible to receive
disability benefits under the Company's long term disability plan.
(e) The "Change in Control Date" shall be any date during the term
of this Agreement on which a Change in Control occurs. Anything in this
Agreement to the contrary notwithstanding, if the Executive's employment with
the Company is terminated within six months prior to the date on which a Change
in Control occurs, then unless such employment with the Company is terminated
(i) for cause, or (ii) voluntarily by the Executive, for all purposes of this
Agreement the "Change in Control Date" shall mean the date immediately prior to
the date of such termination.
(f) "Good Reason" means:
(i) the assignment to the Executive within the Protection
Period of any duties inconsistent in any respect with the Executive's position
(including status, offices, titles and reporting requirements, authority, duties
or responsibilities), or any other action which results in a diminution in such
position, authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and which
is remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) a reduction by the Company in the Executive's base salary
in effect immediately before the beginning of the Protection Period or as
increased from time to time
3
<PAGE> 4
thereafter,
(iii) a failure by the Company to maintain plans providing
benefits at least as beneficial as those provided by any benefit or compensation
plan (including, without limitation, any incentive compensation plan, bonus plan
or program, retirement, pension or savings plan, stock option plan, life
insurance plan, health and dental plan or disability plan) in which the
Executive is participating immediately before the beginning of the Protection
Period, or if the Company has taken any action which would adversely affect the
Executive's participation in or reduce the Executive's opportunity to benefit
under any of such plans or deprive the Executive of any material fringe benefit
enjoyed by him immediately before the beginning of the Protection Period;
provided, however, that a reduction in benefits under the Company's
tax-qualified retirement, pension or savings plans or its life insurance plan,
health and dental plan, disability plans or other insurance plans which
reduction applies equally to all participants in the plans and has a de minimis
effect on the Executive shall not constitute "Good Reason" for termination by
the Executive;
(iv) the Company's requiring the Executive, without the
Executive's written consent, to be based at any office or location in excess of
50 miles from his office location immediately before the beginning of the
Protection Period, except for travel reasonably required in the performance of
the Executive's responsibilities;
(v) any purported termination by the Company of the
Executive's employment for Cause otherwise than as expressly permitted by
Section 9 of this Agreement; or
(vi) any failure by the Company to obtain the assumption of
the obligations contained in this Agreement by any successor as contemplated in
Section 8(c) of this Agreement.
(g) "Parent" means any entity which directly or indirectly through
one or more other entities owns or controls more than 50% of the voting stock or
common stock of the Company.
(h) "Protection Period" means the period beginning on the Change
in Control Date and ending on the day which is 18 months after the Change in
Control Date.
(i) "Subsidiary" means a company 50% or more of the voting
securities of which are owned, directly or indirectly, by the Company.
3. Benefits Upon Termination Within a Protection Period. If, during a
Protection Period, the Executive's employment shall be terminated by the Company
other than for Cause or Disability or other than as a result of the Executive's
death or if the Executive shall terminate his employment for Good Reason, the
Company shall provide the following benefits:
(a) The Company shall pay to the Executive in a lump sum in cash
within 30 days after the date of termination the Executive's full base salary
accrued but unpaid through the date of termination at the rate in effect at the
time of the termination plus an amount equal to the
4
<PAGE> 5
product of (i) $42,000, multiplied by (ii) a fraction, the numerator of which is
the number of days in such fiscal year through the date of termination and the
denominator of which is 365; and
(b) The Company shall pay to the Executive in a lump sum in cash
within 30 days after the date of termination a severance payment in an amount
equal to 100% of the Executive's "Annual Compensation." For purposes of this
Agreement, "Annual Compensation" shall be an amount equal to the aggregate of
the Executive's annual cash compensation (other than bonus) from the Company and
its Subsidiaries in effect immediately prior to the date of termination plus the
sum of $42,000; and
(c) Within 30 days after the date of termination, upon surrender
by the Executive of his outstanding options to purchase common shares of the
Company ("Common Shares") granted to the Executive pursuant to the stock option
plans of the Company (the "Outstanding Options"), the Company shall pay the
Executive an amount in respect of each Outstanding Option (whether or not
vested) equal to the difference between the exercise price of such Outstanding
Options and the higher of (x) the fair market value of the Common Shares at the
time of such termination, and (y) the highest price paid for Common Shares or,
in the cases of securities convertible into Common Shares or carrying a right to
acquire Common Shares, the highest effective price (based on the prices paid for
such securities) at which such securities are convertible into Common Shares or
at which Common Shares may be acquired, by any person or group whose acquisition
of voting securities has resulted in a Change in Control of the Company. In the
alternative, the Executive may exercise his Outstanding Options (whether or not
vested).
4. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any benefit,
bonus, incentive or other plans, practices, policies or programs provided by the
Company or any of its Subsidiaries and for which the Executive may qualify, nor
shall anything herein limit or otherwise affect such rights as the Executive may
have under any stock option or other agreements with the Company or any of its
Subsidiaries. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, practice, policy or program of the
Company or any of its Subsidiaries at or subsequent to the date of termination
shall be payable in accordance with such plan, practice, policy or program.
5. Full Settlement; Legal Expenses. The Company's obligation to make
the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company may have
against the Executive or others. In no event shall the Executive be obligated to
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement.
The Company agrees to pay, upon written demand therefor by the Executive, all
legal fees and expenses which the Executive may reasonably incur as a result of
any dispute or contest by or with the Company or others regarding the validity
or enforceability of, or liability under, any provision of this Agreement, if
the Executive is the prevailing party in such action. In any such action brought
by the Executive for damages or to enforce any provisions of this Agreement, he
shall be entitled to seek both legal and equitable relief and remedies,
including, without limitation, specific performance of the Company's obligations
hereunder, in his sole discretion.
5
<PAGE> 6
6. Parachute Payments. Notwithstanding anything in this Agreement to
the contrary, in the event it shall be determined that any payment or
distribution by the Company or any other person or entity to or for the benefit
of the Executive is a "parachute payment" (within the meaning of Section
280G(b)(2) of the Code), whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise in connection with, or
arising out of, his employment with the Company or a change in ownership or
effective control of the Company or a substantial portion of its assets (a
"Payment"), and would be subject to the excise tax imposed by Section 4999 of
the Code (the "Excise Tax"), the Payments shall be reduced to an amount such
that no "parachute payment" is required to be made to the Executive. If the
application of the preceding sentence should require a reduction in the Payments
or other "parachute payments," unless the Executive shall have designated
otherwise, such reduction shall be implemented first, by reducing any non-cash
benefits to the extent necessary and, second, by reducing any cash benefits to
the extent necessary. In each case, the reductions shall be made starting with
the payment or benefit to be made on the latest date as of which any Payment
would be made and reducing Payments in reverse chronological order therefrom.
