<PAGE> 1
FORM 10 - K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended JUNE 30, 1996
-------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 0-14044
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DEFIANCE, INC.
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(Exact name of registrant as specified in its charter)
Delaware 34-1526359
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1111 Chester Ave., Suite 750, Cleveland, Ohio 44114-3516
- --------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (216) 861-6300
--------------
Securities registered pursuant to Section 12(b) of the Securities Exchange Act
of 1934:
None
----
(Title of class and name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Securities Exchange Act
of 1934:
Common Stock, par value $.05 per share
--------------------------------------
(Title of class)
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 and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
-------- --------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
As of July 31, 1996, 6,415,750 shares of Common Stock of Defiance, Inc. were
outstanding and the aggregate market value of such Common Stock held by
non-affiliates (based upon the closing sale price on such date as reported on
the Nasdaq National Market) was approximately $33,165,000.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Proxy Statement for Defiance, Inc.'s 1996 Annual Meeting of
Shareholders are incorporated by reference to Part III of this Form 10-K Report.
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<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
Defiance, Inc. (the "Company"), incorporated in Delaware as a holding company in
1985, is recognized as a world-class supplier of tooling systems, testing
services and precision machined components to the U. S. motor vehicle industry,
with headquarters in Cleveland, Ohio. The Company offers its customers quality
products and services, ranging from engineering and design of a part or
assembly, through analysis, prototype and physical testing, to tooling and
production.
The Company's subsidiaries operate through the following strategic business
units:
Tooling Systems
- ---------------
Defiance Tooling Systems, consisting of Hy-Form Products, Inc., Binderline
Development, Inc. and Draftline Engineering Company, provides full prototype and
production tooling systems primarily to the domestic automotive industry. A full
turn-key project management service is offered to customers, taking a conceptual
design from soft tooling and prototype dies through to the tryout of the
production hard tooling dies. Work is performed either in house or through
strategic alliances with other firms. Together, these companies design and
produce models, patterns, fixtures, soft prototype tooling, hard production
tooling and aids to hard tooling and supply computerized machine tool cutter
paths, laser processing, CNC (computer numerical control) machining and CMM
(coordinate measuring machine) certification. Typical parts for which prototypes
and production tooling are made include structural, suspension, inner panels,
frame components and powertrain sheet metal parts.
Testing Services
- ----------------
Defiance Testing & Engineering Services, Inc. (formerly SMTC Corporation)
provides a full range of product design, engineering analysis, and experimental
testing and simulation services for structural and mechanical systems. These
systems range from single components to complete vehicle development projects,
primarily for the U.S. transportation industry. Physical testing services
include product durability testing, experimental stress analysis, product
validation testing, environmental testing, noise and vibration testing and road
simulation. Testing is performed on a wide range of components and systems from
chassis and suspensions, seats and seating assemblies, to entire vehicle
environmental and road simulation. Engineering consulting services include new
product design, finite element modeling and analysis, kinematics analysis,
experimental dynamics, variation simulation analysis and vehicle development
programs for parts such as vehicle bodies, suspensions and engine components.
Computer aided engineering techniques such as computerized simulated testing of
prototypes are used to help in the design process of new products at an early
stage in the product development cycle.
Precision Machined Components
- -----------------------------
Defiance Precision Products, Inc. ("Precision Products") manufactures cam
follower rollers, cam follower roller axles and other hardened and precision
machined metal engine and drive-train components, primarily for the domestic
automobile, light truck and heavy-duty truck markets. Precision Products'
principal product, the cam follower roller ("CFR"), is a component used in the
valve lifter assemblies of gasoline and diesel engines that replaces the sliding
surface between the valve lifter and the camshaft with a roller element,
reducing valve train friction and increasing engine efficiency and durability in
roller equipped engines. Because of their application, CFRs and CFR axles must
be manufactured to extremely precise specifications.
CURRENT YEAR DEVELOPMENTS
Tooling Systems
- ---------------
Defiance Tooling Systems continued during 1996 to approach the automotive
marketplace as a full service problem solving tooling and prototype services
supplier and continued to pursue strategic alliances with companies that have
complimentary products and processes. Several process and productivity
improvements were realized during fiscal 1996 as a result of a proactive
cross-functional team structure. Capital investment in high technology CMM laser
scanning and upgraded CAD workstations improved production capability.
-2-
<PAGE> 3
Testing Services
- ----------------
Defiance Testing & Engineering Services, Inc. continued to benefit in fiscal
1996 from increased automotive product improvement and development projects by
its customers, combined with increased capacity from the addition of a seventeen
channel full vehicle light truck road simulator late in fiscal 1995. Domestic
automakers continue to shift greater responsibility for component design,
engineering and testing to their suppliers as they focus more upon their core
competency in the assembly of vehicles. In addition, demand continued to grow
for testing due to safety and quality issues as well as ongoing pressure by the
marketplace to shorten the product development cycle. Full-vehicle simulation
systems, used in conjunction with traditional proving ground testing, allow an
automaker to dramatically reduce the cost and time required to test a vehicle as
well as enhance the quality of data acquired in the process. Capital spending
during the year enhanced capabilities in the areas of simulation testing, data
acquisition and noise and vibration testing.
Precision Machined Components
- -----------------------------
Precision Products began production in December 1995 at a third facility in
Upper Sandusky, Ohio which added production capacity for CFRs and other
precision engine parts, such as the axles upon which CFRs are mounted. This
plant is expected to be running at full production levels by the second fiscal
quarter of fiscal 1997, helping to support approximately $8 million in new
business expected in fiscal 1997 with Eaton Corporation to supply their Chrysler
automotive CFR requirements. Capital spending during the year, which included
new equipment for the Upper Sandusky facility, was focused on expanded capacity
for gasoline engine CFR production, upgrades of existing grinding equipment and
manufacturing process improvements.
Molded and Painted Plastic Products
- -----------------------------------
Vaungarde, Incorporated ("Vaungarde") molds plastic parts using reaction
injection molding processes and paints parts of various polymers produced
internally or provided by other molders. The company primarily serves original
equipment and after-market manufacturers in the automotive, heavy truck,
agricultural and recreational vehicle industries. All of the common shares of
Vaungarde were sold August 19,1996 and additional information relating to this
sale is contained in Note C to the Consolidated Financial Statements.
Sales by strategic business unit as a percentage of the Company's total sales
are as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
1996 1995 1994
---------------------------------
<S> <C> <C> <C>
Precision Machined Components 35% 38% 37%
Tooling Systems 31% 27% 25%
Testing Services 25% 23% 25%
Molded and Painted Plastic Products 9% 12% 13%
---------------------------------
100% 100% 100%
=================================
</TABLE>
MARKETING
Substantially all the Company's sales are to domestic OEMs and their suppliers.
Each of the Company's subsidiaries maintains an internal sales force and engages
independent sales representatives who work closely with existing customers and
solicit new customers. Sales are made under various types of long and short term
arrangements, generally under purchase orders received from customers, which
include fixed price contracts, cost plus fixed fee contracts, and time and
material contracts.
PATENTS, TRADEMARKS AND LICENSES
Patents, trademarks and licenses are not generally significant for the Company
or the industry in which it competes.
RAW MATERIALS
Raw materials used in the Company's operations are generally available from
several sources and in the quantities needed. Multiple vendor sources for
critical raw materials and supplies have been established over the past several
years.
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<PAGE> 4
COMPETITION
The U.S. transportation industry, the principal market for the Company's
products and services, is highly competitive, and suppliers to OEMs and others
in the U.S. transportation industry operate under highly competitive conditions.
Competition is based on quality, price, service, and other factors, with the
relative importance of such factors varying among the Company's products and
services. In particular, the Company and its subsidiaries compete with many
suppliers to the automobile and truck manufacturers, including several U.S. and
Japanese suppliers that are larger and have substantially greater resources than
the Company.
SEASONALITY AND BACKLOG
Sales of the Company's products and services are not seasonal. The Company
believes its backlog, because of the nature of the business, is not indicative
of the level of its present or future business.
WORKING CAPITAL PRACTICES
Owing to the nature of its business, the Company is not required to carry
significant amounts of inventories to meet rapid delivery requirements of its
precision machined components or plastic products customers, or assure itself of
a continuous allotment of goods from suppliers. The Company's manufacturing
processes in these business units are generally performed with a short
turnaround time, and the scheduling of manufacturing activities from customer
orders generally includes enough lead time to assure delivery of adequate
supplies of raw materials. The Company does not generally provide extended
payment terms to its customers; however, like many of its competitors, the
Company sells a substantial amount of goods and services to other OEM suppliers.
It is common for these other OEM suppliers to delay payment for goods and
services to their suppliers until payment is received by them from the OEMs. The
Company generally allows its customers to return merchandise for failure to meet
certain pre-agreed quality standards; however, the Company employs quality
assurance practices that minimize such returns.
PRINCIPAL CUSTOMERS
The Company's principal customers for its products and services are General
Motors Corporation, Ford Motor Company, Chrysler Corporation (the "Big Three")
and their respective suppliers. Direct sales to principal customers as a
percentage of the Company's total sales are as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
1996 1995 1994
-------------------------------
<S> <C> <C> <C>
Big Three:
----------
General Motors Corporation 30% 22% 17%
Ford Motor Company 14% 17% 25%
Chrysler Corporation 11% 5% 4%
-------------------------------
55% 44% 46%
Others over 10% of consolidated sales:
--------------------------------------
Eaton Corporation 10% 12% 11%
</TABLE>
EMPLOYEES
As of June 30, 1996, the Company employed 822 persons. All production personnel
of Precision Products located in Defiance, Ohio, are represented by the United
Auto Workers. The current contract between Precision Products and the UAW was
signed in May 1994, and expires in November 1998. Production personnel at
Vaungarde, which was sold August 19, 1996, were also represented by the United
Auto Workers.
GOVERNMENT REGULATION
Management of the Company believes that compliance with applicable Federal,
state, and local environmental laws and regulations has not had nor should have
any material effect upon the capital expenditures, net income, or competitive
position of the Company.
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<PAGE> 5
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
The executive officers of the Company are as follows:
Name Age Position
- ---- --- --------
<S> <C> <C>
Thomas H. Roulston II 63 Chairman of the Board and Director (1)
Jerry A. Cooper 57 President, Chief Executive Officer and Director (2)
Michael J. Meier 42 VP-Finance, Chief Financial Officer, Secretary and Treasurer
James L. Treece 58 Chief Accounting Officer and Assistant Treasurer
Leonard V. Matlock, Jr. 49 Corporate Controller and Assistant Secretary
</TABLE>
(1) Term as director expires in 1996
(2) Term as director expires in 1998
Thomas H. Roulston II has served as Chairman of the Board since in 1990. Mr.
Roulston has been the chairman of the board of Roulston & Company, Inc. of
Cleveland, Ohio since 1990, and served as president of Roulston & Company, Inc.
from 1963 until 1990. Roulston & Company, Inc. is a registered investment
advisor.
Jerry A. Cooper joined the Company in 1992 as President and Chief Executive
Officer. From 1990 until joining the Company, 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 to 1990 he was president and general manager of Mather Seal Company, a
subsidiary of Federal-Mogul Corporation. Mather Seal is a manufacturer of
Teflon(tm) seals and specialty products for industry, located in Milan,
Michigan.
Michael J. Meier joined the Company in 1988 as Corporate Controller, and in 1990
was named VP-Finance, Chief Financial Officer, Secretary, and Treasurer. Prior
to joining the Company, Mr. Meier held various positions in both public
accounting and private industry accounting and finance.
James L. Treece joined the Company in 1990 as Corporate Controller and in 1992
was named Chief Accounting Officer and Assistant Treasurer. Prior to joining the
Company, Mr. Treece was assistant treasurer of HCR Corporation, a publicly-held
health care company, from 1981 until 1989, and from 1977 until 1981 was
controller of Wolfe Industries Construction Company, which became part of HCR
Corporation.
Leonard V. Matlock has served as Corporate Controller and Assistant Secretary of
the Company since December 1993. From 1985 until joining the Company, Mr.
Matlock was controller of Teledyne Hyson, a division of Teledyne, Inc. Teledyne
Hyson is a manufacturer of metal stamping die controls. Prior to 1980, Mr.
Matlock held various accounting related positions in private industry.
No executive officer has any family relationship to any other executive officer
or director of the Company, except Thomas H. Roulston who is the father of Scott
D. Roulston, a director of the Company. Each executive officer holds office
until the first meeting of the Board of Directors of the Company following the
next annual meeting of stockholders of the Company and his successor shall have
been elected and qualified, or until his earlier resignation or removal from
office.
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<PAGE> 6
ITEM 2. PROPERTIES
The following are the principal properties of the Company as of June 30, 1996:
<TABLE>
<CAPTION>
Area in Owned /
Location Square Feet Leased Primary use
- -------- ----------- ------ -----------
<S> <C> <C> <C>
Defiance, Inc.
1111 Chester Ave., Cleveland, OH 2,800 Leased Corporate offices
Defiance Precision Products, Inc.
1125 Precision Way, Defiance, OH 90,000 Owned Manufacturing plant and offices
1190 Precision Way, Defiance, OH 40,000 Owned Manufacturing plant
1815 Baltimore Rd., Defiance, OH 6,000 Leased Product development facility
250 Commerce Way, Upper Sandusky, OH 78,000 Leased Manufacturing plant
Hy-Form Products, Inc.
35588 Veronica Drive, Livonia, MI 19,200 Owned Production facility and offices
35572 Veronica Drive, Livonia, MI 12,400 Leased Production facility
35569 Industrial Drive, Livonia, MI 12,400 Leased Production facility
35684 Veronica Drive, Livonia, MI 12,400 Leased Production facility
Defiance Testing & Engineering Services, Inc.
1960 Ring Drive, Troy, MI 42,000 Leased Offices and testing facilities
5859 Executive Drive, Westland, MI 29,000 Leased Offices and testing facilities
5950 Executive Drive, Westland, MI 7,800 Leased Offices and testing facilities
5717 Executive Drive, Westland, MI 9,663 Leased Offices and testing facilities
5727 Executive Drive, Westland, MI 20,000 Leased Offices and testing facilities
5770 Hix Road, Westland, MI 24,600 Leased Offices and testing facilities
Vaungarde, Incorporated
1000 Bradley Street, Owosso, MI 100,000 Owned Manufacturing plant and offices
630 South Chestnut Street, Owosso, MI 28,000 Owned Manufacturing plant
1040 Aiken Road, Owosso, MI 20,000 Leased Manufacturing plant
Binderline Development, Inc.
Draftline Engineering Company
33100 Freeway Dr., St. Clair Shores, MI 42,500 Owned Production facility and offices
</TABLE>
The Company considers its properties to be suitable and adequate for its present
needs. The properties are being fully utilized, though utilization can vary with
production levels.
ITEM 3. LEGAL PROCEEDINGS
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
Not applicable
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<PAGE> 7
PART II
ITEM 5. MARKET FOR REGISTRANT'S CAPITAL STOCK AND RELATED STOCKHOLDER MATTERS
The principal market in which the Company's Common Stock is traded is the Nasdaq
National Market (Nasdaq Symbol DEFI). The following table indicates the high and
low sales price of the Company's Common Stock traded on the Nasdaq National
Market Summary of Activity and the cash dividends declared per share for each
full quarterly period within the two most recent fiscal years:
<TABLE>
<CAPTION>
Market Price
------------------------- Dividends
High Low Declared
---- --- --------
<S> <C> <C> <C>
Fiscal 1996
- -----------
First quarter (July 1, 1995 - September 30, 1995) $7.5000 $6.5000 $0.04
Second quarter (October 1, 1995 - December 31, 1995) $8.0000 $5.3750 0.04
Third quarter (January 1, 1996 - March 31, 1996) $6.2500 $5.1250 0.04
Fourth quarter (April 1, 1996 - June 30, 1996) $6.3750 $5.3750 0.04
-----
Total $0.16
=====
Fiscal 1995
- -----------
First quarter (July 1, 1994 - September 30, 1994) $7.5625 $5.5000 ---
Second quarter (October 1, 1994 - December 31, 1994) $7.5000 $6.0000 ---
Third quarter (January 1, 1995 - March 31, 1995) $7.6250 $6.2500 $0.04
Fourth quarter (April 1, 1995 - June 30, 1995) $7.0000 $6.1250 0.04
------- ------- ----
Total $0.08
=====
</TABLE>
As of July 31, 1996 the Company had 312 stockholders of record. This figure does
not include those persons who hold the Company's stock through nominee accounts,
otherwise known as "street name" shareholders. Including street name
shareholders, the Company estimates it has 3,000 stockholders.
The Company expects its practice of paying quarterly dividends on its Common
stock will continue, although future dividends will continue to depend upon the
Company's earnings, capital requirements, financial condition and other factors.
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<PAGE> 8
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
DEFIANCE, INC. AND SUBSIDIARIES
FIVE YEAR SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
Year Ended June 30,
1996 1995 1994 1993 1992
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $103,975 $92,532 $81,645 $79,217 $ 69,559
Earnings before cumulative effect of
accounting change (1) $ 1,598 $ 6,594 $ 5,437 $ 3,432 $ 909
Cumulative effect of accounting change -- 564 -- --
-------------------------------------------------
Net earnings $ 1,598 $ 6,594 $ 6,001 $ 3,432 $ 909
=================================================
Earnings before cumulative effect of
accounting change (1) $ 0.24 $ 0.98 $ 0.81 $ 0.54 $ 0.15
Cumulative effect of accounting change -- 0.09 -- --
-------------------------------------------------
Net earnings per common share $ 0.24 $ 0.98 $ 0.90 $ 0.54 $ 0.15
=================================================
Working capital (deficiency) $ 9,537 $12,149 $10,112 $ 9,569 ($ 341)
Cost in excess of net assets of acquired
companies (goodwill) -- net of amortization $ 5,122 $ 6,769 $ 7,085 $ 7,400 $ 7,715
Total assets $ 74,768 $77,341 $54,535 $51,737 $ 50,073
Short-term interest bearing obligations $ 5,051 $ 4,299 $ 2,933 $ 2,343 $ 10,941
Long-term interest bearing obligations $ 18,134 $17,182 $ 9,346 $13,685 $ 9,995
Stockholders' equity $ 35,438 $36,296 $30,174 $24,081 $ 20,157
Dividends paid $ 1,045 $ 523 -- -- --
</TABLE>
<TABLE>
<CAPTION>
DEFIANCE, INC. AND SUBSIDIARIES
UNAUDITED QUARTERLY INFORMATION
(Amounts in thousands, except per share amounts)
First Second Third Fourth
Fiscal 1996 Quarter Quarter Quarter Quarter Total
- ----------- --------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $26,966 $24,636 $25,724 $ 26,649 $103,975
Gross profit $ 5,727 $ 4,201 $ 4,265 $ 5,263 $ 19,456
Net earnings (1) $ 1,538 $ 665 $ 474 ($ 1,079) $ 1,598
Earnings per share (1) $ 0.23 $ 0.10 $ 0.07 ($ 0.16) $ 0.24
Fiscal 1995
Net sales $21,574 $20,977 $23,085 $ 26,896 $ 92,532
Gross profit $ 5,677 $ 5,408 $ 6,158 $ 6,674 $ 23,917
Net earnings $ 1,501 $ 1,426 $ 1,743 $ 1,924 $ 6,594
Earnings per share $ 0.22 $ 0.22 $ 0.26 $ 0.28 $ 0.98
<FN>
(1) See Note C to the Consolidated Financial Statements.
</TABLE>
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<PAGE> 9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain items from Defiance, Inc.'s Consolidated
Statement of Operations as a percentage of net sales for the fiscal years ended
June 30, 1996 ("1996"), June 30, 1995 ("1995") and June 30, 1994 ("1994"):
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------
<S> <C> <C> <C>
Net sales 100.0 100.0 100.0
Cost of goods sold 81.3 74.2 74.9
-----------------------
Gross profit 18.7 25.8 25.1
Selling and administrative expenses 10.9 13.7 13.6
Charge for business to be sold 2.5
-----------------------
Operating earnings 5.3 12.1 11.5
Interest expense - net 1.7 1.1 1.6
Other (income) (0.1) (0.1)
-----------------------
Earnings before income tax provision and cumulative
effect of accounting change 3.7 11.0 10.0
Income tax provision 2.2 3.9 3.3
-----------------------
Earnings before cumulative effect of accounting change 1.5 7.1 6.7
Cumulative effect of accounting change - income taxes 0.7
-----------------------
Net earnings 1.5 7.1 7.4
=======================
</TABLE>
Net sales
- ---------
Net sales for 1996 were up by $11,443,000, or 12.4%, from 1995. Sales of cam
follower rollers and other precision machined metal components were up 3%. Sales
of automotive cam follower rollers increased primarily from new business with
General Motors for their light truck series engine. This increase was partially
offset by lower shipments of diesel engine rollers resulting from lower
heavy-duty truck build rates. Sales of testing services increased 23% as the
result of additional capacity from the new light truck simulator installed late
in 1995, combined with increased testing work for Chrysler Corporation. Tooling
revenues increased 28% primarily from a contract with General Motors to supply
hard tooling for the 1997 Chevrolet Malibu. This contract began during the
second half of 1995 and was completed April 1996. Sales of molded and painted
plastic parts were down 12% due to decreased demand from original equipment
manufacturers and after-market automotive and recreational vehicle customers.
Net sales for 1995 were up by $10,887,000, or 13.3%, from 1994. Sales of cam
follower rollers and other precision machined metal components were up 17% due
to strong engine build rates at the Company's automotive and diesel customers,
combined with new business for Eaton Corporation under a contract announced in
1994. Sales of testing services also increased 4% due to strong new model
development activity by domestic automakers and the continuing trend toward
outsourcing to preferred suppliers. Tooling revenues increased 24% primarily due
to the General Motors hard tooling contract. Sales of molded and painted plastic
parts were essentially unchanged from the prior year.
Gross profit percentage
- -----------------------
Gross profit for 1996, as a percentage of net sales, decreased to 18.7% from
25.8% in the prior year, which represents a $4,461,000 decrease from 1995.
Profit margins expected on the General Motors hard tooling contract were not
achieved due to equipment problems and personnel shortages. In addition, the new
cam follower roller facility in Upper Sandusky, Ohio, began limited production
in the second quarter of 1996 and experienced low productivity and start-up
issues related to equipment transfers and the training of new personnel. Cost of
goods sold also included $525,000 for the amortization of preoperating costs.
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<PAGE> 10
Gross profit for 1995, as a percentage of net sales, increased to 25.8% from
25.1% in the prior year, which represents a $3,397,000 increase from 1994. The
increase was due to a mix of higher sales in the Company's core business units,
which generally experience higher margins, coupled with productivity
improvements and increased capacity utilization.
Selling and administrative (S&A) expenses
- -----------------------------------------
S&A expenses for 1996, as a percentage of sales, decreased to 10.9% from 13.7%,
representing a $1,401,000 decrease from 1995. This decrease is due to
substantially lower incentive compensation costs associated with lower earnings
and continued efforts to control administrative costs.
S&A expenses for 1995, as a percentage of sales, increased to 13.7% from 13.6%,
representing a $1,603,000 increase from 1994. This increase is due to a one-time
charge of $250,000 relative to the curtailment of a defined benefit pension
plan, increased compensation costs associated with improved earnings, and
increased costs associated with higher sales levels. Excluding the pension
charge, S&A expenses represented 13.5% of sales, down from 1994.
Charge for business to be sold
- ------------------------------
The non-cash charge of $2,600,000 in 1996 reflects the estimated loss on the
August 19, 1996 sale of the Company's Vaungarde, Incorporated subsidiary. See
Note C to the Consolidated Financial Statements for further detail.
Interest income and expense
- ---------------------------
Interest expense, net of interest income, for 1996 increased $692,000, or 70%,
from 1995. This increase was due to higher average net borrowings at similar
effective interest rates to 1995. In addition, $293,000 of interest was
capitalized during 1996.
Interest expense, net of interest income, for 1995 decreased $311,000, or 24%,
from 1994. This decrease was due to lower average net borrowings at lower
effective interest rates, resulting from improved terms in the Company's credit
facility with its primary lender. In addition, $264,000 of interest was
capitalized during 1995.
Income taxes
- ------------
The effective income tax rate for 1996 was 59.0%, as compared to 35.6% in 1995
and 33.2% in 1994. The significant difference in effective rates between 1996
and 1995 is due to the $2,600,000 non-cash charge for the business to be sold,
which is not deductible for income tax purposes. The remaining difference in
effective rates is due to future taxable amounts that must be considered in the
computation of income taxes for the current year as required by Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109).
Effective July 1, 1993, the Company changed its method of accounting for income
taxes from the deferred method to the liability method required by SFAS 109. As
permitted by the rules, prior years' financial statements were not restated, and
the cumulative effect of adopting SFAS 109 as of July 1, 1993 was to increase
1994 net income by $564,000, or $0.09 per share. For an analysis of income
taxes, see Note H to the Consolidated Financial Statements.
Trends in operations
- --------------------
The domestic automobile and light truck industry experienced steady growth from
1992 through 1994, with total vehicle sales increasing from 13.1 million in 1992
to 15.5 million in 1994. Total vehicle sales declined slightly in 1995 to 15.1
million units, and are expected to remain at similar levels in 1996 with
industry analyst estimates currently at 15.2 million units. Although industry
sales have flattened out in 1995 and 1996, these volumes remain at relatively
high levels with healthy earnings for the industry as a whole.
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<PAGE> 11
Trends in the domestic auto industry are driven by automakers' needs, causing
the actions of their suppliers to be reactive to automakers' demands, rather
than proactive. Increased outsourcing by the Big Three is occurring as they
focus on being assemblers of vehicles as compared to manufacturers of vehicles.
In addition, consolidation of the supplier base is causing increased customer
selectivity among a more limited supplier group by the automakers to simplify
purchasing and improve quality. In response to these trends, suppliers are
finding it necessary to distinguish themselves from others by providing higher
quality products and services at lower prices.
Management expects Defiance to continue to benefit from these industry trends.
Automobile and truck producers are increasingly outsourcing design and testing
work previously done in-house. Shorter production cycles and the need to improve
quality has created increased demand for design and testing services. As
automotive companies reduce the number of suppliers they use, established
suppliers such as Defiance will have opportunities for additional work.
The Company's core subsidiaries are organized into three strategic business
units: Tooling Systems, Testing Services and Precision Machined Components. Each
of these units seeks to create a competitive advantage through technological and
manufacturing niches utilizing research, development, engineering and design
capabilities to differentiate it from its competitors. In addition, each
business unit stresses systems capabilities as compared to supplying only
individual components, to save its customers time and money. The strategy in
fiscal 1997 is to improve operating margins through continued productivity
improvement programs and prudent capital investment and to expand the Company's
already strong position in these niche markets through expanded global marketing
efforts and acquisitions that fit this strategic direction.
Three significant issues affecting operating margins in 1996 should not be
factors in 1997. The hard tooling project for General Motors accounted for $9.5
million of sales in 1996 at essentially a break-even operating margin. The
Company closed its leased hard tooling operations upon completion of this
project in April 1996. In addition, many of the costs associated with start-up
issues at the new cam follower roller facility in Upper Sandusky, Ohio, were
recognized during 1996 and this plant should be at full production levels by the
second quarter of 1997. Certain preoperating costs were deferred. See Note A to
the Consolidated Financial Statements. Finally, the Company completed the sale
of its Vaungarde, Incorporated subsidiary during the first quarter of 1997.
Vaungarde had an operating loss in 1996. These factors, combined with about $6
million in new business expected in 1997 with Eaton Corporation to supply their
Chrysler automotive cam follower roller requirements, should help fiscal 1997
earnings resume their previous growth trend and exceed fiscal 1995 levels,
assuming the automotive market and economy remain reasonably strong.
