<PAGE> 1
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY
(AS PERMITTED BY RULE 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
DEFIANCE, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DEFIANCE, INC.
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
<TABLE>
<S> <C>
(1) Title of each class of securities to which transaction applies:
------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
---------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
-------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------
(3) Filing Party:
--------------------------------------------------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
DEFIANCE, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 23, 1996
To Our Stockholders:
The Annual Meeting of Stockholders of Defiance, Inc. will be held at the Ohio
Savings Plaza Amphitheater, 1801 East Ninth Street, Cleveland, Ohio on
Wednesday, October 23, 1996 at 11:00 a.m. E.D.T. to:
(1) Elect one director to serve for a term of two years,
(2) Elect two directors, each to serve for a term of three years, and
(3) Transact such other business as may properly come before the
meeting.
Only holders of Common Stock of record at the close of business on September 4,
1996 are entitled to notice of and to vote at the Annual Meeting.
By order of the Board of Directors,
MICHAEL J. MEIER
Secretary
September 11, 1996
YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU MAY HOLD. Please
sign, date and return your proxy card in the return envelope provided as soon as
possible. This will not prevent you from voting your shares in person if you are
present at the Annual Meeting.
<PAGE> 3
DEFIANCE, INC.
1111 CHESTER AVENUE, SUITE #750
CLEVELAND, OHIO 44114
----------------------------------
PROXY STATEMENT
----------------------------------
ANNUAL MEETING OF STOCKHOLDERS
WEDNESDAY, OCTOBER 23, 1996, 11:00 A.M. E.D.T.
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Defiance, Inc. ("Defiance" or the "Company") of proxies to
be voted at the Annual Meeting of Stockholders to be held on October 23, 1996
(the "Annual Meeting") and at any adjournment.
Each proxy will be voted as specified by the stockholder. Any properly signed
proxy not specifying the contrary will be voted FOR the election of each nominee
for director as named herein. A stockholder giving a proxy may revoke it by
written notice to the Secretary of the Company at any time before it is voted or
by voting in person at the meeting.
At the close of business on September 4, 1996, the record date for the Annual
Meeting, there were outstanding and entitled to vote 6,400,750 shares of Common
Stock, with a par value of five cents ($.05) per share (the "Common Stock"), of
the Company. Holders of Common Stock are entitled to one vote for each share
held by them. The Company has no other voting securities outstanding.
A copy of the Annual Report of the Company including financial statements and a
description of its operations for the fiscal year ended June 30, 1996 ("fiscal
1996") is enclosed.
This Proxy Statement and accompanying form of Proxy are being mailed to
stockholders on or about September 11, 1996.
1. ELECTION OF DIRECTORS
Under the Company's Certificate of Incorporation, the Board of Directors (the
"Board") is divided into three classes as nearly equal in number as possible,
with the term of office of one class expiring each year. There are currently
seven directors of the Company. This year, one director is to be elected for a
two-year term and two directors are to be elected for three-year terms to again
divide the three classes of directors as nearly equal in number as possible.
Unless otherwise specified, all duly executed proxies will be voted for the
election of the nominees named below. All nominees have indicated their
willingness to serve as directors, if elected, and the Company has no reason to
believe they will be unable to serve. The persons designated as proxies,
however, reserve full discretion to cast votes for other persons if any nominee,
or any of the other directors not included in the election, are unable to serve.
The one nominee for a two-year term and the two nominees for three-year terms
receiving the greatest number of votes will be elected. "Broker non-votes" will
be counted in determining a quorum, but will not otherwise be counted in
determining the outcome of the election.
1
<PAGE> 4
Information about the nominees for director and other directors whose term of
office will continue after the Annual Meeting is set forth in the following
paragraphs.
NOMINEE FOR TERM EXPIRING IN 1998
RICHARD W. LOCK
Age 64
Director since 1989, nominee for director
Mr. Lock has been the managing director of Magnus Associates since 1989. Magnus
Associates is a management consulting firm located in Sylvania, Ohio. Mr. Lock
served as Vice President and Treasurer of Owens-Illinois, Inc. from 1984 until
1988. Mr. Lock began his career with Owens-Illinois in 1962, and served in
various capacities including Director of Corporate Planning, Director of
Corporate Systems, and General Manager of an operating division. He is also a
director of Fremont Plastics, Inc. and Northwest Ohio Venture Associates.