All determinations concerning the application of this Section 6 shall be made by
a nationally recognized firm of independent accountants, selected by the
Executive and satisfactory to the Company, whose determination shall be
conclusive and binding on all parties. The fees and expenses of such accountants
shall be borne by the Company.
7. Confidential Information; Consulting and Non-Competition.
(a) The Executive shall hold in a fiduciary capacity for the
benefit of the Company all proprietary or confidential information, knowledge or
data relating to the Company or any of its Subsidiaries, and their respective
businesses, which shall have been obtained by the Executive during the
Executive's employment by the Company or any of its Subsidiaries and which shall
not be or become public knowledge (other than by acts of the Executive or his
representatives in violation of this Agreement). After the date of termination
of the Executive's employment with the Company, the Executive shall not, without
the prior written consent of the Company, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it.
(b) If, during a Protection Period, the Executive's employment
shall be terminated by the Company other than for Cause or Disability and other
than as a result of the Executive's death, or if the Executive shall terminate
his employment during a Protection Period for Good Reason, then:
(i) For a period of two years following the termination of his
employment, the Executive shall make himself available by phone upon reasonable
notice, and shall also make himself available in person, at such location as the
Company and the Executive shall agree, upon reasonable notice, subject to the
Executive's prior commitments; provided, however, that the Executive shall not
be required to make himself available for more than five days per month. The
Executive shall consult with the Company with respect to matters raised by the
Company within his knowledge or experience.
6
<PAGE> 7
(ii) The Company shall pay or reimburse the Executive for all
reasonable expenses actually incurred or paid by the Executive in the
performance of the Executive's services under Section 7(b)(i) this Agreement
upon presentation of expense statements or vouchers or such other supporting
information as the Company may reasonably require. If the Executive shall agree
to consult at a location away from the metropolitan area of his then current
residence, the Company shall pay his reasonable travel and lodging expenses in
connection therewith.
(iii) For a period of two years following the termination of
his employment, the Executive shall not, either directly or indirectly, through
any person or entity:
(A) engage in any activities or conduct any businesses
which are in competition with the activities engaged in or business conducted by
the Company during the term of the Executive's employment with the Company, or
(B) hire any person who is then employed by or is a
consultant to the Company or who was employed by or a consultant to the Company
at any time during the three months prior to the date of such hiring, or
encourage, induce or attempt to induce, or aid, assist or abet any other party
or person in encouraging, inducing or attempting to induce, any such employee or
consultant to alter or terminate his or her employment or consultation with the
Company; or
(C) be engaged by, consult with, or invest in, any
person or entity wherever located, which conducts a business in competition with
the business conducted by the company during the term of the Executive's
employment with the Company, except that the Executive may, at any time, own
stock in a corporation which may be in competition with the Company, whose
shares are listed for trading on a national or regional stock exchange or trade
on the over-the-counter market, provided that the Executive owns, in the
aggregate, fewer than 5% of the issued and outstanding shares of such
corporation.
(iv) The covenants and obligations contained in this Section 7
of this Agreement relate to matters which are of a special, unique and
extraordinary character and a violation of any of the terms of such Sections
shall cause irreparable injury to the Company, the amount of which shall be
difficult if not impossible to estimate or determine and which cannot be
adequately compensated. Therefore, the Company shall be entitled to an
injunction, restraining order or other equitable relief from any court of
competent jurisdiction, restraining any violation or threatened violation of any
of such terms by the Executive and such other persons as the court orders.
8. Successors.
(a) This Agreement is personal to the Executive and without the
prior written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives or Successor(s) in Interest. The Executive may designate a
Successor (or Successors) in Interest to receive any and all amounts due the
Executive in
7
<PAGE> 8
accordance with this Agreement should the Executive be deceased at any time of
payment. Such designation of Successor(s) in Interest shall be made in writing
and signed by the Executive, and delivered to the Company pursuant to Section
10(b) hereof. Any such designation may be made to any legal person, persons,
trust or the Executive's' estate as he shall determine in his sole discretion.
In the event any designation shall be incomplete, or in the event the Executive
shall fail to designate a Successor in Interest, his estate shall be deemed to
be his Successor in Interest to receive such portion of all of the payments due
hereunder. The Executive may amend, change or revoke any such designation at any
time and from time to time, in the same manner. This Section 8(a) shall not
supersede any designation of beneficiary or successor in interest made by the
Executive, or separately covered, under any other plan, practice, policy or
program of the Company.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company and any Parent of
the Company or any successor and without regard to the form of transaction
utilized by the Parent to acquire the business or assets of the Company, to
assume expressly and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession or Parentage had taken place. As used in this Agreement, "Company"
shall mean the Company as herein before defined and any successor to its
business and/or assets as aforesaid (and any Parent of the Company or any
successor) which is required by this clause to assume and agree to perform this
Agreement or which otherwise assumes and agrees to perform this Agreement.
9. Notice of Termination. Any termination of the Executive's
employment by the Company for Cause or by the Executive for Good Reason shall be
communicated by Notice of Termination to the other party hereto given in
accordance with Section 10(b) of this Agreement. For purposes of this Agreement,
a "Notice of Termination" means a written notice which (i) indicates the
specific termination provision in this Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated and
(iii) if the date of termination is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than 15
days after the giving of such notice). The failure by the Executive to set forth
in the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason shall not waive any right of the Executive hereunder or
preclude the Executive from asserting such fact or circumstance in enforcing his
rights hereunder.
10. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Michigan, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
8
<PAGE> 9
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, to the addresses
for each party as first written above or to such other address as either party
shall have furnished to the other in writing in accordance herewith. Notices and
communications to the Company shall be addressed to the attention of the
Company's President. Notice and communications shall be effective when actually
received by the addressee.
(c) Whenever reference is made herein to any specific plan or
program of the Company, to the extent that the Executive is not a participant
therein or has no benefit accrued thereunder, whether vested or contingent, as
of the Change in Control Date, then such reference herein shall be null and void
and of no effect, and the Executive shall acquire no additional benefit as a
result of such reference.
(d) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(e) The Executive's failure to insist upon strict compliance with
any provision hereof shall not be deemed to be a waiver of such provision or any
other provision thereof.
(f) This Agreement contains the entire understanding of the
Company and the Executive with respect to the subject matter hereof, and it
supersedes any prior agreements between the Executive and the Company, including
any Change of Control Agreement dated January 25, 1999.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and,
pursuant to the authorization from the Committee, the Company has caused these
presents to be executed as of the day and year first above written.
EXECUTIVE DURAKON INDUSTRIES, INC.
