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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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or
[ ] TRANSITION REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-24690
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CLARION TECHNOLOGIES, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 91-1407411
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1901 N. Roselle Road, Suite 340, Schaumburg, Illinois 60195
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(Address of principal executive offices)
(847) 490-9900
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(Issuer's telephone number)
The number of shares outstanding of issuer's common stock, par value $.001
per share, as of October 31, 1999 was 18,937,295 shares.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
Exhibit Index on page 17.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CLARION TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1999 1998
------------ -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,333,928 $ 3,972,537
Accounts receivable, less allowances of
$199,106 in 1999 and $55,310 in 1998 7,000,056 1,950,535
Inventories 2,277,588 1,012,966
Prepaid expenses and other current assets 397,638 339,213
----------- -----------
Total current assets 14,009,210 7,275,251
PROPERTY AND EQUIPMENT, at cost 35,005,609 13,938,631
Less accumulated depreciation (10,240,101) (3,235,002)
----------- -----------
24,765,508 10,703,629
OTHER ASSETS:
Costs in excess of net assets acquired 4,368,211 1,102,126
Other noncurrent assets 1,037,777 88,535
----------- -----------
5,405,988 1,190,661
----------- -----------
$44,180,706 $19,169,541
=========== ===========
See accompanying notes to condensed consolidated financial statements.
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CLARION TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS--Continued
September 30, December 31,
1999 1998
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(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 4,657,143 $ 600,000
Current portion of long-term debt
and capital lease obligations 1,351,596 425,890
Accounts payable 4,735,465 4,144,891
Construction costs - 4,430,060
Customer deposits 141,632 459,311
Other accrued liabilities 2,077,701 423,524
----------- -----------
Total current liabilities 12,963,537 10,483,676
LONG-TERM DEBT AND CAPITAL
LEASE OBLIGATIONS 9,718,055 862,630
STOCKHOLDERS' EQUITY:
Preferred stock options 11,901,260 -
Common stock 18,087 13,979
Additional paid-in capital 21,822,650 13,382,601
Accumulated deficit (12,242,883) (5,573,345)
----------- -----------
21,499,114 7,823,235
----------- -----------
$44,180,706 $19,169,541
=========== ===========
See accompanying notes to condensed consolidated financial statements.
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CLARION TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
Net sales $ 5,898,842 $ 2,171,997 $13,047,728 $ 7,348,344
Cost of sales 5,743,655 2,082,474 13,136,606 6,249,708
----------- ----------- ----------- -----------
Gross profit (loss) 155,187 89,523 (88,878) 1,098,636
Selling, general
and administrative
expense 2,436,754 1,223,944 5,658,532 3,160,612
----------- ----------- ----------- -----------
Operating loss (2,281,567) (1,134,421) (5,747,410) (2,061,976)
Other (income) expense:
Interest expense 314,555 21,982 606,629 134,397
Interest income (26,187) (1,395) (27,171) (1,395)
Loss on sale
of business 221,546
Other, net 7,689 (24,213) 1,922
----------- ----------- ----------- -----------
296,057 20,587 776,791 134,924
----------- ----------- ----------- -----------
Loss before
income taxes (2,577,624) (1,155,008) (6,524,201) (2,196,900)
Income taxes 31,887 (51,949) - (30,008)
----------- ----------- ----------- -----------
NET LOSS $(2,609,511) $(1,103,059) $(6,524,201) $(2,166,892)
=========== =========== =========== ===========
Loss per share:
Basic $(.15) $(.11) $(.40) $(.28)
===== ===== ===== =====
Diluted $(.13) $(.11) $(.37) $(.27)
===== ===== ===== =====
See accompanying notes to condensed consolidated financial statements.
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CLARION TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
September 30,
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES $(13,546,511) $(3,125,092)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (10,889,345) (971,388)
Acquisitions, net of cash acquired (6,304,691) -
Proceeds from sale of business 107,500 -
Proceeds from sale of property & equipment 101,655 3,300
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Net cash and cash equivalents
used for investing activities (16,984,881) (968,088)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in short-term borrowings 4,057,143 108,776
Borrowings from long-term debt 11,294,250 560,100
Payments on long-term debt and
capital lease obligations (2,974,850) (345,674)
Issuance of preferred stock options,
net of expenses 11,901,260 -
Issuance of common stock, net of expenses 6,614,980 5,096,188
Decrease in book overdraft - (74,508)
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Net cash and cash equivalents
provided by financing activities 30,892,783 5,344,882
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NET INCREASE IN CASH AND CASH EQUIVALENTS 361,391 1,251,702
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,972,537 -
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CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 4,333,928 $ 1,251,702
============ ===========
See accompanying notes to condensed consolidated financial statements.
