<PAGE> 1
================================================================================
SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
DEFIANCE, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DEFIANCE, INC.
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: ............
(2) Aggregate number of securities to which transaction applies: ...............
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined): ...............................
(4) Proposed maximum aggregate value of transaction: ...........................
(5) Total fee paid: ............................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ....................................................
(2) Form, Schedule or Registration Statement No.: ..............................
(3) Filing Party: ..............................................................
(4) Date Filed: ................................................................
================================================================================
<PAGE> 2
DEFIANCE, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 24, 1997
To Our Stockholders:
The Annual Meeting of Stockholders of Defiance, Inc. will be held at the Ohio
Savings Plaza Amphitheater, 1801 East Ninth Street, Cleveland, Ohio on Friday,
October 24, 1997 at 1:30 p.m. E.D.T. to:
1. Elect three directors, each to serve for a term of three years, and
2. Transact such other business as may properly come before the meeting.
Only those holders of Common Stock of record at the close of business on
September 10, 1997 are entitled to notice of and to vote at the Annual Meeting.
By order of the Board of
Directors,
Michael J. Meier
Secretary
September 17, 1997
YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU MAY HOLD. Please
sign, date and return your proxy card in the return envelope provided as soon as
possible. This will not prevent you from voting your shares in person if you are
present at the Annual Meeting.
<PAGE> 3
DEFIANCE, INC.
1111 CHESTER AVENUE, SUITE #750
CLEVELAND, OHIO 44114
----------------------------------
PROXY STATEMENT
----------------------------------
ANNUAL MEETING OF STOCKHOLDERS
FRIDAY, OCTOBER 24, 1997, 1:30 P.M. E.D.T.
The Board of Directors of Defiance, Inc. ("Defiance" or the "Company") furnishes
this Proxy Statement in connection with the solicitation of proxies to be voted
at the Annual Meeting of Stockholders to be held on October 24, 1997 (the
"Annual Meeting") and at any adjournment.
Each proxy will be voted as specified by the stockholder. Any properly signed
proxy not specifying the contrary will be voted FOR the election of each nominee
for director as named herein. A stockholder giving a proxy may revoke it by
written notice to the Secretary of the Company at any time before it is voted or
by voting in person at the meeting.
At the close of business on September 10, 1997, the record date for the Annual
Meeting, there were outstanding and entitled to vote 6,417,063 shares of Common
Stock, with a par value of five cents ($.05) per share (the "Common Stock"), of
the Company. Holders of Common Stock are entitled to one vote for each share
held by them. The Company has no other voting securities outstanding.
A copy of the Annual Report of the Company including financial statements and a
description of its operations for the fiscal year ended June 30, 1997 ("fiscal
1997") is enclosed. The Company will also make available to any stockholder,
without charge, a copy of its fiscal 1997 report on Form 10K, as filed with the
Securities and Exchange Commission.
This Proxy Statement and accompanying form of Proxy are being mailed to
stockholders on or about September 17, 1997.
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<PAGE> 4
ELECTION OF DIRECTORS
Under the Company's Certificate of Incorporation, the Board of Directors (the
"Board") is divided into three classes as nearly equal in number as possible,
with the term of office of one class expiring each year. This year, three
directors are to be elected for three-year terms. There are currently eight
directors of the Company. Mr. Hector R. Ortino, whose term as director expires
at this Annual Meeting, is not standing for re-election. This will reduce the
number of directors of the Company to seven after the Annual Meeting. Unless
otherwise specified, all duly executed proxies will be voted for the election of
the nominees named below. All nominees have indicated their willingness to serve
as directors, if elected, and the Company has no reason to believe they will be
unable to serve. The persons designated as proxies, however, reserve full
discretion to cast votes for other persons if any nominee, or any of the other
directors whose terms are not expiring, is unable to serve. The three nominees
receiving the greatest number of votes will be elected. Broker non-votes will be
counted in determining a quorum, but will not otherwise be counted in
determining the outcome of the election.
Information about the nominees for director and other directors whose term of
office will continue after the Annual Meeting is set forth in the following
paragraphs.
NOMINEES FOR TERMS EXPIRING IN 2000
JAMES E. HEIGHWAY
Age 51
Director since 1994, nominee for director
Mr. Heighway has been President and Chief Executive Officer of MJM Industries,
Inc. since 1994. MJM Industries is a cable and electronic component assemblies
firm, located in Fairport, Ohio. From 1985 until 1994 he served as President and
Chief Executive Officer of Mueller Electric Company, Inc., a manufacturer of
electronic test and instrumentation accessories located in Cleveland, Ohio. He
is also a director of Continental Managed Pharmacy Services, Inc.