The preceding discussion includes forward-looking statements based on
management's current expectations, which are subject to a number of risks and
uncertainties that could materially affect demand for the Company's products and
services, thereby impacting future results of operations, financial condition or
cash flows. Demand for the Company's products and services is affected by
consumer demand in the domestic automotive and heavy-duty truck industries and
the resulting levels of production, as well as competition from other suppliers
to these industries. Demand is also affected by the level of new model
development at OEMs (original equipment manufacturers) and the resulting need
for prototyping, tooling and testing services. Demand is also sensitive to
general economic conditions, such as growth, inflation, interest rates and
unemployment levels.
Inflation over the past three years has affected the Company's cost of raw
materials while selling prices have remained relatively constant under pricing
pressures from the Big Three. Most of these cost increases have been offset,
however, through process improvements, gains in productivity and arrangements
with some customers to share cost increases.
All production personnel of Precision Products located in Defiance, Ohio, are
represented by the United Auto Workers. The current contract between Precision
Products and the UAW was signed in May 1994, and expires in November 1998.
Production personnel at Vaungarde, which was sold August 19,1996, were also
represented by the United Auto Workers.
-11-
<PAGE> 12
FINANCIAL CONDITION (LIQUIDITY AND CAPITAL RESOURCES)
The following includes certain items and analyses derived from Defiance, Inc.'s
Consolidated Statement of Cash Flows and Consolidated Balance Sheet for the
fiscal years ended June 30, 1996 ("1996"), June 30, 1995 ("1995") and June 30,
1994 ("1994"):
<TABLE>
<CAPTION>
Operating activities and working capital
- ---------------------------------------- (All dollar amounts in thousands)
1996 1995 1994
------------------------------
<S> <C> <C> <C>
Net earnings $ 1,598 $ 6,594 $ 6,001
Items not affecting cash 9,435 4,467 3,543
Changes in working capital components 1,044 (2,067) (58)
------------------------------
Cash provided by operating activities 12,077 8,994 9,486
Increase (decrease) over prior year 3,083 (492) 1,998
Current assets $27,716 $ 33,481 $ 22,779
Current liabilities 18,179 21,332 12,667
------------------------------
Working capital 9,537 12,149 10,112
Current ratio 1.52 1.57 1.80
Days sales outstanding in accounts receivable at fiscal year end 58 77 70
Annual inventory turnover rate at fiscal year end 26 8 15
</TABLE>
Cash provided by operating activities was $12,077,000 in 1996, compared to
operating cash flows of $8,994,000 in 1995 and $9,486,000 in 1994. Items not
affecting cash in all years include depreciation and amortization of property,
plant and equipment and amortization of goodwill. Items not affecting cash in
1996 also include amortization of preoperating costs of $525,000 and a
$2,600,000 charge for the business to be sold. Net cash provided by working
capital components in 1996 of $1,044,000 was primarily due to lower inventories
and receivables levels related to the end of a major hard tooling contract and
the reclassification of net assets of the business to be sold, partially offset
by lower trade payables, incentive bonus accruals and Federal income tax
accruals. Net cash used for working capital components in 1995 of $2,067,000 was
primarily due to increased inventory levels related to a major hard tooling
contract, increased receivables in response to higher sales levels and increased
prepaid expenses from the recording of preoperating costs, partially offset by
increases in trade payables and accruals related to increased production levels,
incentive bonus accruals and amounts owed for fixed assets purchased in June
1995. Net cash used for working capital components in 1994 of $58,000 was due to
modest increases in inventories, offset by modest decreases in receivables and
increases in trade payables and accruals.
Days sales outstanding in accounts receivable fell below 60 days at the end of
1996, and averaged over 70 days the prior two years. This level of days
outstanding in receivables is normal for the industry in which the Company
operates. Many of Defiance's customers are suppliers to the major automotive
companies, and these suppliers are often not in a position to pay Defiance until
they have received payment from their customers. Inventory turnover at the end
of 1996 improved as the result of completing a major hard tooling contract in
April 1996. Inventory turnover at the end of 1995 was substantially lower than
in 1994 due to new contracts in 1995 for hard tooling. These contracts were
longer term in nature than those of the Company's other operations since a
tooling job can take several months to complete.
-12-
<PAGE> 13
<TABLE>
<CAPTION>
Financing activities and banking facility
- ----------------------------------------- (All dollar amounts in thousands)
1996 1995 1994
-------------------------------
<S> <C> <C> <C>
Total short and long term obligations (funded debt) $23,185 $21,481 $ 12,279
Increase (decrease) from prior year 1,704 9,202 (3,749)
Total capitalization (funded debt above plus equity) $58,623 $57,777 $ 42,453
Debt to total capitalization ratio 39.5% 37.2% 28.9%
Cash generated from exercise of employee stock options $ 71 $ 51 $ 92
Dividends paid $ 1,045 $ 523 --
Cash paid for repurchase of common shares $ 891 -- --
Year end borrowing capacity under lines of credit $ 6,000 $ 4,000 $ 6,962
</TABLE>
Total funded debt increased $1,704,000 in 1996 and $9,202,000 in 1995 from
borrowings to support the purchase of equipment. Borrowings of $6,000,000 in
1996 and $12,000,000 in 1995 were partially offset by scheduled payments of
existing debt. In 1994, funded debt was reduced $3,749,000 as higher interest
rate loans were identified and paid off early. The Company has purchased over
$26,000,000 in property, plant and equipment in 1995 and 1996, yet debt to total
capitalization ratio remains below 40%. The Company generated $214,000 over the
past three years through the sale of common stock from the exercise of employee
stock options, paid a total of $1,568,000 in dividends during 1995 and 1996 and
paid $891,000 for the repurchase of common shares in 1996.
The Company's banking arrangement with its primary lender includes a $6,000,000
unsecured revolving line of credit to support working capital needs, which
currently expires October 1998. Borrowings under this facility are at rates
below prime. At the end of 1996, all $6,000,000 was available as additional
borrowing capacity.
<TABLE>
<CAPTION>
Investing activities
- -------------------- (All dollar amounts in thousands)
1996 1995 1994
---------------------------------
<S> <C> <C> <C>
Capital expenditures, including assets acquired under capitalized leases $9,994 $16,294 $6,155
Depreciation and amortization of property, plant and equipment 5,206 4,126 3,831
</TABLE>
Capital spending in 1996 and 1995 included approximately $6,000,000 and
$9,000,000, respectively, for equipment in support of expanded production
capacity for gasoline engine cam follower roller and axle production. Capital
spending in 1995 also included approximately $3,000,000 for the purchase and
installation of equipment supporting expanded capacity in full-vehicle road
simulation testing. The remainder of capital spending in 1994, 1995 and 1996 was
for upgrades to existing equipment, manufacturing process improvements, asset
replacements and modest expenditures to support other new or increased business.
-13-
<PAGE> 14
Trends in liquidity and capital resources
- -----------------------------------------
The Company experienced significant demands for working capital during 1995 and
1996 from its entry into the hard tooling business in 1995. The Company
completed all hard tooling operations in April 1996 and the working capital
invested was recovered by the end of fiscal 1996. It is not expected that
working capital requirements in fiscal 1997 will be significant in addition to
those normally required to support increased sales and production levels. In
addition, cash received from the sale of the Company's Vaungarde subsidiary
should be in excess of $3,000,000. This cash will be available to support
capital expenditures or working capital needs or to reduce existing
variable-rate term debt with the Company's primary lender. Therefore, liquidity
in fiscal 1997 is expected to continue to be adequate to meet operating needs
through profitability and resulting cash flows combined with borrowing capacity
under the revolving line of credit. Liquidity is defined as the ability of an
enterprise to mobilize cash to support operating needs.
Based on currently expected levels of business, the Company plans to spend
approximately $4 million in capital expenditures in fiscal 1997 relative to
asset replacements, cost reduction, and productivity improvement programs.
Additional capital expenditures relating to new or increased sales are currently
estimated at $2 million.
At June 30, 1996, the Company has noncancelable outstanding commitments for
capital expenditures of approximately $2.4 million. The Company has the
necessary financing to fund these commitments if required, and expects to fund
its remaining planned fiscal 1997 capital expenditures through operating cash
flow. In addition, the Company's status as an unsecured borrower from its
primary lender and relatively modest debt to total capitalization ratio reflects
favorably on the Company's ability to generate additional sources of capital in
the future, should they be required.
In January 1996, the Company adopted a stock repurchase plan. This program is
flexible, and the board of directors and management believe it can be
implemented without detracting from the Company's business strategies or
investment opportunities. Stock repurchases will be funded from operating cash
flow or loans from Comerica Bank under the existing revolving credit facility.
Any such borrowings will be made in accordance with the Company's loan covenants
with Comerica Bank and are not expected to hinder the Company's ability to fund
capital expenditures, acquisitions, or its business operations. A total of
157,700 common shares were repurchased in open market transactions for $891,000
during 1996.
In March 1995, the Company paid its first cash dividend to holders of its common
stock since it became publicly owned in 1985. A quarterly cash dividend of four
cents per share has been paid each quarter since that time. The Company
anticipates future quarterly dividends, and does not expect its liquidity or
capital resources to be materially affected by the payment of dividends.
Certain credit agreements of the Company contain various warranties and
covenants. As of June 30, 1996, the Company is in compliance with all of these
covenants, and expects to remain in compliance with these covenants in fiscal
1997.
-14-
<PAGE> 15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Index to Financial Statements of Defiance, Inc. and Subsidiaries Page
- ---------------------------------------------------------------- ----
<S> <C>
Report of Independent Auditors 16
Consolidated Balance Sheet at June 30, 1996 and 1995 17
Consolidated Statement of Operations for the years ended June 30, 1996, 1995 and 1994 19
Consolidated Statement of Stockholders' Equity for the years ended June 30, 1996, 1995 and 1994 20
Consolidated Statement of Cash Flows for the years ended June 30, 1996, 1995 and 1994 21
Notes to Consolidated Financial Statements 22
</TABLE>
-15-
<PAGE> 16
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Defiance, Inc.
We have audited the accompanying consolidated balance sheet of Defiance, Inc. as
of June 30, 1996 and 1995 and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the three years in the period
ended June 30, 1996. Our audits also included the financial statement schedule
for the years ended June 30, 1996, 1995 and 1994 listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the account principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Defiance, Inc. at
June 30, 1996 and 1995 and the consolidated results of their operations and
their cash flows for each of the three years in the period ended June 30, 1996
in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
As discussed in Note H to the consolidated financial statements, in fiscal 1994,
the Company changed its method of accounting for income taxes.
Ernst & Young LLP
Cleveland, Ohio
July 30, 1996
except for Note C, as to which the date is
August 19, 1996
-16-
<PAGE> 17
DEFIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(All dollar amounts in thousands)
<TABLE>
<CAPTION>
ASSETS
June 30, June 30,
1996 1995
--------------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,240 $ 1,166
Accounts receivable, less allowance for doubtful accounts
of $193 - 1996 and $316 - 1995 16,615 19,835
Inventories 3,312 8,210
Deferred and refundable income taxes 1,058 954
Prepaid expenses and other current assets 2,383 3,316
Net assets of business to be sold 3,108
--------------------
Total current assets 27,716 33,481
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 394 404
Buildings and leasehold improvements 11,831 11,062
Machinery and equipment 49,102 36,523
Office equipment 1,522 1,899
Construction in process 4,741 15,481
--------------------
67,590 65,369
Accumulated depreciation and amortization (28,074) (29,375)
--------------------
39,516 35,994
OTHER ASSETS:
Cost in excess of net assets of acquired companies, less accumulated
amortization of $2,253 - 1996 and $2,524 - 1995 5,122 6,769
Other 2,414 1,097
7,536 7,866
--------------------
Total assets $ 74,768 $ 77,341
====================
</TABLE>
-17-
<PAGE> 18
DEFIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(All dollar amounts in thousands except par value )
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, June 30,
1996 1995
-------------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long term obligations $ 5,051 $ 4,299
Accounts payable 4,908 6,570
Accrued payroll and employee benefits 3,578 4,385
Accrued expenses 4,642 6,078
-------------------
Total current liabilities 18,179 21,332
LONG TERM OBLIGATIONS 18,134 17,182
DEFERRED INCOME TAXES 3,017 2,531
CONTINGENCIES - Note L
STOCKHOLDERS' EQUITY:
Preferred shares, par value $.05, 2,000,000 shares authorized, no shares
outstanding Common shares, par value $.05, 15,000,000 shares authorized,
shares issued
6,573,450 - 1996 and 6,543,950 - 1995 328 327
Additional paid-in capital 22,047 21,977
Common shares in treasury, at cost; 157,700 shares (891)
Minimum pension liability (591)
Retained earnings 14,545 13,992
-------------------
35,438 36,296
===================
Total liabilities and stockholders' equity $ 74,768 $77,341
===================
</TABLE>
The accompanying notes are an integral part of the financial statements
-18-
<PAGE> 19
<TABLE>
<CAPTION>
DEFIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(All amounts in thousands, except per share amounts)
Year Ended June 30,
1996 1995 1994
---------------------------------
<S> <C> <C> <C>
Net sales:
Products $ 76,447 $ 69,544 $ 59,378
Services 27,528 22,988 22,267
---------------------------------
103,975 92,532 81,645
---------------------------------
Cost of goods sold:
Products 65,468 52,985 45,927
Services 19,051 15,630 15,198
---------------------------------
84,519 68,615 61,125
---------------------------------
Gross profit 19,456 23,917 20,520
Selling and administrative expenses 11,307 12,708 11,105
Charge for business to be sold 2,600
---------------------------------
Operating earnings 5,549 11,209 9,415
Interest expense - net 1,680 988 1,299
Other (income) (28) (19) (26)
---------------------------------
Earnings before income tax provision and cumulative
effect of accounting change 3,897 10,240 8,142
Income tax provision 2,299 3,646 2,705
---------------------------------
Earnings before cumulative effect of accounting change 1,598 6,594 5,437
Cumulative effect of accounting change - income taxes 564
---------------------------------
Net earnings $ 1,598 $ 6,594 $ 6,001
=================================
Net earnings per common share:
Earnings before cumulative effect of accounting change $ 0.24 $ 0.98 $ 0.81
Cumulative effect of accounting change - income taxes 0.09
---------------------------------
Net earnings $ 0.24 $ 0.98 $ 0.90
=================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
-19-
<PAGE> 20
<TABLE>
<CAPTION>
DEFIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(All amounts in thousands)
Common Shares
----------------- Additional Minimum
Number Paid-in Treasury Pension Retained
of Shares Amount Capital Shares Liability Earnings Total
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
June 30, 1993 6,422 $321 $21,840 $ 1,920 $ 24,081
Options exercised 94 5 87 92
Net earnings 6,001 6,001
-------------------------------------------------------------------
June 30, 1994 6,516 326 21,927 7,921 30,174
Options exercised 28 1 50 51
Net earnings 6,594 6,594
Dividends (523) (523)
-------------------------------------------------------------------
June 30, 1995 6,544 327 21,977 13,992 36,296
Options exercised 30 1 70 71
Shares purchased for treasury (158) ($891) (891)
Net earnings 1,598 1,598
Dividends (1,045) (1,045)
Adjustment for minimum pension
liability, net of deferred taxes ($591) (591)
-------------------------------------------------------------------
June 30, 1996 6,416 $328 $22,047 ($891) ($591) $ 14,545 $ 35,438
===================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
-20-
<PAGE> 21
<TABLE>
<CAPTION>
DEFIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(All amounts in thousands)
Year Ended June 30,
1996 1995 1994
--------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 1,598 $ 6,594 $ 6,001
Adjustments to reconcile net earnings to cash provided by
operating activities:
Depreciation and amortization of property, plant and equipment 5,206 4,126 3,831
Amortization of other assets 776 315 315
Cumulative effect of accounting change (564)
Charge for business to be sold 2,600
(Gain) loss on sale of assets (17) (5) 4
Deferred income taxes 870 31 (43)
Changes in assets and liabilities:
Accounts receivable 1,439 (3,963) 429
Inventories 3,491 (4,233) (757)
Accounts payable and accrued expenses (2,331) 6,916 489
Income taxes (246) 154 249
Net assets of business to be sold (1,061)
Prepaid expenses and other (248) (941) (468)
--------------------------------
Cash provided by operating activities 12,077 8,994 9,486
--------------------------------
FINANCING ACTIVITIES:
Payments of long term obligations (4,296) (3,037) (11,285)
Additions to long term obligations 6,000 12,000 7,471
Issuance of common shares 71 51 92
Repurchase of common shares (891)
Dividends paid (1,045) (523)
--------------------------------
Cash provided by (used for) financing activities (161) 8,491 (3,722)
--------------------------------
INVESTING ACTIVITIES:
Capital expenditures (9,994) (16,055) (5,362)
Preoperating costs (1,774) (960)
Other - net (74) (245) 89
--------------------------------
Cash used for investing activities (11,842) (17,260) (5,273)
--------------------------------
CASH:
Increase 74 225 491
Beginning of year 1,166 941 450
================================
End of year $ 1,240 $ 1,166 $ 941
================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
-21-
<PAGE> 22
DEFIANCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1996 ("1996"), JUNE 30, 1995 ("1995"), AND JUNE 30, 1994
("1994")
(All amounts in thousands, except share and per share amounts)
A - ACCOUNTING POLICIES
Description
- -----------
The Company operates in a single industry segment as an integrated supplier of
precision machined metal components, testing services and tooling systems,
primarily to the United States transportation industry.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the Company and
all its subsidiaries. All significant intercompany transactions and balances
have been eliminated.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Stock Options
- -------------
The Company accounts for employee stock options in accordance with APB No. 25,
"Accounting for Stock Issued to Employees".
Inventories
- -----------
Inventories are valued primarily at the lower of cost (first in, first out
method) or market.
Depreciation and Amortization
- -----------------------------
Depreciation is calculated using the straight line method over the estimated
useful lives of the assets ranging from 3 to 30 years. Leasehold improvements
and capital lease property are amortized over the lesser of the lease life or
useful lives of these items.
Capitalized Interest
- --------------------
Interest costs of $293 and $264 were capitalized in property and equipment in
1996 and 1995, respectively. No interest costs were capitalized in 1994.
Intangible Assets
- -----------------
Cost in excess of net assets of acquired companies (or goodwill) is amortized
using the straight line method over 30 years. The carrying value of goodwill
will be reviewed if the facts and circumstances suggest that it may be impaired.
If this review indicates that goodwill will not be recoverable, as determined
based on the undiscounted cash flows of the entities acquired over the remaining
amortization period, the Company's carrying value of the goodwill will be
adjusted accordingly.
-22-
<PAGE> 23
Preoperating Costs
- ------------------
Certain preoperating costs of a new manufacturing facility were deferred prior
to the plant beginning production in December 1995. These costs are being
amortized over a 36 month period due to the long-term (over 36 months) nature of
the customer contracts to be performed at this facility. The unamortized portion
totaled $2,209 and $960 at June 30, 1996 and 1995, respectively. There were no
preoperating costs in 1994.
Revenue Recognition
- -------------------
Sales of products are recognized when goods are shipped. Revenues from fixed
price contracts are recognized on the percentage of completion method. Revenues
from cost plus fixed fee and time and material contracts are recognized on the
basis of direct labor hours at a predetermined rate or markup. Accounts
receivable include $3,367 and $4,227 of unbilled costs related to contracts at
June 30, 1996 and 1995, respectively. Changes in estimated job profitability are
recognized in the period in which the revisions are determined. Provisions are
made for the full amount of anticipated future losses on contracts when they are
identified.
Net Earnings Per Common Share
- -----------------------------
Net earnings per common share is computed by dividing net earnings by the
weighted average number of common shares outstanding during the year, adjusted
for the dilutive effect of outstanding stock options.
Impact of Recently Issued Accounting Standards
- ----------------------------------------------
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amounts. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company will adopt Statement 121 in the first quarter of 1997 and based on
current circumstances, does not believe the effect of adoption will be material.
Reclassifications
- -----------------
The Company has reclassified certain prior year financial information to conform
with the current year's presentation.
B - CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
1996 1995 1994
------------------------
<S> <C> <C> <C>
Noncash transactions excluded from the consolidated statement of cash flows:
Assets acquired under capital lease $ 239 $ 793
Cash payments:
Interest $1,873 $1,258 $1,317
Federal income taxes 1,675 3,461 2,500
</TABLE>
C - CHARGE FOR BUSINESS TO BE SOLD
On August 19, 1996 the Company sold all the common shares of its Vaungarde,
Incorporated subsidiary as part of its long-term strategic plan to increase the
focus on its core operating capabilities. At closing the Company received $2,829
in cash, $413 of certain assigned liquid assets and $950 of notes receivable.
There will be a post-closing adjustment to the cash portion of the selling price
within 60 days of the date of sale based upon the August 18, 1996 balance sheet
for this subsidiary.
-23-
<PAGE> 24
The net assets of this business to be sold as of June 30, 1996 are presented in
the consolidated balance sheet as a current asset. The Company's carrying value
of this business as of June 30, 1996 exceeded the proceeds expected from the
sale. To reflect the estimated loss on the sale of this business, the Company
recorded a non-cash charge of $2,600 in the fourth quarter of 1996. The
components of this charge are as follows:
<TABLE>
<CAPTION>
<S> <C>
Write-down of assets due to anticipated net proceeds being
less than the carrying value:
Excess of cost over net assets of acquired company (goodwill write-off) $1,332
Other assets, principally property and equipment 949
Expenses of sale accruable at June 30, 1996 319
------
$2,600
======
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
The effect on 1996 earnings per share of the above charge is as follows:
Before charge for business to be sold $0.63
Effect of charge for business to be sold ($0.39)
-------
Earnings per share as reported $0.24
=======
</TABLE>
This transaction does not meet the criteria for discontinued operations
treatment for accounting purposes. Therefore, the sales and result of operations
of this business are included in continuing operations in 1996 and will also be
included in continuing operations through the date of sale in the fiscal year
ended June 30, 1997.
Sales and operating losses of this business for 1996, 1995 and 1994 were as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------
<S> <C> <C> <C>
Sales $9,887 $11,257 $11,137
Operating loss $ 834 $ 240 $ 1,009
</TABLE>
<TABLE>
<CAPTION>
D - INVENTORIES
June 30, June 30,
1996 1995
------------------
<S> <C> <C>
Raw materials $ 784 $1,293
Work in process 1,417 5,586
Finished goods 315 598
Stores and supplies 796 733
------------------
Total inventories $3,312 $8,210
==================
</TABLE>
E - LONG TERM OBLIGATIONS
<TABLE>
<CAPTION>
June 30, June 30,
1996 1995
--------------------
<S> <C> <C>
Variable rate term loan to bank due 2004 $ 6,000
Variable rate term loan to bank due 2003 10,429 $ 12,000
7% term loan to bank due 1999 3,172 4,564
9.5% Industrial Development Revenue Refunding Bond Series 1991 due 1999 897 1,341
7.35% Urban Development Action Grant due 2002 720 767
7.5% Ohio Development term loan due 1998 225 414
--------------------
Total long term debt 21,443 19,086
Capitalized lease obligations (Note H) 1,742 2,395
--------------------
Total long term obligations 23,185 21,481
Less current maturities of long term obligations (5,051) (4,299)
--------------------
Total long term obligations less current maturities $ 18,134 $ 17,182
====================
</TABLE>
-24-
<PAGE> 25
At June 30, 1996, the Company had $6,000 in additional borrowing capacity under
a revolving credit agreement expiring October 1997. Subsequent to year end this
agreement was renewed through October 1998. Borrowings under this facility are
at either the prime interest rate less 100 basis points or at the Euro dollar
rate plus 100 basis points, at the Company's option. The Company is required to
pay a fee of 1/8% on the unused portion of the facility. No revolving credit
borrowings were outstanding on June 30, 1996 or 1995. The prime interest rate at
June 30, 1996 was 8.25%.
The variable rate term loans to bank due 2004 and 2003 carry interest at the
prime interest rate less 85 basis points or at the Euro dollar rate plus 115
basis points, at the Company's option. The effective interest rate for the
variable rate term loans as of June 30, 1996 and 1995 was 6.59% and 7.21%,
respectively.
All borrowings from the Company's primary lender, Comerica Bank, including
revolving credit borrowings, variable rate term loans, 7% term loan and 9.5%
Industrial Revenue Bonds are unsecured. The Company is restricted from pledging
any of its assets without the prior consent of the bank.
The Urban Development Action Grant and Ohio Development term loan remain secured
by certain assets of one of the Company's subsidiaries with a net book value of
$7,579 at June 30, 1996. Capitalized lease obligations are secured by the
specific assets to which the leases apply.
The Company's financing arrangements also contain various warranties and
covenants. As of June 30, 1996 and 1995 the Company was in compliance with these
warranties and covenants.
Scheduled maturities of long term debt are as follows: 1997 -- $4,518, 1998 --
$4,484, 1999 -- $3,027, 2000 -- $2,635, 2001 -- $2,639, and $4,140 thereafter.
F - STOCKHOLDERS' EQUITY
The 1985 Stock Option Plan, adopted by the shareholders in August 1985, and the
1989 Stock Option Plan, adopted by the shareholders in February 1989 and amended
in November 1992, provide for the grant of options to employees of the Company
to purchase up to 300,000 and 800,000 shares of common stock, respectively.
Grants of options are made at no lower than the market price on date of grant,
are exercisable after one year, and expire after from five to ten years. Option
activity during 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
Number of shares Average
------------------------------- Option
1985 Plan 1989 Plan Total Price
-------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding at June 30, 1994 61,500 412,855 474,355 $ 3.88
Activity during 1995:
Options issued 9,000 99,459 108,459 $ 6.50
Options exercised (21,300) (7,000) (28,300) $ 1.91
Options canceled (4,000) (4,000) $ 4.69
-------------------------------------------
Options outstanding at June 30, 1995 45,200 505,314 550,514 $ 4.49
Activity during 1996:
Options issued 4,000 104,548 108,548 $ 6.50
Options exercised (7,500) (22,000) (29,500) $ 2.42
Options canceled (2,000) (4,500) (6,500) $ 6.46
-------------------------------------------
Options outstanding at June 30, 1996 39,700 583,362 623,062 $ 4.92
===========================================
Available for future years 119,138 119,138
===================
</TABLE>
-25-
<PAGE> 26
In addition to options granted to employees under the Company's 1985 and 1989
Stock Option Plans, the following options, granted to members of the board of
directors under stock option plans approved by the shareholders, were
outstanding at June 30, 1996:
<TABLE>
<CAPTION>
Date
---------------------------------------
Number Option Exer-
Name of plan of shares price Issued cisable Expires
---------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
1987 Qualified Stock Option Plan 40,000 $5.38 02/06/87 02/06/88 02/06/97
1988 Nonqualified Stock Option Plan 25,000 $1.75 11/16/88 11/16/89 11/16/98
1994 Nonemployee Directors Stock Option Plan 12,000 $7.13 11/16/94 11/16/95 11/16/04
1994 Nonemployee Directors Stock Option Plan 12,000 $6.88 07/01/95 07/01/96 07/01/05
</TABLE>
There are 176,000 shares still available for future years under the 1994 Plan.
G - BENEFIT PLANS
One of the Company's subsidiaries has two defined benefit pension plans covering
substantially all its employees. Pension benefits for collective bargaining
employees are based on years of credited service. Benefits for salaried, office
and clerical employees are based on years of service and average final earnings.
It is the Company's policy to fund its plans to meet the projected benefit
obligation and the requirements of ERISA.
The components of pension expense were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------
<S> <C> <C> <C>
Service cost, benefits earned during the year $126 $139 $217
Interest cost on projected benefit obligation 511 516 531
Loss (gain) on plan assets (168) (497) 36
Net amortization and deferral (364) 50 (451)
-----------------------------------
Net pension expense $105 $208 $333
===================================
</TABLE>
The expected long term rate of return on plan assets was 9.0% for 1996, 9.0% for
1995 and 8.5% for 1994. The increase in the long term rate of return in 1995 did
not have a material impact on the financial statements. Each new prior service
cost is amortized over the average remaining service period of employees using
the straight line method.
Assets of the plans at June 30, 1996 consisted primarily of cash equivalents,
corporate stocks and corporate bonds, including common stock of the Company with
a market value of approximately $408.