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CLARION TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1--BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by Clarion Technologies, Inc. ("Clarion" or the "Company"),
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading.
It is suggested that these condensed consolidated financial statements be
read in conjunction with the consolidated financial statements and notes
thereto included in Clarion's 1998 annual report on Form 10-KSB.
Two business combination transactions in 1999 have been accounted for under
the pooling-of-interests method of accounting and, accordingly, the
condensed consolidated financial statements and accompanying notes have
been restated to include the operations of these companies for all periods
presented (see Note 3).
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
present fairly the financial position of the Company as of September 30,
1999 and the results of its operations and its cash flows for the three and
nine month periods ended September 30, 1999 and 1998. All such adjustments
are of a normal and recurring nature.
NOTE 2--INVENTORIES
Inventories consisted of the following:
September 30, December 31,
1999 1998
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Raw materials $1,143,522 $ 447,146
Work in process 506,496 276,620
Finished goods 627,570 289,200
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$2,277,588 $1,012,966
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CLARION TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), continued
NOTE 3--BUSINESS COMBINATIONS
Purchase Transaction:
On August 31, 1999, the Company acquired Wamar Products, Inc., a plastic
injection molder and assembler of plastic component and finished products.
Wamar Products, a QS-9000 certified company, has 32 injection molding
machines ranging from 75 to 700 tons and offers engineering, CAD design,
insert molding, color match molding, assembly and finishing process
services. The Company purchased all the outstanding stock of Wamar
Products for approximately $6.8 million in cash and 200,000 shares of
Clarion common stock. In addition, a $200,000 holdback liability has been
recorded that will be paid in cash to an escrow fund during the fourth
quarter of 1999. Cash in the escrow fund will be paid to the sellers one
year after the closing date, less any adjustments to the acquisition price
as agreed to by Clarion and the sellers. The transaction was accounted for
under the purchase method of accounting, therefore, assets and liabilities
were recorded based upon their fair values at the date of acquisition. The
Company has initially recorded $3.3 million of costs in excess of net
assets acquired.
The real property where Wamar Products currently conducts its business was
retained by an affiliate of the sellers and is being leased to Clarion.
The Company and the affiliate have entered into an option and put agreement
for the real property whereby Clarion may exercise an option to purchase
the real property at anytime until August 31, 2004. The sellers may
exercise an option to sell the real property to Clarion beginning
September 1, 2000 until August 31, 2001. The cash purchase price, which
ranges from $3.3 million to $3.7 million, is determined by the date the
option or put is exercised, in accordance with a pre-defined schedule of
terms.
Pooling Transactions:
On April 29, 1999, the Company completed the acquisition of all the
outstanding capital stock of Mito Plastics, Inc. ("Mito") which resulted in
Mito becoming a wholly-owned subsidiary of Clarion. MITO is a full-service
product development company providing program management, industrial
design, engineering, prototyping and tooling from concept through delivery
of complete assemblies all under one roof. The Company exchanged 310,000
shares of its common stock for all the outstanding common stock of Mito.
For the years ended December 31, 1998 and 1997, Mito's revenues were
approximately $5 million and $6.5 million, respectively. Mito recognized
net losses of approximately $260,000 in 1998 and $105,000 in 1997.
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CLARION TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), continued
NOTE 3--BUSINESS COMBINATIONS, continued
On August 31, 1999, the Company concluded the acquisition of Wamar Tool &
Machine Co. ("Wamar Tool") which resulted in Wamar Tool becoming a wholly-
owned subsidiary of Clarion. Wamar Tool is a fully equipped mold making
and mold repair firm that serves the plastic injection molding industry.
The Company exchanged 200,000 shares of its common stock for all the
outstanding common stock of Wamar Tool. For the years ended December 31,
1998 and 1997, Wamar Tool's revenues were approximately $1.6 million and
$1.4 million, respectively. Wamar Tool earned net income of approximately
$80,000 in 1998 and $50,000 in 1997.
The Mito and Wamar Tool transactions were accounted for under the pooling
of interests method of accounting and, accordingly, the historical
financial statements of the Company have been restated as if the mergers
occurred at the beginning of the earliest period presented.