GEORGE H. LEWIS III
Age 60
Director since 1994, nominee for director
Mr. Lewis has been President, Chief Executive Officer and Chairman of the Board
of Akron Porcelain & Plastics Company of Akron, Ohio since 1975, and has been
employed there since 1959. Akron Porcelain & Plastics is a custom molder and
assembler of ceramic and plastic components for the automotive, appliance and
electrical distribution industries. He is also a director of Mercury Plastics
Company in Middlefield, Ohio.
JOHN D. ONG
Age 63
Director since 1997, nominee for director
Mr. Ong retired as Chairman of the Board of the BF Goodrich Company in July
1997. He received his B.A. and M.A. degrees from Ohio State University and his
LL.B. degree from Harvard Law School. He joined the BF Goodrich Company in 1961
as assistant counsel. He was elected Executive Vice President and a Director in
June 1973, Vice Chairman of the Board in April 1974, President in April 1975 and
became Chairman of the Board and Chief Executive Officer in July 1979. He
relinquished the title of Chief Executive Officer in
2
<PAGE> 5
December 1996 and retired as Chairman of the Board in July 1997. He is also a
director of Ameritech Corporation, ASARCO Incorporated, Cooper Industries, Inc.,
The Geon Company, the Kroger Co. and TRW Inc. In addition, he is a senior member
of the Conference Board and a member of The Business Council. Mr. Ong is also a
trustee of the University of Chicago and the John S. and James L. Knight
Foundation, and chairman of The Musical Arts Association (The Cleveland
Orchestra).
DIRECTORS WHOSE TERMS EXPIRE IN 1998
JERRY A. COOPER
Age 58
Director since 1992
Mr. Cooper has served as President and Chief Executive Officer of the Company
since 1992. From 1990 until joining the Company in 1992, Mr. Cooper was
President and Chief Executive Officer of Bettcher Manufacturing Corporation.
Bettcher is a metal forming company serving various industries, located in
Cleveland, Ohio. From 1977 until 1990, he was President and General Manager of
Mather Seal Company, located in Milan, Michigan. Mather Seal is a manufacturer
of Teflon(TM) seals and specialty products for industry, and is a subsidiary of
Federal-Mogul Corporation.
RICHARD W. LOCK
Age 65
Director since 1989
Mr. Lock has been the managing director of Magnus Associates since 1989. Magnus
Associates is a management consulting firm located in Sylvania, Ohio. Mr. Lock
served as Vice President and Treasurer of Owens-Illinois, Inc. from 1984 until
1988. Mr. Lock began his career with Owens-Illinois in 1962, and served in
various capacities including Director of Corporate Planning, Director of
Corporate Systems, and General Manager of an operating division. He is also a
director of Fremont Plastics, Inc. and Northwest Ohio Venture Associates.
DIRECTORS WHOSE TERMS EXPIRE IN 1999
THOMAS H. ROULSTON II
Age 64
Director since 1990
Mr. Roulston has served as Chairman of the Board of the Company since 1990. Mr.
Roulston has been the Chairman of the Board of Roulston & Company, Inc. since
1990, and served as President of Roulston & Company, Inc. from 1963 until 1990.
Roulston & Company, Inc. is a registered investment advisor located in
Cleveland, Ohio. He is also a director of American Stone Industries, Inc.,
Continental Managed Pharmacy Services, Inc., Ramwear, Inc., MJM Industries,
Inc., University Club of Cleveland and R.B. Mfg. Co.
3
<PAGE> 6
SCOTT D. ROULSTON
Age 40
Director since 1990
Mr. Roulston has been the President, Chief Executive Officer and a director of
Roulston & Company, Inc. since 1990, and served as Senior Vice President of
Roulston & Company, Inc. from 1986 until 1990. Mr. Roulston was also the
President of Topwatch Corporation, a management consulting firm, from 1982 until
1990.
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit Committee, established in 1990 and consisting entirely of nonemployee
directors, met three times in fiscal 1997. The committee reviews external and
internal audit plans and activities, reviews the Company's annual financial
statements and reviews the Company's system of internal and financial controls.
The committee also approves all significant fees for audit, audit-related and
nonaudit services provided by the independent auditors and recommends the annual
selection of independent auditors to the Board. Members of the audit committee
are Richard W. Lock (chairman), George H. Lewis III and James E. Heighway.
The Compensation Committee, established in 1990 and consisting entirely of
nonemployee directors, met four times in fiscal 1997. The committee administers
the incentive, benefit and stock option plans of the Company and its
subsidiaries, approves changes in senior executive compensation and recommends
changes in the Company's incentive, benefit and stock option plans to the Board.