The following reconciles the funded status of the plans to amounts included in
the Company's balance sheet:
<TABLE>
<CAPTION>
June 30, June 30,
1996 1995
----------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated and projected benefit obligation, $6,868 vested
in 1996 and $6,175 vested in 1995 $7,150 $6,410
Market value of plan assets 6,949 6,762
----------------------
Excess (shortfall) of plan assets compared to projected benefit obligation (201) 352
Unrecognized net obligation 486 532
Prior service cost not recognized in net periodic pension cost (139) (133)
Minimum funding liability (914)
Unrecognized net loss 1,086 86
======================
Prepaid pension cost $ 318 $ 837
======================
</TABLE>
In determining the projected benefit obligation, the weighted average assumed
discount rate was 7.5% for 1996, 8.0% for 1995 and 8.0% for 1994.
-26-
<PAGE> 27
Effective October 1, 1994, future benefits under one of the above plans covering
approximately fifty salaried employees were curtailed. A one time charge against
income of $250 was recorded in the first fiscal quarter of 1995 in accordance
with Statement of Financial Accounting Standards No. 88, "Employers' Accounting
for Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits" ("SFAS No. 88"). In July 1995, the Company filed documents
with the Pension Benefit Guaranty Corporation (the "PBGC") and the Internal
Revenue Service (the "IRS") to terminate this plan. As of July 30, 1996, the
Company has not received IRS approval to proceed with terminating the plan and
settling the plan obligations. An additional charge to income may be required
under SFAS No. 88 upon settlement of obligations. The amount of this charge is
sensitive to changes in market interest rates in effect when obligations are
settled. Based upon current market interest rates, the Company estimates
terminating the plan during fiscal 1997 and would require a pre-tax charge
against income of approximately $750.
On July 1, 1993 the Company adopted a voluntary deferred compensation plan under
Section 401(k) of the Internal Revenue Code (the "401(k) Plan") for all
employees who are not subject to a collective bargaining agreement and satisfy
the age and service requirements under the 401(k) Plan. Each participant may
elect to contribute up to the maximum permitted under federal law, and the
Company is obligated to contribute annually an amount equal to 50% of the
participant's contribution up to 2% of that participant's annual compensation.
Additionally, the Company can make discretionary contributions based on the
profitability of the Company. The Company recorded compensation expense for
discretionary contributions of $490, $464 and $334 in 1996,1995, and 1994,
respectively. Employees contributed $1,175, $1,121, and $1,134 in 1996, 1995 and
1994, respectively, to the 401(k) Plan. In accordance with the provisions of the
401(k) Plan, the Company matched employee contributions in the amount of $324,
$320, and $328 during 1996, 1995 and 1994, respectively.
H - INCOME TAXES
Effective July 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109), which changed the
Company's method of accounting for income taxes from the deferred method to the
liability method. Under SFAS 109, deferred tax liabilities and assets are
recognized for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, deferred
tax assets and liabilities are determined based upon the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
The cumulative effect of adopting SFAS 109 was a $564 increase in income as of
July 1, 1993, which represents the net decrease to the deferred tax liability at
the date of adoption. Previously, the provision for income taxes was based on
income and expenses included in the accompanying consolidated statement of
income, and differences between taxes so computed and taxes payable were
classified as deferred taxes arising from timing differences.
Income taxes, with amounts for all years derived under SFAS 109, are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------
<S> <C> <C> <C>
Current expense - Federal $1,429 $3,615 $2,748
Deferred expense - Federal 870 31 (43)
-----------------------------------
Income tax provision $2,299 $3,646 $2,705
====================================
</TABLE>
-27-
<PAGE> 28
Significant components of deferred tax liabilities and assets as of June 30,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
Deferred tax assets: ---------------
<S> <C> <C>
Accruals and reserves:
Accounts receivable $ 66 $ 108
Employee benefits 777 532
Inventories 34 45
Other 100 269
---------------
Total deferred tax assets 977 954
Deferred tax liabilities:
Depreciation 2,238 2,057
Preoperating costs 751 333
Employee benefits 313 228
Other 28 142
---------------
Total deferred tax liabilities 3,330 2,760
---------------
Net deferred tax liability $2,353 $1,806
===============
</TABLE>
A reconciliation of income taxes at the United States statutory rate to the
effective income tax rate, with amounts for all years derived under SFAS 109, is
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------
<S> <C> <C> <C>
Federal statutory tax rate 34.0% 34.0% 34.0%
Amortization of cost in excess of net assets of acquired companies 1.2% 1.3% 1.3%
Goodwill and other non-deductible charges for business to be sold 23.7%
Other 0.1% 0.3% (2.1%)
---------------------
Effective tax rate 59.0% 35.6% 33.2%
=====================
</TABLE>
I - LEASES
The Company leases machinery and equipment used in its manufacturing operations
under capital leases with terms extending to the year 2000. The Company also
leases buildings and equipment under operating leases with terms ranging from
one to nine years. Certain operating leases have renewal options for additional
years and purchase options, both at fair market value.
At June 30, 1996, future minimum lease payments under noncancelable lease
obligations are as follows:
<TABLE>
<CAPTION>
Capital Operating
Fiscal Year Leases Leases
- ----------- -------------------
<S> <C> <C>
1997 $ 690 $2,973
1998 460 2,126
1999 407 1,553
2000 406 1,107
2001 169 596
Future years 0 182
-------------------
Total minimum lease payments 2,132 $8,537
======
Amount representing interest 390
-----
Present value of net minimum lease payments 1,742
Less current maturities 533
------
Long term obligations under capital leases $1,209
======
</TABLE>
-28-
<PAGE> 29
Property, plant and equipment includes the following property under capital
leases:
<TABLE>
<CAPTION>
June 30, June 30,
1996 1995
-----------------------
<S> <C> <C>
Machinery and equipment $3,871 $5,147
Accumulated amortization (2,150) (2,340)
=======================
Net book value of assets under capital leases $1,721 $2,807
=======================
</TABLE>
Rent expense under operating leases was $3,647, $3,514 and $2,328 in 1996, 1995
and 1994, respectively.
J - SIGNIFICANT CUSTOMERS
Sales to General Motors Corp. aggregated 30%, 22% and 17% of consolidated sales
in 1996, 1995 and 1994, respectively. Sales to Ford Motor Company were 14%, 17%
and 25% in 1996, 1995 and 1994, respectively. Sales to Chrysler Corporation were
11%, 5% and 4% in 1996, 1995 and 1994, respectively. Sales to Eaton Corporation
were 10%, 12% and 11% in 1996, 1995 and 1994, respectively.
As substantially all the Company's sales are to domestic original equipment
manufacturers (OEMs) and their suppliers, the Company's trade accounts
receivable are largely with firms in the United States transportation industry.
K - COMMITMENTS
The Company has made commitments to purchase approximately $2,433 of equipment
as of June 30, 1996, and has sufficient financing available to fund these
commitments.
L - CONTINGENCIES
The Company is involved in various litigation arising in the normal course of
business. It is not possible to determine the ultimate liability, if any, in
these matters. In the opinion of management, such litigation will not have a
material adverse effect on the financial statements of the Company.
M - RELATED PARTY TRANSACTIONS
Four employees of a subsidiary of the Company each own a one-sixth interest in a
partnership which leases a facility to a subsidiary of the Company. The lease,
renewing a lease originally entered into prior to the Company's ownership of the
subsidiary, was dated March 1990 for a term of seven years, and monthly lease
payments are $23. Two former members of the Board of Directors each owned a
one-third interest in a partnership which leased a facility to a subsidiary of
the Company until September 1995. The lease was dated March 1990 for a term of
five years with monthly lease payments of $10. At the end of the lease term in
March 1995, the subsidiary continued to lease the facility from the partnership
on a month to month basis at the same monthly rate. The subsidiary purchased
this facility from the partnership for $500 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 a potential transaction between the Company and the partnership. The
committee concluded a purchase price of $500 for the facility was reasonable
based upon their analysis of the facts and circumstances.
-29-
<PAGE> 30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information required under this Item is included in a separate item
captioned "Executive Officers of the Registrant" contained in Item 1 of Part I
of this report. There is hereby incorporated by reference the information
contained in the Company's Proxy Statement for the 1996 Annual Meeting of
Stockholders under the caption "Election of Directors".
ITEM 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information contained in the
Company's Proxy Statement for the 1996 Annual Meeting of Stockholders under the
caption "Executive Compensation".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is hereby incorporated by reference the information contained in the
Company's Proxy Statement for the 1996 Annual Meeting of Stockholders under the
caption "Common Stock Ownership".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information contained in the
Company's Proxy Statement for the 1996 Annual Meeting of Stockholders under the
caption "Certain Relationships and Transactions".
-30-
<PAGE> 31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
------------------------
The following financial statements are filed as part of this
report under Item 8:
Consolidated Balance Sheet at June 30, 1996 and 1995
Consolidated Statement of Operations for the years ended June 30,
1996, 1995, and 1994
Consolidated Statement of Stockholders' Equity for the years
ended June 30, 1996, 1995, and 1994
Consolidated Statement of Cash Flows for the years ended June 30,
1996, 1995, and 1994
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
---------------------------------
The following financial statement schedules are filed as part of
this report at the pages indicated:
Page
----
Schedule II - Valuation and Qualifying Accounts 33
All financial statement schedules other than those listed above
have been omitted because they are not required or the information
required to be set forth therein is included in the Consolidated
Financial Statements or Notes thereto.
3. Exhibits
------------
The Exhibits listed on the accompanying Index to Exhibits
immediately following the financial statement schedules on page 34
are filed as a part of, or incorporated by reference into this
report.
(b) Reports on Form 8-K
-------------------
During the quarter ended June 30, 1996, no reports on Form 8-K
were filed with the Securities and Exchange Commission.
-31-
<PAGE> 32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DEFIANCE, INC.
By: /s/ Jerry A. Cooper
--------------------------
Jerry A. Cooper, President
Date: August 26, 1996
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.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Thomas H. Roulston II Chairman of the Board and Director August 26, 1996
- -------------------------
Thomas H. Roulston II
/s/ Jerry Cooper President, Chief Executive Officer and Director August 26, 1996
- -------------------------- (Principal Executive Officer)
Jerry A. Cooper
/s/ Michael J. Meier Vice President-Finance and Chief Financial Officer August 26, 1996
- -------------------------- (Principal Financial Officer)
Michael J. Meier
/s/ James L. Treece Chief Accounting Officer August 26, 1996
- -------------------------- (Principal Accounting Officer)
James L. Treece
/s/ James E. Heighway Director August 26, 1996
- -------------------------
James E. Heighway
/s/ George H. Lewis III Director August 26, 1996
- -------------------------
George H. Lewis III
/s/ Richard W. Lock Director August 26, 1996
- -------------------------
Richard W. Lock
/s/ Hector R. Ortino Director August 26, 1996
- -------------------------
Hector R. Ortino
/s/ Scott D. Roulston Director August 26, 1996
- -------------------------
Scott D. Roulston
</TABLE>
-32-
<PAGE> 33
DEFIANCE, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(All dollar amounts in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------- ----------------------------------------------
Balance at Additions Retire- Balance at
beginning charged to ments end of
Description of period expense (1) period
- ----------- ----------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1996
Allowance for doubtful accounts $316 ($16) $107 $193
YEAR ENDED JUNE 30, 1995
Allowance for doubtful accounts $357 $ 6 $ 47 $316
YEAR ENDED JUNE 30, 1994
Allowance for doubtful accounts $350 $37 $ 30 $357
<FN>
(1)Uncollectible accounts charged against the reserve, net of recoveries
</TABLE>
-33-
<PAGE> 34
DEFIANCE, INC. AND SUBSIDIARIES
Annual Report on Form 10-K
Fiscal Year Ended June 30, 1996
Index to Exhibits - Item 14(a)(3)
Exhibit no. Description
- ----------- -----------
3(f) Certificate of Incorporation of the Company, as amended December 15,
1994 (*)
3(g) By-Laws of the Company, as amended July 26, 1989 (*)
10(v) Defiance, Inc. 1989 Stock Option Plan, as amended January 20, 1993
(Filed as Exhibit A to the Company's Proxy Statement for the February
1, 1990 Annual Meeting of Shareholders, with amendment filed as
Exhibit A to the Company's Proxy Statement for the November 18, 1992
Annual Meeting of Shareholders)
10(ac) Defiance, Inc. Executive Incentive Plan, effective July 1, 1992 (Filed
as Exhibit 10-ac to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1993)
10(ad) Letter of employment for Jerry A. Cooper, President and CEO, dated
February 28, 1992 (Filed as Exhibit 10-ad to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1993)
10(af) Defiance, Inc. Retirement Savings Plan, effective July 1, 1993 (Filed
as Exhibit 10-af to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1994)
10(ag) Amendment #1 to Defiance, Inc. Executive Incentive Plan, effective May
19, 1994 (Filed as Exhibit 10-ag to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1994)
10(ah) Second Amended and Restated Loan Agreement by and between Defiance,
Inc. and Comerica Bank dated July 29, 1994 (Filed as Exhibit 10-ah to
the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1994)
10(ai) Revolving Credit Note, Term Note, and Equipment Note by and between
Defiance, Inc. and Comerica Bank dated July 29, 1994 (Filed as Exhibit
10-ai to the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1994)
10(aj) Defiance, Inc. Directors' Deferral Plan, effective September 21, 1994
(Filed as Exhibit 10-aj to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1995)
10(ak) Defiance, Inc. Change of Control Policy, effective September 22, 1994
(Filed as Exhibit 10-ak to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1995)
10(al) Defiance, Inc. 1994 Nonemployee Director Stock Option Plan, effective
November 16, 1994 (Filed as Exhibit A to the Company's Proxy Statement
for the November 16, 1994 Annual Meeting of Shareholders)
10(am) Defiance, Inc. Supplemental Savings and Deferred Compensation Plan,
effective July 1, 1994 (Filed as Exhibit 10-am to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1995)
-34-
<PAGE> 35
10(an) Defiance, Inc. Supplemental Executive Retirement Plan, effective July
1, 1995 (Filed as Exhibit 10-an to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1995)
10(ao) Defiance, Inc. Limited Supplemental Executive Retirement Plan,
effective July 1, 1995 (Filed as Exhibit 10-ao to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1995)
10(ap) First Amendment to Amended and Restated Loan Agreement by and between
Defiance, Inc. and Comerica Bank dated May 31, 1995 (Filed as Exhibit
10-ap to the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1995)
10(aq) Equipment Note by and between Defiance, Inc. and Comerica Bank dated
May 31, 1995 (Filed as Exhibit 10-aq to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1995)
10(ar) Term Note-B by and between Defiance, Inc. and Comerica Bank dated July
12, 1995 (Filed as Exhibit 10-ar to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1995)
10(as) Second Amendment to Amended and Restated Loan Agreement by and between
Defiance, Inc. and Comerica Bank dated August 2, 1995 (Filed as
Exhibit 10-as to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1995)
10(at) Revolving Credit Note and Equipment Note by and between Defiance, Inc.
and Comerica Bank dated August 2, 1995 (Filed as Exhibit 10-at to the
Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1995)
10(au) Revolving Credit Note by and between Defiance, Inc. and Comerica Bank
dated October 25, 1995 (*)
10(av) Third Amendment to Amended and Restated Loan Agreement by and between
Defiance, Inc. and Comerica Bank dated October 25, 1995 (*)
10(aw) Fourth Amendment to Amended and Restated Loan Agreement by and between
Defiance, Inc. and Comerica Bank dated December 31, 1995 (*)
10(ax) Fifth Amendment to Amended and Restated Loan Agreement by and between
Defiance, Inc. and Comerica Bank dated June 30, 1996 (*)
10(ay) Letter to modify February 28, 1992 letter of employment for Jerry A.
Cooper, President and CEO, dated July 2, 1996 (*)
10(az) Term Note-C by and between Defiance, Inc. and Comerica Bank dated
August 1, 1996 (*)
10(ba) Definitive agreement between Defiance, Inc. and Quoin, Inc. for
purchase of all outstanding common shares of Vaungarde, Incorporated
by Quoin, Inc. dated August 6, 1996 (*)
10(bb) August 15, 1996 letter from Comerica Bank consenting to sale of all
outstanding common shares of Vaungarde, Incorporated to Quoin, Inc.
(*)
10(bc) Sixth Amendment to Amended and Restated Loan Agreement by and between
Defiance, Inc. and Comerica Bank dated August 19, 1996 (*)
10(bd) Revolving Credit Note by and between Defiance, Inc. and Comerica Bank
dated August 19, 1996 (*)
10(be) Defiance, Inc. Stock Repurchase Plan dated January 24, 1996 (Filed as
Exhibit 28.1 to the Company's Current Report on Form 8-K dated January
24, 1996)
-35-
<PAGE> 36
11 Statement re computation of per share earnings (*)
21 Subsidiaries of the Registrant (*)
23 Consent of Independent Auditors (*)
27 Financial Data Schedule (*)
---------------------------------------------------------------------
(*) Filed herewith
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
Included in the preceding list of exhibits are the following management
contracts or compensatory plans or arrangements:
10(v) Defiance, Inc. 1989 Stock Option Plan, as amended January 20, 1993
10(ac) Defiance, Inc. Executive Incentive Plan, effective July 1, 1992
10(ad) Letter of employment for Jerry A. Cooper, President and CEO, dated
February 28, 1992
10(af) Defiance, Inc. Retirement Savings Plan, effective July 1, 1993
10(ag) Amendment #1 to Defiance, Inc. Executive Incentive Plan, effective May
19, 1994
10(ak) Defiance, Inc. Change of Control Policy, effective September 22, 1994
10(am) Defiance, Inc. Supplemental Savings and Deferred Compensation Plan,
effective July 1, 1994
10(an) Defiance, Inc. Supplemental Executive Retirement Plan, effective July
1, 1995
10(ao) Defiance, Inc. Limited Supplemental Executive Retirement Plan,
effective July 1, 1995
10(ay) Letter to modify February 28, 1992 letter of employment for Jerry A.
Cooper dated July 2, 1996
-36-
<PAGE> 1
Exhibit 3(f)
STATE OF DELAWARE PAGE 1
[SEAL]
OFFICE OF SECRETARY OF STATE
-----------------------
I, MICHAEL HARKINS, SECRETARY OF STATE OF THE STATE OF DELAWARE DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF DEFIANCE PRECISION PRODUCTS, INC. FILED IN THIS OFFICE ON THE
NINETEENTH DAY OF AUGUST, A.D. 1985, AT 10 O'CLOCK A.M.
/s/ Michael Harkins
---------------------------------------
Michael Harkins, Secretary of State
AUTHENTICATION: 0591470
DATE: 08/19/1985
725231034
<PAGE> 2
CERTIFICATE OF INCORPORATION
OF
DEFIANCE PRECISION PRODUCTS, INC.
---------------------------------
The undersigned, for the purposes of forming a corporation under and
pursuant to the provisions of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
ARTICLE I
---------
The name of the Corporation is Defiance Precision
Products, Inc.
ARTICLE II
----------
The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of the Corporation's registered agent
at such address is The Corporation Trust Company.
ARTICLE III
-----------
The nature of the business or purposes to be conducted or promoted is:
To engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State of
Delaware.
ARTICLE IV
----------
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is twelve million (12,000,000) shares,
of which ten million (10,000,000) shall be shares of Common Stock with a par
value of five cents ($.05) per share and two million (2,000,000) shall be shares
of Preferred Stock with a par value of five cents ($.05) per share.
The Board of Directors is hereby expressly granted authority to
authorize in accordance with law from time to time the issue of one or more
series of Preferred Stock and with respect to any such series to fix by
resolution or resolutions the numbers, powers, designations, preferences and
relative, participating, optional or other special rights of such series and the
qualifications, limitations or restrictions thereof, including but without
limiting the generality of the foregoing, the following:
<PAGE> 3
(i) entitling the holders thereof to cumulative, non-cumulative or
partially cumulative dividends, or to no dividends;
(ii) entitling the holders thereof to receive dividends payable on a
parity with, junior to, or in preference to, the dividends payable on any
other class or series of capital stock of the Corporation;
(iii) entitling the holders thereof to rights upon the liquidation of,
or upon any distribution of the assets of, the Corporation, on a parity
with, junior to or in preference to, the rights of any other class or
series of capital stock of the Corporation;
(iv) providing for the conversion, at the option of the holder or of
the Corporation or both, of the shares of Preferred Stock into shares of
any other class or classes of capital stock of the Corporation or of any
series of the same or any other class or classes or into property of the
Corporation or into the securities or properties of any other corporation
or person, or providing for no conversion;
(v) providing for the redemption, in whole or in part, of the shares
of Preferred Stock at the option of the Corporation, in cash, bonds or
other property, at such price or prices, within such period or periods, and
under such conditions as the Board of Directors shall so provide, including
provision for the creation of a sinking fund for the redemption thereof, or
providing for no redemption; and
(vi) lacking voting rights or having limited voting rights or enjoying
general, special or multiple voting rights.
The Board of Directors may change the powers, designation,
preferences, rights, qualifications, limitations and restrictions of, and
number of shares in, any series of Preferred Stock as to which no shares
have theretofore been issued.
All shares of any one series of Preferred Stock shall be identical in
all respects with all the other shares of such series, except that shares
of any one series of Preferred Stock issued at different times may differ
as to the dates from which dividends thereon shall be cumulative.
2
<PAGE> 4
ARTICLE V
---------
Elections of directors need not be by written ballot unless the by-laws
of the Corporation shall so provide.
ARTICLE VI
----------
The number of directors to constitute the whole Board of Directors
shall be initially such number as shall be set forth in the initial by-laws of
the Corporation and thereafter such number as shall be fixed from time to time
by resolution of the Board of Directors. The Board of Directors shall be divided
into three classes as nearly equal in number as may be, with the term of office
of one class expiring each year. At the organization meeting of the sole
incorporator or by action taken by the sole incorporator without a meeting,
directors of the first class shall be elected to hold office for a term expiring
at the first annual meeting of stockholders, directors of the second class shall
be elected to hold office for a term expiring at the second annual meeting of
stockholders, and directors of the third class shall be elected to hold office
for a term expiring at the third annual meeting of stockholders. At each annual
meeting of stockholders, successors to the directors whose terms shall then
expire shall be elected to hold office for terms expiring at the third
succeeding annual meeting of stockholders. In case of any vacancies, by reason
of an increase in the number of directors or otherwise, each additional director
may be elected by the Board of Directors until the end of the term he is elected
to fill and until his successor shall have been elected and qualified in the
class to which such director is assigned and for the term or remainder of the
term of such class. Directors shall continue in office until others are chosen
and qualified in their stead. When the number of directors is changed, any newly
created directorships or any decrease in directorships shall be so assigned
among the classes by a majority of the directors then in office, though less
than a quorum, as to make all classes as nearly equal in number as may be
feasible. No decrease in the number of directors shall shorten the term of any
incumbent director.
Notwithstanding the foregoing, whenever the holders of any one or more
series of Preferred Stock issued by the Corporation shall have the right, voting
separately by class or series, to elect directors at an annual or special
meeting of stockholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms of this
Certificate of Incorporation applicable thereto, and such directors selected
shall not be divided into classes pursuant to this Article VI unless expressly
provided by such terms.
3
<PAGE> 5
ARTICLE VII
-----------
1. Any Business Combination (as defined in paragraph (c) of Section 4
of this Article VII) shall require only such affirmative vote as is required by
law and any other provision of this Certificate of Incorporation if all of the
following conditions have been satisfied:
(i) The consideration to be received by holders of Common Stock shall
be cash or in the same form as previously has been paid by or on behalf of
the Interested Stockholder (as defined in paragraph (c) of Section 4 of
this Article VII) in connection with its direct or indirect acquisition of
beneficial ownership of any shares of Common Stock. If the consideration
paid by or on behalf of the Interested Stockholder for shares of Common
Stock varied as to form, the form of consideration to be received by
holders of Common Stock shall be either cash or the form used to acquire
beneficial ownership of the largest number of shares of Common Stock
previously acquired by the Interested Stockholder;
(ii) The aggregate amount of the cash and the Fair Market Value (as
defined in paragraph (i) of Section 4 of this Article VII) of consideration
other than cash to be received per share by holders of Common Stock in any
Business Combination shall be at least equal to the greater of (a) the Fair
Market Value per share of Common Stock on the date of the first public
announcement of the proposal of a Business Combination (the "Announcement
Date") or on the date on which the Interested Stockholder became an
Interested Stockholder, whichever is higher, multiplied by the ratio of (1)
the highest per share price (including any brokerage commissions, transfer
taxes and soliciting dealers' fees) paid by the Interested Stockholder for
any shares of Common Stock acquired by it within the two-year period
immediately prior to the Announcement Date to (2) the Fair Market Value per
share of Common Stock on the first day in such two-year period on which the
Interested Stockholder acquired any shares of Common Stock or (b) the
highest per share price (including brokerage commissions, transfer taxes,
and soliciting dealers' fees) paid by such Interested Stockholder in
acquiring any of the Corporation's Common Stock;
(iii) After becoming an Interested Stockholder and prior to the
consummation of any Business Combination, (A) such Interested Stockholder
shall not have acquired any newly issued shares of capital stock, directly
or indirectly, from the Corporation (except upon conversion of convertible
securities acquired by it prior to becoming an Interested Stockholder or
upon
4
<PAGE> 6
compliance with the provisions of this Article VII or as a result of a pro
rata stock dividend or stock split) and (B) such Interested Stockholder
shall not have received the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances, guarantees,
pledges or other financial assistance or tax credits provided by the
Corporation, or made any major changes in the Corporation's business or
equity capital structure; and
(iv) A proxy statement responsive to the requirements of the
Securities Exchange Act of 1934, whether or not the Corporation is then
subject to such requirements, shall be mailed to the stockholders of the
Corporation for the purpose of soliciting stockholder approval of any
Business Combination and shall contain at the front thereof in a prominent
place any recommendations as to the advisability (or inadvisability) of
the Business Combination which the Continuing Directors (as defined in
paragraph (h) of Section 4 of this Article VII) may choose to state, and if
deemed advisable by a majority of the Continuing Directors, an opinion of a
reputable investment banking firm as to the fairness (or lack of fairness)
of the terms of such Business Combination from the point of view of the
holders of Voting Shares (as defined in paragraph (e) of Section 4 of this
Article VII) other than the Interested Stockholder (such investment banking
firm to be selected by a majority of the Continuing Directors, to be
furnished with all information it reasonably requests, and to be paid a
reasonable fee for its services upon receipt by the Corporation of such
opinion).
2. If the provisions of Section 1 of this Article VII have not been
satisfied, any Business Combination shall require the affirmative vote, in
person or by proxy, at any meeting called as provided in the by-laws, of the
holders of 80% in interest of the Voting Shares of the Corporation issued and
outstanding including a majority in interest of the holders of issued and
outstanding Voting Shares of the Corporation held by persons other than an
Interested Stockholder or any Affiliate (as defined in paragraph (f) of Section
4 of this Article VII) or Associate (as defined in paragraph (f) of Section 4 of
this Article VII) of any Interested Stockholder. Such affirmative vote shall be
required notwithstanding the fact that no vote may be required, or that some
lesser percentage may be specified by law or in any agreement with any national
securities exchange or otherwise.
3. The provisions of Sections 1 and 2 of this Article VII shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only such affirmative vote, if any, as is required by
5
<PAGE> 7
law and any other provision of this Certificate of Incorporation, if such
Business Combination (i) has been approved prior to its consummation by a
majority of the Continuing Directors or (ii) constitutes a merger or
consolidation of the Corporation with, or any sale or lease to the Corporation
or any Subsidiary (as defined in paragraph (g) of Section 4 of this Article VII)
of any assets of, or any sale or lease by the Corporation or any Subsidiary of
any of its assets to, any corporation of which a majority of the outstanding
shares of all classes of stock entitled to vote in elections of directors is
owned of record or beneficially by the Corporation or its Subsidiaries, provided
that this clause (ii) shall not apply to any transaction to which any Affiliate
of any Interested Stockholder is a party.