NOMINEES FOR TERMS EXPIRING IN 1999
THOMAS H. ROULSTON II
Age 63
Director since 1990, nominee for director
Mr. Roulston has served as Chairman of the Board of the Company since 1990. Mr.
Roulston has been the Chairman of the Board of Roulston & Company, Inc. since
1990, and served as President of Roulston & Company, Inc. from 1963 until 1990.
Roulston & Company, Inc. is a registered investment advisor located in
Cleveland, Ohio.
SCOTT D. ROULSTON
Age 39
Director since 1990, nominee for director
Mr. Roulston has been the President, Chief Executive Officer and a director of
Roulston & Company, Inc. since 1990, and served as Senior Vice President of
Roulston & Company, Inc. from 1986 until 1990. Mr. Roulston was also the
President of Topwatch Corporation, a management consulting firm, from 1982 until
1990.
DIRECTORS WHOSE TERMS EXPIRE IN 1997
HECTOR R. ORTINO
Age 54
Director since 1993
Mr. Ortino has been President of Ferro Corporation since January 1996. Mr.
Ortino began his career with Ferro in 1971 at Ferro's subsidiary in Argentina.
In 1983 he joined Ferro's corporate office in Cleveland as Assistant to the
Executive Vice President of Finance. He was named Vice President in 1984, Chief
Financial Officer in 1987, Senior Vice President in 1991 and Executive Vice
President and Chief Financial Administrative Officer in 1993. Ferro Corporation
is a major producer of specialty coatings, colors, ceramics, plastics and
chemicals for industry and is headquartered in Cleveland, Ohio. Mr. Ortino is a
member of the board of directors of Ferro Corporation (NYSE: FOE). He is also a
director of Bunge International, Ltd.
2
<PAGE> 5
GEORGE H. LEWIS III
Age 59
Director since 1994
Mr. Lewis has been President, Chief Executive Officer and Chairman of the Board
of Akron Porcelain & Plastics Company since 1975, and has been employed at Akron
Porcelain & Plastics since 1959. Akron Porcelain & Plastics is a custom molder
and assembler of ceramic and plastic components for the automotive, appliance
and electrical distribution industries located in Akron, Ohio. He is also a
director of Mercury Plastics Company.
JAMES E. HEIGHWAY
Age 50
Director since 1994
Mr. Heighway has been President and Chief Executive Officer of MJM Industries,
Inc. since 1994. MJM Industries is a cable and electronic component assemblies
firm, located in Fairport, Ohio. From 1985 until 1994 he served as President and
Chief Executive Officer of Mueller Electric Company, Inc., a manufacturer of
electronic test and instrumentation accessories located in Cleveland, Ohio. He
is also a director of Ramwear, Inc. and Continental Pharmacy Services, Inc.
DIRECTOR WHOSE TERM EXPIRES IN 1998
JERRY A. COOPER
Age 57
Director since 1992
Mr. Cooper has served as President and Chief Executive Officer of the Company
since 1992. From 1990 until joining the Company in 1992, Mr. Cooper was
President and Chief Executive Officer of Bettcher Manufacturing Corporation.
Bettcher is a metal forming company serving various industries, located in
Cleveland, Ohio. From 1977 until 1990, he was President and General Manager of
Mather Seal Company, located in Milan, Michigan. Mather Seal is a manufacturer
of Teflon(tm) seals and specialty products for industry, and is a subsidiary of
Federal-Mogul Corporation.
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit Committee, established in 1990 and consisting entirely of nonemployee
directors, met two times in fiscal 1996. The committee reviews external and
internal audit plans and activities, reviews the Company's annual financial
statements, reviews the Company's system of internal and financial controls,
approves all significant fees for audit, audit-related and nonaudit services
provided by the independent auditors and recommends the annual selection of
independent auditors to the Board. Members of the audit committee are Richard W.
Lock (chairman), George H. Lewis III and James E. Heighway.
The Compensation Committee, established in 1990 and consisting entirely of
nonemployee directors, met two times in fiscal 1996. The committee administers
the incentive, benefit and stock option plans of the Company and its
subsidiaries, approves changes in senior executive compensation and recommends
changes in the Company's incentive, benefit and stock option plans to the Board.
The committee also recommends the retainer and attendance fees for nonemployee
directors. Members of the compensation committee are Scott D. Roulston
(chairman), James E. Heighway and Hector R. Ortino.