The committee also recommends the retainer and attendance fees for nonemployee
directors. Members of the compensation committee are Scott D. Roulston
(chairman), James E. Heighway and Hector R. Ortino.
The Executive Committee, established in 1992 and consisting of a majority of
nonemployee directors, met one time in fiscal 1997. The committee acts upon
matters requiring Board action during the intervals between Board meetings and
includes all the functions of the Board of Directors other than the filling of
vacancies in the Board of Directors or in any of its committees. Members of the
executive committee are Thomas H. Roulston II (chairman), Jerry A. Cooper,
Richard W. Lock and Scott D. Roulston.
The Investment Committee, established in 1993 and consisting entirely of
nonemployee directors, met one time in fiscal 1997. The committee provides
guidance to the administrator and trustees of the defined benefit pension plan
of the Company's Defiance Precision Products, Inc. subsidiary, including setting
investment guidelines, defining investment mix, selecting fund managers and
monitoring fund managers' performance. Members of the investment committee are
James E. Heighway (chairman), Richard W. Lock and George H. Lewis III.
The Nominating Committee, established in 1990 and consisting entirely of
nonemployee directors, met two times in fiscal 1997. The committee recommends
candidates for Board and Board Committee membership. Members of the nominating
committee are Thomas H. Roulston II (chairman), George H. Lewis III and Scott D.
Roulston.
ATTENDANCE AT MEETINGS
The Board of Directors of the Company met five times during fiscal 1997. During
fiscal 1997 each director attended at least 75 percent of the meetings of the
Board of Directors and any Committee of the Board of Directors on which he
served.
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<PAGE> 7
COMPENSATION OF DIRECTORS
No directors' fees are paid to directors who are employees of the Company or any
of its subsidiaries. Nonemployee directors, other than the Chairman, receive an
annual fee of $12,000 and a meeting fee of $1,000 for each Board meeting
attended. The Chairman receives an annual fee of $18,000 and a meeting fee of
$1,500 for each Board meeting attended. Nonemployee directors also receive a
meeting fee of $800 for each committee meeting attended, except the committee
chairman, who receives a meeting fee of $1,100 for each committee meeting
attended. All directors are reimbursed for reasonable out of pocket expenses
incurred in connection with their services as directors. Each nonemployee
director also receives a nondiscretionary automatic grant of nonqualified
options to purchase 2,000 shares of Common Stock pursuant to the 1994
Nonemployee Director Stock Option Plan upon becoming a director of the Company
and thereafter on July 1 of each year of continuing service with an option
exercise price equal to the fair market value of the underlying Common Stock on
the date of grant.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Mr. Scott D. Roulston is the son of Mr. Thomas H. Roulston II. Otherwise, no
director or nominee for director has any family relationship to any other
director or nominee for director of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Members of the compensation committee are all nonemployee directors who have
never been officers or employees of the Company or any of its subsidiaries.
Roulston & Company, Inc., of which Mr. Thomas H. Roulston II is Chairman of the
Board and Mr. Scott D. Roulston is President, managed an average of 62% of the
assets of the defined benefit pension plan of the Company's Defiance Precision
Products, Inc. subsidiary during fiscal 1997, for which it received fees of
approximately $44,000. It is anticipated that Roulston & Company, Inc. will
continue to provide these services during the fiscal year ended June 30, 1998
("fiscal 1998").
NOMINATION OF DIRECTORS
The Board of Directors considers suitable candidates for membership on the Board
from time to time. The Nominating Committee of the Board of Directors will
consider nominees recommended by stockholders. Stockholders wishing to submit a
recommendation should write to the Nominating Committee in care of Mr. Thomas H.
Roulston II, Chairman of the Board, Defiance, Inc., 1111 Chester Avenue, Suite
#750, Cleveland, OH 44114.
5
<PAGE> 8
COMMON STOCK OWNERSHIP
BENEFICIAL OWNERSHIP OF FIVE PERCENT OR GREATER SHAREHOLDERS
The following table sets forth beneficial owners known to the Company of five
percent or more of the Company's outstanding Common Stock as of August 22, 1997.