4. For the purposes of this Article VII and Arti-
cle VIII hereof:
(a) The term "Business Combination" as used in this Article VII shall
mean any transaction which is referred to in any one or more of clauses (i)
through (vi) of this paragraph (a):
(i) any merger or consolidation of the Corporation or any
Subsidiary with or into (A) any Interested Stockholder or (B) any
other corporation (whether or not itself an Interested Stockholder)
which immediately before is, or after such merger or consolidation
would be, an Affiliate of an Interested Stockholder, or
(ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of related
transactions) to or with any Interested Stockholder or any Affiliate
of any Interested Stockholder of any assets of the Corporation or any
Subsidiary when such assets have an aggregate fair market value of
$2,500,000 or more, or
(iii) the issuance or transfer to any Interested Stockholder or
any Affiliate of any Interested Stockholder by the Corporation or any
Subsidiary (in one transaction or a series of related transactions) of
any equity securities of the Corporation or any Subsidiary where such
equity securities have an aggregate fair market value of $1,000,000 or
more, or
(iv) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation, or
6
<PAGE> 8
(v) any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger
or consolidation of the Corporation with any of its Subsidiaries or
any similar transaction (whether or not with or into or otherwise
involving an Interested Stockholder) which has the effect, directly or
indirectly, of increasing the percentage of the outstanding shares of
any class of equity or convertible securities of the Corporation or
any Subsidiary which is directly or indirectly owned by any Interested
Stockholder or any Affiliate of any Interested Stockholder, or
(vi) any agreement, contract or other arrangement providing for
any of the transactions described in this definition of "Business
Combination".
(b) A "person" shall mean any individual, firm, corporation or other
entity.
(c) "Interested Stockholder" shall mean any person (other than the
Corporation or any Subsidiary or any person who was a stockholder of the
Corporation on or before September 1, 1985) who or which, along with its
Affiliates and Associates as of the record date for the determination of
stockholders entitled to notice of and to vote on any Business Combination
or any proposed amendment, alteration or repeal of any provision of this
Certificate of Incorporation or any by-law of the Corporation, or
immediately prior to the consummation of any such Business Combination:
(i) is the beneficial owner (as defined in paragraph (d) of this
Section 4), directly or indirectly, of more than 20% of the Voting
Shares of the Corporation or a Subsidiary, or
(ii) is an assignee of or has otherwise succeeded to any share of
capital stock of the Corporation or a Subsidiary which was at any time
within two years prior thereto beneficially owned by any Interested
Stockholder, and such assignment or succession shall have occurred in
the course of a transaction or series of transactions not involving a
public offering within the meaning of the Securities Act of 1933.
(d) A person shall be the "beneficial owner" of any Voting Shares:
7
<PAGE> 9
(i) which such person or any of its Affiliates and Associates
beneficially own, directly or indirectly, or
(ii) which such person or any of its Affiliates or Associates has
(A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise
or (B) the right to vote pursuant to any agreement, arrangement or
understanding, or
(iii) which are beneficially owned, directly or indirectly, by
any other person with which such first-mentioned person or any of its
Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of any shares of capital stock of the Corporation or a
Subsidiary, as the case may be.
(e) "Voting Shares" when used with respect to the Corporation or a
Subsidiary shall mean shares of such corporation having general voting
power. For the purpose of determining whether a person is an Interested
Stockholder pursuant to paragraph (c) of this Section 4, the outstanding
Voting Shares shall include shares deemed owned by a beneficial owner
through application of paragraph (d) of this Section 4 but shall not
include any other Voting Shares which may be issuable to any other person
pursuant to any agreement, or upon exercise of conversion rights, warrants
or options, or otherwise.
(f) "Affiliate" and "Associate" shall have the respective meanings
given those terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as in effect on June 30, 1985.
(g) "Subsidiary" shall mean any corporation of which a majority of any
class of equity security (as defined in Rule 3a11-1 of the General Rules
and Regulations under the Securities Exchange Act of 1934, as in effect on
June 30, 1985) is owned, directly or indirectly, by the Corporation;
PROVIDED, HOWEVER, that for the purposes of the definition of Interested
Stockholder set forth in paragraph (c) of this Section 4, the term
"Subsidiary" shall mean only a corporation of which a majority of each
class of equity security is owned, directly or indirectly, by the
Corporation.
8
<PAGE> 10
(h) "Continuing Director" shall mean a member of the initial Board of
Directors of the Corporation, or a person who was a member of the Board of
Directors of the Corporation elected by the stockholders prior to the date
as of which an Interested Stockholder acquired in excess of 10% of the
Voting Shares of the Corporation or a Subsidiary, or a director who has
been recommended to directly succeed a Continuing Director or to join the
Board of Directors by a majority of the remaining Continuing Directors, or
a director who was elected by a majority of the remaining Continuing
Directors.
(i) "Fair Market Value" shall mean (i) in the case of stock, the
highest closing sale price during the 30-day period immediately preceding
the date in question of a share of such stock on the principal United
States securities exchange registered under the Securities Exchange Act of
1934 on which such stock is listed, or, if such stock is not listed on any
such exchange, the highest closing bid quotation with respect to a share
of such stock during the 30-day period preceding the date in question on
the National Association of Securities Dealers, Inc. Automated Quotations
Systems or any system then in use, or, if no such quotations are
available, the fair market value on the date in question of a share of such
stock as determined in good faith by a majority of Continuing Directors,
and (ii) in the case of property other than cash or stock, the fair market
value of such property on the date in question as determined in good faith
by a majority of Continuing Directors.
5. The Continuing Directors, by majority vote, shall have the power and
duty to determine for the purposes of this Article VII on the basis of
information known to them (a) the number of Voting Shares beneficially owned by
any person, (b) whether a person is an Affiliate or Associate of another, (c)
whether a person has an agreement, arrangement or understanding with another as
to the matters referred to in paragraph (d) of Section 4 of this Article VII,
(d) whether the assets of the Corporation or any Subsidiary have an aggregate
fair market value of $2,500,000 or more, or (e) whether the consideration
received for the issuance or transfer of securities by the Corporation or any
Subsidiary has an aggregate fair market value of $1,000,000 or more.
6. Nothing contained in this Article VII shall be construed to relieve
any Interested Stockholder from any fiduciary obligation imposed by law.
9
<PAGE> 11
ARTICLE VIII
------------
Except as otherwise provided in this Certificate of Incorporation (and
in addition to any other vote that may be required by law, this Certificate of
Incorporation or the by-laws), the affirmative vote, in person or by proxy, at
any meeting called as provided in the by-laws, of the holders of 80% in interest
of the Voting Shares (as defined in paragraph (e) of Section 4 of Article VII
hereof) of the Corporation issued and outstanding including a majority in
interest of the holders of the issued and outstanding Voting Shares of the
Corporation held by persons other than an Interested Stockholder (as defined in
paragraph (c) of Section 4 of Article VII hereof) shall be required for the
stockholders to amend, alter or repeal Articles VI, VII and VIII of this
Certificate of Incorporation or to adopt any new provision inconsistent with
such Articles, PROVIDED, HOWEVER, that if at the time of any such proposed
amendment, alteration, repeal or adoption, (i) there shall exist one or more
Interested Stockholders, and a majority of the Continuing Directors (as defined
in paragraph (h) of Section 4 of Article VII) approve such proposed amendment,
alteration, repeal or adoption, or (ii) no such Interested Stockholder exists,
and a majority of the members of the Board of Directors approve such proposed
amendment, alteration, repeal or adoption, then the affirmative vote, in person
or by proxy, at any meeting called as provided in the by-laws, of the holders of
a majority in interest of the issued and outstanding Voting Shares of the
Corporation shall be required to approve such amendment, alteration, repeal or
adoption.
ARTICLE IX
----------
The name of the incorporator of the Corporation is Fredric Keith Bass,
whose mailing address is Room 4500, 140 Broadway, New York, New York 10005.
ARTICLE X
---------
In furtherance and not in limitation of the power conferred upon the
Board of Directors by law, the Board of Directors shall have power to adopt,
amend, alter and repeal from time to time the by-laws of the Corporation.
ARTICLE XI
----------
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred herein upon
stockholders are granted subject to this reservation.
10
<PAGE> 12
IN WITNESS WHEREOF, I have hereunto set my hand this 19th day of
August, 1985.
/s/ Fredric Keith Bass
----------------------
Fredric Keith Bass
Incorporator
In the Presence of:
/s/ Ellen Dicks
- ---------------
11
<PAGE> 13
STATEMENT OF SOLE INCORPORATOR
IN LIEU OF ORGANIZATION MEETING
OF THE INCORPORATOR OF
DEFIANCE PRECISION PRODUCTS, INC.
The Certificate of Incorporation of Defiance Precision Products, Inc.
(the "Corporation") having been filed in the office of the Secretary of State of
the State of Delaware on August 19, 1985, the undersigned, being the sole
incorporator named in said Certificate of Incorporation, does hereby state that
the following actions were taken on this day for the purpose of organizing the
Corporation:
1. A copy of the Certificate of Incorporation of the Corporation was
ordered to be filed in the minute book of the Corporation.
2. By-laws in the form attached hereto as Exhibit A were adopted by the
undersigned incorporator as the By-laws of the Corporation and were ordered
inserted in the minute book immediately following the copy of Certificate of
Incorporation and before this instrument.
3. The following persons were elected members of the Board of Directors
of the Corporation to hold office for the term stated below or until their
respective successors are elected and qualified:
<PAGE> 14
Donald A. Fee and Michael D. Shea, whose terms
will expire at the Corporation's first annual
meeting of stockholders;
Allen J. Portnoy, whose term will expire at the
Corporation's second annual meeting of
stockholders;
James W. Gillis, whose term will expire at the
Corporation's third annual meeting of
stockholders.
Dated: August 20, 1985.
/s/ Fredric Keith Bass
-----------------------
Fredric Keith Bass
Incorporator
<PAGE> 15
STATE OF DELAWARE PAGE 1
[SEAL]
OFFICE OF SECRETARY OF STATE
-----------------------
I, MICHAEL HARKINS, SECRETARY OF STATE OF THE STATE OF DELAWARE DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF DEFIANCE PRECISION PRODUCTS, INC. FILED IN THIS OFFICE ON THE
TWENTY-EIGHTH DAY OF JULY, A.D. 1987, AT 10 O'CLOCK A.M.
| | | | |
/s/ Michael Harkins
---------------------------------------
Michael Harkins, Secretary of State
AUTHENTICATION: 1340863
[Seal of Department of State]
Office of the Secretary of State DATE: 07/29/1987
of Delaware
727209110
<PAGE> 16
DEFIANCE PRECISION PRODUCTS, INC.
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
(Pursuant to Section 242 of the
General Corporation Law of the
State of Delaware)
Defiance Precision Products, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Defiance
Precision Products, Inc. (the "Corporation") resolutions were duly adopted
setting forth a proposed amendment to the Certificate of Incorporation of said
corporation, declaring said amendment to be advisable and directing that said
amendment be considered by the holders of all of the outstanding shares of stock
of said corporation. The resolution setting forth the proposed amendment is as
follows:
AMENDMENT TO THE CERTIFICATE OF INCORPORATION
TO LIMIT DIRECTORS LIABILITY
---------------------------------------------
RESOLVED, that the Board of Directors deems it advisable and in the
best interests of the Corporation and its shareholders to
eliminate, to the extent permitted by recent amendments in
Delaware law, the liability of directors in certain legal
proceedings alleging a breach of the director's duty by amending
the Corporation's Certificate of Incorporation so that, new
Article XII will read as follows:
<PAGE> 17
"ARTICLE XII
------------
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the General
Corporation Law of the State of Delaware, or (iv) for any transaction from
which the director derived an improper personal benefit.
If the General Corporation Law of the State of Delaware is amended
hereafter to authorize the further elimination or limitation of the
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent authorized by the
General Corporation Law of the State of Delaware, as so amended.
Any repeal or modification of this Article shall not adversely affect
any right or protection of a director of the Corporation existing hereunder
with respect to any act or omission occurring prior to or at the time of
such repeal or modification."
SECOND: That at the Annual Meeting of the Stockholders of the Company on
June 11, 1987 a majority of the outstanding stock was voted in favor of the
amendment.
THIRD: That the amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
2
<PAGE> 18
IT WITNESS WHEREOF, Defiance Precision Products, Inc., has
caused this certificate to be signed by James W. Gillis, its President, and
attested by Michael D. Shea, its Vice President-Finance and Secretary, this 12th
day of June, 1987.
DEFIANCE PRECISION PRODUCTS, INC.
By:
/s/ James W. Gillis
--------------------------------
President
ATTEST:
By: /s/ Michael D. Shea
-------------------------------------
Vice President-Finance and Secretary
3
<PAGE> 19
BOOK 899 PAGE 998 DOCUMENTARY
SURCHARGE
PAID $3.00
21765
STATE OF DELAWARE PAGE 1
[SEAL]
OFFICE OF SECRETARY OF STATE
-----------------------
I, MICHAEL HARKINS, SECRETARY OF STATE OF THE STATE OF DELAWARE DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF DEFIANCE PRECISION PRODUCTS, INC. FILED IN THIS OFFICE ON THE
TWENTY-SEVENTH DAY OF JULY, A.D. 1989, AT 10 O'CLOCK A.M.
/s/ Michael Harkins
-------------------------------------
Michael Harkins, Secretary of State
[Seal of Department of State]
Office of the Secretary of State
of Delaware
AUTHENTICATION: 2278156
DATE: 07/27/1989
729208087
<PAGE> 20
BOOK 899 PAGE 999
FILED
729208087 JUL 27 1989
/s/ Michael Harkins
SECRETARY OF STATE
DEFIANCE PRECISION PRODUCTS, INC.
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
(Pursuant to Section 242 of the
General Corporation Law of the
State of Delaware)
Defiance Precision Products, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Defiance
Precision Products, Inc. (the "Corporation") resolutions were duly adopted
setting forth a proposed amendment to the Certificate of Incorporation of the
Corporation, declaring said amendment to be advisable and directing that said
amendment be considered by the holders of all of the outstanding shares of stock
of the Corporation. The resolution setting forth the proposed amendment is as
follows:
Change of the Corporation's Name to Defiance, Inc.
--------------------------------------------------
WHEREAS, in the last few years the Corporation businesses and
markets; and significantly has expanded its products,
WHEREAS, the Board of Directors carefully has reviewed the
appropriateness of the Corporation's name in light of
the expansion into new lines of business and has
concluded that Defiance, Inc. is a more appropriate
name for the Corporation. It hereby is
<PAGE> 21
RESOLVED, that the Board of Directors deems it advisable and in the
best interests of the Corporation and recommends to its
shareholders to approve the amendment of Article I of the
Corporation's Certificate of Incorporation to change the
Corporation's name to Defiance, Inc. so that new Article I will
read as follows:
"ARTICLE I
----------
The name of the Corporation is Defiance, Inc."
RESOLVED FURTHER, that the stockholders of the Corporation be
requested to approve the amendment of Article I of the
Corporation's Certificate of Incorporation to change the
Corporation's name to Defiance, Inc. at the 1989 Annual Meeting
of stockholders;
SECOND: That at the Annual Meeting of the Stockholders of the
Corporation on June 15, 1989 a majority of the outstanding stock was voted in
favor of the amendment.
THIRD: That the amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
July 18, 1989
27467793
2
<PAGE> 22
BOOK 899 PAGE 1001
IN WITNESS WHEREOF, Defiance Precision Products, Inc., has caused this
Certificate to be signed by James W. Gillis, its President, and attested by
Michael D. Shea, its Vice President-Finance, Treasurer and Secretary, this 26th
day of July, 1989.
DEFIANCE PRECISION PRODUCTS, INC.
By: /s/ James W. Gillis
--------------------
President
ATTEST:
By:
/s/ Michael D. Shea
---------------------------------------------------
Vice President-Finance, Treasurer and Secretary
RECEIVED FOR RECORD
JUL 31 1989
WILLIAM M. HONEY, RECORDER
July 18, 1989
27467793
3
<PAGE> 23
STATE OF DELAWARE PAGE 1
OFFICE OF THE SECRETARY OF STATE
-----------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "DEFIANCE, INC.", FILED IN THIS OFFICE ON THE FIFTEENTH DAY
OF DECEMBER, A.D. 1994, AT 1:30 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
[GREAT SEAL OF THE STATE OF DELAWARE]
/s/ Edward J. Freel
---------------------------------------
Edward J. Freel, Secretary of State
[Seal of Secretary of State]
Office of the Secretary of State
of Delaware
AUTHENTICATION: 7341053
DATE: 12-16-94
2069193 8100
944245637
<PAGE> 24
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
DEFIANCE, INC.
DEFIANCE, INC., a corporation organized arid existing under and by
virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the following amendment to the Certificate of
Incorporation of DEFIANCE, INC. has been duly adopted in
accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware:
RESOLVED: That the first paragraph of Article IV of the Certificate of
Incorporation of DEFIANCE, INC. be amended to read as follows:
ARTICLE IV
----------
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is seventeen million
(17,000,000) shares, of which fifteen million (15,000,000) shall be
shares of Common Stock with a par value of five cents ($.05) per share
and two million (2,000,000) shall be shares of Preferred Stock with a
par value of five cents ($.05) per share.
IN WITNESS WHEREOF, said DEFIANCE, INC. has caused this certificate
to be signed by Jerry A. Cooper, its President, and attested by Michael J.
Meier, its Secretary, this day of December, 1994.
DEFIANCE, INC.
By /s/ Jerry A. Cooper
----------------------------
Jerry A. Cooper, President
ATTEST:
By /s/ Michael J. Meier
----------------------------
Michael J. Meier, Secretary
<PAGE> 1
Exhibit 3(g)
DEFIANCE, INC.
By-Laws
ARTICLE I
---------
Meetings of Stockholders
------------------------
Section 1.1 ANNUAL MEETINGS. The annual meeting of the stockholders for
the election of directors and for the transaction of such other business as
properly may come before such meeting shall be held each year on such date, and
at such time and place within or without the State of Delaware, as may be
designated by the Board of Directors.
Section 1.2 SPECIAL MEETINGS. Special meetings of the stockholders, for
any proper purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation of the Corporation, may be called at any time by
the Board of Directors, the Chairman of the Board, the President or any Vice
President, to be held on such date, and at such time and place within or without
the State of Delaware, as the Board of Directors, the Chairman of the Board, the
President or any Vice President, whichever has called the meeting, shall direct.
Section 1.3 NOTICE OF MEETING. Written notice, signed by the Chairman
of the Board, the President, any Vice President, the Secretary or an Assistant
Secretary, of every meeting of stockholders stating the date and time when, and
the place where, it is to be held shall be delivered either personally or by
mail to each stockholder entitled to vote at such meeting not less than ten nor
more than sixty days
<PAGE> 2
before the meeting, except as otherwise provided by law. The purpose or purposes
for which the meeting is called may in the case of an annual meeting, and shall
in the case of a special meeting, also be stated. If mailed, such notice shall
be directed to a stockholder at his address as it shall appear on the stock
books of the Corporation, unless he shall have filed with the Secretary a
written request that notices intended for him be mailed to some other address,
in which case it shall be mailed to the address designated in such request.
Whenever any notice is required to be given under the provisions of the Delaware
General Corporation Law, the Certificate of Incorporation or these By-laws, a
waiver thereof, signed by the stockholder entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent thereto.
Attendance of a stockholder at the meeting shall be deemed equivalent to a
written waiver of notice of such meeting.
Section 1.4 QUORUM. The presence at any meeting, in person or by proxy,
of the holders of record of a majority of the shares then issued and outstanding
and entitled to vote shall be necessary and sufficient to constitute a quorum
for the transaction of business, except as otherwise provided by law.
Section 1.5 ADJOURNMENTS. In the absence of a quorum, a majority in
interest of the stockholders entitled to vote, present in person or by proxy,
or, if no stockholder entitled to vote is present in person or by proxy,
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<PAGE> 3
any officer entitled to preside at or act as secretary of such meeting, may
adjourn the meeting from time to time until a quorum shall be present.
Section 1.6 VOTING. Directors shall be chosen by a plurality of the
votes cast at the election, and, except as otherwise provided by law or by the
Certificate of Incorporation, all other questions shall be determined by a
majority of the votes cast on such question.
Section 1.7 PROXIES. Any stockholder entitled to vote may vote by
proxy, provided that the instrument authorizing such proxy to act shall have
been executed in writing (which shall include telegraphing or cabling) by the
stockholder himself or by his duly authorized attorney.
Section 1.8 JUDGES OF ELECTION. The Board of Directors may appoint
judges of election to serve at any election of directors and at balloting on any
other matter that may properly come before a meeting of stockholders. If no such
appointment shall be made, or if any of the judges so appointed shall fail to
attend, or refuse or be unable to serve, then such appointment may be made by
the presiding officer at the meeting.
ARTICLE II
----------
Board of Directors
------------------
Section 2.1 NUMBER. The number of directors which shall constitute the
whole Board of Directors shall be determined as provided in the Certificate of
Incorporation. The initial Board of Directors and subsequent Boards of
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<PAGE> 4
Directors shall consist of four directors until changed as provided in the
Certificate of Incorporation.
Section 2.2 ELECTION AND TERM OF OFFICE. Directors shall be elected at
the annual meeting of the stockholders, except as provided in Section 2.3. Each
director (whether elected at an annual meeting or to fill a vacancy or
otherwise) shall continue in office until his successor shall have been elected
and qualified or until his earlier death, resignation or removal in the manner
hereinafter provided.
Section 2.3 VACANCIES AND ADDITIONAL DIRECTORSHIPS. If any vacancy
shall occur among the directors by reason of death, resignation or removal, or
as the result of an increase in the number of directorships, a majority of the
directors then in office, or a sole remaining director, though less than a
quorum, may fill any such vacancy.
Section 2.4 REGULAR MEETINGS. A regular meeting of the Board of
Directors shall be held for organization, for the election of officers and for
the transaction of such other business as may properly come before the meeting,
within thirty days after each annual election of directors.
The Board of Directors by resolution may provide for the holding of
other regular meetings and may fix the times and places at which such meetings
shall be held. Notice of regular meetings shall not be required to be given,
provided that whenever the time or place of regular meetings shall be fixed or
changed, notice of such action shall be
4
<PAGE> 5
mailed promptly to each director who shall not have been present at the meeting
at which such action was taken, addressed to him at his residence or usual place
of business.
Section 2.5 SPECIAL MEETINGS. Special meetings of the Board of
Directors shall be held upon call by or at the direction of the Chairman of the
Board, the President, any Vice President or any two directors, except that when
the Board of Directors consists of one director, then one director may call a
special meeting. Except as otherwise required by law, notice of each special
meeting shall be mailed to each director, addressed to him at his residence or
usual place of business, at least two days before the day on which the meeting
is to be held, or shall be sent to him at such place by telex, telecopy,
telegram, radio or cable, or telephoned or delivered to him personally, not
later than the day before the day on which the meeting is to be held. Such
notice shall state the time and place of such meeting, but need not state the
purposes thereof, unless otherwise required by law, the Certificate of
Incorporation of the Corporation or these By-laws.
Section 2.6 WAIVER OF NOTICE. Whenever any notice is required to be
given under the provisions of the Delaware General Corporation Law, the
Certificate of Incorporation or these By-laws, a waiver thereof, signed by the
director entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
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<PAGE> 6
Attendance of a director at the meeting shall be deemed equivalent to a written
waiver of notice of such meeting.
Section 2.7 QUORUM AND MANNER OF ACTING. At each meeting of the Board
of Directors the presence of a majority of the total number of members of the
Board of Directors as constituted from time to time, shall be necessary and
sufficient to constitute a quorum for the transaction of business, except that
when the Board of Directors consists of one director, then the one director
shall constitute a quorum. In the absence of a quorum, a majority of those
present at the time and place of any meeting may adjourn the meeting from time
to time until a quorum shall be present and the meeting may be held as adjourned
without further notice or waiver. A majority of those present at any meeting at
which a quorum is present may decide any question brought before such meeting,
except as otherwise provided by law, the Certificate of Incorporation of the
Corporation or these By-laws.
Section 2.8 RESIGNATION OF DIRECTORS. Any director may resign at any
time by giving written notice of such resignation to the Board of Directors, the
Chairman of the Board, the President, any Vice President or the Secretary.
Unless otherwise specified in such notice, such resignation shall take effect
upon receipt thereof by the Board of Directors or any such officer, and the
acceptance of such resignation shall not be necessary to make it effective.
6
<PAGE> 7
Section 2.9 REMOVAL OF DIRECTORS. At any special meeting of the
stockholders, duly called as provided in these By-laws, any director or
directors may be removed from office, either with or without cause, as provided
by law. At such meeting a successor or successors may be elected by a plurality
of the votes cast, or if any such vacancy is not so filled, it may be filled by
the directors as provided in Section 2.3.
Section 2.10 COMPENSATION OF DIRECTORS. Directors shall receive such
reasonable compensation for their services as such, whether in the form of
salary or a fixed fee for attendance at meetings, with expenses, if any, as the
Board of Directors may from time to time determine. Nothing herein contained
shall be construed to preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor.
ARTICLE III
-----------
Committees of the Board
-----------------------
Section 3.1 DESIGNATION, POWER, ALTERNATE MEMBERS AND TERM OF OFFICE.
The Board of Directors may, by resolution passed by a majority of the whole
Board of Directors, designate one or more committees, each committee to consist
of one or more of the directors of the Corporation. Any such committee, to the
extent provided in such resolution and permitted by law, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and
7
<PAGE> 8
may authorize the seal of the Corporation or a facsimile thereof to be affixed
to or reproduced on all such papers as said committee shall designate. The Board
of Directors may designate one or more directors as alternate members of any
committee who, in the order specified by the Board of Directors, may replace any
absent or disqualified member at any meeting of the committee. If at a meeting
of any committee one or more of the members thereof should be absent or
disqualified, and if either the Board of Directors has not so designated any
alternate member or members, or the number of absent or disqualified members
exceeds the number of alternate members who are present at such meeting, then
the member or members of such committee (including alternates) present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another director to act at the meeting in the
place of any such absent or disqualified member. The term of office of the
members of each committee shall be as fixed from time to time by the Board of
Directors, subject to these By-laws; provided, however, that any committee
member who ceases to be a member of the Board of Directors shall ipso facto
cease to be a committee member. Each committee shall appoint a secretary, who
may be the Secretary of the Corporation or an Assistant Secretary thereof.
Section 3.2 EXECUTIVE COMMITTEE. The Executive Committee shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the
8
<PAGE> 9
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but said Executive
Committee shall not have the power or authority in reference to amending the
Corporation's certificate of incorporation, adopting an agreement of merger of
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, recommending
to the stockholders a dissolution of the Corporation or a revocation of a
dissolution, or amending the By-laws of the Corporation; and further, the
Executive Committee shall not have the power or authority to declare a dividend
or to authorize the issuance of stock. The provisions of Article III of these
By-laws shall apply to the Executive Committee.
Section 3.3 MEETINGS, NOTICES AND RECORDS. Each committee may provide
for the holding of regular meetings, with or without notice, and may fix the
times and places at which such meetings shall be held. Special meetings of each
committee shall be held upon call by or at the direction of its chairman or, if
there be no chairman, by or at the direction of any one of its members. Except
as otherwise provided by law, notice of each special meeting of a committee
shall be mailed to each member of such committee, addressed to him at his
residence or usual place of business, at least two days before the day on which
the meeting is to be held, or shall be sent to him at such place by telegram,
radio or cable, or telephoned or delivered to him person-
9
<PAGE> 10
ally, not later than the day before the day on which the meeting is to be held.
Such notice shall state the time and place of such meeting, but need not state
the purposes thereof, unless otherwise required by law, the Certificate of
Incorporation of the Corporation or these By-laws.
Notice of any meeting of a committee need not be given to any member
thereof who shall attend such meeting in person or who shall waive notice
thereof, before or after such meeting, in a signed writing. Each committee shall
keep a record of its proceedings.