3
<PAGE> 6
The Executive Committee, established in 1992 and consisting of a majority of
nonemployee directors, met one time in fiscal 1996. The committee acts upon
matters requiring Board action during the intervals between Board meetings and
includes all the functions of the Board of Directors other than the filling of
vacancies in the Board of Directors or in any of its committees. Members of the
executive committee are Thomas H. Roulston II (chairman), Jerry A. Cooper,
Richard W. Lock and Scott D. Roulston.
The Investment Committee, established in 1993 and consisting entirely of
nonemployee directors, met one time in fiscal 1996. The committee provides
guidance to the trustees of the Company's two defined benefit pension plans,
including setting investment guidelines, defining investment mix, selecting fund
managers and monitoring fund managers' performance. Members of the investment
committee are James E. Heighway (chairman), Richard W. Lock and George H. Lewis
III.
The Nominating Committee, established in 1990 and consisting entirely of
nonemployee directors, met one time in fiscal 1996. The committee recommends
candidates for Board and Board Committee membership. Members of the nominating
committee are Thomas H. Roulston II (chairman), George H. Lewis III and Scott D.
Roulston.
ATTENDANCE AT MEETINGS
The Board of Directors of the Company met five times during fiscal 1996. The
Board has appointed audit, compensation, executive, investment and nominating
committees, the members of which are indicated in the aforementioned information
on Committees of the Board of Directors. During fiscal 1996 each director
attended at least 75 percent of the meetings of the Board of Directors and any
Committee of the Board of Directors on which he served.
COMPENSATION OF DIRECTORS
No directors' fees are paid to directors who are employees of the Company or any
of its subsidiaries. Nonemployee directors, other than the Chairman, receive an
annual fee of $12,000 and a meeting fee of $1,000 for each Board meeting
attended. The Chairman receives an annual fee of $18,000 and a meeting fee of
$1,500 for each Board meeting attended. Nonemployee directors also receive a
meeting fee of $800 for each committee meeting attended, except the committee
chairman, who receives a meeting fee of $1,100 for each committee meeting
attended. All directors are reimbursed for reasonable out of pocket expenses
incurred in connection with their services as directors. Each nonemployee
director also receives a nondiscretionary automatic grant of nonqualified
options to purchase 2,000 shares of Common Stock pursuant to the 1994
Nonemployee Director Stock Option Plan upon becoming a director of the Company
and thereafter on July 1 of each year of continuing service with an option
exercise price equal to the fair market value of the underlying Common Stock on
the date of grant. On July 2, 1996 each nonemployee director voluntarily
surrendered, for no consideration, his July 1, 1996 automatic grant of options
to purchase 2,000 common shares.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Mr. Scott D. Roulston is the son of Mr. Thomas H. Roulston II. Otherwise, no
director or nominee has any family relationship to any other director or nominee
of the Company.
Mr. James W. Gillis and Mr. Michael D. Shea, former members of the Board of
Directors, each owned a one-third interest in Chestnut Partners, which leased
the facility located on Chestnut Street, Owosso, Michigan to Vaungarde,
Incorporated ("Vaungarde"), a subsidiary of the Company, until September 1995.
The lease was
4
<PAGE> 7
dated March 1990 for a term of five years with monthly lease payments of $9,500.
At the end of the lease term in March 1995, Vaungarde continued to lease the
facility from Chestnut Partners on a month to month basis at the same monthly
rate. Vaungarde purchased this facility from Chestnut Partners for $500,000 in
September 1995. Prior to the execution of the purchase agreement for this
facility, the Board of Directors appointed an ad hoc committee of two outside
directors to evaluate the fairness of the potential transaction between the
Company and Chestnut Partners. The committee concluded a purchase price of
$500,000 for the facility was reasonable based upon their analysis of the facts
and circumstances. The Board of Directors of the Company believes the lease and
subsequent sale of the facility were entered into on terms as favorable to the
Company as would have been available from an unrelated party. The Company sold
all the common shares of Vaungarde August 19, 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Members of the compensation committee are all nonemployee directors who have
never been officers or employees of the Company or any of its subsidiaries.
Roulston & Company, Inc., of which Mr. Thomas H. Roulston II is Chairman of the
Board and Mr. Scott D. Roulston is President, managed an average of 38% of the
assets of the two defined benefit pension plans of the Company's Defiance
Precision Products, Inc. subsidiary during fiscal 1996, for which it received
fees of approximately $38,000. It is anticipated that Roulston & Company, Inc.
will continue to provide these services during fiscal 1997.