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENT
NAME AND ADDRESS BENEFICIALLY OF TOTAL
OF BENEFICIAL OWNER OWNED SHARES
- -------------------------------------- ------------ --------
<S> <C> <C>
Wellington Management Co. LLP (1) 630,500 9.8%
75 State Street
Boston, MA 02109
Jerry A. Cooper (2) 499,079 7.6%
1111 Chester Avenue, Suite #750
Cleveland, OH 44114
First Manhattan Co. (3) 411,325 6.4%
437 Madison Avenue
New York, NY 10022
Dimensional Fund Advisors, Inc. (4) 353,400 5.5%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
</TABLE>
- ---------------
1. Based upon Schedule 13-G filed by Wellington Management Co. LLP
("Wellington") as of December 31, 1996 with the Securities and Exchange
Commission in its capacity as an Investment Advisor registered under Section
203 of the Investment Advisors Act of 1940. The schedule indicated that
Wellington had sole voting power with respect to no shares, shared voting
power with respect to 385,500 shares, sole dispositive power with respect to
no shares and shared dispositive power with respect to 630,500 shares.
2. Mr. Cooper is a director and executive officer of the Company. Please refer
to the table regarding directors, nominees for director and executive
officers for ownership detail.
3. Based upon Schedule 13-G filed by First Manhattan Co. ("First Manhattan") as
of December 31, 1996 with the Securities and Exchange Commission in its
capacity as a Broker or Dealer registered under Section 15 of the Securities
Exchange Act of 1934 and an Investment Advisor registered under Section 203
of the Investment Advisors Act of 1940. The schedule indicated that First
Manhattan had sole voting power with respect to 34,500 shares, shared voting
power with respect to 359,275 shares, sole dispositive power with respect to
33,000 shares and shared dispositive power with respect to 376,825 shares.
Includes 4,500 shares owned by family members of general partners of First
Manhattan. First Manhattan disclaims dispositive power as to 3,000 of such
shares and beneficial ownership as to 1,500 of such shares.
4. Based upon Schedule 13-G filed by Dimensional Fund Advisors, Inc.
("Dimensional") as of June 30, 1997 with the Securities and Exchange
Commission. Dimensional is a registered investment advisor, is deemed to have
beneficial ownership of 353,400 common shares of the Company as of June 30,
1997, all of which shares are held in portfolios of DFA Investment Dimensions
Group, Inc., a registered open-end investment company, or in series of The
DFA Investment Trust Company, a Delaware business trust, or the DFA Group
Trust and
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<PAGE> 9
the DFA Participating Group Trust, investment vehicles for qualified employee
benefit plans, all of which Dimensional Fund Advisors, Inc. serves as
investment manager. Dimensional disclaims beneficial ownership of all such
shares. The schedule indicated that Dimensional had sole voting power with
respect to 225,300 shares, shared voting power with respect to no shares,
sole dispositive power with respect to 353,400 shares and shared dispositive
power with respect to no shares. Persons who are officers of Dimensional Fund
Advisors, Inc. also serve as officers of DFA Investment Dimensions Group,
Inc. (the "Fund") and the DFA Investment Trust Company (the "Trust"), each an
open-end management investment company registered under the Investment
Company Act of 1940. In their capacity as officers of the Fund and the Trust,
these persons vote 65,800 additional shares which are owned by the Fund and
62,300 shares which are owned by the Trust (both included in sole dispositive
power above).
BENEFICIAL OWNERSHIP OF DIRECTORS, NOMINEES FOR DIRECTOR AND EXECUTIVE OFFICERS
The following table sets forth the number of shares of Common Stock beneficially
owned by each director, nominee for director and executive officer of the
Company as of August 22, 1997. All shares shown in the table reflect sole voting
and investment power unless otherwise indicated.
<TABLE>
<CAPTION>
ADDITIONAL
SHARES DEEMED PERCENT
DIRECTLY INDIRECTLY BENEFICIALLY TOTAL OF TOTAL
BENEFICIAL OWNER HELD HELD OWNED (1) SHARES SHARES(2)
- ------------------------------ -------- ---------- ------------- ------- ----------
<S> <C> <C> <C> <C> <C>
Jerry A. Cooper (3)........... 376,650 14,900 107,529 499,079 7.6%
Thomas H. Roulston II (4)..... 117,613 53,273 4,000 174,886 2.7%
Michael J. Meier.............. 3,138 23,119 26,257 0.4%
Scott D. Roulston............. 8,888 4,000 12,888 0.2%
George H. Lewis III........... 5,000 4,000 9,000 0.1%
James E. Heighway (5)......... 3.000 1,000 4,000 8,000 0.1%
Richard W. Lock............... 4,000 4,000 8,000 0.1%
Hector R. Ortino (6).......... 1,700 1,000 4,000 6,700 0.1%
James L. Treece............... 3,300 2,333 5,633 0.1%
John D. Ong................... 0 0.0%
Carl A. Rispoli............... 0 0.0%
------- ------ ------- ------- ----
All directors, nominees, and
executive officers as a
group (11 persons).......... 523,289 70,173 156,981 750,443 11.4%
</TABLE>
- ---------------
(1) Shares subject to options exercisable within 60 days following August 22,
1997.