Section 3.4 QUORUM AND MANNER OF ACTING. At each meeting of any
committee, the presence of a majority of its members then in office shall be
necessary and sufficient to constitute a quorum for the transaction of business,
except that when a committee consists of one member, then the one member shall
constitute a quorum. In the absence of a quorum, a majority of the members
present at the time and place of any meeting may adjourn the meeting from time
to time until a quorum shall be present and the meeting may be held as adjourned
without further notice or waiver. The act of a majority of the members present
at any meeting at which a quorum is present shall be the act of such committee.
Subject to the foregoing and other provisions of these By-laws and except as
otherwise determined by the Board of Directors, each committee may make rules
for the conduct of its business.
10
<PAGE> 11
Section 3.5 RESIGNATIONS. Any member of a committee may resign at any
time by giving written notice of such resignation to the Board of Directors, the
President, any Vice President or the Secretary. Unless otherwise specified in
such notice, such resignation shall take effect upon receipt thereof by the
Board of Directors or any such officer, and the acceptance of such resignation
shall not be necessary to make it effective.
Section 3.6 REMOVAL. Any member of any committee may be removed at any
time with or without cause by the Board of Directors.
Section 3.7 VACANCIES. If any vacancy shall occur in any committee by
reason of death, resignation, disqualification, removal or otherwise, the
remaining member or members of such committee, so long as a quorum is present,
may continue to act until such vacancy is filled by the Board of Directors.
Section 3.8 COMPENSATION. Committee members shall receive such
reasonable compensation for their services as such, whether in the form of
salary or a fixed fee for attendance at meetings, with expenses, if any, as the
Board of Directors may from time to time determine. Nothing herein contained
shall be construed to preclude any committee member from serving the Corporation
in any other capacity and receiving compensation therefor.
11
<PAGE> 12
ARTICLE IV
----------
Officers
--------
Section 4.1 OFFICERS. The officers of the Corporation shall be a
Chairman of the Board, a President, one or more Vice Presidents, a Secretary, a
Treasurer, and such other officers as may be appointed in accordance with the
provisions of Section 4.3.
Section 4.2 ELECTION, TERM OF OFFICE AND QUALIFICATIONS. Each officer
(except such officers as may be appointed in accordance with the provisions of
Section 4.3) shall be elected by the Board of Directors. Each such officer
(whether elected at the first meeting of the Board of Directors after the annual
meeting of stockholders or to fill a vacancy or otherwise) shall hold his office
until the first meeting of the Board of Directors after the next annual meeting
of stockholders and until his successor shall have been elected, or until his
death, or until he shall have resigned in the manner provided in Section 4.4 or
shall have been removed in the manner provided in Section 4.5.
Section 4.3 SUBORDINATE OFFICERS AND AGENTS. The Board of Directors
from time to time may appoint other officers or agents (including one or more
Assistant Vice Presidents, one or more Assistant Secretaries and one or more
Assistant Treasurers), to hold office for such period, have such authority and
perform such duties as are provided in these By-laws or as may be provided in
the resolutions appointing them. The Board of Directors may delegate to any
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<PAGE> 13
officer or agent the power to appoint any such subordinate officers or agents
and to prescribe their respective terms of office, authorities and duties.
Section 4.4 RESIGNATIONS. Any officer may resign at any time by giving
written notice of such resignation to the Board of Directors, the President, a
Vice President or the Secretary. Unless otherwise specified in such written
notice, such resignation shall take effect upon receipt thereof by the Board of
Directors or any such officer, and the acceptance of such resignation shall not
be necessary to make it effective.
Section 4.5 REMOVAL. Any officer specifically designated in Section 4.1
may be removed with or without cause at any meeting of the Board of Directors by
affirmative vote of a majority of the directors then in office. Any officer or
agent appointed in accordance with the provisions of Section 4.3 may be removed
with or without cause at any meeting of the Board of Directors by affirmative
vote of a majority of the directors present at such meeting, or at any time by
any superior officer or agent upon whom such power of removal shall have been
conferred by the Board of Directors.
Section 4.6 VACANCIES. A vacancy in any office by reason of death,
resignation, removal, disqualification or any other cause shall be filled for
the unexpired portion of the term in the manner prescribed by these By-laws for
regular election or appointment to such office.
13
<PAGE> 14
Section 4.7 THE CHAIRMAN OF THE BOARD. The Chairman of the Board shall
preside at all meetings of the Board of Directors and of the stockholders of the
Corporation. In the absence of the President, or in the event of his inability
or refusal to act, the Chairman of the Board shall perform the duties and
exercise the powers of the President until such vacancy shall be filled in the
manner prescribed by these By-laws or by law. He may sign, with any other
officer thereunto duly authorized, certificates representing stock of the
Corporation the issuance of which shall have been duly authorized (the signature
to which may be a facsimile signature), and may sign and execute in the name of
the Corporation deeds, mortgages, bonds, contracts, agreements or other
instruments duly authorized by the Board of Directors, except in cases where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent, or shall be required by law to be
otherwise executed. He shall have such other powers and perform such other
duties as may from time to time be prescribed by the Board of Directors or these
By-laws.
Section 4.8 THE PRESIDENT. The President shall be the Chief Executive
Officer and, subject to the direction of the Board of Directors and the Chairman
of the Board, he shall have general charge of the business, affairs and property
of the Corporation and general supervision over its officers and agents. At the
request of the Chairman of the
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<PAGE> 15
Board or in his absence or disability, the President shall perform all the
duties of the Chairman of the Board and, when so acting, shall have all the
powers of and be subject to all restrictions upon the Chairman of the Board. He
shall see that all orders and resolutions of the Board of Directors are carried
into effect. He may sign, with any other officer thereunto duly authorized,
certificates representing stock of the Corporation the issuance of which shall
have been duly authorized (the signature to which may be a facsimile signature),
and may sign and execute in the name of the Corporation deeds, mortgages, bonds,
contracts, agreements or other instruments duly authorized by the Board of
Directors, except in cases where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent, or
shall be required by law to be otherwise executed. From time to time he shall
report to the Board of Directors all matters within his knowledge which the
interests of the Corporation may require to be brought to their attention. He
shall have such other powers and perform such other duties as may from time to
time be prescribed by the Board of Directors, the Chairman of the Board or these
By-laws. If no Treasurer shall have been appointed by the Board of Directors the
President shall have in addition to and not in limitation of the foregoing the
powers afforded the Treasurer pursuant to Section 4.12.
15
<PAGE> 16
Section 4.9 The VICE PRESIDENTS. At the request of the President or in
his absence or disability, the Vice President designated by the Board of
Directors shall perform all the duties of the President and, when so acting,
shall have all the powers of and be subject to all restrictions upon the
President. Any Vice President may also sign, with any other officer thereunto
duly authorized, certificates representing stock of the Corporation the issuance
of which shall have been duly authorized (the signature to which may be a
facsimile signature), and may sign and execute in the name of the Corporation
deeds, mortgages, bonds, contracts, agreements or other instruments duly
authorized by the Board of Directors, except in cases where the signing and
execution thereof shall be expressly delegated by the Board of Directors to some
other officer or agent, or shall be required by law to be otherwise executed.
Each Vice President shall have such other powers and perform such other duties
as may from time to time be prescribed by the Board of Directors, the Chairman
of the Board, the President or these By-laws.
Section 4.10 THE SECRETARY. The Secretary shall:
(a) record all the proceedings of the meetings of the stockholders,
the Board of Directors, and any committees in a book or books to be kept
for that purpose;
(b) cause all notices to be duly given in accordance with the
provisions of these By-laws and as required by law:
(c) whenever any committee shall be appointed in pursuance of a
resolution of the Board
16
<PAGE> 17
of Directors, furnish the chairman of such committee with a copy of such
resolution;
(d) be custodian of the records and of the seal of the Corporation, and
cause such seal to be affixed to or a facsimile to be reproduced on all
certificates representing stock of the Corporation prior to the issuance
thereof and to all instruments the execution of which on behalf of the
Corporation under its seal shall have been duly authorized;
(e) see that the lists, books, reports, statements, certificates and
other documents and records required by law are properly kept and filed;
(f) have charge of the stock and transfer books of the Corporation, and
exhibit such stock book at all reasonable times to such persons as are
entitled by law to have access thereto;
(g) sign (unless the Treasurer or an Assistant Secretary or an
Assistant Treasurer shall sign) certificates representing stock of the
Corporation the issuance of which shall have been duly authorized (the
signature to which may be a facsimile signature); and
(h) in general, perform all duties incident to the office of Secretary
and have such other powers and perform such other duties as may from time
to time be prescribed by the Board of Directors, the Chairman of the Board,
the President or these By-laws.
Section 4.11 ASSISTANT SECRETARIES. At the request of the Secretary or
in his absence or disability, the Assistant Secretary designated by him (or in
the absence of such designation, the Assistant Secretary designated by the Board
of Directors, the Chairman of the Board or the President) shall perform all the
duties of the Secretary and, when so acting, shall have all the powers of and be
subject to all restrictions upon the Secretary. Each Assistant Secretary shall
have such other powers and perform such
17
<PAGE> 18
other duties as may from time to time be prescribed by the Board of Directors,
the Chairman of the Board, the President, the Secretary or these By-laws.
Section 4.12 THE TREASURER. The Treasurer shall:
(a) have charge of and supervision over and be responsible for the
funds, securities, receipts and disbursements of the Corporation;
(b) cause the moneys and other valuable effects of the Corporation to
be deposited in the name and to the credit of the Corporation in such banks
or trust companies or with such bankers or other depositaries as shall be
selected or to be otherwise dealt with in such manner as the Board of
Directors may direct;
(c) cause the funds of the Corporation to be disbursed by checks or
drafts upon the authorized depositaries of the Corporation, and cause to be
taken and preserved proper vouchers for all moneys disbursed;
(d) render to the Board of Directors or the Chairman of the Board or
the President, whenever requested, a statement of the financial condition
of the Corporation and of all his transactions as Treasurer;
(e) cause to be kept at the Corporation Is principal office correct
books of account of all its business and transactions and such duplicate
books of account as he shall determine and upon application cause such
books or duplicates thereof to be exhibited to any director;
(f) be empowered, from time to time, to require from the officers or
agents of the Corporation reports or statements giving such information as
he may desire with respect to any and all financial transactions of the
Corporation;
(g) sign (unless the Secretary or an Assistant Secretary or an
Assistant Treasurer shall sign) certificates representing stock of the
Corporation the issuance of which shall have been duly authorized (the
signature to which may be a facsimile signature); and
(h) in general, perform all duties incident to the office of Treasurer
and have such other
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powers and perform such other duties as may from time to time be
prescribed by the Board of Directors, the Chairman of the Board, the
President or these By-laws.
Section 4.13 ASSISTANT TREASURERS. At the request of the Treasurer or
in his absence or disability, the Assistant Treasurer designated by him (or in
the absence of such designation, the Assistant Treasurer designated by the Board
of Directors, the Chairman of the Board or the President) shall perform all the
duties of the Treasurer and, when so acting, shall have all the powers of and be
subject to all restrictions upon the Treasurer. Each Assistant Treasurer shall
have such other powers and perform such other duties as may from time to time be
prescribed by the Board of Directors, the Chairman of the Board, the President,
the Treasurer or these By-laws.
Section 4.14 SALARIES. The salaries of the officers of the Corporation
shall be fixed from time to time by the Board of Directors. except that the
Board of Directors may delegate to any person the power to fix the salaries or
other compensation of any officers or agents appointed in accordance with the
provisions of Section 4.3. No officer shall be prevented from receiving such
salary by reason of the fact that he is also a director of the Corporation.
ARTICLE V
---------
Execution of Instruments;
-------------------------
Borrowing; Proxies
------------------
Section 5.1 EXECUTION OF INSTRUMENTS GENERALLY. The Chairman of the
Board, the President, any Vice Presi-
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<PAGE> 20
dent, the Secretary or the Treasurer, subject to the approval of the Board of
Directors, may enter into any contract or execute and deliver any instrument in
the name and on behalf of the Corporation. The Board of Directors may authorize
any officer or officers, or agent or agents, to enter into any contract or
execute and deliver any instrument in the name and on behalf of the Corporation,
and such authorization may be general or confined to specific instances.
Section 5.2 BORROWING. No loans or advances shall be obtained or
contracted for, by or on behalf of the Corporation and no negotiable paper shall
be issued in its name, unless and except as authorized by the Board of
Directors. Such authorization may be general or confined to specific instances.
Any officer or agent of the Corporation thereunto so authorized may obtain loans
and advances for the Corporation, and for such loans and advances may make,
execute and deliver promissory notes, bonds, or other evidences of indebtedness
of the Corporation. Any officer or agent of the Corporation thereunto so
authorized may pledge, hypothecate or transfer as security for the payment of
any and all loans, advances, indebtedness and liabilities of the Corporation,
any and all stocks, bonds, other securities and other personal property at any
time held by the Corporation, and to that end may endorse, assign and deliver
the same and do every act and thing necessary or proper in connection therewith.
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Section 5.3 CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
the payment of money, and all notes or other evidences of indebtedness issued in
the name of the Corporation, shall be signed by such officer or officers or
agent or agents of the Corporation, and in such manner, as from time to time
shall be determined by the Board of Directors.
Section 5.4 PROXIES. Proxies to vote with respect to shares of stock of
other corporations owned by or standing in the name of the Corporation may be
executed and delivered from time to time on behalf of the Corporation by the
Chairman of the Board, the President or any Vice President or by any other
person or persons thereunto authorized by the Board of Directors.
ARTICLE VI
----------
Record Dates
------------
Section 6.1 In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall be not more than sixty nor less than ten days before the date of
such meeting, nor more than sixty
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days prior to any other action. Only those stockholders of record on the date so
fixed shall be entitled to any of the foregoing rights, notwithstanding the
transfer of any such stock on the books of the Corporation after any such record
date fixed by the Board of Directors.
ARTICLE VII
-----------
Corporate Seal
--------------
Section 7.1 The corporate seal shall be circular in form and shall bear
the name of the Corporation and words and figures denoting its organization
under the laws of the State of Delaware and the year thereof and otherwise shall
be in such form as shall be approved from time to time by the Board of
Directors.
ARTICLE VIII
------------
Fiscal Year
-----------
Section 8.1 The fiscal year of the Corporation shall be fixed by
resolution of the Board of Directors.
ARTICLE IX
----------
Amendments
----------
Section 9.1 Any or all By-laws of the Corporation may be amended or
repealed, and new By-laws may be made, by an affirmative vote of a majority of
the directors present at any organizational, regular, or special meeting of the
Board of Directors.
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ARTICLE X
---------
Action Without A Meeting
------------------------
Section 10.1 Any action which might have been taken under these By-laws
by a vote of the stockholders at a meeting thereof may be taken without a
meeting, without prior notice and without a vote, if a consent in writing
setting forth the action so taken, shall be signed by the holders of outstanding
shares of stock of the Corporation having not less than the maximum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted, PROVIDED that
prompt notice shall be given to those stockholders who have not so consented if
less than unanimous written consent is obtained. Any action which might have
been taken under these By-laws by vote of the directors at any meeting of the
Board of Directors or any committee thereof may be taken without a meeting if
all the members of the Board of Directors or such committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of the Board of Directors or such committee.
ARTICLE XI
----------
Indemnification
---------------
Section 11.1 The Corporation shall indemnify, in the manner and to the
full extent permitted by law, any person (or the estate of any person) who was
or is a party to, or is threatened to be made a party to, any threatened,
23
<PAGE> 24
pending or completed action, suit or proceeding, whether or not by or in the
right of the Corporation, and whether civil, criminal, administrative,
investigative or otherwise, by reason of the fact that such person is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise.
Where required by law, the indemnification provided for herein shall be made
only as authorized in the specific case upon a determination, in the manner
provided by law, that indemnification of the director, officer, employee or
agent is proper under such circumstances. The Corporation may, to the full
extent permitted by law, purchase and maintain insurance on behalf of any such
person against any liability which may be asserted against him. To the full
extent permitted by law, the indemnification provided herein shall include
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, and, in the manner provided by law, any such expenses may be paid by
the Corporation in advance of the final disposition of such action, suit or
proceeding. The indemnification provided herein shall not be deemed to limit the
right of the Corporation to indemnify any other person for any such expenses to
the full extent permitted by law, nor shall it be deemed exclusive of any other
rights to which any person seeking indemnification from the Corporation may be
entitled under any agreement,
24
<PAGE> 25
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office.
25
<PAGE> 1
EXHIBIT 10(au)
REVOLVING CREDIT NOTE
---------------------
Detroit, Michigan
$8,000,000 October 25, 1995
On or before October 1, 1997 FOR VALUE RECEIVED, Defiance, Inc., a Delaware
corporation (herein called "Company") promises to pay to the order of COMERICA
BANK, a Michigan banking corporation (herein called "Bank") at its Main Office
at 500 Woodward Avenue, Detroit, Michigan, in lawful money of the United States
of America the indebtedness or so much of the sum of Eight Million Dollars
($8,000,000) as may from time to time have been advanced and then be outstanding
hereunder pursuant to the Second Amended and Restated Loan Agreement dated as of
July 29, 1994, made by and between Company and Bank (herein called "Agreement"),
together with interest thereon as hereinafter set forth. For the period from the
date of execution of this Note through December 31, 1995, the amount available
hereunder shall, subject to the terms of the Agreement, be Eight Million Dollars
($8,000,000). Company agrees to reduce the indebtedness outstanding hereunder to
an amount not to exceed Six Million Dollars ($6,000,000) on or before January 1,
1996.
Each of the Advances hereunder shall bear interest at the Applicable
Interest Rate from time to time applicable thereto under the Agreement or as
otherwise determined thereunder, and interest shall be computed, assessed and
payable as set forth in the Agreement.
This Note is a note under which advances, repayments and readvances may be
made from time to time, subject to the terms and conditions of the Agreement.
This Note evidences borrowing under, is subject to, is secured in accordance
with, and may be matured under, the terms of the Agreement, to which reference
is hereby made. As additional security for this Note, Company grants Bank a lien
on all property and assets including deposits and other credits of the Company,
at any time in possession or control of or owing by Bank for any purpose.
Company hereby waives presentment for payment, demand, protest and notice
of dishonor and nonpayment of this Note and agrees that no obligation hereunder
shall be discharged by reason of any extension, indulgence, release, or
forbearance granted by any holder of this Note to any party now or hereafter
liable hereon or any present or subsequent owner of any property, real or
personal, which is now or hereafter security for this Note. Any transferees of,
or endorser, guarantor or surety paying this Note in full shall succeed to all
rights of Bank, and Bank shall be under no further responsibility for the
exercise thereof or the loan evidenced hereby. Nothing herein shall limit any
right granted Bank by other instrument or by law.
<PAGE> 2
This Note is replacement for and increase of a Revolving Credit Note dated
August 2, 1995 in the principal amount of $6,000,000 by Company payable to Bank.
All capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Agreement.
DEFIANCE, INC.
By: /s/ Michael J. Meier
---------------------------------------
Its: V.P.-Finance, CFO, Sec.-Treas.
--------------------------------------
2
<PAGE> 1
EXHIBIT 10(av)
THIRD AMENDMENT TO AMENDED
AND RESTATED LOAN AGREEMENT
This Amendment dated as of October 25, 1995, between Defiance, Inc., a
Delaware corporation, ("Company"), and Comerica Bank, a Michigan banking
corporation, successor in interest by reason of merger to Manufacturers Bank,
N.A. ("Bank").
RECITALS:
A. Company and Bank entered into an Amended and Restated Loan Agreement
dated July 29, 1994, which was amended by a First Amendment to Amended and
Restated Loan Agreement dated May 31, 1995 and a Second Amendment to Amended and
Restated Loan Agreement dated as of August 2, 1995 ("Agreement").
B. Company and Bank desire further to amend the Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Section 2.1 of the Agreement is amended to read in its entirety as
follows:
"2.1 Bank agrees to make Advances to Company at any time and from time
to time from the effective date hereof through December 31, 1995, not to
exceed Eight Million Dollars ($8,000,000) and from and after January 1,
1996 until the Revolving Credit Maturity Date, not to exceed Six Million
Dollars ($6,000,000) ("Commitment Amount") in aggregate principal amount at
any one time outstanding. All of the Advances under this Section 2 shall be
evidenced by the Revolving Credit Note under which advances, repayments and
readvances may be made, subject to the terms and conditions of this
Agreement."
2. Exhibit "E" to the Agreement is hereby deleted and attached Exhibit
"E" is substituted thereafter.
3. The above amendment shall be effective upon execution hereof by Company
and Bank, delivery by Company to Bank of an executed Note in the form of
attached Exhibit "E" and execution of the Acknowledgment below by each of the
Guarantors (as defined in the Agreement).
4. Company hereby represents and warrants that, after giving effect to the
amendment contained herein, (a) execution, delivery and performance of this
Amendment and any other documents and instruments required under this Amendment
or the Agreement are within Company's corporate powers, have been duly
authorized, are not in contravention of law or the terms of Company's
Certificate of Incorporation or Bylaws, and do not require the consent or
approval of any governmental body, agency, or authority, and this
<PAGE> 2
Amendment and any other documents and instruments required under this Amendment
or the Agreement, will be valid and binding in accordance with their terms; (b)
the continuing representations and warranties of Company set forth in Sections
8.1 through 8.5 and 8.7 through 8.14 of the Agreement are true and correct on
and as of the date hereof with the same force and effect as made on and as of
the date hereof; (c) the continuing representations and warranties of Company
set forth in Section 8.6 of the Agreement are true and correct as of the date
hereof with respect to the most recent financial statements furnished to the
Bank by Company in accordance with Section 9.1 of the Agreement; and (d) no
event of default, or condition or event which, with the giving of notice or the
running of time, or both, would constitute an event of default under the
Agreement, has occurred and is continuing as of the date hereof.
5. Except as expressly modified hereby all of the terms and
conditions of the Agreement remain in full force and effect.
WITNESS the due execution hereof on the day and year first written above.
COMERICA BANK DEFIANCE, INC.
By: /s/ Kerry McGuire By: /s/ Michael J. Meier
-------------------- -------------------------
Its: AVP Its: V.P. Finance, CFO, Sec.-Treas.
------------------- -------------------------------
ACKNOWLEDGEMENT
The undersigned guarantors acknowledge and consent to the foregoing
Amendment and waiver and ratify and confirm their respective obligations under
the Guaranty Agreements dated February 5, 1993, which Guaranty Agreements remain
in full force and effect.
SMTC CORPORATION DEFIANCE PRECISION PRODUCTS,
INC.
By: /s/ Michael J. Meier /s/ Michael J. Meier
--------------------- -------------------------
Its: Sec.-Treas. Its: Sec.-Treas.
-------------------- ------------------------
2
<PAGE> 3
DRAFTLINE ENGINEERING COMPANY VAUNGARDE, INCORPORATED
By: /s/ Michael J. Meier /s/ Michael J. Meier
--------------------- -------------------------
Its: Sec.-Treas. Its: Sec.-Treas.
-------------------- ------------------------
BINDERLINE DEVELOPMENT, INC. HY-FORM PRODUCTS, INC.
By: /s/ Michael J. Meier /s/ Michael J. Meier
--------------------- -------------------------
Its: Sec.-Treas. Its: Sec.-Treas.
-------------------- ------------------------
3
<PAGE> 4
EXHIBIT "E"
REVOLVING CREDIT NOTE
---------------------
Detroit, Michigan
$8,000,000 October ___, 1995
On or before October 1, 1997 FOR VALUE RECEIVED, Defiance, Inc., a Delaware
corporation (herein called "Company") promises to pay to the order of COMERICA
BANK, a Michigan banking corporation (herein called "Bank") at its Main Office
at 500 Woodward Avenue, Detroit, Michigan, in lawful money of the United States
of America the indebtedness or so much of the sum of Eight Million Dollars
($8,000,000) as may from time to time have been advanced and then be outstanding
hereunder pursuant to the Second Amended and Restated Loan Agreement dated as of
July 29, 1994, made by and between Company and Bank (herein called "Agreement"),
together with interest thereon as hereinafter set forth. For the period from the
date of execution of this Note through December 31, 1995, the amount available
hereunder shall, subject to the terms of the Agreement, be Eight Million Dollars
($8,000,000). Company agrees to reduce the indebtedness outstanding hereunder to
an amount not to exceed Six Million Dollars ($6,000,000) on or before January 1,
1996.
Each of the Advances hereunder shall bear interest at the Applicable
Interest Rate from time to time applicable thereto under the Agreement or as
otherwise determined thereunder, and interest shall be computed, assessed and
payable as set forth in the Agreement.
This Note is a note under which advances, repayments and readvances may be
made from time to time, subject to the terms and conditions of the Agreement.
This Note evidences borrowing under, is subject to, is secured in accordance
with, and may be matured under, the terms of the Agreement, to which reference
is hereby made. As additional security for this Note, Company grants Bank a lien
on all property and assets including deposits and other credits of the Company,
at any time in possession or control of or owing by Bank for any purpose.
Company hereby waives presentment for payment, demand, protest and notice
of dishonor and nonpayment of this Note and agrees that no obligation hereunder
shall be discharged by reason of any extension, indulgence, release, or
forbearance granted by any holder of this Note to any party now or hereafter
liable hereon or any present or subsequent owner of any property, real or
personal, which is now or hereafter security for this Note. Any transferees of,
or endorser, guarantor or surety paying this Note in full shall succeed to all
rights of Bank, and Bank shall be under no further responsibility for the
exercise thereof or the loan evidenced
<PAGE> 5
hereby. Nothing herein shall limit any right granted Bank by other instrument
or by law.
This Note is replacement for and increase of a Revolving Credit Note dated
August 2, 1995 in the principal amount of $6,000,000 by Company payable to Bank.
All capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Agreement.
DEFIANCE, INC.
By:__________________________
Its:_________________________
2
<PAGE> 1
EXHIBIT 10(aw)
FOURTH AMENDMENT TO AMENDED
AND RESTATED LOAN AGREEMENT
---------------------------
This Amendment dated as of December 31, 1995, between Defiance, Inc., a
Delaware corporation, ("Company"), and Comerica Bank, a Michigan banking
corporation, successor in interest by reason of merger to Manufacturers Bank,
N.A. ("Bank").
RECITALS:
A. Company and Bank entered into an Amended and Restated Loan Agreement
dated July 29, 1994, which was amended by a First Amendment to Amended and
Restated Loan Agreement dated May 31, 1995, a Second Amendment to Amended and
Restated Loan Agreement dated as of August 2, 1995, and a Third Amendment to
Amended and Restated Loan Agreement dated October 25, 1995 ("Agreement").
B. Company and Bank desire further to amend the Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Section 9.6 of the Agreement is amended to read in its
entirety as follows:
"Maintain at all times a Leverage Ratio of not more than the
following amounts during the periods specified below:
December 31, 1995 through June 30, 1996 1.75 to 1.0
July 1, 1996 and thereafter 1.50 to 1.0"
2. The above amendment shall be effective as of December 31,
1995.
3. Company hereby represents and warrants that, after giving effect to the
amendment contained herein, (a) execution, delivery and performance of this
Amendment and any other documents and instruments required under this Amendment
or the Agreement are within Company's corporate powers, have been duly
authorized, are not in contravention of law or the terms of Company's
Certificate of Incorporation or Bylaws, and do not require the consent or
approval of any governmental body, agency, or authority, and this Amendment and
any other documents and instruments required under this Amendment or the
Agreement, will be valid and binding in accordance with their terms; (b) the
continuing representations and warranties of Company set forth in Sections 8.1
through 8.5 and 8.7 through 8.14 of the Agreement are true and correct on and as
of the date hereof with the same force and effect as made on and as of the date
hereof; (c) the continuing representations and warranties of Company set forth
in Section 8.6 of the Agreement are true and correct as of the date hereof with
respect to the most recent financial statements furnished to the Bank by Company
in accordance with Section 9.1 of the Agreement; and (d) no event of default, or
<PAGE> 2
condition or event which, with the giving of notice or the running of time, or
both, would constitute an event of default under the Agreement, has occurred and
is continuing as of the date hereof.