NOMINATION OF DIRECTORS
The Board of Directors considers suitable candidates for membership on the Board
from time to time. The Nominating Committee of the Board of Directors will
consider nominees recommended by stockholders. Stockholders wishing to submit a
recommendation should write to the Nominating Committee in care of Mr. Michael
J. Meier, Secretary, Defiance, Inc., 1111 Chester Avenue, Suite #750, Cleveland,
OH 44114.
5
<PAGE> 8
COMMON STOCK OWNERSHIP
BENEFICIAL OWNERSHIP OF FIVE PERCENT OR GREATER SHAREHOLDERS
The following table sets forth beneficial owners known to the Company of five
percent or more of the Company's outstanding Common Stock as of August 16, 1996.
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENT
NAME AND ADDRESS BENEFICIALLY OF TOTAL
OF BENEFICIAL OWNER OWNED SHARES
- - --------------------------------------- ------------ --------
<S> <C> <C>
Wellington Management Company (1) 635,400 9.9%
75 State Street
Boston, MA 02109
Jerry A. Cooper (2) 486,729 7.2%
1111 Chester Avenue, Suite #750
Cleveland, OH 44114
First Manhattan Company (3) 382,450 6.0%
437 Madison Avenue
New York, NY 10022
Thomas H. Roulston II (4) 339,000 5.3%
1111 Chester Avenue, Suite #750
Cleveland, OH 44114
<FN>
- - ---------------
(1) Based upon filings by Wellington Management Company with the Securities and
Exchange Commission. Wellington Management Company has sole dispositive
power with respect to all 635,400 shares, sole voting power with respect to
165,000 shares, shared voting power with respect to 237,400 shares and no
voting power with respect to 233,000 shares.
(2) Mr. Cooper is a director and executive officer of the Company. Refer to the
table regarding directors, nominees for director and executive officers for
ownership detail.
(3) Based upon filings by First Manhattan Company with the Securities and
Exchange Commission. First Manhattan Company has shared dispositive power
with respect to all 382,450 shares, shared voting power with respect to
355,725 shares and no voting power with respect to 26,725 shares.
(4) Mr. Roulston is a director of the Company and is a nominee for director.
Refer to the table regarding directors, nominees for director and executive
officers for ownership detail.
</TABLE>
6
<PAGE> 9
BENEFICIAL OWNERSHIP OF DIRECTORS, NOMINEES FOR DIRECTOR AND EXECUTIVE OFFICERS
The following table sets forth the number of shares of Common Stock beneficially
owned by each director, nominee for director and executive officer of the
Company as of August 16, 1996. All shares shown in the table reflect sole voting
and investment power unless otherwise indicated.
<TABLE>
<CAPTION>
ADDITIONAL
SHARES DEEMED PERCENT
DIRECTLY INDIRECTLY BENEFICIALLY OF TOTAL
BENEFICIAL OWNER HELD HELD OWNED (1) TOTAL SHARES SHARES (2)
---------------- -------- ---------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Jerry A. Cooper (3)........... 76,650 14,900 395,179 486,729 7.2%
Thomas H. Roulston II (4)..... 110,000 225,000 4,000 339,000 5.3%
Michael J. Meier.............. 3,138 20,119 23,257 0.4%
Scott D. Roulston............. 8,888 4,000 12,888 0.2%
George H. Lewis III........... 5,000 4,000 9,000 0.1%
Richard W. Lock............... 4,000 4,000 8,000 0.1%
Hector R. Ortino (5).......... 1,700 1,000 4,000 6,700 0.1%
James L. Treece............... 3,300 1,667 4,967 0.1%
James E. Heighway............. 4,000 4,000 0.1%
Leonard V. Matlock, Jr........ 2,167 2,167 0.0%
------- ------- ------- ------- ---
All directors, nominees, and
executive officers as a
group (10 persons).......... 212,676 240,900 443,132 896,708 13.1%
<FN>
- - ---------------
(1) Shares subject to options exercisable within 60 days following August 16,
1996.
(2) Based on 6,405,750 shares of Common Stock outstanding on August 16, 1996,
adjusted for shares subject to options exercisable within 60 days following
August 16, 1996 held either by the named individuals or by the group as a
whole.
(3) Indirect holdings include 14,900 shares held by Mr. Cooper's wife. Mr.