(2) Based on 6,416,896 shares of Common Stock outstanding on August 22, 1997,
adjusted for shares subject to options exercisable within 60 days following
August 22, 1997 held either by the named individuals or by the group as a
whole.
(3) Indirect holdings include 14,900 shares held by Mr. Cooper's wife. Mr.
Cooper disclaims beneficial ownership in these shares.
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<PAGE> 10
(4) Indirect holdings include 53,273 shares held by Mr. Roulston's wife. Mr.
Roulston disclaims beneficial ownership in these shares.
(5) Indirect holdings include 1,000 shares held by a trust for Mr. Heighway's
granddaughter of which Mr. Heighway is the trustee.
(6) Indirect holdings include 1,000 shares held by Mr. Ortino's wife. Mr. Ortino
disclaims beneficial ownership in these shares.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and greater than ten percent stockholders to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission (the "SEC"), and to furnish the Company with copies of all such
filings. Based solely on its review of copies of these reports furnished to the
Company and, where applicable, any written representation that no reports were
required, the Company believes during fiscal 1997 all Section 16(a) filing
requirements were met.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the annual and long-term compensation during each
of the Company's last three fiscal years for the Company's Chief Executive
Officer and other executive officers whose annual salary and bonus exceeded
$100,000 during fiscal 1997 (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------- ------------
OTHER ANNUAL SECURITIES ALL OTHER
COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) ($)(2) OPTIONS(#) ($)(3)
- ---------------------------- ----- --------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Jerry A. Cooper............. 1997 262,500 157,763 -- 0 74,374
President and CEO 1996 262,500 135,135 -- 37,048 89,408
1995 250,000 250,000 -- 37,034 81,528
Michael J. Meier............ 1997 129,000 35,909 -- 10,000 15,647
VP-Finance, CFO, 1996 125,500 28,414 -- 9,000 7,768
Secretary, Treasurer 1995 119,137 50,400 -- 9,486 6,591
</TABLE>
- ---------------
(1) Based on service during the fiscal years indicated, though not paid until
after the fiscal year.
(2) The value of perquisites and other personal benefits for each Named
Executive Officer in each year was less than reporting thresholds
established by the SEC.
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<PAGE> 11
(3) Includes Company contributions to a 401(k) plan, life insurance premiums,
long-term disability insurance premiums, and Company contributions to the
Defiance, Inc. Supplemental Executive Retirement Plan ("SERP") and the
Defiance, Inc. Supplemental Savings and Deferred Compensation Plan ("SSDCP")
as follows:
<TABLE>
<CAPTION>
LIFE LONG-TERM
401(k) PLAN INSURANCE DISABILITY SERP SSDCP TOTAL
----------- --------- --------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Mr. Cooper:
1997............................ 7,000 5,010 6,148 47,716 8,500 74,374
1996............................ 7,388 4,170 6,148 60,000 11,702 89,408
1995............................ 9,517 3,750 6,148 55,680 6,433 81,528
Mr. Meier:
1997............................ 4,830 284 9,265 1,268 15,647
1996............................ 6,284 273 1,211 7,768
1995............................ 5,552 247 792 6,591
</TABLE>
The SERP was adopted during fiscal 1995 to provide retirement benefits on a
nonqualified basis for certain key executives. This is an unfunded plan, the
obligations of which are to be paid out of the general funds of the Company.
Under this plan, the Company sets aside a percentage of each participant's
salary and bonus earned for the fiscal year (nine to twelve percent for the CEO
and six to eight percent for all other participants, based upon the
participant's age) in an account in the name of the participant the following
fiscal year. This plan was adopted retroactive to April 1, 1992 for the CEO (his
date of hire) and effective July 1, 1995 for all other participants. Partial
vesting begins after five years of service, with full vesting after ten years of
service or at retirement. Interest is accrued annually at the percentage change
in the Consumer Price Index.