/s/ Craig B. Parr By /s/ Phillip Wm. Fisher
- --------------------------- -------------------------------------
Name: Craig B. Parr Phillip Wm. Fisher
Its: Chairman of the Board of Directors
9
<PAGE> 1
EXHIBIT 10.43
CHANGE OF CONTROL AGREEMENT
THIS CHANGE OF CONTROL AGREEMENT (this "Agreement") by and between
Durakon Industries, Inc., a Michigan corporation (the "Company"), with offices
at 2101 N. Lapeer Road, Lapeer, Michigan 48446-8799 and James C. Smith (the
"Executive"), an individual residing at 779 Mellish Drive, Lapeer, Michigan
48446, dated as of the 1st day of March, 1999.
R E C I T A L S:
WHEREAS, the Company recognizes that the current business environment
makes it difficult to attract and retain highly qualified executives unless a
certain degree of security can be offered to such individuals against
organizational and personnel changes which frequently follow changes in control
of a corporation; and
WHEREAS, even rumors of acquisitions or mergers may cause executives to
consider major career changes in an effort to assure financial security for
themselves and for their families; and
WHEREAS, the Company desires to assure fair treatment of its executives
in the event of a Change in Control (as defined below) and to allow them to make
critical career decisions without undue time pressure and financial uncertainty,
thereby increasing their willingness to remain with the Company notwithstanding
the outcome of a possible Change in Control transaction; and
WHEREAS, the Company recognizes that its executives will be involved in
evaluating or negotiating any offers, proposals or other transactions which
could result in Changes in Control of the Company and believes that it is in the
best interest of the Company and its stockholders for such executives to be in a
position, free from personal financial and employment considerations, to be able
to assess objectively and pursue aggressively the interests of the Company's
stockholders in making these evaluations and carrying on such negotiations; and
WHEREAS, the Compensation Committee of the Board of Directors (the
"Committee") of the Company believes it is essential to provide the Executive
with compensation arrangements upon a Change in Control which are competitive
with those of other corporations, and in order to accomplish these objectives,
the Committee has caused the Company to enter into this Agreement.
NOW THEREFORE, the parties, for good and valuable consideration and
intending to be legally bound, agree as follows:
1. Operation and Term of Agreement. This Agreement shall be effective
immediately upon its execution. This Agreement may be terminated by the Company
upon 18 months advance written notice to the Executive; provided, however, that
after a Change in Control of the Company during the term of this Agreement, this
Agreement shall remain in effect until all of the obligations of the parties
hereunder are satisfied and the Protection Period has
<PAGE> 2
expired. Prior to a Change in Control, this Agreement shall immediately
terminate upon termination of the Executive's employment, except in the case of
such termination under circumstances set forth in Section 2(e) below.
2. Certain Definitions. For purposes of this Agreement, the following
definitions shall have the following meanings:
(a) "Cause" shall mean (i) actual dishonesty intended to result in
substantial personal enrichment at the expense of the Company, (ii) conviction
of a felony or (iii) repeated willful and deliberate failure or refusal to
perform the duties normally associated with the Executive's position which is
not remedied in a reasonable period of time after receipt of written notice from
the Company.
(b) "Change in Control" shall mean:
(i) on or after the date of execution of this Agreement, any
person (which, for all purposes hereof, shall include, without limitation, an
individual, sole proprietorship, partnership, unincorporated association,
unincorporated syndicate, unincorporated organization, trust, body corporate and
a trustee, executor, administrator or other legal representative) (a "Person")
or any group of two or more Persons acting in concert becomes the beneficial
owner, directly or indirectly, of securities of the Company representing, or
acquires the right to control or direct, or to acquire through the conversion of
securities or the exercise of warrants or other rights to acquire securities,
more than 50% of the combined voting power of the Company's then outstanding
securities; provided that for the purposes of the Plan, (A) "voting power" means
the right to vote for the election of directors, and (B) any determination of
percentage combined voting power shall be made on the basis that (x) all
securities beneficially owned by the Person or group or over which control or
direction is exercised by the Person or group which are convertible into
securities carrying voting rights have been converted (whether or not then
convertible) and all options, warrants or other rights which may be exercised to
acquire securities beneficially owned by the Person or group or over which
control or direction is exercised by the Person or group have been exercised
(whether or not then exercisable), and (y) no such convertible securities have
been converted by any other Person and no such options, warrants or other rights
have been exercised by any other Person; or
(ii) at any time subsequent to the date of execution of this
Agreement there shall be elected or appointed to the Board of Directors of the
Company (the "Board") any director or directors whose appointment or election by
the Board or nomination for election by the Company's shareholders was not
approved by a vote of at least a majority of the directors then still in office
who were either directors on the date of execution of this Agreement or whose
election or appointment or nomination for election was previously so approved;
or
(iii) a reorganization, merger, consolidation, combination,
corporate restructuring or similar transaction (an "Event"), in each case, in
respect of which the beneficial owners of the outstanding Company voting
securities immediately prior to such Event do not, following such Event,
beneficially own, directly or indirectly, more than 50% of the combined voting
power of the then outstanding voting securities entitled to vote generally in
the election of
2
<PAGE> 3
directors of the Company and any resulting Parent in substantially the same
proportions as their ownership, immediately prior to such Event, of the
outstanding Company voting securities; or
(iv) an Event involving the Company as a result of which 50%
or more of the members of the board of directors of the Parent or the Company
are not persons who were members of the Board immediately prior to the earlier
of (x) the Event, (y) execution of an agreement the consummation of which would
result in the Event, or (z) announcement by the Company of an intention to
effect the Event; or
(v) at any time subsequent to the date of this Agreement, if
(A) the Company or a subsidiary of the Company (including, without limitation,
Jerr-Dan Corporation) sell, convey or otherwise transfer to a third party
substantially all of the assets of the division or subsidiary by which the
Executive is then employed, or (B) the Company shall sell, convey or otherwise
transfer to a third party (including, without limitation, a transfer by way of
merger or share exchange) more than 50% of the voting securities of any
subsidiary of the Company (including, without limitation, Jerr-Dan Corporation)
by which Executive is then employed; or
(vi) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Change in Control has occurred.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(d) "Disability," for purposes of this Agreement, shall apply to
an Executive who has applied for and is determined to be eligible to receive
disability benefits under the Company's long term disability plan.
(e) The "Change in Control Date" shall be any date during the term
of this Agreement on which a Change in Control occurs. Anything in this
Agreement to the contrary notwithstanding, if the Executive's employment with
the Company is terminated within six months prior to the date on which a Change
in Control occurs, then unless such employment with the Company is terminated
(i) for cause, or (ii) voluntarily by the Executive, for all purposes of this
Agreement the "Change in Control Date" shall mean the date immediately prior to
the date of such termination.