Cooper disclaims beneficial ownership in these shares.
(4) Indirect holdings include 50,000 shares held by Mr. Roulston's wife. Mr.
Roulston disclaims beneficial ownership in these shares. Indirect holdings
also include 175,000 shares held by the Roulston Investment Trust Limited
Partnership. Mr. Roulston is a general partner and as such exercises shared
investment and voting power with respect to these shares.
(5) Indirect holdings include 1,000 shares held by Mr. Ortino's wife. Mr. Ortino
disclaims beneficial ownership in these shares.
</TABLE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and greater than ten percent stockholders to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission (the "SEC"), and to furnish the Company with copies of all such
filings. Based solely on its
7
<PAGE> 10
review of copies of these reports furnished to the Company and, where
applicable, any written representation that no reports were required, the
Company believes during fiscal 1996 all Section 16(a) filing requirements were
met.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the annual and long-term compensation during each
of the Company's last three fiscal years for the Company's Chief Executive
Officer and other executive officers whose annual salary and bonus exceeded
$100,000 during fiscal 1996 (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------- ------------
OTHER ANNUAL SECURITIES ALL OTHER
COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) ($)(2) OPTIONS(#) ($)(3)
- - ---------------------------- ----- --------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Jerry A. Cooper............. 1996 262,500 135,135 -- 37,048 89,408
President and CEO 1995 250,000 250,000 -- 37,034 81,528
1994 232,000 232,000 -- 45,796 53,547
Michael J. Meier............ 1996 125,500 28,414 -- 9,000 7,768
VP-Finance, CFO, 1995 119,137 50,400 -- 9,486 6,591
Secretary, Treasurer 1994 109,167 46,200 -- 7,633 2,336
<FN>
- - ---------------
(1) Based on service during the fiscal years indicated, though not paid until
after the fiscal year.
(2) The value of perquisites and other personal benefits for each Named
Executive Officer in each year was less than reporting thresholds
established by the SEC.
(3) Includes Company contributions to a 401(k) plan, life insurance premiums,
long-term disability insurance premiums, and Company contributions to the
Defiance, Inc. Supplemental Executive Retirement Plan ("SERP") and the
Defiance, Inc. Supplemental Savings and Deferred Compensation Plan ("SSDCP")
as follows:
</TABLE>
<TABLE>
<CAPTION>
LIFE LONG-TERM
401(K) PLAN INSURANCE DISABILITY SERP SSDCP TOTAL
----------- --------- --------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Mr. Cooper:
1996.............................. 7,388 4,170 6,148 60,000 11,702 89,408
1995.............................. 9,517 3,750 6,148 55,680 6,433 81,528
1994.............................. 4,067 3,345 5,710 40,425 53,547
Mr. Meier:
1996.............................. 6,284 273 1,211 7,768
1995.............................. 5,552 247 792 6,591
1994.............................. 2,184 152 2,336
<FN>
The SERP was adopted during fiscal 1995 to provide retirement benefits on a
nonqualified basis for certain key executives. This is an unfunded plan, the
obligations of which are to be paid out of the general funds of the Company.
Under this plan, the Company sets aside a percentage of each participant's
salary and bonus earned for the fiscal year (nine to twelve percent for the
CEO and six to eight percent for all other participants, based upon the
participant's age) in an account in the name of the participant the following
fiscal year. This plan was
</TABLE>
8
<PAGE> 11
adopted retroactive to April 1, 1992 for the CEO (his date of hire) and
effective July 1, 1995 for all other participants. Contributions for the CEO
at the adoption of the plan have been allocated to the fiscal year to which
they relate, though the total amount was credited to him in fiscal 1995.
Partial vesting begins after five years of service, with full vesting after
ten years of service or at retirement. Interest is accrued annually at the
percentage change in the Consumer Price Index.