Under the SSDCP, also adopted during fiscal 1995, an amount equal to the
difference between the amount that would have been allocated to a participant's
401(k) account as Company contributions, in the absence of legislation limiting
such allocations, and the amount actually allocated is added to the
participant's account. Partial vesting begins after two years of service, with
full vesting after six years of service or retirement. Interest is accrued
annually at the Company's long-term borrowing rate.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning options granted
under the 1989 Stock Option Plan during fiscal 1997 to each of the Named
Executive Officers.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED ANNUAL
---------------------------------------------------------- RATES OF STOCK
NUMBER OF % OF TOTAL EXERCISE PRICE APPRECIATION
SECURITIES OPTIONS OR BASE FOR OPTION TERM
UNDERLYING GRANTED TO PRICE (2)
OPTIONS EMPLOYEES ($/SHARE) EXPIRATION ------------------
NAME GRANTED IN FISCAL YEAR (1) DATE 5% ($) 10% ($)
- ----------------------- ---------- -------------- --------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Jerry A. Cooper........ 0
Michael J. Meier....... 10,000 41.7% $ 6.375 1/22/2007 40,092 101,601
</TABLE>
- ---------------
(1) Exercise prices are equal to the fair market value of the Company's Common
Stock on the date of grant. These options become exercisable as follows:
one-third one year after the date of grant, one-third two years after the
date of grant and one-third three years after the date of grant.
(2) The potential realizable value of each grant of options assuming that the
market price of the Company's Common Stock from the date of grant to the end
of the option term (ten years) appreciates at an annualized rate of 5% and
10%. These assumed rates have been suggested by the SEC and are not intended
to forecast actual future stock prices. No gain to the optionee is possible
without an increase in stock price, which will also benefit all
stockholders.
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<PAGE> 12
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END VALUES
The following table summarizes options which were granted under the 1989 Stock
Option Plan which were exercised during fiscal 1997 and presents the value of
unexercised options held by each of the Named Executive Officers at fiscal year
end.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
SHARES OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED VALUE AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($) (1)
ON EXERCISE REALIZED ---------------------------- ----------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------ ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jerry A. Cooper... 300,000 911,111 95,179 24,699(2) 148,493 37,048
Michael J.
Meier........... 0 0 20,119 16,000(3) 31,133 25,250
</TABLE>
- ---------------
(1) The value of unexercised options represents the difference between the
closing price of the Company's Common Stock on June 30, 1997 of $8.00 per
share and the exercise price of the option, multiplied by the number of
underlying shares.
(2) 12,350 option shares are exercisable commencing July 1, 1997.
(3) 3,000 option shares are exercisable commencing July 1, 1997.
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
The Company does not have any long-term incentive plans other than the 1989
Stock Option Plan.
PENSION AND RETIREMENT PLANS
Mr. Cooper and Mr. Meier are former participants in a defined benefit pension
plan of one of the Company's subsidiaries. This plan was terminated in January
1997 and the present value of each participant's lump-sum benefit was calculated
and distributed. Mr. Cooper received $10,644 and Mr. Meier received $7,736. Each
of them rolled over these distributions into their individual accounts in the
Company's 401(k) plan.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company has an agreement with Mr. Cooper to enter into a post-termination
obligation to consult and not to compete with the Company for one year if
employment is terminated for reasons other than cause or as the result of a
change in control of the Company. In addition, the Company has agreements with
Mr. Cooper and Mr. Meier that provide for continuation of base salary, incentive
compensation and benefits for two years in the event employment is terminated as
the result of a change in control of the Company, after any consulting and non-
compete agreements have been satisfied.
For purposes of the above, a change in control will be considered to have
occurred if, as the result of a tender or exchange offer, merger, consolidation,
sale of assets or contested election, the persons comprising a majority of the
Company's Board of Directors cease to constitute a majority of the Board
membership.
10
<PAGE> 13
FIVE-YEAR STOCK PERFORMANCE GRAPH
The following graph compares the five-year cumulative total return of the
Company's Common Stock to that of two published indices: one a major market
index and the other an industry index. The Company has chosen the Nasdaq U.S.
Stock Market Index ("Nasdaq") as the major market index and the Dow Jones Other
Automobile Parts Index ("Auto parts") as the industry index. It is assumed that
the value of the investment in Defiance, Inc. Common Stock and each index was
$100 on June 30, 1992 and that all dividends were reinvested.
<TABLE>
<CAPTION>
MEASUREMENT PERIOD DEFIANCE,
(FISCAL YEAR COVERED) NASDAQ AUTO PARTS INC.
<S> <C> <C> <C>
6/30/92 $100 $100 $100
6/30/93 $126 $127 $243
6/30/94 $127 $128 $248
6/30/95 $169 $145 $251
6/30/96 $218 $169 $242
6/30/97 $265 $205 $319
</TABLE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
GENERAL
The Compensation Committee (the "Committee") consists entirely of nonemployee
directors who have never been employed by the Company or any of its
subsidiaries. The Committee formulates overall Company compensation philosophy
and related policies, administers and recommends appropriate modifications
regarding annual and long-term executive incentive plans and benefits provided
to officers and other senior executives and approves annual compensation changes
and awards to this group.