(f) "Good Reason" means:
(i) the assignment to the Executive within the Protection
Period of any duties inconsistent in any respect with the Executive's position
(including status, offices, titles and reporting requirements, authority, duties
or responsibilities), or any other action which results in a diminution in such
position, authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and which
is remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) a reduction by the Company in the Executive's base salary
in effect immediately before the beginning of the Protection Period or as
increased from time to time thereafter,
3
<PAGE> 4
(iii) a failure by the Company to maintain plans providing
benefits at least as beneficial as those provided by any benefit or compensation
plan (including, without limitation, any incentive compensation plan, bonus plan
or program, retirement, pension or savings plan, stock option plan, life
insurance plan, health and dental plan or disability plan) in which the
Executive is participating immediately before the beginning of the Protection
Period, or if the Company has taken any action which would adversely affect the
Executive's participation in or reduce the Executive's opportunity to benefit
under any of such plans or deprive the Executive of any material fringe benefit
enjoyed by him immediately before the beginning of the Protection Period;
provided, however, that a reduction in benefits under the Company's
tax-qualified retirement, pension or savings plans or its life insurance plan,
health and dental plan, disability plans or other insurance plans which
reduction applies equally to all participants in the plans and has a de minimis
effect on the Executive shall not constitute "Good Reason" for termination by
the Executive;
(iv) the Company's requiring the Executive, without the
Executive's written consent, to be based at any office or location in excess of
50 miles from his office location immediately before the beginning of the
Protection Period, except for travel reasonably required in the performance of
the Executive's responsibilities;
(v) any purported termination by the Company of the
Executive's employment for Cause otherwise than as expressly permitted by
Section 9 of this Agreement; or
(vi) any failure by the Company to obtain the assumption of
the obligations contained in this Agreement by any successor as contemplated in
Section 8(c) of this Agreement.
(g) "Parent" means any entity which directly or indirectly through
one or more other entities owns or controls more than 50% of the voting stock or
common stock of the Company.
(h) "Protection Period" means the period beginning on the Change
in Control Date and ending on the day which is 18 months after the Change in
Control Date.
(i) "Subsidiary" means a company 50% or more of the voting
securities of which are owned, directly or indirectly, by the Company.
3. Benefits Upon Termination Within a Protection Period. If, during a
Protection Period, the Executive's employment shall be terminated by the Company
other than for Cause or Disability or other than as a result of the Executive's
death or if the Executive shall terminate his employment for Good Reason, the
Company shall provide the following benefits:
(a) The Company shall pay to the Executive in a lump sum in cash
within 30 days after the date of termination the Executive's full base salary
accrued but unpaid through the date of termination at the rate in effect at the
time of the termination plus an amount equal to the product of (i) $24,000,
multiplied by (ii) a fraction, the numerator of which is the number of days
4
<PAGE> 5
in such fiscal year through the date of termination and the denominator of
which is 365; and
(b) The Company shall pay to the Executive in a lump sum in cash
within 30 days after the date of termination a severance payment in an amount
equal to 100% of the Executive's "Annual Compensation." For purposes of this
Agreement, "Annual Compensation" shall be an amount equal to the aggregate of
the Executive's annual cash compensation (other than bonus) from the Company and
its Subsidiaries in effect immediately prior to the date of termination plus the
sum of $24,000; and
(c) Within 30 days after the date of termination, upon surrender
by the Executive of his outstanding options to purchase common shares of the
Company ("Common Shares") granted to the Executive pursuant to the stock option
plans of the Company (the "Outstanding Options"), the Company shall pay the
Executive an amount in respect of each Outstanding Option (whether or not
vested) equal to the difference between the exercise price of such Outstanding
Options and the higher of (x) the fair market value of the Common Shares at the
time of such termination, and (y) the highest price paid for Common Shares or,
in the cases of securities convertible into Common Shares or carrying a right to
acquire Common Shares, the highest effective price (based on the prices paid for
such securities) at which such securities are convertible into Common Shares or
at which Common Shares may be acquired, by any person or group whose acquisition
of voting securities has resulted in a Change in Control of the Company. In the
alternative, the Executive may exercise his Outstanding Options (whether or not
vested).
4. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any benefit,
bonus, incentive or other plans, practices, policies or programs provided by the
Company or any of its Subsidiaries and for which the Executive may qualify, nor
shall anything herein limit or otherwise affect such rights as the Executive may
have under any stock option or other agreements with the Company or any of its
Subsidiaries. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, practice, policy or program of the
Company or any of its Subsidiaries at or subsequent to the date of termination
shall be payable in accordance with such plan, practice, policy or program.
5. Full Settlement; Legal Expenses. The Company's obligation to make
the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company may have
against the Executive or others. In no event shall the Executive be obligated to
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement.
The Company agrees to pay, upon written demand therefor by the Executive, all
legal fees and expenses which the Executive may reasonably incur as a result of
any dispute or contest by or with the Company or others regarding the validity
or enforceability of, or liability under, any provision of this Agreement, if
the Executive is the prevailing party in such action. In any such action brought
by the Executive for damages or to enforce any provisions of this Agreement, he
shall be entitled to seek both legal and equitable relief and remedies,
including, without limitation, specific performance of the Company's obligations
hereunder, in his sole discretion.
5
<PAGE> 6
6. Parachute Payments. Notwithstanding anything in this Agreement to
the contrary, in the event it shall be determined that any payment or
distribution by the Company or any other person or entity to or for the benefit
of the Executive is a "parachute payment" (within the meaning of Section
280G(b)(2) of the Code), whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise in connection with, or
arising out of, his employment with the Company or a change in ownership or
effective control of the Company or a substantial portion of its assets (a
"Payment"), and would be subject to the excise tax imposed by Section 4999 of
the Code (the "Excise Tax"), the Payments shall be reduced to an amount such
that no "parachute payment" is required to be made to the Executive. If the
application of the preceding sentence should require a reduction in the Payments
or other "parachute payments," unless the Executive shall have designated
otherwise, such reduction shall be implemented first, by reducing any non-cash
benefits to the extent necessary and, second, by reducing any cash benefits to
the extent necessary. In each case, the reductions shall be made starting with
the payment or benefit to be made on the latest date as of which any Payment
would be made and reducing Payments in reverse chronological order therefrom.
All determinations concerning the application of this Section 6 shall be made by
a nationally recognized firm of independent accountants, selected by the
Executive and satisfactory to the Company, whose determination shall be
conclusive and binding on all parties. The fees and expenses of such accountants
shall be borne by the Company.
7. Confidential Information; Consulting and Non-Competition.
(a) The Executive shall hold in a fiduciary capacity for the
benefit of the Company all proprietary or confidential information, knowledge or
data relating to the Company or any of its Subsidiaries, and their respective
businesses, which shall have been obtained by the Executive during the
Executive's employment by the Company or any of its Subsidiaries and which shall
not be or become public knowledge (other than by acts of the Executive or his
representatives in violation of this Agreement). After the date of termination
of the Executive's employment with the Company, the Executive shall not, without
the prior written consent of the Company, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it.