Under the SSDCP, also adopted during fiscal 1995, an amount equal to the
difference between the amount that would have been allocated to a
participant's 401(k) account as Company contributions, in the absence of
legislation limiting such allocations, and the amount actually allocated is
added to the participant's account. Partial vesting begins after two years of
service, with full vesting after six years of service or retirement. Interest
is accrued annually at the Company's long-term borrowing rate.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning options granted
under the 1989 Stock Option Plan during fiscal 1996 to each of the Named
Executive Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------
% OF
TOTAL POTENTIAL REALIZABLE
OPTIONS VALUE AT ASSUMED
NUMBER OF GRANTED EXERCISE ANNUAL RATES OF STOCK
SECURITIES TO OR BASE PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES PRICE OPTION TERM(2)
OPTIONS IN FISCAL ($/SHARE) EXPIRATION ----------------------
NAME GRANTED YEAR (1) DATE 5% ($) 10% ($)
- - -------------------------- ---------- --------- --------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Jerry A. Cooper........... 37,048 34.1% $6.50 07/01/2005 151,445 383,792
Michael J. Meier.......... 9,000 8.3% $6.50 07/01/2005 36,790 93,234
<FN>
- - ---------------
(1) Exercise prices are equal to the fair market value of the Company's Common
Stock on the date of grant. Options are fully exercisable one year after the
date of grant.
(2) The potential realizable value of each grant of options assuming that the
market price of the Company's Common Stock from the date of grant to the end
of the option term (ten years) appreciates at an annualized rate of 5% and
10%. These assumed rates have been suggested by the SEC and are not intended
to forecast actual future stock prices. No gain to the optionee is possible
without an increase in stock price, which will also benefit all
stockholders.
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END VALUES
The following table summarizes options which were granted under the 1989 Stock
Option Plan which were exercised during fiscal 1996 and presents the value of
unexercised options held by each of the Named Executive Officers at fiscal year
end.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
SHARES OPTIONS AT FISCAL YEAR-END IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE (#) FISCAL YEAR-END($)(1)
EXERCISE REALIZED ----------------------------- -----------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - ----------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jerry A. Cooper (2).... 0 0 382,830 37,048 825,000 0
Michael J. Meier (3)... 3,000 16,688 17,119 9,000 0 0
</TABLE>
9
<PAGE> 12
- - ---------------
(1) The value of unexercised options represents the difference between the
closing price of the Company's Common Stock on June 30, 1996 of $6.125 per
share and the exercise price of the option, multiplied by the number of
underlying shares.
(2) 12,349 option shares are exercisable commencing July 1, 1996.
(3) 3,000 option shares are exercisable commencing July 1, 1996.
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
The Company does not have any long-term incentive plans other than the 1989
Stock Option Plan.
PENSION AND RETIREMENT PLANS
Mr. Cooper and Mr. Meier are former participants in a defined benefit pension
plan of one of the Company's subsidiaries. Mr. Cooper will be eligible for
monthly payments of $152 upon retirement at age 65 based upon 0.8 years of
credited service and Mr. Meier will be eligible for monthly payments of $335
upon retirement at age 65 based upon 4.6 years of credited service.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company has an agreement with Mr. Cooper to enter into a post-termination
obligation to consult and not to compete with the Company for one year if
employment is terminated for reasons other than cause or as the result of a
change in control of the Company. In addition, the Company has agreements with
Mr. Cooper and Mr. Meier that provide for continuation of base salary, incentive
compensation and benefits for two years in the event employment is terminated as
the result of a change in control of the Company, after any consulting and non-
compete agreements have been satisfied.
For purposes of the above, a change in control will be considered to have
occurred if, as the result of a tender or exchange offer, merger, consolidation,
sale of assets or contested election, the persons comprising a majority of the
Company's Board of Directors cease to constitute a majority of the Board
membership.
10
<PAGE> 13
FIVE-YEAR STOCK PERFORMANCE GRAPH
The following graph compares the five-year cumulative total return of the
Company's Common Stock to that of two published indices; one a major market
index and the other an industry index. The Company has chosen the Nasdaq U.S.
Stock Market Index ("Nasdaq") as the major market index and the Dow Jones
Automobile Parts and Equipment Excluding Tire and Rubber Makers Index ("Auto
pts/equip") as the industry index. It is assumed that the value of the
investment in Defiance, Inc. Common Stock and each index was $100 on June 30,
1991 and that all dividends were reinvested.
<TABLE>
<CAPTION>
Measurement Period Auto Defiance,
(Fiscal Year Covered) Nasdaq pts/equip Inc.
<S> <C> <C> <C>
6/30/91 100 100 100
6/30/92 120 126 263
6/30/93 151 160 638
6/30/94 153 161 650
6/30/95 204 182 658
6/30/96 261 213 635
</TABLE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
GENERAL
The Compensation Committee (the "Committee") consists entirely of nonemployee
directors who have never been employed by the Company or any of its
subsidiaries. The Committee formulates overall Company compensation philosophy
and related policies, administers and recommends appropriate modifications
regarding annual and long-term executive incentive plans and benefits provided
to officers and other senior executives and approves annual compensation changes
and awards to this group.