4. Except as expressly modified hereby all of the terms and
conditions of the Agreement remain in full force and effect.
WITNESS the due execution hereof on the day and year first written above.
COMERICA BANK DEFIANCE, INC.
By: /s/ Kerry McGuire By: /s/ Michael J. Meier
-------------------------- --------------------------------
Its: Vice President Its: VP Finance, CFO, Sec.-Treas.
------------------------- -------------------------------
ACKNOWLEDGEMENT
The undersigned guarantors acknowledge and consent to the foregoing
Amendment and waiver and ratify and confirm their respective obligations under
the Guaranty Agreements dated February 5, 1993, which Guaranty Agreements remain
in full force and effect.
SMTC CORPORATION DEFIANCE PRECISION PRODUCTS,
INC.
By: /s/ Michael J. Meier By: /s/ Michael J. Meier
-------------------------- --------------------------------
Its: Secretary & Treasurer Its: Secretary & Treasurer
------------------------- -------------------------------
DRAFTLINE ENGINEERING COMPANY VAUNGARDE, INCORPORATED
By: /s/ Michael J. Meier By: /s/ Michael J. Meier
-------------------------- --------------------------------
Its: Secretary & Treasurer Its: Secretary & Treasurer
------------------------- -------------------------------
2
<PAGE> 3
BINDERLINE DEVELOPMENT, INC. HY-FORM PRODUCTS, INC.
By: /s/ Michael J. Meier By: /s/ Michael J. Meier
-------------------------- --------------------------------
Its: Secretary & Treasurer Its: Secretary & Treasurer
------------------------- -------------------------------
3
<PAGE> 1
EXHIBIT 10(ax)
FIFTH AMENDMENT TO AMENDED
AND RESTATED LOAN AGREEMENT
---------------------------
This Amendment dated as of June 30, 1996, between Defiance, Inc., a
Delaware corporation, ("Company"), and Comerica Bank, a Michigan banking
corporation, successor in interest by reason of merger to Manufacturers Bank,
N.A. ("Bank").
RECITALS:
A. Company and Bank entered into an Amended and Restated Loan Agreement
dated July 29, 1994, which was amended by a First Amendment to Amended and
Restated Loan Agreement dated May 31, 1995, a Second Amendment to Amended and
Restated Loan Agreement dated as of August 2, 1995, a Third Amendment to Amended
and Restated Loan Agreement dated October 25, 1995 and a Fourth Amendment to
Amended and Restated Loan Agreement dated December 31, 1995 ("Agreement").
B. Company and Bank desire further to amend the Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Section 9.13 of the Agreement is amended to read in its
entirety as follows:
"9.13 Maintain at all times an Interest Ratio of
not less than the following amounts during the periods
specified below:
June 30, 1996 through June 29, 1997 3.0 to 1.0
June 30, 1997 and thereafter 5.0 to 1.0"
2. Section 9.14 of the Agreement is amended to read in its
entirety as follows:
"9.14 Maintain at all times a Debt Service
Coverage Ratio of not less than the following amounts
during the periods specified below:
June 30, 1996 through June 29, 1997 1.8 to 1.0
June 30, 1997 and thereafter 2.0 to 1.0"
3. Section 9.15 of the Agreement is amended to read in its
entirety as follows:
"9.15 Maintain at all times a Consolidated
Tangible Net worth of not less than $28,000,000."
4. The above amendment shall be effective as of June 30,
1996.
<PAGE> 2
5. Company hereby represents and warrants that, after giving effect to the
amendment contained herein, (a) execution, delivery and performance of this
Amendment and any other documents and instruments required under this Amendment
or the Agreement are within Company's corporate powers, have been duly
authorized, are not in contravention of law or the terms of Company's
Certificate of Incorporation or Bylaws, and do not require the consent or
approval of any governmental body, agency, or authority, and this Amendment and
any other documents and instruments required under this Amendment or the
Agreement, will be valid and binding in accordance with their terms; (b) the
continuing representations and warranties of Company set forth in Sections 8.1
through 8.5 and 8.7 through 8.14 of the Agreement are true and correct on and as
of the date hereof with the same force and effect as made on and as of the date
hereof; (c) the continuing representations and warranties of Company set forth
in Section 8.6 of the Agreement are true and correct as of the date hereof with
respect to the most recent financial statements furnished to the Bank by Company
in accordance with Section 9.1 of the Agreement; and (d) no event of default, or
condition or event which, with the giving of notice or the running of time, or
both, would constitute an event of default under the Agreement, has occurred and
is continuing as of the date hereof.
6. Except as expressly modified hereby all of the terms and
conditions of the Agreement remain in full force and effect.
WITNESS the due execution hereof on the day and year first written above.
COMERICA BANK DEFIANCE, INC.
By: /s/ Timothy C. Griffin By: /s/ Michael J. Meier
-------------------------- --------------------------------
Its: Vice President Its: VP Finance, CFO, Sec.-Treas.
------------------------- -------------------------------
ACKNOWLEDGEMENT
The undersigned guarantors acknowledge and consent to the foregoing
Amendment and waiver and ratify and confirm their
2
<PAGE> 3
respective obligations under the Guaranty Agreements dated February 5, 1993,
which Guaranty Agreements remain in full force and effect.
SMTC CORPORATION DEFIANCE PRECISION PRODUCTS,
INC.
By: /s/ Michael J. Meier By: /s/ Michael J. Meier
-------------------------- --------------------------------
Its: Sec.-Treas. Its: Sec.-Treas.
------------------------- -------------------------------
DRAFTLINE ENGINEERING COMPANY VAUNGARDE, INCORPORATED
By: /s/ Michael J. Meier By: /s/ Michael J. Meier
-------------------------- --------------------------------
Its: Sec.-Treas. Its: Sec.-Treas.
------------------------- -------------------------------
BINDERLINE DEVELOPMENT, INC. HY-FORM PRODUCTS, INC.
By: /s/ Michael J. Meier By: /s/ Michael J. Meier
-------------------------- --------------------------------
Its: Sec.-Treas. Its: Sec.-Treas.
------------------------- -------------------------------
3
<PAGE> 1
EXHIBIT 10(ay)
July 2, 1996
Mr. Jerry A. Cooper
2349 Belvoir Boulevard
Beachwood, Ohio 44122
Dear Jerry:
This letter responds to recent inquiries regarding the Compensation
Committee's discretion with respect to whether retirement under Section 5.1 of
the Defiance, Inc. Limited Supplemental Executive Retirement Plan (the "Plan")
has occurred and is intended to clarify the criteria required by the Committee.
This letter also addresses your current severance package and the discussions we
have had related thereto.
It is the policy of the Compensation Committee to deem the CEO to be
retired if, upon termination without cause, the executive has attained age
fifty-five (55), completed five (5) years of service, and entered into an
agreement not to compete with the Company. The non-competition agreement must be
for a period of at least one (1) year. Furthermore, an executive who is
considered to have retired under this criteria is encouraged to enter into a
post-termination consulting agreement with the Company.
You have expressed a concern that your current severance package may have
unfavorable tax consequences. The Compensation Committee, on the other hand, has
expressed an interest in retaining your valued services, and has requested that,
in the event of your involuntary termination without cause, you make yourself
available to consult, as needed, with your successor. Given the recognized value
of your services, and recognizing your expressed concerns, the following
modifications to the severance benefits described in your letter of employment,
dated February 28, 1992 are offered:
1. For a period of twelve (12) months following your termination for
reasons other than Voluntary Resignation or Cause, you will enter into
a post-termination obligation to consult to the Company. As a
consultant, you may be called upon to assist your successor in a
transitional role, and act as an advisor to your successor or the Board
of Directors, as requested. Your duties in this capacity will be
satisfied once the twelve (12) month period expires.
2. For a period of twelve (12) months following your termination for
reasons other than Voluntary Resignation or Cause, you will enter into
a post-termination obligation not to compete with the Company.
Competition means the rendering of professional services with respect
to products which are identical and/or similar to products of the
Company ("Products"), other than in your capacity as the Company's
consultant, to any person or organization that purchased Products or
Product services from the Company, or that
<PAGE> 2
Page 2
Mr. Jerry A. Cooper July 2, 1996
provided similar Products or Product services in the same geographical
area as the Company, during the period of your employment with the
Company.
3. No severance shall be provided in the event of your termination by
Defiance for Other Than Cause. Additionally, in the event of your
Termination Due to a Change of Control, your base salary, at the
highest rate during the twelve (12) months preceding your termination
date, plus the average monthly amount of the bonuses awarded during the
three (3) years preceding termination, and benefits shall be provided
for a period of two (2) years, and this period shall commence once the
post-termination obligation to consult has been satisfied.
4. As compensation for your services during the post-termination
obligation to consult, and the post-termination obligation not to
compete, you will receive all current benefits and be paid in monthly
installments throughout the twelve (12) months following your
termination. The amount of each installment will equal the monthly
amount of base compensation at the highest rate during the twelve (12)
months preceding your termination date, plus the average monthly amount
of the bonuses awarded during the three (3) years preceding
termination.
5. The Company acknowledges and guarantees its obligations to pay to you
all consideration incident to your aforementioned post-termination
obligations to consult, not to compete, as well as the Change of
Control, unless and until those payments are actually received by you
from third parties. A precondition of the Company's obligation is the
executive's fulfillment of the aforementioned obligations.
Jerry, I hope that this letter resolves the questions you had regarding
your benefits under the Plan and the concerns you raised with regards to your
severance package. If you would like to accept the arrangements outlined above,
please sign and return the enclosed "acceptance copy" of this letter.
Very truly yours,
/s/ [Illegible]
-------------------------------
Chairman Compensation Committee
ACCEPTED: /s/ Jerry A. Cooper
--------------------------
Jerry A. Cooper
DATE: 7/11/96
----------------------------
<PAGE> 1
EXHIBIT 10(az)
TERM NOTE-C
-----------
Detroit, Michigan
$6,000,000.00 August 1, 1996
ON OR BEFORE August 1, 2003, FOR VALUE RECEIVED, Defiance, Inc., a Delaware
corporation (herein called "Company") promises to pay to the order of COMERICA
BANK, a Michigan banking corporation (herein called "Bank"), at its Main Office
at 500 Woodward Avenue, Detroit, Michigan, or at such other place as the holder
of this Note may designate in writing from time to time, the principal sum of
Six Million and no/100 Dollars ($6,000,000.00) in lawful money of the United
States of America, together with interest as set forth below.
The indebtedness represented by this Note shall be repaid in eighty-four
monthly installments of principal each equal to Seventy-One Thousand Four
Hundred and Twenty-Eight and 57/100 Dollars ($71,428.57) commencing on the 1st
day of September, 1996 and on the same day of each month thereafter until August
1, 2003 when the entire unpaid balance of principal and interest thereon shall
be due and payable.
The principal balance from time to time outstanding hereunder shall bear
interest at the Applicable Interest Rate from time to time applicable thereto
under the Agreement (as defined below) or as otherwise determined thereunder,
and interest shall be computed, assessed and payable as set forth in the
Agreement.
This Note evidences borrowing under, is subject to, is secured in
accordance with, may be prepaid in accordance with, and may be matured under the
terms of the Second Amended and Restated Loan Agreement dated as of July 29,
1994 by and between Company and Bank ("Agreement") to which reference is hereby
made. As additional security for this Note, Company grants Bank a lien on all
property and assets, including deposits and other credits, of the Company, at
any time in possession or control of or owing by Bank for any purpose.
Company hereby waives presentment for payment, demand, protest and notice
of protest and notice of dishonor and nonpayment of this Note and agrees that no
obligation hereunder shall be discharged by reason of any extension, indulgence,
release or forbearance granted by any holder of this Note to any party now or
hereafter liable hereon or any present or subsequent owner of any property, real
or personal, which is now or hereafter security for this Note. Any transferees
of, or endorser, guarantor or surety paying this Note in full shall succeed to
all rights of Bank, and Bank shall be under no further responsibility for the
exercise thereof or the loan evidenced hereby. Nothing herein shall limit any
right granted by other instrument or by law.
<PAGE> 2
All capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Agreement.
DEFIANCE, INC.
By: /s/ Michael J. Meier
-----------------------------------
Its: VP-Finance, CFO, Sec.-Treas.
----------------------------------
<PAGE> 1
EXHIBIT (ba)
STOCK PURCHASE AGREEMENT EXECUTION COPY
------------------------
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into by and
between DEFIANCE, INC., a Delaware corporation ("Seller") and QUOIN INC., a
Michigan corporation ("Buyer").
R E C I T A L S:
----------------
A. Seller is the owner of one hundred fourteen thousand five hundred six
(114,506) shares (the "Shares") of common stock of Vaungarde, Incorporated, a
Michigan corporation (the "Company"), which constitute one hundred percent
(100%) of the issued and outstanding shares of capital stock of the Company. The
Company currently is engaged in the business of manufacturing and selling
plastic component parts primarily for the automotive industry and painting
various automotive parts (the "Purchased Business").
B. Buyer will form a new wholly-owned subsidiary (the "Subsidiary") for
the purpose of acquiring all of the Shares. Immediately upon Closing, Buyer will
cause the Subsidiary to merge with and into the Company under and pursuant to
the Michigan Business Corporation Act, with the Company being the surviving
corporation. For purposes of this Agreement, Buyer shall be deemed to include
the Subsidiary.
C. Upon the terms and subject to the conditions of this Agreement, Buyer
desires to purchase from Seller, and Seller desires to sell to Buyer, all of the
Shares.
P R O V I S I O N S:
- - - - - - - - - -
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations, and warranties contained in this Agreement, and intending to be
legally bound hereby, Seller and Buyer agree as follows:
ARTICLE I
---------
Terms of Purchase
-----------------
SECTION 1.01. PURCHASE OF SHARES. Upon the terms and subject to the
conditions set forth in this Agreement, Seller agrees to sell, convey, transfer,
assign, and deliver to Buyer, and Buyer agrees to purchase from Seller, all of
the Shares.
SECTION 1.02. THE PURCHASE PRICE. Subject to the adjustment provisions of
Section l .04 of this Agreement, Buyer shall pay to Seller for the Shares an
amount equal to the "Hard Book Value" of the Shares as of the Closing Date,
minus Five Hundred Thousand Dollars ($500,000) (the "Purchase Price"). For the
purposes of this Agreement, "Hard Book Value" of the Shares shall mean: (a) the
sum of the book value of each of the following items as each item is expressed
on or determined from the balance sheet of the Company: (i) common stock, (ii)
additional paid-in-capital, (iii) net intercompany advances to or from Seller
(whether interest bearing or not), (iv) retained earnings-beg, and (v) current
year earnings; minus (b) goodwill-
<PAGE> 2
net. The Hard Book Value of the Shares shall be determined by Seller in
accordance with generally accepted accounting principles, applied On a
consistent basis with the financial statements of the Company for the periods
ending June 30, 1994 and 1995 ("D-GAAP"). For purposes of this Agreement, the
parties acknowledge and agree that (i) the amount of Four Million Six Hundred
Ninety-two Thousand Four Hundred Fifty-eight Dollars ($4,692,458) is the Hard
Book Value as of May 31, 1996, and is herein referred to as the "Preliminary
Hard Book Value," and (ii) the amount of Four Million One Hundred Ninety-two
Thousand Four Hundred Fifty-eight Dollars ($4,192,458) is herein referred to as
the "Preliminary Purchase Price."
SECTION 1.03. PAYMENT OF THE PURCHASE PRICE. The Purchase Price shall be
paid to Seller as follows:
(a) At the Closing, Seller shall apply the sum of One Hundred
Thousand Dollars ($100,000) which was previously received by Seller from
Buyer as a good faith deposit (the "Earnest Deposit") to payment of the
Purchase Price.
(b) At the Closing, Buyer shall assign to Seller certain assets of
the Company listed on SCHEDULE 1.03(B) attached to this Agreement (the
"Assigned Assets"), pursuant to an Assignment Agreement, in the form
attached as EXHIBIT 1.03(B) hereto (the "Assignment Agreement"). These
items, which constituted the Assigned Assets, are agreed among the
parties, but the specific valuation of each item shall fluctuate in value
and be fairly established as of the date of Closing in accordance with
D-GAAP. In order to facilitate the Closing, the parties agree that the
value of the Assigned Assets is $413,460.00 as of May 31, 1996, knowing
that Assigned Assets will be finally determined as prescribed hereunder
per Section 1.04.
(c) At the Closing, Buyer shall execute and deliver to Seller
Buyer's promissory note in the amount of Seven Hundred Fifty Thousand
Dollars ($750,000) (the "Seller Note"). The Seller Note shall be in the
form of the promissory note attached to this Agreement as EXHIBIT 1.03(c).
(d) At the Closing, Buyer shall execute and deliver to Seller
Buyer's promissory note in the amount of Two Hundred Thousand Dollars
($200,000) (the "Bridge Note") (the Bridge Note and the Seller Note are
collectively referred to herein as the "Note"). The Bridge Note shall be
in the form of the promissory note attached to this Agreement as EXHIBIT
1.03(d).
(e) The balance of the Preliminary Purchase Price ($2,728,998.00,
which equals the Preliminary Purchase Price ($4,192,458) less the sum of
(i) the Earnest Deposit ($100,000), (ii) the Assigned Assets ($413,460),
and (iii) the Note ($750,000 + $200,000)) shall be paid by wire transfer
or certified check at the Closing."
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<PAGE> 3
SECTION 1.04. FINAL BALANCE SHEET. FINAL HARD BOOK VALUE AND FINAL
PURCHASE PRICE.
(a) Within fifty-five (55) calendar days of the Closing Date,
Seller's financial representatives shall meet with financial
representatives of Buyer and agree on a balance sheet of the Company as of
the Closing Date (the "Final Balance Sheet") and the calculation of the
Hard Book Value of the Shares as of the Closing Date (the "Final Hard Book
Value"). The Final Balance Sheet shall be prepared in accordance with
D-GAAP. The Final Purchase Price shall be the Final Hard Book Value less
Five Hundred Thousand Dollars ($500,000).
(b) If Buyer and Seller cannot agree on the Final Balance Sheet
and/or the Final Hard Book Value, then the disputed matters shall be
reduced to writing by each party, along with their written determination
of Final Hard Book Value, and these materials shall be referred to an
accounting firm mutually agreed to by the parties before Closing (the
"Accountants") to resolve the disputed matters within thirty (30) days.
The Accountants will be guided in reaching their determination with
respect to the disputed matters by the applicable provisions of this
Agreement. Such fees as may be payable to the Accountants for its services
in determining the Final Hard Book Value shall be borne by the parties on
a basis proportionate to the amount by which each such party's
determination of Final Hard Book Value varied from the amount of the Final
Hard Book Value as determined by the Accountants.
(c) The difference between the Preliminary Purchase Price and the
Final Purchase Price, together with interest on the amount of such
difference computed at Comerica Bank's prime rate (the "Prime Rate") from
the Closing until due, shall be paid by wire transfer and/or certified
funds within five (5) business days of the determination of the Final
Purchase Price (the "Final Payment Date") (by Seller if the Preliminary
Purchase Price was more than the Final Purchase Price or by Buyer if the
Preliminary Purchase Price was less than the Final Purchase Price). Any
amount not paid on the Final Payment Date shall bear interest at the Prime
Rate plus three percent (3%) per annum from the Final Payment Date until
paid.
SECTION 1.05. SECURITY. As security for the payment of the Note, any
amount which may be due Seller under the terms of SECTION 1.04 above, and any
amount which may otherwise be payable by the Buyer or the Company under the
terms of this Agreement or any of the other agreements, instruments or documents
executed in connection herewith, Buyer shall deliver the following documents
(the "Security Documents") to Seller at Closing:
(a) A stock pledge agreement in the form attached to this Agreement
as EXHIBIT 1.05(a) pursuant to which Buyer pledges to Seller all of the
Shares;
(b) The guarantee of John DeMaria in the form attached to this
Agreement as EXHIBIT 1.05(b);
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<PAGE> 4
(c) A security agreement covering all non-real estate assets of the
Company in the form attached to this Agreement as EXHIBIT 1.05(c), along
with proper and corresponding U.C.C. financing statements; and
(d) A mortgage covering all real estate owned by the Company in the
form attached to the Agreement as EXHIBIT 1.05(d).
SECTION 1.06. SUBORDINATION. Buyer and Seller acknowledge and agree that:
(a) any security interest in, or lien upon, the assets of the Company which is
granted to Seller pursuant to SECTION 1.05 above shall be junior in priority to
all security interests in, or liens upon, the assets of the Company as may be
granted from time to time by Buyer to institutional lenders ("Buyer's Lenders")
to secure any indebtedness payable to Buyer's Lenders ("Senior Indebtedness") as
may be incurred by the Buyer at any time for the purpose of financing the
transaction contemplated by this Agreement or for any other business purpose
related to the continuing operation of the Company; PROVIDED HOWEVER, that (i)
the maximum amount of Senior Indebtedness shall be limited as described on
SCHEDULE 1.06 attached to this Agreement, (ii) the amount, if any, due and owing
Seller under the terms of SECTION 1.04 above, and the ICX Sublease (defined at
Section 10.05) and any amounts or rights due Seller thereunder, shall not be
subordinated in any fashion to the interests of Buyer's Lenders, (iii) Buyer's
Lenders shall have no right in the Assigned Assets, and (iv) Buyer's Lenders
shall consent to the Plant 2 Option (as herein defined); (b) Seller's rights
with respect to the payment of the amounts due under the Note shall be
subordinate to the rights of Buyer's Lenders to payment of the Senior
Indebtedness; PROVIDED, HOWEVER, that Seller shall have the absolute right to
accept and receive regularly scheduled payments of principal and interest due
under the Note so long as Seller has not otherwise received written notice from
one or more of Buyer's Lenders that a default exists under the terms of Buyer's
financing arrangements with one or more of Buyer's Lenders; and (c) Seller shall
have the right to (i) confess judgment on the Note, as therein provided, to the
extent a payment default in respect of the Note is not cured within sixty (60)
days following written notice to Buyer of its intention to confess judgment, and
(ii) otherwise take action to enforce payment of the Note (or any such judgment)
to the extent payment defaults in respect of the Note are not cured within a
ninety (90) day standstill period following the occurrence of such default,
which sixty (60) day and ninety (90) day periods may run concurrently. To effect
the provisions of this SECTION 1.06, Seller shall enter into a subordination
and/or intercreditor agreement (the "Subordination or Intercreditor Agreement")
that Buyer or Buyer's Lenders may reasonably request from time to time to the
extent the terms thereof are consistent with the provisions of this SECTION 1.06
and otherwise in form satisfactory to Seller. For purposes of this Agreement,
the term "institutional lender" shall mean and include any person or entity
actively and regularly engaged in the business of commercial lending.
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<PAGE> 5
ARTICLE II
The Closing
-----------
SECTION 2.01. TIME AND PLACE. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall be held at 9:00 a.m.
(Eastern Time) at the offices of Arter & Hadden, 1100 Huntington Building,
Cleveland, Ohio 44115, on August 19, 1996, or such other date as Buyer and
Seller may agree. The date of the Closing is herein referred to as the "Closing
Date," and the transactions contemplated by this Agreement shall be effective as
of 12:01 a.m. (Eastern Time) on the Closing Date.
ARTICLE III
Representations and Warranties of Seller
----------------------------------------
As a material inducement to Buyer to enter into this Agreement and to
consummate the transactions contemplated by this Agreement, Seller represents
and warrants to Buyer that:
SECTION 3.01. ORGANIZATION, POWER. Seller is a corporation duly organized,
validly existing, and in good standing under the laws of Delaware. The Company
is a corporation duly organized, validly existing, and in good standing under
the laws of Michigan. The Company is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each state or other
jurisdiction in which the ownership or leasing of the properties owned by it or
the nature of the activities conducted by it requires such qualification, except
for such states or other jurisdictions in which the failure to so qualify will
not have a material adverse effect on the financial condition of the Company.
Each of Seller and the Company has all the requisite corporate power and
authority to own, lease and operate its assets and to carry on the Purchased
Business as it is now being conducted and to enter into this Agreement and the
other agreements and documents contemplated by this Agreement.
SECTION 3.02. AUTHORITY, NO VIOLATION, ETC. The execution and delivery of
this Agreement by Seller and the consummation by Seller of the transactions
contemplated by this Agreement, including, but not limited to, the execution and
delivery of the other agreements and documents to be executed and delivered by
Seller and the consummation of the transactions contemplated by such other
agreements and documents to be executed and delivered by Seller pursuant to the
provisions of this Agreement constitute legal, valid, and binding obligations of
Seller, enforceable against Seller in accordance with their respective terms and
conditions. Except as disclosed on SCHEDULE 3.02, neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
by this Agreement, nor compliance by Seller with any of the provisions of this
Agreement, will:
(a) Result in the breach of any of the terms or conditions of, or
constitute a default under, the current Articles of Incorporation or
Bylaws of either Company or Seller or, except to the extent such breach or
default would not have a material adverse effect on the financial
condition of the Company, any
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<PAGE> 6
contract, agreement, lease, commitment, indenture, mortgage, pledge, note,
bond, license, or other instrument or obligation to which the Company or
Seller is now a party or by which the Company or Seller or any of the
Company's properties or assets may be bound or affected;
(b) Violate any law, rule, or regulation of any administrative
agency or governmental body, or any order, writ, injunction or decree of
any court, administrative agency, governmental body or arbitration
tribunal; or
(c) Result in the acceleration of any indebtedness of the Company
or increase the rate of interest payable by the Company with respect to
any indebtedness.
Assuming that ICX Corporation ("ICX"), which currently leases certain
property to the Seller, has approved the ICX Sublease (defined at Section
10.05), consents and approvals of third parties and governmental authorities
required in connection with the execution and delivery by Seller of this
Agreement and the consummation by Seller of the transactions contemplated by
this Agreement have been obtained or will be obtained prior to Closing.
SECTION 3.03. TITLE TO THE SHARES. The Shares constitute all of the issued
and outstanding shares of the common stock of the Company. There are no other
classes or series of capital stock of the Company. Seller has good, absolute and
marketable title to all of the Shares, free and clear of all liens, pledges,
charges, security interests, encumbrances, rights of third parties, or other
interests of any kind or character. Seller has, or will have, complete and
unrestricted power and the unqualified right to sell, convey, assign, transfer
and deliver the Shares to Buyer pursuant to the provisions of this Agreement. No
legend or other reference to any purported encumbrance or lien appears on any
certificate representing the Shares.
SECTION 3.04. NO LITIGATION. No action, suit, or governmental proceedings
has been instituted or, to the best knowledge of Seller, is threatened to
restrain or prohibit or otherwise challenge the legality or validity of the
transactions contemplated by this Agreement.
SECTION 3.05. CAPITAL STRUCTURE OF COMPANY. The Company is authorized by
its Articles of Incorporation to issue five hundred thousand (500,000) shares of
common stock, Zero and 10/100 Dollars ($0.10) par value, of which one hundred
fourteen thousand five hundred six (114,506) shares are issued and outstanding.
All of the Shares have been duly authorize and validly issued and are fully paid
and non-assessable. There are no outstanding subscriptions, options, rights,
warrants, calls or other agreements or commitments obligating either Seller or
the Company to sell or issue any Shares of the Company's capital stock or any
securities convertible into Shares of the Company's capital stock, nor are there
any voting trusts or any other agreements or understandings with respect to the
voting of the Company's capital stock. The Company does not own or have any
contract to acquire any equity securities or other securities of any person or
any direct or indirect equity or ownership interests in any other business.