(b) If, during a Protection Period, the Executive's employment
shall be terminated by the Company other than for Cause or Disability and other
than as a result of the Executive's death, or if the Executive shall terminate
his employment during a Protection Period for Good Reason, then:
(i) For a period of two years following the termination of his
employment, the Executive shall make himself available by phone upon reasonable
notice, and shall also make himself available in person, at such location as the
Company and the Executive shall agree, upon reasonable notice, subject to the
Executive's prior commitments; provided, however, that the Executive shall not
be required to make himself available for more than five days per month. The
Executive shall consult with the Company with respect to matters raised by the
Company within his knowledge or experience.
(ii) The Company shall pay or reimburse the Executive for all
6
<PAGE> 7
reasonable expenses actually incurred or paid by the Executive in the
performance of the Executive's services under Section 7(b)(i) this Agreement
upon presentation of expense statements or vouchers or such other supporting
information as the Company may reasonably require. If the Executive shall agree
to consult at a location away from the metropolitan area of his then current
residence, the Company shall pay his reasonable travel and lodging expenses in
connection therewith.
(iii) For a period of two years following the termination of
his employment, the Executive shall not, either directly or indirectly, through
any person or entity:
(A) engage in any activities or conduct any businesses
which are in competition with the activities engaged in or business conducted by
the Company during the term of the Executive's employment with the Company, or
(B) hire any person who is then employed by or is a
consultant to the Company or who was employed by or a consultant to the Company
at any time during the three months prior to the date of such hiring, or
encourage, induce or attempt to induce, or aid, assist or abet any other party
or person in encouraging, inducing or attempting to induce, any such employee or
consultant to alter or terminate his or her employment or consultation with the
Company; or
(C) be engaged by, consult with, or invest in, any
person or entity wherever located, which conducts a business in competition with
the business conducted by the company during the term of the Executive's
employment with the Company, except that the Executive may, at any time, own
stock in a corporation which may be in competition with the Company, whose
shares are listed for trading on a national or regional stock exchange or trade
on the over-the-counter market, provided that the Executive owns, in the
aggregate, fewer than 5% of the issued and outstanding shares of such
corporation.
(iv) The covenants and obligations contained in this Section 7
of this Agreement relate to matters which are of a special, unique and
extraordinary character and a violation of any of the terms of such Sections
shall cause irreparable injury to the Company, the amount of which shall be
difficult if not impossible to estimate or determine and which cannot be
adequately compensated. Therefore, the Company shall be entitled to an
injunction, restraining order or other equitable relief from any court of
competent jurisdiction, restraining any violation or threatened violation of any
of such terms by the Executive and such other persons as the court orders.
8. Successors.
(a) This Agreement is personal to the Executive and without the
prior written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives or Successor(s) in Interest. The Executive may designate a
Successor (or Successors) in Interest to receive any and all amounts due the
Executive in accordance with this Agreement should the Executive be deceased at
any time of payment. Such
7
<PAGE> 8
designation of Successor(s) in Interest shall be made in writing and signed by
the Executive, and delivered to the Company pursuant to Section 10(b) hereof.
Any such designation may be made to any legal person, persons, trust or the
Executive's' estate as he shall determine in his sole discretion. In the event
any designation shall be incomplete, or in the event the Executive shall fail to
designate a Successor in Interest, his estate shall be deemed to be his
Successor in Interest to receive such portion of all of the payments due
hereunder. The Executive may amend, change or revoke any such designation at any
time and from time to time, in the same manner. This Section 8(a) shall not
supersede any designation of beneficiary or successor in interest made by the
Executive, or separately covered, under any other plan, practice, policy or
program of the Company.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company and any Parent of
the Company or any successor and without regard to the form of transaction
utilized by the Parent to acquire the business or assets of the Company, to
assume expressly and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession or Parentage had taken place. As used in this Agreement, "Company"
shall mean the Company as herein before defined and any successor to its
business and/or assets as aforesaid (and any Parent of the Company or any
successor) which is required by this clause to assume and agree to perform this
Agreement or which otherwise assumes and agrees to perform this Agreement.
9. Notice of Termination. Any termination of the Executive's
employment by the Company for Cause or by the Executive for Good Reason shall be
communicated by Notice of Termination to the other party hereto given in
accordance with Section 10(b) of this Agreement. For purposes of this Agreement,
a "Notice of Termination" means a written notice which (i) indicates the
specific termination provision in this Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated and
(iii) if the date of termination is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than 15
days after the giving of such notice). The failure by the Executive to set forth
in the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason shall not waive any right of the Executive hereunder or
preclude the Executive from asserting such fact or circumstance in enforcing his
rights hereunder.
10. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Michigan, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
8
<PAGE> 9
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, to the addresses
for each party as first written above or to such other address as either party
shall have furnished to the other in writing in accordance herewith. Notices and
communications to the Company shall be addressed to the attention of the
Company's President. Notice and communications shall be effective when actually
received by the addressee.
(c) Whenever reference is made herein to any specific plan or
program of the Company, to the extent that the Executive is not a participant
therein or has no benefit accrued thereunder, whether vested or contingent, as
of the Change in Control Date, then such reference herein shall be null and void
and of no effect, and the Executive shall acquire no additional benefit as a
result of such reference.
(d) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(e) The Executive's failure to insist upon strict compliance with
any provision hereof shall not be deemed to be a waiver of such provision or any
other provision thereof.
(f) This Agreement contains the entire understanding of the
Company and the Executive with respect to the subject matter hereof, and it
supersedes any prior agreements between the Executive and the Company, including
any Change of Control Agreement dated January 25, 1999.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and,
pursuant to the authorization from the Committee, the Company has caused these
presents to be executed as of the day and year first above written.
EXECUTIVE DURAKON INDUSTRIES, INC.
/s/ James C. Smith By /s/ Phillip Wm. Fisher
- ------------------------ --------------------------------------
Name: James C. Smith Phillip Wm. Fisher
Its: Chairman of the Board of Directors
9
<PAGE> 1
EXHIBIT 10.44
CHANGE OF CONTROL AGREEMENT
THIS CHANGE OF CONTROL AGREEMENT (this "Agreement") by and between
Durakon Industries, Inc., a Michigan corporation (the "Company"), with offices
at 2101 N. Lapeer Road, Lapeer, Michigan 48446-8799 and Jeffrey L. Weller (the
"Executive"), an individual residing at 7535 Molly Pitcher Hwy., Greencastle,
Pennsylvania 17225, dated as of the 1st day of March, 1999.