11
<PAGE> 14
In its development of compensation policies, plan changes and the determination
of all awards to Company officers, the Committee takes into account a number of
internal and external factors and criteria as well as a variety of independent
data and information sources, including published executive compensation
studies, an executive compensation study performed specifically for the
Committee by a consulting firm which is updated annually, the Company's
strategic financial goals and an overall executive compensation plan initially
developed in 1992. The Committee's objective is to provide the Company's
executive team with a competitive yet highly motivational, performance-oriented
total compensation plan that fosters executive identification with ownership
objectives and is consistent with and maximizes the financial interests of the
Company's stockholders.
The Committee does not believe that the limitation on the tax deductibility of
executive compensation in excess of one million dollars under Code Section
162(m) will impact the Company during fiscal 1997 because taxable compensation
for any of the named executives is not anticipated to exceed one million
dollars. Therefore, the Committee does not recommend any changes to the
Company's incentive plans at this time for shareholder approval.
BASE SALARIES
The Committee's approach to the determination of officer base salaries is that
they be generally competitive with prevailing market medians paid by companies
of similar size and industry for each respective position, commensurate with the
incumbent's level of experience and performance within the scope of his/her
responsibilities. Existing levels of incumbent base compensation as well as
inflationary salary structure increases also receive consideration regarding any
adjustment decisions.
Further, base salary levels and ranges (which have been established for each
officer position and which include a minimum, midpoint, and maximum salary) are
considered relative to the total market compensation determined for each officer
position. Base salary medians, or midpoints, should strike an optimal balance
between base salary, or the "fixed" element of direct compensation, and annual
and long-term incentive, or "at risk" (contingent) compensation, with a
significant emphasis placed upon at risk incentive compensation within the total
direct compensation package of Company officers.
ANNUAL INCENTIVES (BONUS)
The Company's Annual Incentive (Bonus) Plan identifies a percentage of base
salary as a "Target" annual incentive amount for each officer. This amount is
based upon current executive compensation survey data and can be earned by the
achievement of predetermined corporate and, as appropriate for less senior
officers, departmental objectives. In addition to a Target percentage of base
salary that can be earned based upon the achievement of predetermined annual
objectives, "Threshold" and "Maximum" performance levels directly and
respectively correlate with minimum and maximum annual incentive amounts for
each officer position. Substantial upside incentive income potential is awarded
for achievement in excess of Target and substantial downside incentive income
reduction is required for achievements that fail to reach Target levels.
The failure of an officer or other executive to attain the Threshold level of
achievement results in no bonus payment and the Maximum bonus percentage for
each position protects the Company from the prospect of paying windfall
incentive amounts for the achievement of performance levels that are
unexpectedly high or aberrant in nature.
12
<PAGE> 15
The achievement of strategic corporate financial performance objectives,
measured in After Tax Return on Average Equity ("ROE"), represents 100% of the
Chief Executive Officer's (CEO) annual bonus. The rationale behind using this
measurement for the incentive plan of the CEO is that this officer, by the
nature of his position, is in the most advantageous position to impact the
Company's ability to achieve this key measure of overall corporate performance
and, thereby, enhance stockholder value. This figure (100%) drops somewhat
within the performance criteria allocation scheme for other officers and key
executives. Performance criteria with respect to other officers and key
executives include the achievement of certain pre-agreed upon subsidiary or
department goals, weighted differently in each individual circumstance.
LONG-TERM INCENTIVES
The Company's current Long-Term Incentive Plan is the Defiance, Inc. 1989 Stock
Option Plan, under which the Committee may grant stock options to officers and
other key executives using the same corporate objectives for ROE and, where
applicable, subsidiary or departmental goals as are used in the awarding of
Annual (cash) Incentives. This approach has the advantage of further
accentuating to these executives the importance of achieving predetermined
strategic corporate financial objectives that contribute to the interest of the
stockholders. The number of option shares granted are determined taking into
account the executive's annual incentive earned in a given fiscal year and an
assigned option value computed using the Black-Scholes method.
CHIEF EXECUTIVE OFFICER COMPENSATION
The base salary, annual incentive and long-term incentive awards of Mr. Jerry A.