11
<PAGE> 14
In its development of compensation policies, plan changes and the determination
of all awards to Company officers, the Committee takes into account a number of
internal and external factors and criteria as well as a variety of independent
data and information sources, including published executive compensation
studies, an executive compensation study performed specifically for the
Committee by a consulting firm which is updated annually, the Company's
strategic financial goals and an overall executive compensation plan initially
developed in 1992 and revised in 1997. The Committee's objective is to provide
the Company's executive team with a competitive yet highly motivational,
performance-oriented total compensation plan that fosters executive
identification with ownership objectives and is consistent with and maximizes
the financial interests of the Company's stockholders.
The Committee does not believe that the limitation on the tax deductibility of
executive compensation in excess of one million dollars under Code Section
162(m) will affect the Company during fiscal 1998 because taxable compensation
for any of the named executives is not anticipated to exceed one million
dollars. Therefore, the Committee does not recommend any changes to the
Company's incentive plans at this time for shareholder approval.
BASE SALARIES
The Committee's approach to the determination of officer base salaries is that
they be generally competitive with prevailing market medians paid by companies
of similar size and industry for each respective position, commensurate with the
incumbent's level of experience and performance within the scope of his/her
responsibilities. Existing levels of incumbent base compensation as well as
inflationary salary structure increases also receive consideration regarding any
adjustment decisions.
Further, base salary levels and ranges (which have been established for each
officer position and include a minimum, midpoint, and maximum salary) are
considered relative to the total market compensation determined for each officer
position. Total compensation should strike an optimal balance between base
salary, or the "fixed" element of direct compensation, and incentive, or "at
risk" (contingent) compensation, with significant emphasis placed upon at risk
incentive compensation within the total direct compensation package of Company
officers.
ANNUAL INCENTIVES (BONUS)
The Company's Annual Incentive (Bonus) Plan identifies a percentage of base
salary as a "Target" annual incentive amount for each officer. This amount is
based upon current executive compensation survey data and can be earned by the
achievement of predetermined corporate and, as appropriate for less senior
officers, departmental objectives. In addition to a Target percentage of base
salary that can be earned based upon the achievement of predetermined annual
objectives, "Threshold" and "Maximum" performance levels directly and
respectively correlate with minimum and maximum annual incentive amounts for
each officer position. Substantial upside incentive income potential is awarded
for achievement in excess of Target and substantial downside incentive income
reduction is required for achievements that fail to reach Target levels.
The failure of an officer or other executive to attain the Threshold level of
achievement results in no bonus payment and the Maximum bonus percentage for
each position protects the Company from the prospect of paying windfall
incentive amounts for the achievement of performance levels that are
unexpectedly high or aberrant in nature.
After Tax Return on Average Equity ("ROE") represented the sole objective for
determining the Chief Executive Officer's ("CEO") annual bonus through fiscal
1997. In fiscal 1997 and for fiscal 1998, "Threshold" ROE is 11.0%, "Target" ROE
is 16.0% and "Maximum" ROE is 19.5%. Effective fiscal 1998, ROE will comprise
80%
12
<PAGE> 15
of the CEO's annual bonus, with the attainment of specific goals representing
the remaining 20%. These goals will be determined on an annual basis with the
CEO by the Board of Directors. The rationale behind using ROE for the incentive
plan of the CEO is that this officer, by the nature of his position, is in the
most advantageous position to impact the Company's ability to achieve this key
measure of overall corporate performance and, thereby, enhance stockholder
value. Performance criteria with respect to other officers and key executives
include corporate ROE along with achievement of certain pre-agreed upon
subsidiary or department financial and task-oriented goals, weighted differently
in each individual circumstance.
LONG-TERM INCENTIVES
The Company's Long-Term Incentive Plan is the Defiance, Inc. 1989 Stock Option
Plan, under which the Committee may grant stock options to executive officers
and other key executives. For options granted through fiscal 1997, the number of
option shares granted for the corporate CEO, corporate CFO and subsidiary
presidents were determined by taking into account the executive's bonus earned
in that fiscal year and dividing it by an assigned option value computed using
the Black-Scholes method. Options granted through fiscal 1997 vested over a
three-year period.
Effective fiscal 1998, the number of option shares granted to this group are
determined by multiplying the officer's established midpoint annual base salary
by a predetermined percentage for each position (67% for the CEO and ranging
from 29% to 40% for the other officers), and dividing this product by an
assigned option value computed using the Black-Scholes method. In addition,
effective fiscal 1998 all options granted will vest over a four-year period.