R E C I T A L S:
WHEREAS, the Company recognizes that the current business environment
makes it difficult to attract and retain highly qualified executives unless a
certain degree of security can be offered to such individuals against
organizational and personnel changes which frequently follow changes in control
of a corporation; and
WHEREAS, even rumors of acquisitions or mergers may cause executives to
consider major career changes in an effort to assure financial security for
themselves and for their families; and
WHEREAS, the Company desires to assure fair treatment of its executives
in the event of a Change in Control (as defined below) and to allow them to make
critical career decisions without undue time pressure and financial uncertainty,
thereby increasing their willingness to remain with the Company notwithstanding
the outcome of a possible Change in Control transaction; and
WHEREAS, the Company recognizes that its executives will be involved in
evaluating or negotiating any offers, proposals or other transactions which
could result in Changes in Control of the Company and believes that it is in the
best interest of the Company and its stockholders for such executives to be in a
position, free from personal financial and employment considerations, to be able
to assess objectively and pursue aggressively the interests of the Company's
stockholders in making these evaluations and carrying on such negotiations; and
WHEREAS, the Compensation Committee of the Board of Directors (the
"Committee") of the Company believes it is essential to provide the Executive
with compensation arrangements upon a Change in Control which are competitive
with those of other corporations, and in order to accomplish these objectives,
the Committee has caused the Company to enter into this Agreement.
NOW THEREFORE, the parties, for good and valuable consideration and
intending to be legally bound, agree as follows:
1. Operation and Term of Agreement. This Agreement shall be effective
immediately upon its execution. This Agreement may be terminated by the Company
upon 18 months advance written notice to the Executive; provided, however, that
after a Change in Control of the Company during the term of this Agreement, this
Agreement shall remain in effect
<PAGE> 2
until all of the obligations of the parties hereunder are satisfied and the
Protection Period has expired. Prior to a Change in Control, this Agreement
shall immediately terminate upon termination of the Executive's employment,
except in the case of such termination under circumstances set forth in Section
2(e) below.
2. Certain Definitions. For purposes of this Agreement, the following
definitions shall have the following meanings:
(a) "Cause" shall mean (i) actual dishonesty intended to
result in substantial personal enrichment at the expense of the Company, (ii)
conviction of a felony or (iii) repeated willful and deliberate failure or
refusal to perform the duties normally associated with the Executive's position
which is not remedied in a reasonable period of time after receipt of written
notice from the Company.
(b) "Change in Control" shall mean:
(i) on or after the date of execution of this Agreement,
any person (which, for all purposes hereof, shall include, without limitation,
an individual, sole proprietorship, partnership, unincorporated association,
unincorporated syndicate, unincorporated organization, trust, body corporate and
a trustee, executor, administrator or other legal representative) (a "Person")
or any group of two or more Persons acting in concert becomes the beneficial
owner, directly or indirectly, of securities of the Company representing, or
acquires the right to control or direct, or to acquire through the conversion of
securities or the exercise of warrants or other rights to acquire securities,
more than 50% of the combined voting power of the Company's then outstanding
securities; provided that for the purposes of the Plan, (A) "voting power" means
the right to vote for the election of directors, and (B) any determination of
percentage combined voting power shall be made on the basis that (x) all
securities beneficially owned by the Person or group or over which control or
direction is exercised by the Person or group which are convertible into
securities carrying voting rights have been converted (whether or not then
convertible) and all options, warrants or other rights which may be exercised to
acquire securities beneficially owned by the Person or group or over which
control or direction is exercised by the Person or group have been exercised
(whether or not then exercisable), and (y) no such convertible securities have
been converted by any other Person and no such options, warrants or other rights
have been exercised by any other Person; or
(ii) at any time subsequent to the date of execution of
this Agreement there shall be elected or appointed to the Board of Directors of
the Company (the "Board") any director or directors whose appointment or
election by the Board or nomination for election by the Company's shareholders
was not approved by a vote of at least a majority of the directors then still in
office who were either directors on the date of execution of this Agreement or
whose election or appointment or nomination for election was previously so
approved; or
(iii) a reorganization, merger, consolidation, combination,
corporate restructuring or similar transaction (an "Event"), in each case, in
respect of which the beneficial owners of the outstanding Company voting
securities immediately prior to such Event do not, following such Event,
beneficially own, directly or indirectly, more than 50% of the combined
2
<PAGE> 3
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors of the Company and any resulting Parent
in substantially the same proportions as their ownership, immediately prior to
such Event, of the outstanding Company voting securities; or
(iv) an Event involving the Company as a result of which
50% or more of the members of the board of directors of the Parent or the
Company are not persons who were members of the Board immediately prior to the
earlier of (x) the Event, (y) execution of an agreement the consummation of
which would result in the Event, or (z) announcement by the Company of an
intention to effect the Event; or
(v) at any time subsequent to the date of this Agreement,
if (A) the Company or a subsidiary of the Company (including, without
limitation, Jerr-Dan Corporation) sell, convey or otherwise transfer to a third
party substantially all of the assets of the division or subsidiary by which the
Executive is then employed, or (B) the Company shall sell, convey or otherwise
transfer to a third party (including, without limitation, a transfer by way of
merger or share exchange) more than 50% of the voting securities of any
subsidiary of the Company (including, without limitation, Jerr-Dan Corporation)
by which Executive is then employed; or
(vi) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Change in Control has occurred.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(d) "Disability," for purposes of this Agreement, shall apply
to an Executive who has applied for and is determined to be eligible to receive
disability benefits under the Company's long term disability plan.
(e) The "Change in Control Date" shall be any date during the
term of this Agreement on which a Change in Control occurs. Anything in this
Agreement to the contrary notwithstanding, if the Executive's employment with
the Company is terminated within six months prior to the date on which a Change
in Control occurs, then unless such employment with the Company is terminated
(i) for cause, or (ii) voluntarily by the Executive, for all purposes of this
Agreement the "Change in Control Date" shall mean the date immediately prior to
the date of such termination.
(f) "Good Reason" means:
(i) the assignment to the Executive within the Protection
Period of any duties inconsistent in any respect with the Executive's position
(including status, offices, titles and reporting requirements, authority, duties
or responsibilities), or any other action which results in a diminution in such
position, authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and which
is remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) a reduction by the Company in the Executive's base
salary in effect immediately before the beginning of the Protection Period or as
increased from time to time
3
<PAGE> 4
thereafter,
(iii) a failure by the Company to maintain plans providing
benefits at least as beneficial as those provided by any benefit or compensation
plan (including, without limitation, any incentive compensation plan, bonus plan
or program, retirement, pension or savings plan, stock option plan, life
insurance plan, health and dental plan or disability plan) in which the
Executive is participating immediately before the beginning of the Protection
Period, or if the Company has taken any action which would adversely affect the
Executive's participation in or reduce the Executive's opportunity to benefit
under any of such plans or deprive the Executive of any material fringe benefit
enjoyed by him immediately before the beginning of the Protection Period;
provided, however, that a reduction in benefits under the Company's
tax-qualified retirement, pension or savings plans or its life insurance plan,
health and dental plan, disability plans or other insurance plans which
reduction applies equally to all participants in the plans and has a de minimis
effect on the Executive shall not constitute "Good Reason" for termination by
the Executive;
(iv) the Company's requiring the Executive, without the
Executive's written consent, to be based at any office or location in excess of
50 miles from his office location immediately before the beginning of the
Protection Period, except for travel reasonably required in the performance of
the Executive's responsibilities;
(v) any purported termination by the Company of the
Executive's employment for Cause otherwise than as expressly permitted by
Section 9 of this Agreement; or
(vi) any failure by the Company to obtain the assumption
of the obligations contained in this Agreement by any successor as contemplated
in Section 8(c) of this Agreement.