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<PAGE> 7
SECTION 3.06. FINANCIAL STATEMENTS. Attached to this Agreement as SCHEDULE
3.06 are true, correct and complete copies of: (a) the Balance Sheet of the
Company as of June 30, 1995, and the Statement of Operations, Statement of Cash
Flows and Supporting Schedule for the twelve (12) month period ending on June
30, 1995 (collectively, the "Financial Statements"), and (b)the interim monthly
financial statements of the Company for its current fiscal year ("Interim
Statements"). Except as set forth in SCHEDULE 3.06, the Financial Statements and
Interim Statements have been prepared from the books and records of the Company
in accordance with generally accepted accounting principles applied on a
consistent basis with prior periods, except as provided therein, and fairly
present, in all material respects, the financial position of the Company as of
the dates thereof and the results of operations of the Company for the periods
then ended. Except as disclosed or reserved against on the Financial Statements
and/or the Interim Statements, or as set forth on SCHEDULE 3.06, and other than
current liabilities incurred in the ordinary and usual course of business since
June 30, 1995, the Company does not have any debts, liabilities, or obligations
of any nature, whether accrued, absolute, contingent, or otherwise, whether due
or to become due, including, but not limited to, guarantees, liabilities, or
obligations on account of taxes, other governmental charges, duties, penalties,
interest, or fines, that individually or in the aggregate, would have, or would
reasonably be expected to have, a material adverse effect on the condition,
financial or otherwise, or future prospects of the Company.
SECTION 3.07. ASSETS. Except as disclosed on SCHEDULE 3.07. 3.08 or 10.05,
all of the Company's assets used in the Purchased Business, including, without
limitation, all of the Company's machinery, equipment, inventory and accounts
receivable, real estate and improvements, and other assets, are reflected on its
financial statements. Except for the leased personal property listed on SCHEDULE
10.05 and the real estate described on SCHEDULE 3.08: (a) The Company has good
and marketable title to all of its assets, free and clear of all mortgages,
liens, pledges, charges, security interests, encumbrances, easements,
encroachments, rights of third parties, or other interests of any kind or
character EXCEPT for such items of record that do not materially interfere with
the Company's ability to own and operate the Purchased Business, and (b) the
Company's assets include all the properties which are necessary to conduct the
Purchased Business as presently conducted, and to perform all of the current
contracts, leases, agreements, commitments, purchase orders, work orders,
customer orders, and other arrangements of the Company.
SECTION 3.08. LEASED REAL ESTATE. SCHEDULE 3.08 sets forth a list of all
real estate leased by the Company and/or the Seller which is used by the Company
in the operation of the Purchased Business, including a copy of the subject Real
Estate Lease Agreement by and between Shiawassee Valley Development Corporation,
as Lessor, and the Company, as Lessee, dated September 20, 1995.
SECTION 3.09. MINUTE BOOKS. The minute books of the Company are complete
and correct in all material respects and reflect all of those transactions
involving its business which properly should be set forth therein. At the
Closing, all of the Company's minute books and records will be in the possession
of the Company.
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<PAGE> 8
SECTION 3.10. LITIGATION. Except as disclosed on SCHEDULE 3.10, to the
knowledge of Seller: (a) there is no suit, action, proceeding (legal,
administrative or otherwise), claim, investigation or inquiry (by an
administrative agency, governmental body, arbitration tribunal or otherwise)
pending or threatened against the Company, which otherwise would materially
adversely affect any of the capital stock, properties or assets of the Company;
and (b) there is no outstanding judgment, order, writ, injunction or decree of
any court, administrative agency, governmental body or arbitration tribunal
which materially affects the operations of the Company or any of the capital
stock, properties or assets of the Company.
SECTION 3.11. OTHER INFORMATION. To the knowledge of Seller, and except as
otherwise disclosed herein, all information and data concerning the Company and
its operations and assets, which has been provided to Buyer by the Seller, is
true, complete and not misleading in any material respect.
SECTION 3.12. BROKERS' OR FINDERS' FEES. Except as disclosed on SCHEDULE
3.12, no agent, broker, investment banker, or other person or firm acting on
behalf of Seller or under Seller's authority is or will be entitled to any
broker's or finder's fee or any other commission or similar fee directly or
indirectly related to the transactions contemplated by this Agreement.
SECTION 3.13. SELLER'S KNOWLEDGE. Notwithstanding anything to the contrary
contained herein, where the terms "to the knowledge of Seller," "known to
Seller," or words of similar import are used in this Agreement, the same shall
be deemed to mean, and refer solely to the knowledge, in fact, possessed by, the
executive management personnel of the Seller.
SECTION 3.14. REPRESENTATIONS AND WARRANTIES AS OF DATE HEREOF. The
representations and warranties contained in the foregoing SECTION 3.01 through
SECTION 3.13 inclusive are made as of the date of this Agreement and shall be
updated as of the Closing, except, as otherwise expressly indicated therein.
ARTICLE IV
Warranties and Representations of Buyer
---------------------------------------
As a material inducement to Seller to enter into this Agreement and to
consummate the transactions contemplated by this Agreement, Buyer represents and
warrants to Seller that:
SECTION 4.01. ORGANIZATION, POWER. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of Michigan. Buyer has all
the requisite corporate power and authority to own, lease and operate its assets
and to carry on its business as it is now being conducted and to enter into this
Agreement and the other agreements and documents of transfer contemplated by
this Agreement.
SECTION 4.02. AUTHORITY, NO VIOLATION, ETC. The execution and delivery of
this Agreement by Buyer and the consummation by Buyer of the transactions
contemplated by this Agreement, including, but not limited to, the execution and
delivery of the other agreements and
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<PAGE> 9
documents to be executed and delivered by Buyer and the consummation of the
transactions contemplated by such other agreements and documents have been duly
and validly authorized by all necessary corporate action on the part of the
Board of Directors of Buyer. This Agreement and the other agreements and
documents to be executed and delivered by Buyer pursuant to the provisions of
this Agreement constitute legal, valid, and binding obligations of Buyer,
enforceable against Buyer in accordance with their respective terms and
conditions. Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated by this Agreement, nor compliance
by Buyer with any of the provisions of this Agreement, will:
(a) Result in the breach of any of the terms or conditions of, or
constitute a default under, the current Articles of Incorporation or
Bylaws of either Company or Buyer, or any contract, agreement, lease,
commitment, indenture, mortgage, pledge, note, bond, license, or other
instrument or obligation to which the Company or Buyer is now a party or
by which the Company or Buyer or any of the Company's properties or assets
may be bound or affected or;
(b) Violate any law, rule, or regulation of any administrative
agency or governmental body, or any order, writ, injunction or decree of
any court, administrative agency, governmental body or arbitration
tribunal.
All consents and approvals of third parties and governmental authorities
required in connection with the execution and delivery by Buyer of this
Agreement and the consummation by Buyer of the transactions contemplated by this
Agreement have been obtained or will be obtained prior to Closing.
SECTION 4.03. NO LITIGATION. No action, suit, or proceeding has been
instituted or, to the best knowledge of Buyer, is threatened to restrain or
prohibit or otherwise challenge the legality or validity of the transactions
contemplated by this Agreement.
SECTION 4.04. BROKERS' OR FINDERS' FEES. Except as disclosed on SCHEDULE
4.04, no agent, broker, investment banker, or other person or firm acting on
behalf of Buyer or under Buyer's authority is or will be entitled to any
broker's or finder's fee or any other commission or similar fee directly or
indirectly related to the transactions contemplated by this Agreement.
SECTION 4.05. "AS IS" PURCHASE.
(a) Buyer is familiar with the Purchased Business and the industry
in which the Company operates the Purchased Business
(b) As of the Closing, Buyer will have undertaken all tests and
examinations of the assets, books and records of the Company and reviewed
all other information relating to the Company or the Purchased Business as
Buyer shall have deemed necessary or appropriate; and
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<PAGE> 10
(c) Except for the representations and warranties expressly made by
Seller pursuant to Article III of this Agreement: (i) Seller is making no
other representations Or warranties, express or implied, regarding the
Company or the Purchased Business, including, but not limited to, the
assets, financial condition, operations or prospects of the Company, and
(ii) Buyer is purchasing the Shares of the Company "As Is", and thereby
indirectly acquiring the Company, the Purchased Business and the assets
and properties of the Company in an "As Is" condition.
SECTION 4.06. CONTINUATION OF THE BUSINESS. Buyer acknowledges and assures
Seller that it intends to continue operation of the Company as a going concern
and that Buyer will cause the Company to honor the Company's collective
bargaining relationship and contract with the United Auto Workers.
SECTION 4.07. REPRESENTATIONS AND WARRANTIES AS OF DATE HEREOF. The
representations and warranties contained in the foregoing Section 4.01 through
Section 4.06 inclusive are made as of the date of this Agreement and shall be
updated as of the Closing, except as otherwise expressly indicated therein.
ARTICLE V
Certain Pre-Closing Covenants of Seller
---------------------------------------
Seller covenants and agrees that between the date of this Agreement and
the Closing, except as otherwise consented to by Buyer:
SECTION 5.01. OPERATION OF PURCHASED BUSINESS. Seller shall use its best
efforts to: (a) cause the Company to operate the Purchased Business in the
ordinary course, consistent with past practices; (b) preserve the Purchased
Business intact and conserve the goodwill related thereto; (c) keep available
and maintain the services of all employees, agents and representatives of the
Company on the same or substantially the same terms and conditions; and (d)
continue and preserve good relationships with suppliers, customers, lenders and
others having business dealings or relationships with the Company, PROVIDED,
HOWEVER, that with regard to the foregoing, Buyer acknowledges that the
Company's President and Chief Engineer terminated their employment with the
Company effective April 11, 1996, the Company's comptroller terminated his
employment as of May 31, 1996, and that such terminations of employment may
affect the ability of the Seller and Company to comply with the foregoing
provisions of this Section 5.01.
SECTION 5.02. NOTICE OF MATERIAL CHANGES. Seller shall promptly notify
Buyer if it becomes aware of any fact or condition that makes untrue any
representation or warranty contained in this Agreement.
SECTION 5.03. ACCESS TO THE COMPANY. Seller shall provide Buyer with
reasonable access to all information in its or the Company's possession
concerning the Company and/or the
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<PAGE> 11
Purchased Business that Buyer shall reasonably request. At the express direction
of the officers of Seller, Seller shall permit Buyer and its accountants,
attorneys and other authorized representatives to enter upon the offices and
plant sites of the Company to inspect the books and other records of the
Company, to examine the assets of the Company, and to carry out any reasonable
tests and examinations of such assets as are deemed necessary by Buyer, provided
that such visits, tests and examinations are conducted in a manner which does
not unreasonably interfere with the operation of the Purchased Business.
SECTION 5.04. EXCLUSIVE RIGHT TO ACQUIRE. So long as Buyer has not
breached any of its representations, warranties, covenants or other agreements
under this Agreement, Buyer shall have the exclusive right to acquire the Shares
of the Company until the earlier of the Closing Date or the termination of this
Agreement, and during such time period Seller shall not, and Seller shall cause
the Company not to, engage in discussions or negotiations with any other person
or entity relating to the sale or other disposition of the Shares or the sale or
other disposition of any assets of the Company outside the ordinary and usual
course of business.
SECTION 5.05. CONSENTS. Approvals. Seller shall use its best efforts to
obtain all consents and approvals of third parties and governmental authorities
required in connection with the execution and delivery by Seller of this
Agreement and the consummation by Seller of the transactions contemplated by
this Agreement.
SECTION 5.06, INTERCOMPANY INDEBTEDNESS. Seller shall cause the Company to
repay, or forgive and fully and unconditionally release the Company from, all
net indebtedness of the Company to Seller.
ARTICLE VI
Conditions Precedent to Buyer's Performance
-------------------------------------------
The obligation of Buyer to consummate the transactions contemplated under
and pursuant to this Agreement is subject to the satisfaction, prior to or at
the Closing, of each of the following conditions:
SECTION 6.01. REPRESENTATIONS AND WARRANTIES OF SELLER. Except for such
changes as are permitted or contemplated by this Agreement, each of the
representations and warranties of Seller contained in this Agreement shall be
true and correct in all material respects at and as of the Closing Date with the
same force and effect as if made at and as of the Closing Date.
SECTION 6.02. COMPLIANCE. Seller shall have performed, complied with and
fulfilled all the covenants, agreements, obligations and conditions required by
this Agreement to be performed, complied with or fulfilled by Seller prior to or
at the Closing.
SECTION 6.03. LITIGATION. No order, decree or ruling of any governmental
authority or court shall have been entered, and no governmental proceeding or
other action, suit, claim or
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<PAGE> 12
investigation shall be pending or threatened, pertaining to the transactions
contemplated by this Agreement.
SECTION 6.04. CLOSING DELIVERIES. Buyer shall have received from Seller
all of the instruments, documents and other items described in SECTION 9.01, and
the form and substance of all such deliveries shall be satisfactory in all
reasonable respects to Buyer and its counsel.
SECTION 6.05. CONSENT BY ICX TO SUBLEASE. ICX Corporation shall have
consented to the Sublease (as defined in SECTION 10.05) and delivered to Buyer a
nondisturbance and attornment agreement in the form attached hereto as EXHIBIT
6.05 (the "Nondisturbance and Attornment Agreement").
SECTION 6.06. SUBORDINATION AGREEMENT. Seller shall have entered into a
Subordination Agreement or Intercreditor Agreement in the form attached hereto
as EXHIBIT 1.06.
SECTION 6.07. BANK ACCOUNT BALANCES. Seller shall cause the Company to
close or transfer to Seller the Company's "Zero Balance" Deposit Account and
take all appropriate steps so that the Company's other bank accounts shall not
have a negative book balance as of the Closing. Seller shall be responsible for
paying all checks drawn on the Zero Balance Deposit Account prior to the
Closing.
ARTICLE VII
Conditions Precedent to Seller's Performance
--------------------------------------------
The obligation of Seller to consummate the transactions contemplated under
and pursuant to this Agreement is subject to the satisfaction, prior to or at
the Closing, of each of the following conditions:
SECTION 7.01. REPRESENTATIONS AND WARRANTIES OF BUYER. Except for such
changes as are permitted or contemplated by this Agreement, each of the
representations and warranties of Buyer contained in this Agreement shall be
true and correct at and as of the Closing Date with the same force and effect as
if made at and as of the Closing Date.
SECTION 7.02. COMPLIANCE. Buyer shall have performed, complied with and
fulfilled all the covenants, agreements, obligations and conditions required by
this Agreement to be performed, complied with or fulfilled by it prior to or at
the Closing.
SECTION 7.03. LITIGATION. No order, decree or ruling of any governmental
authority or court shall have been entered, and no governmental proceeding or
other action, suit, claim or investigation shall be pending or, to the knowledge
of the officers of Buyer threatened, pertaining to the transactions contemplated
by this Agreement.
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SECTION 7.04. CLOSING DELIVERIES. Seller shall have received from Buyer
all of the instruments, documents and other items described in Section 9.02, and
the form and substance of all such deliveries shall be satisfactory in all
reasonable respects to Seller and its counsel.
ARTICLE VIII
Termination
-----------
SECTION 8.01. TERMINATION BY MUTUAL AGREEMENT. This Agreement may be
terminated by the mutual agreement in writing of the parties hereto at any time
prior to the Closing. If this Agreement is terminated pursuant to this SECTION
8.01, Seller shall be obligated to repay the Earnest Deposit to Buyer.
SECTION 8.02. TERMINATION BY BUYER. This Agreement and any obligations of
Buyer hereunder (other than its obligations under SECTION 12.01 and SECTION
12.02) may be terminated by Buyer at any time prior to or at the Closing if: (a)
Seller shall have failed to perform in a timely manner, and in all material
respects, any of its covenants or obligations set forth in this Agreement,
including, without limitation, any of Seller's covenants and obligations under
ARTICLE V or SECTION 10.01 of this Agreement; (b)any representation or warranty
of Seller contained herein is false or misleading in any material respect; (c)
Seller shall fail to make any delivery specified in SECTION 9.01; or (d) Buyer
demonstrates that a material adverse change in the Purchased Business or the
financial condition of the Company has occurred since April 30, 1996; provided,
however, that Buyer waives its right to terminate this Agreement due to
information contained in the environmental and title reports with respect to
real estate owned or leased by the Company.
SECTION 8.03. TERMINATION BY SELLER. This Agreement and any obligations of
Seller hereunder (other than its obligations under SECTION 12.01 and SECTION
12.02) may be terminated by Seller at any time prior to or at the Closing if:
(a) Buyer shall have failed to perform in a timely manner in all material
respects any of its covenants or obligations hereunder; (b) any representation
or warranty of Buyer contained herein is false or misleading in any material
respect; or (c) Buyer shall fail to make any delivery specified in SECTION 9.02.
SECTION 8.04. AUTOMATIC TERMINATION. Except as provided herein, unless the
transactions contemplated by this Agreement shall have been consummated by the
Closing Date or such other date as Buyer and Seller may agree in writing, this
Agreement shall automatically be terminated. Except to the extent the failure to
close the transaction by such date occurs by reason of a condition described in
SECTION 8.03 above, if this Agreement is terminated pursuant to this SECTION
8.04, Seller shall be obligated to repay the Earnest Deposit to Buyer.
SECTION 8.05. LIQUIDATED DAMAGES.
(a) Notwithstanding anything contained herein, if Buyer justifiably
terminates this Agreement pursuant to the provisions of SECTION 8.02(a),
(b) OR (c), BUT NOT (d) (provided Buyer has completed all performance
required of Buyer hereunder), Seller shall
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<PAGE> 14
be obligated to: (i) repay the Earnest Deposit to Buyer, plus (ii) pay
Buyer liquidated damages equal to the amount of the Earnest Deposit (the
"Liquidated Damages"). If Buyer terminates this Agreement other than as
described in the foregoing sentence, Seller shall be entitled to retain
the Earnest Deposit as liquidated damages.
(b) If Seller justifiably terminates this Agreement pursuant to the
provisions of SECTION 8.03 or to the extent otherwise permitted under
SECTION 8.04 above, Seller shall be entitled to retain the Earnest Deposit
as liquidated damages.
ARTICLE IX
Deliveries at Closing
---------------------
SECTION 9.01. DELIVERIES TO BUYER AT THE CLOSING. At the Closing, and
simultaneously with the deliveries to Seller specified in SECTION 9.02, Seller
shall deliver or cause to be delivered to Buyer the following:
(a) The share certificates representing the Shares along with a duly
executed stock power;
(b) A duly executed receipt for the closing payment, per SECTION
1.03, in form reasonably acceptable to Buyer;
(c) A duly executed Subordination Agreement or Intercreditor
Agreement executed by Buyer's Senior Lender and Seller, as described in
SECTION 1.06;
(d) A Certificate of Seller in form reasonably acceptable to Buyer
acknowledging the accuracy of its representations and warranties contained
in this Agreement and as to its compliance with and fulfillment of all
covenants, agreements, obligations and conditions required by this
Agreement (subject to the provisions of SECTION 9.01);
(e) The resignations of all directors and officers of the Company in
form reasonably acceptable to Buyer;
(f) All books of account, corporate seals, minute books, stock
records, and all other records pertaining to the Company; and
(g) Any other documents or instruments as Buyer may reasonably
request for the purpose of assigning, transferring, granting, conveying,
and confirming the Shares of the Company to Buyer.
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<PAGE> 15
SECTION 9.02. DELIVERIES TO SELLER AT THE CLOSING. At the Closing, and
simultaneously with the deliveries to Buyer specified in SECTION 9.01, Buyer
shall deliver or cause to be delivered to Seller the following:
(a) The closing payment specified in SECTION 1.03;
(b) Buyer's executed release of any interest in the Earnest Deposit
to the Seller;
(c) The Seller's Note duly executed by Buyer;
(d) The Bridge Note duly executed by Buyer;
(e) The transfer of all Assigned Assets to Seller, including the
fully executed Assignment Agreement and any other fully executed
documentation necessary to complete the transfer;
(f) The executed Guarantee of John DeMaria specified in SECTION
1.05(B);
(g) The executed Pledge Agreement, Security Agreement, Financing
Statements, and Mortgage specified in SECTION 1.05(a), (c) AND (d);
(h) The Shares, accompanied by a stock power endorsed for transfer
to be held by Seller under the terms of the Pledge;
(i) A letter fully executed by the Company, in form satisfactory to
Seller, acknowledging Company's obligation under the provisions of SECTION
11.02.
(j) A Certificate of Buyer in form reasonably acceptable to Seller
acknowledging the accuracy of its representations and warranties contained
in this Agreement and as to its compliance with and fulfillment of all
covenants, agreements, obligations and conditions required by this
Agreement;
(k) The fully executed Sublease and Security Agreement described in
SECTION 10.05, complete with the written approval of ICX;
(l) The fully executed Plant 2 Option described in SECTION 10.06;
and
(m) Any other documents or instruments as Seller may reasonably
request for the purpose of assigning, transferring, conveying, and
confirming the sale of the Shares to Buyer and the payment to Seller of
its purchase price and all related security for future payments described
herein.
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ARTICLE X
Additional Covenants of the Parties
-----------------------------------
SECTION 10.01. BEST EFFORTS. Subject to the terms and conditions of this
Agreement, each of the parties shall negotiate in good faith and use its best
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary or desirable to consummate the transactions provided
for in this Agreement.
SECTION 10.02. FURTHER ASSURANCE. Seller, after the Closing, without
further consideration, shall execute, acknowledge, and deliver any further
assignments, conveyances, and other assurances, documents, and instruments,
reasonably requested by Buyer, and shall take any other action consistent with
the terms Of this Agreement that may reasonably be requested by Buyer.
SECTION 10.03. ACCESS TO RECORDS. For a period of six (6) years after the
Closing Date, Buyer shall retain, and Seller and its representatives shall have
reasonable access to (including the right to make copies of), all of the books
and records of the Company to the extent that such access may reasonably be
required by Seller in connection with matters relating to or affected by
Seller's ownership of the Shares or the operation of the Purchased Business
prior to the Closing. Following the expiration of such six (6) year period,
Buyer shall continue to cooperate with Seller to provide Seller with access to
any such books and records, which Buyer or the Company has continued to retain,
for any of the foregoing matters.
SECTION 10.04. PUBLIC STATEMENTS. Without the prior written consent of
Seller, Buyer shall not make any announcements or public statements relating to
the signing of this Agreement and/or the transactions contemplated by this
Agreement.
SECTION 10.05. LEASED EQUIPMENT. SCHEDULE 10.05 sets forth a list of all
personal property leased by the Company and/or Seller which is used by the
Company in the operations of the Purchased Business. Buyer agrees to assume and
indemnify Seller against any liability or loss in respect of, all of Seller's
obligations under the personal property leases described on Schedule 10.05 under
which Seller is the lessee (the "Assigned Leases"); provided, however, that in
connection with the Lease Agreement No. 673 dated July 1, 1992, between Seller
and ICX Corporation (the "ICX Lease"), the Company and Seller shall enter into a
sublease agreement, effective as of the Closing Date for the personal property
described on lease schedules 012 and 014 that are at the Company's facilities in
Owosso, Michigan, on the terms and conditions set forth in the Sublease and
Security Agreement in the form attached hereto as Exhibit 10.05 (the "ICX
Sublease").
SECTION 10.06. OPTION TO PURCHASE PLANT 2. The Company shall grant Seller
an option (the "Plant 2 Option") to purchase the real estate and buildings
located at 630 South Chestnut Street, Owosso, Michigan ("Plant 2") for the
period from the Closing until Seller has no further responsibility pursuant to
the ICX Lease for the personal property described in the ICX Sublease, such
option to be exercisable by Seller if there occurs an event of default hereunder
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<PAGE> 17
or in the Note. The purchase price for Plant 2 shall be Four Hundred Fifty
Thousand Dollars ($450,000) payable in cash. A form of the Plant 2 Option is
attached as EXHIBIT 10.06.
SECTION 10.07. SUBORDINATION OR INTERCREDITOR AGREEMENT. Notwithstanding
any contrary provisions herein, Buyer and Seller agree that this Agreement, if
executed by Buyer and Seller, and the obligations of Buyer and Seller,
respectively, hereunder shall be null, void and of no effect and neither party
shall be bound hereby or hereunder UNLESS Seller shall have executed a
Subordination or intercreditor Agreement with Buyer's Lenders as described in
SECTION 1.06 on or prior to the Closing.
ARTICLE XI
Indemnification
---------------
SECTION 11.01. INDEMNIFICATION BY SELLER. Seller shall indemnify, defend
and hold Buyer, its successors and permitted assigns, and its affiliates
(collectively, "Buyer's Indemnified Persons") harmless from and against any
loss, damage, liability, claim, action, cause of action, regulatory, legislative
or judicial proceedings or investigations, assessments, levies, fines,
penalties, costs and expenses, including, without limitation, reasonable
attorneys', accountants', investigators', and experts' fees and expenses
(collectively "Damages"), reasonably sustained or incurred in connection with
the defense or investigation of any claim arising out of or in any way relating
to: (a) any misrepresentation in or breach of the representations and warranties
of Seller set forth in this Agreement or in ally document delivered to Buyer
pursuant to the provisions of this Agreement (subject to the provisions of
SECTION 12.09), (b) the failure by Seller to perform any of its obligations
under this Agreement, including, but not limited to, those set forth in Section
11.06 (the "Plant I Claims"), or (c) any Environmental Claim (as defined below)
against the Company arising out of or based upon the (i) the Barrels, Inc. site
located in Ingham County, Michigan, or (ii) KELLY. ET AL. V. GREAT LAKES
CONTAINER CORPORATION (U.S. District Court File No. 85-CV73556-DT), or (iii) the
prior sale of barrels by the Company to third parties on or after December 31,
1986 (collectively, the "Barrel Claims"). For purposes of the preceding
sentence, "Environmental Claim" means any notice of any violation, claim,
demand, abatement or other order or direction by any governmental authority for
tangible property damage, damage to the environment, nuisance, pollution,
contamination or other adverse effects on the environment, or for fines,
penalties or restrictions from the violation of any environmental laws currently
in effect as of the Closing Date.
SECTION 11.02. INDEMNIFICATION BY BUYER AND THE COMPANY. Buyer and the
Company, jointly and severally, shall indemnify, defend and hold Seller and its
affiliates (collectively, "Seller's Indemnified Persons") harmless from and
against any and all Damages arising out of or in any way relating to (a) any
misrepresentation in or breach of the representations and warranties of Buyer
set forth in this Agreement, or in any document delivered to Seller pursuant to
the provisions of this Agreement (subject to the provisions of SECTION 12.09),
(b) the failure by Buyer to perform any of its obligations under this Agreement,
(c) the failure by Company to perform any of its obligations under the terms of
the Assignment Agreement, or (d) Buyer's or the Company's failure to pay,
discharge and perform any obligations or liabilities of the Company (other than
any Environmental Claim referred to in SECTION 11.01(c) of this Agreement);
irrespective of whether any such obligation or liability relates to or arises
out of the operation of the Purchased Business by the Company prior to, on or
after the Closing Date. Further, Company, its successors and assigns, agrees to
supply to Seller in the ordinary course annual reviewed financial statements, as
well as all financial reports which Company supplies to its lenders from time to
time.
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<PAGE> 18
SECTION 11.03. NOTICE. If any person believes that he, she or it has
suffered or incurred any Damages, that person shall so notify the indemnifying
party promptly in writing describing such Damages, the amount thereof, if known,
and the method of computation of such Damages, all with reasonable particularity
to permit the indemnifying party to assess the nature and cost of the claim. If
any action at law, suit in equity or administrative action is instituted by or
against a third party with respect to which any person intends to claim any
liability or expense as Damages under this Article XI, such person shall
promptly notify the indemnifying party of such action.