This approach accentuates to these executives the importance of achieving those
objectives that contribute to the interest of the stockholders by focusing on a
longer time frame relative to stock price performance.
CHIEF EXECUTIVE OFFICER COMPENSATION
The base salary, annual incentive and long-term incentive awards of Mr. Jerry A.
Cooper, the CEO, are adjusted and granted according to the provisions outlined
above. During fiscal 1997 the Company exceeded Threshold ROE.
Mr. Cooper's base salary was increased 5.0% effective July 1, 1997 and is now
annualized at $275,625, which is below the fiscal 1998 midpoint for his
position. Based upon exceeding Threshold ROE, he was awarded an Annual Incentive
(Bonus) of $157,763 and was granted options to purchase 34,400 common shares at
$8.00 per share. The Annual Incentive award and stock option grants were both
made in fiscal 1998 and the stock options vest over a four-year period.
Respectfully submitted,
Scott D. Roulston, Chairman
James E. Heighway
Hector R. Ortino
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<PAGE> 16
INDEPENDENT ACCOUNTANTS
The firm of Ernst & Young LLP served as independent accountants for the Company
for fiscal 1997, and have been named as such for fiscal 1998. Representatives of
Ernst & Young LLP are expected to be present at the Annual Meeting with the
opportunity to make a statement if they so desire and to be available to respond
to appropriate questions.
EXPENSES OF SOLICITATION
The Company expects to solicit proxies primarily by mail, but directors,
officers and employees of the Company may also solicit proxies in person or by
telephone. All reasonable expenses in connection with the solicitation of
proxies will be borne by the Company. The Company will make arrangements for the
forwarding, at the Company's expense, of soliciting materials by brokers,
nominees, fiduciaries and other custodians to their principals.
In addition, the Company has retained, at an estimated cost of $3,500 plus
reasonable outside expenses, Morrow & Co., Inc., a firm specializing in proxy
solicitation, to assist the Company in the solicitation of proxies by telephonic
or written means on behalf of the Board of Directors and the mailing and
distribution of proxy material.
STOCKHOLDERS' PROPOSALS
Stockholder proposals to be presented at the 1998 Annual Meeting must be
received by the Corporate Secretary for inclusion in the Company's proxy
statement and form of proxy by May 20, 1998.
OTHER MATTERS
As of the date of this proxy statement, the management of the Company has no
knowledge of any matters to be presented for consideration at the meeting other
than those referred to above. If any other matters properly come before the
meeting, the persons named in the accompanying form of proxy intend to vote such
proxy to the extent entitled according to their best judgment.
By order of the Board of Directors,
Michael J. Meier
Secretary
September 17, 1997
14
<PAGE> 17
DEFIANCE, INC.
PROXY SOLICITED ON BEHALF OF BOARD OF DIRECTORS
The undersigned hereby appoints Thomas H. Roulston II, Michael J. Meier, or
either of them with full power of substitution, proxies to vote at the Annual
Meeting of Stockholders of Defiance, Inc. (the "Company") to be held on October
24, 1997 at 1:30 p.m., local time, and at any adjournment or adjournments
thereof, hereby revoking any proxies heretofore given, to vote all shares of
Common Stock of the Company held or owned by the undersigned as directed below,
and in their discretion upon such other matters as may come before the meeting.
IF THIS PROXY IS PROPERLY EXECUTED AND RETURNED, THE SHARES REPRESENTED THEREBY
WILL BE VOTED. IF A CHOICE IS SPECIFIED BY THE STOCKHOLDER, THE SHARES WILL BE
VOTED ACCORDINGLY. IF NOT OTHERWISE SPECIFIED, THE SHARES REPRESENTED BY THIS
PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR NAMED IN ITEM
1.
[X] Please mark your votes as in this example
<TABLE>
<S> <C> <C> <C>
Item 1. Election of Directors.
VOTE
Nominees for a three-year term: FOR WITHHELD
James E. Heighway [ ] [ ]
George H. Lewis III [ ] [ ]
John D. Ong [ ] [ ]
Item 2. In their discretion, upon such other matters as may properly come
before the meeting, all in accordance with the accompanying Notice
and Proxy Statement, receipt of which is acknowledged.
</TABLE>
Please sign, date and return promptly in the enclosed envelope. Sign exactly as
name(s) appears on this proxy, including where proper, official position or
representative capacity.
Signature Date
----------------------------------- ---------------------
Signature Date
----------------------------------- ---------------------
(if held jointly)