Cooper, the CEO, are adjusted and granted according to the provisions outlined
above using the same criteria as for the other executive officers. During fiscal
1996 the Company achieved its Threshold level strategic financial objective of
11% ROE.
Mr. Cooper's base salary is currently $262,500 per year, which is at the
midpoint of his range. His base salary will be reviewed by the committee in
January 1997. Based upon attaining the Threshold level strategic financial
objectives, he was awarded an Annual Incentive (Bonus) of $135,135, which will
be paid in fiscal 1997.
Respectfully submitted,
Scott D. Roulston, Chairman
James E. Heighway
Hector R. Ortino
13
<PAGE> 16
INDEPENDENT ACCOUNTANTS
The firm of Ernst & Young LLP served as independent accountants for the Company
for the fiscal year ended June 30, 1996, and have been named as such for the
current fiscal year. Representatives of Ernst & Young LLP are expected to be
present at the Annual Meeting with the opportunity to make a statement if they
so desire and to be available to respond to appropriate questions.
EXPENSES OF SOLICITATION
The Company expects to solicit proxies primarily by mail, but directors,
officers and employees of the Company may also solicit proxies in person or by
telephone. All reasonable expenses in connection with the solicitation of
proxies will be borne by the Company. Arrangements will be made by the Company
for the forwarding, at the Company's expense, of soliciting materials by
brokers, nominees, fiduciaries and other custodians to their principals.
In addition, the Company has retained, at an estimated cost of $3,500 plus
reasonable outside expenses, Morrow & Co., Inc., a firm specializing in proxy
solicitation, to assist the Company in the solicitation of proxies by telephonic
or written means on behalf of the Board of Directors and the mailing and
distribution of proxy material.
STOCKHOLDERS' PROPOSALS
Stockholder proposals to be presented at the 1997 Annual Meeting must be
received by the Corporate Secretary for inclusion in the Company's proxy
statement and form of proxy by May 14, 1997.
OTHER MATTERS
As of the date of this proxy statement, the management of the Company has no
knowledge of any matters to be presented for consideration at the meeting other
than those referred to above. If any other matters properly come before the
meeting, the persons named in the accompanying form of proxy intend to vote such
proxy to the extent entitled according to their best judgment.
By order of the Board of Directors,
Michael J. Meier
Secretary
September 11, 1996
14
<PAGE> 17
A [X] Please mark your
votes as in this
example.
<TABLE>
<CAPTION>
FOR VOTE WITHHELD
nominees for nominees
indicated at right indicated at right Nominees:
<S> <C> <C> <C>
Item 1. [ ] [ ]
Election of For a two-year term
Directors Richard W. Lock
Instructions: To withhold authority to vote for any For a three-year term
individual nominee, write that nominee's name on Thomas H. Roulston II
the line below: Scott D. Roulston
______________________________________________________________
</TABLE>
Item 2. In their discretion, upon such other
matters as may properly come before the
meeting, all in accordance with the
accompanying Notice and Proxy Statement,
receipt of which is acknowledged.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
<TABLE>
<S> <C> <C> <C>
SIGNATURE_________________________________ DATE__________________ SIGNATURE___________________________________ DATE______________
IF HELD JOINTLY
NOTE: Please sign exactly as name(s) appears on this proxy, including where proper, official position or representative capacity.
</TABLE>
DEFIANCE, INC.
PROXY SOLICITED ON BEHALF OF BOARD OF DIRECTORS
The undersigned hereby appoints Thomas H. Roulston II, Michael J.
Meier, or either of them with full power of substitution, proxies to vote at the
Annual Meeting of Stockholders of Defiance, Inc. (the "Company") to be held on
October 23, 1996 at 11:00 a.m., local time, and at any adjournment or
adjournments thereof, hereby revoking any proxies heretofore given, to vote all
shares of Common Stock of the Company held or owned by the undersigned as
directed on the reverse, and in their discretion upon such other matters as may
come before the meeting.
IF THIS PROXY IS PROPERLY EXECUTED AND RETURNED, THE SHARES REPRESENTED
THEREBY WILL BE VOTED. IF A CHOICE IS SPECIFIED BY THE SHAREHOLDER, THE
SHARES WILL BE VOTED ACCORDINGLY. IF NOT OTHERWISE SPECIFIED, THE SHARES
REPRESENTED BY THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR
DIRECTOR NAMED IN ITEM 1.
(To be signed on reverse side)
SEE REVERSE
SIDE