(g) "Parent" means any entity which directly or indirectly
through one or more other entities owns or controls more than 50% of the voting
stock or common stock of the Company.
(h) "Protection Period" means the period beginning on the
Change in Control Date and ending on the day which is 18 months after the Change
in Control Date.
(i) "Subsidiary" means a company 50% or more of the voting
securities of which are owned, directly or indirectly, by the Company.
3. Benefits Upon Termination Within a Protection Period. If, during a
Protection Period, the Executive's employment shall be terminated by the Company
other than for Cause or Disability or other than as a result of the Executive's
death or if the Executive shall terminate his employment for Good Reason, the
Company shall provide the following benefits:
(a) The Company shall pay to the Executive in a lump sum in
cash within 30 days after the date of termination the Executive's full base
salary accrued but unpaid through the date of termination at the rate in effect
at the time of the termination plus an amount equal to the
4
<PAGE> 5
product of (i) $47,936, multiplied by (ii) a fraction, the numerator of which is
the number of days in such fiscal year through the date of termination and the
denominator of which is 365; and
(b) The Company shall pay to the Executive in a lump sum in
cash within 30 days after the date of termination a severance payment in an
amount equal to 100% of the Executive's "Annual Compensation." For purposes of
this Agreement, "Annual Compensation" shall be an amount equal to the aggregate
of the Executive's annual cash compensation (other than bonus) from the Company
and its Subsidiaries in effect immediately prior to the date of termination plus
the sum of $47,936; and
(c) Within 30 days after the date of termination, upon
surrender by the Executive of his outstanding options to purchase common shares
of the Company ("Common Shares") granted to the Executive pursuant to the stock
option plans of the Company (the "Outstanding Options"), the Company shall pay
the Executive an amount in respect of each Outstanding Option (whether or not
vested) equal to the difference between the exercise price of such Outstanding
Options and the higher of (x) the fair market value of the Common Shares at the
time of such termination, and (y) the highest price paid for Common Shares or,
in the cases of securities convertible into Common Shares or carrying a right to
acquire Common Shares, the highest effective price (based on the prices paid for
such securities) at which such securities are convertible into Common Shares or
at which Common Shares may be acquired, by any person or group whose acquisition
of voting securities has resulted in a Change in Control of the Company. In the
alternative, the Executive may exercise his Outstanding Options (whether or not
vested).
4. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any benefit,
bonus, incentive or other plans, practices, policies or programs provided by the
Company or any of its Subsidiaries and for which the Executive may qualify, nor
shall anything herein limit or otherwise affect such rights as the Executive may
have under any stock option or other agreements with the Company or any of its
Subsidiaries. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, practice, policy or program of the
Company or any of its Subsidiaries at or subsequent to the date of termination
shall be payable in accordance with such plan, practice, policy or program.
5. Full Settlement; Legal Expenses. The Company's obligation to make
the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company may have
against the Executive or others. In no event shall the Executive be obligated to
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement.
The Company agrees to pay, upon written demand therefor by the Executive, all
legal fees and expenses which the Executive may reasonably incur as a result of
any dispute or contest by or with the Company or others regarding the validity
or enforceability of, or liability under, any provision of this Agreement, if
the Executive is the prevailing party in such action. In any such action brought
by the Executive for damages or to enforce any provisions of this Agreement, he
shall be entitled to seek both legal and equitable relief and remedies,
including, without limitation, specific performance of the Company's obligations
hereunder, in his sole discretion.
5
<PAGE> 6
6. Parachute Payments. Notwithstanding anything in this Agreement to
the contrary, in the event it shall be determined that any payment or
distribution by the Company or any other person or entity to or for the benefit
of the Executive is a "parachute payment" (within the meaning of Section
280G(b)(2) of the Code), whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise in connection with, or
arising out of, his employment with the Company or a change in ownership or
effective control of the Company or a substantial portion of its assets (a
"Payment"), and would be subject to the excise tax imposed by Section 4999 of
the Code (the "Excise Tax"), the Payments shall be reduced to an amount such
that no "parachute payment" is required to be made to the Executive. If the
application of the preceding sentence should require a reduction in the Payments
or other "parachute payments," unless the Executive shall have designated
otherwise, such reduction shall be implemented first, by reducing any non-cash
benefits to the extent necessary and, second, by reducing any cash benefits to
the extent necessary. In each case, the reductions shall be made starting with
the payment or benefit to be made on the latest date as of which any Payment
would be made and reducing Payments in reverse chronological order therefrom.
All determinations concerning the application of this Section 6 shall be made by
a nationally recognized firm of independent accountants, selected by the
Executive and satisfactory to the Company, whose determination shall be
conclusive and binding on all parties. The fees and expenses of such accountants
shall be borne by the Company.
7. Confidential Information; Consulting and Non-Competition.
(a) The Executive shall hold in a fiduciary capacity for the
benefit of the Company all proprietary or confidential information, knowledge or
data relating to the Company or any of its Subsidiaries, and their respective
businesses, which shall have been obtained by the Executive during the
Executive's employment by the Company or any of its Subsidiaries and which shall
not be or become public knowledge (other than by acts of the Executive or his
representatives in violation of this Agreement). After the date of termination
of the Executive's employment with the Company, the Executive shall not, without
the prior written consent of the Company, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it.
(b) If, during a Protection Period, the Executive's employment
shall be terminated by the Company other than for Cause or Disability and other
than as a result of the Executive's death, or if the Executive shall terminate
his employment during a Protection Period for Good Reason, then:
(i) For a period of two years following the termination
of his employment, the Executive shall make himself available by phone upon
reasonable notice, and shall also make himself available in person, at such
location as the Company and the Executive shall agree, upon reasonable notice,
subject to the Executive's prior commitments; provided, however, that the
Executive shall not be required to make himself available for more than five
days per month. The Executive shall consult with the Company with respect to
matters raised by the Company within his knowledge or experience.