SECTION 11.04. DEFENSE OF CLAIMS. The indemnifying party shall have thirty
(30) calendar days after receipt of any notice referred to in SECTION 11.03 of
this Agreement to notify the indemnified party that it elects to conduct and
control any legal or administrative action or suit with respect to an
indemnifiable claim. If the indemnifying party does not give such notice, the
indemnified person shall have the right to defend, contest, settle or compromise
such action or suit in the exercise of its exclusive discretion, and to the
extent such claim is otherwise an indemnifiable claim hereunder, the
indemnifying party shall, upon request from the indemnified person, promptly pay
the indemnified person in accordance with the other terms and conditions of this
Article XI the amount of any Damages resulting from its liability to the third
party claimant. If the indemnifying party gives such notice, it shall have the
right to undertake, conduct and control, through counsel of its own choosing at
its sole expense, the conduct and settlement of such action or suit, and the
indemnified person shall cooperate with the indemnifying party in connection
therewith; PROVIDED, HOWEVER, that (a) the indemnifying party shall not thereby
permit to exist any lien, encumbrance or other adverse charge securing the
claims indemnified hereunder upon any asset of the indemnified person, (b)the
indemnifying party shall not thereby consent to the imposition of any injunction
against the indemnified person without the written consent of the indemnified
person, (c) the indemnifying party shall permit the indemnified person to
participate in such conduct or settlement through counsel chosen by the
indemnified person, but the fees and expenses of such counsel shall be borne by
the indemnified person except as provided in clause (d) below, and (d) upon a
final determination of such action or suit, the indemnifying party shall agree
promptly to reimburse to the extent required under this ARTICLE XI (subject to
the provisions of SECTION 11.07 of this Agreement) the indemnified person for
the full amount of any Damages resulting from such action or suit and all
reasonable and related expenses incurred by the indemnified person, except fees
and expenses of counsel for the indemnified person incurred after the assumption
of the conduct and control of such action or suit by the indemnifying party. So
long as the indemnifying party is contesting any such action in good faith, the
indemnified person shall not pay or settle any such action or suit.
Notwithstanding the foregoing, the indemnified person shall have the right to
pay or settle any such action or suit, provided that in such event the
indemnified person shall waive any right to indemnity therefor from the
indemnifying party and no amount in respect therefor shall be claimed as Damages
under this ARTICLE XI.
SECTION 11.05. BARREL CLAIMS. Seller shall, at its sole expense and in the
manner determined by Seller, conduct or direct any environmental cleanup or
remediation to be undertaken by the Company which is required by law and which
constitutes a Barrel Claim; PROVIDED, HOWEVER, that Seller will consult with
Buyer with respect to such matters, will not take
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<PAGE> 19
any action which will unduly hamper the ability of the Company to carry on the
Purchased Business in the ordinary course (unless required by law to do so), and
will provide Buyer with a complete copy of any governmental filing or submission
at the time it is made. Buyer agrees to cooperate and cause the Company to
cooperate with Seller (including, without limitation, by making relevant
personnel and records available to Seller at all reasonable times at a
reasonable charge to be agreed upon between Buyer and Seller) in connection with
any such cleanup or remediation.
SECTION 11.06. REMEDIAL ACTION PLAN. Within a reasonable time period after
the Closing Of the transaction contemplated herein, Seller, at its sole expense,
shall either: (a) present documentation to the Buyer reflecting that the real
estate owned by the Company at 1000 Bradley Street, Owosso, Michigan ("Plant No.
1") does not constitute a "facility" as that term is defined in Part 201, as
amended, of Michigan's Public Act 451 of 1994 ("Part 201"), or (b) prepare or
cause to be prepared a remedial action plan ("RAP") in compliance with Section
20114 of Part 201 regarding the: (i) acetone detected in the grab soil sample
identified as sample 0-2 in the December, 1994 Phase II Environmental Site
Assessment Report, prepared by Woodward-Clyde Consultants ("WCC"), a copy of
which has been delivered to Buyer, and (ii) metals detected in the soil samples
identified in the July, 1995 Evaluation of Analytical Results prepared by WCC, a
copy of which has been delivered to Buyer, to the extent that the compounds in
(i) and (ii) are identified in concentrations which exceed the respective
generic residential criteria for those compounds under Part 201. Seller shall
submit the RAP to and obtain the approval of the RAP by the Michigan Department
of Environmental Quality (the "MDEQ").
Upon approval of the RAP, Seller shall diligently implement the RAP, and,
upon completion, shall obtain from the MDEQ a document stating that the RAP has
been completed. The RAP, including the choice of appropriate and relevant
cleanup criteria and land and/or resource use restrictions, shall be prepared
and structured at the sole discretion of Seller, subject only to MDEQ approval;
provided, however, that Seller shall furnish Buyer with a copy of the RAP
simultaneously with submittal of the RAP to the MDEQ, and shall not include in
the RAP any action or restriction which would unreasonably interfere with the
ability of the Company to carry on the Purchased Business in the ordinary course
(unless required by law to so interfere with such business).
Buyer and the Company agree to fully cooperate with Seller and shall not
take any action which interferes with Seller in its undertaking to obtain RAP
approval or implementation. Specifically, but not by way of limitation, Buyer
and/or the Company shall cause the appropriate representatives to provide their
signatures on any documents as may be necessary to effectuate the RAP,
including, without limitation, a notice of approved environmental remediation
and/or a restrictive covenant. The obligations of Buyer and the Company
contained in this subparagraph are subject to Seller's obligation to not
unreasonably interfere with the Purchased Business in the ordinary course, as
further described above.
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<PAGE> 20
Buyer and the Company shall allow Seller and/or its agents access to Plant
No. 1 at all times during development and implementation Of the RAP, including
any access needed for any monitoring required in connection with the RAP.
SECTION 11.07. COOPERATION. If requested by the indemnifying party, the
indemnified person shall cooperate with the indemnifying party and its counsel
in contesting any claim which the indemnifying party elects to contest or, if
appropriate, in making any counterclaim against the person asserting the claim,
or any cross-complaint against any person, and further agrees to take such other
action as reasonably may be requested by an indemnifying party to reduce or
eliminate any loss or expense for which the indemnifying party would have
responsibility, but the indemnifying party will reimburse the indemnified person
for any expenses incurred by it in so cooperating or acting at the request of
the indemnifying party.
SECTION 11.08. LIMITATIONS. Except for Damages relating to a Barrel Claim
or a Plant 1 Claim, Buyer's Indemnified Persons may not assert any claim for
Damages under this ARTICLE XI: (a) unless and until the aggregate amount of such
claims that may be asserted under this ARTICLE XI against Seller by Buyer's
Indemnified Persons exceeds Fifty Thousand and 00/100 Dollars ($50,000.00), and
then Buyer's Indemnified Persons may only assert a claim for the excess of such
aggregate claims over Fifty Thousand and 00/100 Dollars ($50,000.00), or (b) in
respect of any claim of breach of any representation or warranty of the Seller
hereunder, to the extent Seller had disclosed such breach to the Buyer prior to
the Closing Date, as provided in SECTION 5.02 hereof, or Buyer otherwise had
actual knowledge of such breach prior to Closing. Notwithstanding the provisions
of ARTICLE XI, except for damages related to a Barrel Claim or a Plant 1 Claim,
the aggregate amount of indemnification for which Seller shall be liable under
this ARTICLE XI shall not exceed an amount equal to Two hundred Thousand Dollars
($200,000).
SECTION 11.09. PAYMENT OF DAMAGES. The indemnifying party shall promptly
pay to the indemnified person in cash the amount of any Damages to which the
indemnified person is entitled by reason of the provisions of this Agreement.
The parties covenant that any payment made pursuant to this ARTICLE XI will be
treated by the parties on their respective tax returns as an adjustment to the
Purchase Price.
SECTION 11. 10. COORDINATION OF PROVISIONS. To the extent any provision of
this Agreement specifically limits or excludes Seller's indemnification
obligation for certain matters, Seller shall have no liability or
indemnification obligation for such matters under any other provisions of this
Agreement.
ARTICLE XII
Miscellaneous Provisions
------------------------
SECTION 12.01. CONFIDENTIAL NATURE OF INFORMATION. Each party agrees that
it will treat in confidence all documents,materials and other information which
it shall have obtained during the course of the negotiations leading to the
consummation of the transactions contemplated by this Agreement, whether
obtained before or after the date hereof (collectively, the "Confidential
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Information"), and the preparation of this Agreement and other related
documents. Notwithstanding the foregoing, the Confidential Information shall not
include any information which: (a) such party can demonstrate was already
lawfully in its possession prior to the disclosure thereof by the other party,
(b)is known to the public and did not become so known through any violation of a
legal obligation, (c) became known to the public through no fault of such party,
(d) is later lawfully acquired by such party from other sources, (e) is required
to be disclosed under the provisions of any binding statute or regulation, or
(f) is required to be disclosed by a rule or order of any court of competent
jurisdiction. If the transactions contemplated by this Agreement are not
consummated for any reason whatsoever, Buyer shall promptly return to Seller all
of the Confidential Information in Buyer's possession relating to the Company
and/or the Purchased Business, and shall not retain copies thereof.
SECTION 12.02. EXPENSES. Each of Buyer and Seller shall pay their own
costs and expenses incurred or to be incurred by it in negotiating and preparing
this Agreement and in closing and carrying out the transactions contemplated by
this Agreement, except as otherwise expressly provided for in this Agreement.
SECTION 12.03. HEADINGS. The subject headings of the Articles and Sections
of this Agreement are included for purposes of convenience only and shall not
affect the construction or interpretation of any of its provisions.
SECTION 12.04. ENTIRE AGREEMENT. This Agreement, including the Exhibits
and Schedules referred to herein which form a part of this Agreement, contain
the entire understanding of the parties with respect to the transactions
contemplated by this Agreement. There are no representations, warranties,
covenants or undertakings other than those expressly set forth or provided for
in this Agreement. This Agreement supersedes all prior agreements and
understandings between the parties with respect to the transactions contemplated
by this Agreement.
SECTION 12.05. MODIFICATION AND WAIVER. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by all
the parties. The party for whose benefit a warranty, representation, covenant,
or condition is intended may in writing waive any inaccuracies in the warranties
and representations contained in this Agreement or waive compliance with any of
the covenants or conditions contained in this Agreement and so waive performance
of any of the obligations of the other party to this Agreement, and any defaults
under this Agreement; PROVIDED, HOWEVER, that such waiver shall not affect or
impair the waiving party's rights with respect to any other warranty,
representation or covenant or any default under this Agreement, nor shall any
waiver constitute a continuing waiver.
SECTION 12.06. COUNTERPARTS. This Agreement may be executed simultaneously
in one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
SECTION 12.07. EXHIBITS AND SCHEDULES. All Exhibits and Schedules attached
to this Agreement are incorporated in this Agreement and made a part of this
Agreement in the same
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manner as if such exhibits and schedules were set forth at length in the text of
this Agreement. The parties acknowledge that the Schedules will be updated on
and as of the Closing Date.
SECTION 12.08. SUCCESSORS. This Agreement shall be binding on, and shall
inure to the benefit of, the parties and their respective successors and
assigns; PROVIDED, HOWEVER, that neither this Agreement nor any of the rights or
obligations under this Agreement may be assigned by any party without the prior
written consent of the other party hereto.
SECTION 12.09. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND
INDEMNIFICATION. Except for Barrel Claims and Plant 1 Claims, all
representations and warranties made by any party to this Agreement or pursuant
hereto and the indemnification rights and obligations with respect thereto set
forth in ARTICLE XI of this Agreement shall survive the Closing Date for a
period of one (1) year, at which time such representations and warranties and
indemnification rights and obligations shall expire; PROVIDED, HOWEVER, that
notwithstanding the foregoing the rights and obligations with respect to
indemnification as provided in ARTICLE XI shall continue with respect to any
matter for which indemnification had been properly sought pursuant to the
provisions of this Agreement prior to the expiration of such survival period.
SECTION 12. 10. NOTICES. All notices, requests, demands, and other
communications to be given under this Agreement shall be in writing and shall be
deemed to have been duly given on the date of service if served personally on
the party to whom notice is to be given, or on the third business day after
mailing if mailed to the party to whom notice is to be given by certified or
registered mail, return receipt requested, postage prepaid and properly
addressed as follows:
If to Buyer:
QUOIN Inc.
601 First Street, N.W.
Grand Rapids, Michigan 49504
Attn: John DeMaria, President
With a Copy to:
Miller, Canfield, Paddock and Stone, P.L.C.
1200 Campau Square Plaza
99 Monroe Avenue, N.W.
Grand Rapids, Michigan 49503
Attn: Michael Campbell
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<PAGE> 23
If to Seller:
Defiance, Inc.
1111 Chester Avenue
Suite 750
Cleveland, Ohio 44114
Attn: Jerry A. Cooper, President & CEO
With a Copy to:
Arter & Hadden
1100 Huntington Building
925 Euclid Avenue
Cleveland, Ohio 44115
Attn: Robert B. Tomaro
SECTION 12.11. GOVERNING LAW: ARBITRATION. This Agreement shall be
construed and interpreted in accordance with the laws of the State of Ohio
except that the choice of law rules of Ohio shall not be applied in such a way
as to cause this Agreement to be construed and interpreted in accordance with
the laws of any other state. Any dispute concerning the interpretation of this
Agreement, or the performance of obligations set forth in this Agreement, which
cannot be amicably settled between the parties within sixty (60) days of written
notice by the aggrieved party to the other, shall be finally settled by
Arbitration in accordance with the rules and regulations of the American
Arbitration Association. The place of Arbitration shall be Cleveland, Ohio,
unless otherwise agreed.
SECTION 12.12. SEVERABILITY. In the event that any of the terms or
provisions of this Agreement are determined to be unenforceable by any court of
competent jurisdiction, the parties to this Agreement shall consider such terms
or provisions amended and modified so as to eliminate such invalidity or
unenforceability, and all other terms and provisions shall remain in full force
and effect as originally written.
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<PAGE> 24
IN WITNESS WHEREOF, the parties have executed this Agreement this 6th day
of August , 1996.
SELLER: BUYER:
DEFIANCE, INC. QUOIN, INC.
By: /s/ Jerry A. Cooper By: /s/ John DeMaria
-------------------------------- --------------------------------
Its: President and CEO Its: President
------------------------------- -------------------------------
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<PAGE> 25
LIST OF EXHIBITS AND SCHEDULES
FOR STOCK PURCHASE AGREEMENT
----------------------------
Exhibit Document
- ------- --------
1.03(b) Assignment Agreement
1.03(c) Seller Note
1.03(d) Bridge Note
1.05(a) Pledge Agreement
1.05(b) Guarantee of John DeMaria
1.05(c) Security Agreement
1.05(d) Mortgage
6.05 Nondisturbance and Attornment Agreement
10.05 ICX Sublease
10.06 Plant 2 Option
Schedule Document
- -------- --------
1.03(b) Assigned Assets
1.06 Financial Ratios
3.02 Authority, No Violation, Etc.
3.06 Financial Statements
3.07 Assets Not Reflected On Financial Statements
3.08 Leased Real Estate
3.10 Litigation
3.12 Brokers' or Finders' Fees (Seller)
4.04 Brokers' or Finders' Fees (Buyer)
10.05 Leased Personal Property
<PAGE> 1
[COMERICA LOGO]
- --------------------------------------------------------------------------------
Comerica Bank
EXHIBIT 10(bb)
August 15, 1996
Michael J. Meier, VP-Finance, CFO
Defiance, Inc.
1111 Chester Ave., Suite 750
Cleveland, OH 44114-3516
Dear Mr. Meier:
I am pleased to inform you that pursuant to Sections 10.2 and 10.7 of the Second
Amended & Restated Loan Agreement by and between Defiance, Inc. (hereinafter
called the "Company") and Comerica Bank (hereinafter called the "Bank"), the
Bank hereby consents to the sale of the Vaungarde, Inc. subsidiary of the
Company to Quoin, Inc., and the investment in Quoin, Inc. in the form of
subordinated debt in the amount of $950,000. This consent is granted based upon
the selling terms as outlined in the July 26, 1996, "Summary of Purchase
Agreement for Vaungarde Sale to Quoin, Inc." sheet attached.
Mike, if you have any questions please do not hesitate to give me a call.
Sincerely,
/s/ Timothy C. Griffin
Timothy C. Griffin
Vice President
Comerica Bank
<PAGE> 1
EXHIBIT 10(bc)
SIXTH AMENDMENT TO AMENDED
AND RESTATED LOAN AGREEMENT
---------------------------
This Amendment dated as of August 19, 1996, between Defiance, Inc., a
Delaware corporation, ("Company"), and Comerica Bank, a Michigan banking
corporation, successor in interest by reason of merger to Manufacturers Bank,
N.A. ("Bank").
RECITALS:
A. Company and Bank entered into a Second Amended and Restated Loan
Agreement dated July 29, 1994, which was amended by a First Amendment to Amended
and Restated Loan Agreement dated May 31, 1995, a Second Amendment to Amended
and Restated Loan Agreement dated as of August 2, 1995, a Third Amendment to
Amended and Restated Loan Agreement dated October 25, 1995, a Fourth Amendment
to Amended and Restated Loan Agreement dated December 31, 1995 and a Fifth
Amendment to Amended and Restated Loan Agreement dated June 30, 1996
("Agreement").
B. Company and Bank desire further to amend the Agreement.
NOW, THEREFORE, the parties agree as follows:
1. The definition of "Revolving Credit Maturity Date" set forth in Section
1 of the Agreement is amended to read in its entirety as follows:
"`Revolving Credit Maturity Date' shall mean October
1, 1998."
2. Section 9.12 of the Agreement is amended to read in its
entirety as follows:.
"9.12 Maintain at all times a Consolidated
Current Ratio of not less than the following amounts
during the periods specified below:
June 30, 1996 through June 29, 1997 1.2 to 1.0
June 30, 1997 and thereafter 1.4 to 1.0"
3. Section 9.15 of the Agreement is amended to read in its
entirety as follows:
"9.15 Maintain at all times a Consolidated
Tangible Net Worth of not less than the following amounts
during the periods specified below:
June 30, 1996 through December 30, 1996 $28,000,000
December 31, 1996 through June 29, 1997 $30,000,000
June 30, 1997 and thereafter $32,000,000"
<PAGE> 2
4. Exhibit "E" to the Agreement is hereby deleted and attached Exhibit
"E" is substituted thereafter.
5. The above amendment shall be effective upon execution hereof by Company
and Bank, delivery by Company to Bank of an executed Note in the form of
attached Exhibit "E" and execution of the Acknowledgment below by each of the
Guarantors (as defined in the Agreement).
6. Company hereby represents and warrants that, after giving effect to the
amendment contained herein, (a) execution, delivery and performance of this
Amendment and any other documents and instruments required under this Amendment
or the Agreement are within Company's corporate powers, have been duly
authorized, are not in contravention of law or the terms of Company's
Certificate of Incorporation or Bylaws, and do not require the consent or
approval of any governmental body, agency, or authority, and this Amendment and
any other documents and instruments required under this Amendment or the
Agreement, will be valid and binding in accordance with their terms; (b) the
continuing representations and warranties of Company set forth in Sections 8.1
through 8.5 and 8.7 through 8.14 of the Agreement are true and correct on and as
of the date hereof with the same force and effect as made on and as of the date
hereof; (c) the continuing representations and warranties of Company set forth
in Section 8.6 of the Agreement are true and correct as of the date hereof with
respect to the most recent financial statements furnished to the Bank by Company
in accordance with Section 9.1 of the Agreement; and (d) no event of default, or
condition or event which, with the giving of notice or the running of time, or
both, would constitute an event of default under the Agreement, has occurred and
is continuing as of the date hereof.
7. Except as expressly modified hereby all of the terms and conditions
of the Agreement remain in full force and effect.
WITNESS the due execution hereof on the day and year first written above.
COMERICA BANK DEFIANCE, INC.
By: /s/ Timothy C. Griffin By: /s/ Michael J. Meier
------------------------- ----------------------------------
Its: Vice President Its: VP Finance, CFO, Sec.-Treas.
------------------------ ---------------------------------
2
<PAGE> 3
Acknowledgement
---------------
The undersigned guarantors acknowledge and consent to the foregoing
Amendment and waiver and ratify and confirm their respective obligations under
the Guaranty Agreements dated February 5, 1993, which Guaranty Agreements remain
in full force and effect.
DEFIANCE TESTING & ENGINEERING DEFIANCE PRECISION PRODUCTS,
SERVICES, INC., F/K/A SMTC INC.
CORPORATION
By: /s/ Michael J. Meier By: /s/ Michael J. Meier
----------------------------------- -----------------------------------
Its: Sec.-Treas. Its: Sec.-Treas.
---------------------------------- ----------------------------------
DRAFTLINE ENGINEERING COMPANY HY-FORM PRODUCTS, INC.
By: /s/ Michael J. Meier By: /s/ Michael J. Meier
----------------------------------- -----------------------------------
Its: Sec.-Treas. Its: Sec.-Treas.
---------------------------------- ----------------------------------
BINDERLINE DEVELOPMENT, INC.
By: /s/ Michael J. Meier
-----------------------------------
Its: Sec.-Treas.
----------------------------------
3
<PAGE> 4
EXHIBIT "E"
REVOLVING CREDIT NOTE
---------------------
Detroit, Michigan
$6,000,000 August 19, 1996
On or before October 1, 1998 FOR VALUE RECEIVED, Defiance, Inc., a Delaware
corporation (herein called "Company") promises to pay to the order of COMERICA
BANK, a Michigan banking corporation (herein called "Bank") at its Main Office
at 500 Woodward Avenue, Detroit, Michigan, in lawful money of the United States
of America the indebtedness or so much of the sum of Six Million Dollars
($6,000,000) as may from time to time have been advanced and then be outstanding
hereunder pursuant to the Second Amended and Restated Loan Agreement dated as of
July 29, 1994, made by and between Company and Bank (as amended, herein called
"Agreement"), together with interest thereon as hereinafter set forth.
Each of the Advances hereunder shall bear interest at the Applicable
Interest Rate from time to time applicable thereto under the Agreement or as
otherwise determined thereunder, and interest shall be computed, assessed and
payable as set forth in the Agreement.
This Note is a note under which advances, repayments and readvances may be
made from time to time, subject to the terms and conditions of the Agreement.
This Note evidences borrowing under, is subject to, is secured in accordance
with, and may be matured under, the terms of the Agreement, to which reference
is hereby made. As additional security for this Note, Company grants Bank a lien
on all property and assets including deposits and other credits of the Company,
at any time in possession or control of or owing by Bank for any purpose.
Company hereby waives presentment for payment, demand, protest and notice
of dishonor and nonpayment of this Note and agrees that no obligation hereunder
shall be discharged by reason of any extension, indulgence, release, or
forbearance granted by any holder of this Note to any party now or hereafter
liable hereon or any present or subsequent owner of any property, real or
personal, which is now or hereafter security for this Note. Any transferees of,
or endorser, guarantor or surety paying this Note in full shall succeed to all
rights of Bank, and Bank shall be under no further responsibility for the
exercise thereof or the loan evidenced hereby. Nothing herein shall limit any
right granted Bank by other instrument or by law.
4
<PAGE> 5
This Note is replacement for and extension of a Revolving Credit Note dated
October 25, 1995 in the principal amount of $8,000,000 by Company payable to
Bank.
All capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Agreement.
DEFIANCE, INC.
By:
-----------------------------------
Its:
----------------------------------
5
<PAGE> 1
EXHIBIT (bd)
REVOLVING CREDIT NOTE
---------------------
Detroit, Michigan
$6,000,000 August 19, 1996
On or before October 1, 1998 FOR VALUE RECEIVED, Defiance, Inc., a Delaware
corporation (herein called "Company") promises to pay to the order of COMERICA
BANK, a Michigan banking corporation (herein called "Bank") at its Main Office
at 500 Woodward Avenue, Detroit, Michigan, in lawful money of the United States
of America the indebtedness or so much of the sum of Six Million Dollars
($6,000,000) as may from time to time have been advanced and then be outstanding
hereunder pursuant to the Second Amended and Restated Loan Agreement dated as of
July 29, 1994, made by and between Company and Bank (as amended, herein called
"Agreement"), together with interest thereon as hereinafter set forth.
Each of the Advances hereunder shall bear interest at the Applicable
Interest Rate from time to time applicable thereto under the Agreement or as
otherwise determined thereunder, and interest shall be computed, assessed and
payable as set forth in the Agreement.
This Note is a note under which advances, repayments and readvances may be
made from time to time, subject to the terms and conditions of the Agreement.
This Note evidences borrowing under, is subject to, is secured in accordance
with, and may be matured under, the terms of the Agreement, to which reference
is hereby made. As additional security for this Note, Company grants Bank a lien
on all property and assets including deposits and other credits of the Company,
at any time in possession or control of or owing by Bank for any purpose.
Company hereby waives presentment for payment, demand, protest and notice
of dishonor and nonpayment of this Note and agrees that no obligation hereunder
shall be discharged by reason of any extension, indulgence, release, or
forbearance granted by any holder of this Note to any party now or hereafter
liable hereon or any present or subsequent owner of any property, real or
personal, which is now or hereafter security for this Note. Any transferees of,
or endorser, guarantor or surety paying this Note in full shall succeed to all
rights of Bank, and Bank shall be under no further responsibility for the
exercise thereof or the loan evidenced hereby. Nothing herein shall limit any
right granted Bank by other instrument or by law.
This Note is replacement for and extension of a Revolving Credit Note dated
October 25, 1995 in the principal amount of $8,000,000 by Company payable to
Bank.
<PAGE> 2
All capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Agreement.
DEFIANCE, INC.
By: /s/ Michael J. Meier
-----------------------------------
Its: VP-Finance, CFO, Sec.-Treas.
----------------------------------
2
<PAGE> 1
Exhibit 11. STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Defiance, Inc. and Subsidiaries
(All dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended June 30,
1996 1995 1994
---------------------------------------
Common shares:
<S> <C> <C> <C>
Shares outstanding - beginning of period 6,543,950 6,516,038 6,422,270
Shares issued during period 29,500 27,912 93,768
Shares purchased for treasury (157,700)
---------------------------------------
Shares outstanding - end of period 6,415,750 6,543,950 6,516,038
=======================================
Average shares outstanding per above 6,544,662 6,533,156 6,482,213
Average common share equivalents:
Outstanding options and warrants 162,416 175,465 173,787
---------------------------------------
Weighted average common shares outstanding 6,707,078 6,708,621 6,656,000
=======================================
Net earnings $1,598 $6,594 $6,001
=======================================
Primary and fully diluted net earnings per common share $0.24 $0.98 $0.90
=======================================
</TABLE>
<PAGE> 1
<TABLE>
<CAPTION>
Exhibit 21. SUBSIDIARIES OF THE REGISTRANT
Defiance, Inc.
June 30, 1996
Percentage of
State in which voting securities
Name incorporated owned by Company
- ---- ------------ ----------------
<S> <C> <C>
Defiance Precision Products, Inc. Ohio 100%
Hy-Form Products, Inc. Michigan 100%
Defiance Testing & Engineering Services, Inc. Michigan 100%
Vaungarde, Incorporated Michigan 100%
Binderline Development, Inc. Michigan 100%
Draftline Engineering Company Delaware 100%
</TABLE>
All the subsidiaries listed above are included in the Consolidated Financial
Statements of the Company.
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-92504, No. 33-44505 and No. 33-25753) pertaining to the 1994
Nonemployee Director Stock Option Plan, the 1989 Stock Option Plan and the 1985
Stock Option Plan, respectively, of Defiance, Inc. of our report dated July 30,
1996, with respect to the consolidated financial statements and schedule of
Defiance, Inc. for the year ended June 30, 1996, included in the Annual Report
(Form 10-K) for the year ended June 30, 1996.
Ernst & Young LLP
Cleveland, Ohio
August 26, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 1,240
<SECURITIES> 0
<RECEIVABLES> 16,615
<ALLOWANCES> 193
<INVENTORY> 3,312
<CURRENT-ASSETS> 27,716
<PP&E> 39,516
<DEPRECIATION> 28,074
<TOTAL-ASSETS> 74,768
<CURRENT-LIABILITIES> 18,179
<BONDS> 1,842
<COMMON> 328
0
0
<OTHER-SE> 35,110
<TOTAL-LIABILITY-AND-EQUITY> 74,768
<SALES> 103,975
<TOTAL-REVENUES> 103,975
<CGS> 84,519
<TOTAL-COSTS> 84,519
<OTHER-EXPENSES> 13,879
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,680
<INCOME-PRETAX> 3,897
<INCOME-TAX> 2,299
<INCOME-CONTINUING> 1,598
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,598
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