6
<PAGE> 7
(ii) The Company shall pay or reimburse the Executive for
all reasonable expenses actually incurred or paid by the Executive in the
performance of the Executive's services under Section 7(b)(i) this Agreement
upon presentation of expense statements or vouchers or such other supporting
information as the Company may reasonably require. If the Executive shall agree
to consult at a location away from the metropolitan area of his then current
residence, the Company shall pay his reasonable travel and lodging expenses in
connection therewith.
(iii) For a period of two years following the termination
of his employment, the Executive shall not, either directly or indirectly,
through any person or entity:
(A) engage in any activities or conduct any
businesses which are in competition with the activities engaged in or business
conducted by the Company during the term of the Executive's employment with the
Company, or
(B) hire any person who is then employed by or is
a consultant to the Company or who was employed by or a consultant to the
Company at any time during the three months prior to the date of such hiring, or
encourage, induce or attempt to induce, or aid, assist or abet any other party
or person in encouraging, inducing or attempting to induce, any such employee or
consultant to alter or terminate his or her employment or consultation with the
Company; or
(C) be engaged by, consult with, or invest in,
any person or entity wherever located, which conducts a business in competition
with the business conducted by the company during the term of the Executive's
employment with the Company, except that the Executive may, at any time, own
stock in a corporation which may be in competition with the Company, whose
shares are listed for trading on a national or regional stock exchange or trade
on the over-the-counter market, provided that the Executive owns, in the
aggregate, fewer than 5% of the issued and outstanding shares of such
corporation.
(iv) The covenants and obligations contained in this
Section 7 of this Agreement relate to matters which are of a special, unique and
extraordinary character and a violation of any of the terms of such Sections
shall cause irreparable injury to the Company, the amount of which shall be
difficult if not impossible to estimate or determine and which cannot be
adequately compensated. Therefore, the Company shall be entitled to an
injunction, restraining order or other equitable relief from any court of
competent jurisdiction, restraining any violation or threatened violation of any
of such terms by the Executive and such other persons as the court orders.
8. Successors.
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives or Successor(s) in Interest. The Executive may designate a
Successor (or Successors) in Interest to receive any and all amounts due the
Executive in
7
<PAGE> 8
accordance with this Agreement should the Executive be deceased at any time of
payment. Such designation of Successor(s) in Interest shall be made in writing
and signed by the Executive, and delivered to the Company pursuant to Section
10(b) hereof. Any such designation may be made to any legal person, persons,
trust or the Executive's' estate as he shall determine in his sole discretion.
In the event any designation shall be incomplete, or in the event the Executive
shall fail to designate a Successor in Interest, his estate shall be deemed to
be his Successor in Interest to receive such portion of all of the payments due
hereunder. The Executive may amend, change or revoke any such designation at any
time and from time to time, in the same manner. This Section 8(a) shall not
supersede any designation of beneficiary or successor in interest made by the
Executive, or separately covered, under any other plan, practice, policy or
program of the Company.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company and any Parent of
the Company or any successor and without regard to the form of transaction
utilized by the Parent to acquire the business or assets of the Company, to
assume expressly and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession or Parentage had taken place. As used in this Agreement, "Company"
shall mean the Company as herein before defined and any successor to its
business and/or assets as aforesaid (and any Parent of the Company or any
successor) which is required by this clause to assume and agree to perform this
Agreement or which otherwise assumes and agrees to perform this Agreement.
9. Notice of Termination. Any termination of the Executive's
employment by the Company for Cause or by the Executive for Good Reason shall be
communicated by Notice of Termination to the other party hereto given in
accordance with Section 10(b) of this Agreement. For purposes of this Agreement,
a "Notice of Termination" means a written notice which (i) indicates the
specific termination provision in this Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated and
(iii) if the date of termination is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than 15
days after the giving of such notice). The failure by the Executive to set forth
in the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason shall not waive any right of the Executive hereunder or
preclude the Executive from asserting such fact or circumstance in enforcing his
rights hereunder.
10. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Michigan, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
8
<PAGE> 9
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, to the addresses
for each party as first written above or to such other address as either party
shall have furnished to the other in writing in accordance herewith. Notices and
communications to the Company shall be addressed to the attention of the
Company's President. Notice and communications shall be effective when actually
received by the addressee.
(c) Whenever reference is made herein to any specific plan or
program of the Company, to the extent that the Executive is not a participant
therein or has no benefit accrued thereunder, whether vested or contingent, as
of the Change in Control Date, then such reference herein shall be null and void
and of no effect, and the Executive shall acquire no additional benefit as a
result of such reference.
(d) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(e) The Executive's failure to insist upon strict compliance
with any provision hereof shall not be deemed to be a waiver of such provision
or any other provision thereof.
(f) This Agreement contains the entire understanding of the
Company and the Executive with respect to the subject matter hereof, and it
supersedes any prior agreements between the Executive and the Company, including
any Change of Control Agreement dated January 25, 1999.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and,
pursuant to the authorization from the Committee, the Company has caused these
presents to be executed as of the day and year first above written.
EXECUTIVE DURAKON INDUSTRIES, INC.
/s/ Jeffrey L. Weller By /s/ Phillip Wm. Fisher
- ------------------------------- ---------------------------------------
Name: Jeffrey L. Weller Phillip Wm. Fisher
Its: Chairman of the Board of Directors
9
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF DURAKON INDUSTRIES, INC.
NAME JURISDICTION
- ------------------------------ ----------------------------
Jerr-Dan Corporation Pennsylvania
Durakon FSC, Inc. U.S. Virgin Islands
Durakon Mexicana, S.A. de C.V. Mexico
Benton Plastics, Inc. Tennessee
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Durakon Industries, Inc. on Form S-8 (File No. 33-50146) of our report dated
February 19, 1999, on our audits of the consolidated financial statements and
financial statement schedule of Durakon Industries, Inc. as of December 31, 1998
and 1997, and for the years ended December 31, 1998, 1997, and 1996, which
report is included in the Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 15,433
<SECURITIES> 0
<RECEIVABLES> 23,748
<ALLOWANCES> 1,005
<INVENTORY> 16,177
<CURRENT-ASSETS> 57,570
<PP&E> 49,424
<DEPRECIATION> 29,479
<TOTAL-ASSETS> 87,768
<CURRENT-LIABILITIES> 15,803
<BONDS> 3,062
0
0
<COMMON> 16,059
<OTHER-SE> 52,844
<TOTAL-LIABILITY-AND-EQUITY> 87,768
<SALES> 192,358
<TOTAL-REVENUES> 192,358
<CGS> 157,540
<TOTAL-COSTS> 180,004
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,005
<INTEREST-EXPENSE> 129
<INCOME-PRETAX> 12,091
<INCOME-TAX> 4,182
<INCOME-CONTINUING> 7,909
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,909
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.27
</TABLE>