NOTE 4--PREFERRED STOCK
During the third quarter of 1999, Clarion issued options to acquire
1,490,000 shares of 14% convertible preferred stock. The options are
subject to mandatory exercise upon filing of a Certificate of Designations
for the preferred stock with the Delaware Secretary of State. Total
proceeds received of $11,901,260, net of expenses, were used to acquire
Wamar Products, Inc. and to fund general working capital needs. Cash
dividends are payable quarterly in arrears. Preferred stockholders have
voting rights and preference over common stockholders in dividends and
liquidation rights. The Company or a preferred stockholder may convert all
or any portion of the preferred shares outstanding into common stock at any
time. The conversion rate in effect until December 31, 2000 is two shares
of common stock for each share of preferred stock, subject to adjustment
upon subdivision, reclassification or merger, etc. After that date, the
conversion rate is subject to adjustment in accordance with a pre-defined
formula.
NOTE 5--EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing net income
available to common stockholders by the weighted-average number of common
shares outstanding in each quarter. Diluted EPS is computed by dividing
net income by the weighted-average number of common shares outstanding plus
all shares that would have been outstanding if every potentially dilutive
common share had been issued. The following table reconciles the
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CLARION TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), continued
NOTE 5--EARNINGS PER SHARE, continued
numerators and denominators used in the calculations of basic and diluted
EPS for each period presented in the accompanying financial statements.
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
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Numerators:
Net loss $(2,609,511) $(1,103,059) $(6,524,201) $(2,166,892)
Less dividends on
preferred stock (145,337) - (145,337) -
----------- ----------- ----------- -----------
Net loss available to
common stockholders
for basic EPS (2,754,848) (1,103,059) (6,669,538) (2,166,892)
Eliminate convertible
preferred stock
dividend requirement 145,337 - 145,337 -
----------- ----------- ----------- -----------
Net loss available to
common stockholders
for diluted EPS after
assumed conversions $(2,609,511) $(1,103,059) $(6,524,201) $(2,166,892)
=========== =========== =========== ===========
Denominators:
Weighted average
common shares
outstanding for
basic EPS 17,800,319 10,112,012 16,845,611 7,853,118
Dilutive securities-
Stock options 710,821 381,082 691,414 100,405
Convertible
preferred stock 993,333 - 110,370 -
---------- ---------- ---------- ---------
Weighted average
common shares
outstanding for
diluted EPS 19,504,473 10,493,094 17,647,395 7,953,523
========== ========== ========== =========
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CLARION TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), continued
NOTE 6 SUBSEQUENT EVENT
On October 1, 1999 the Company acquired Double "J" Molding, Inc. (Double
"J"), a tier two automotive supplier of plastic injection molded parts.
Double "J" operates 40 injection molding machines ranging in size from 55
to 500 tons. The Company acquired all the outstanding capital stock of
Double "J" in exchange for 850,000 shares of Clarion common stock. In a
related transaction, the Company also acquired the real property owned by a
partnership controlled by the former Double "J" shareholders, and used by
Double "J", for approximately $2 million in cash and the assumption of $1.3
million in debt. Both transactions will be accounted for under the
purchase method of accounting. Double "J" sales in 1998 were approximately
$21 million.
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Item 2. Management's Discussion and Analysis or Plan of Operation
FINANCIAL CONDITION AND LIQUIDITY
Cash used by operations in the first nine months of 1999 totaled $13.5
million. The primary uses of cash were operating losses generated from
start-up operations at the Company's new Montpelier, Ohio facility, payment
of accrued construction costs, and an increase in accounts receivable.
Year-to-date purchases of property and equipment in 1999 totaled $10.9
million and consisted mainly of expenditures at the Montpelier facility for
a new 164,000 square foot building and new large-tonnage injection molding
machines. Clarion currently anticipates capital expenditures for the
remainder of 1999 will be approximately $600,000 and will consist
principally of machinery and equipment.
During the third quarter the Company acquired all the outstanding stock of
Wamar Products, Inc. for approximately $6.8 million in cash and 200,000
shares of Clarion common stock. In addition, a $200,000 holdback liability
has been recorded that will be paid in cash to an escrow fund during the
fourth quarter of 1999. Cash in the escrow fund will be paid to the
sellers one year after the closing date, less any adjustments to the
acquisition price as agreed to by Clarion and the sellers. The real
property where Wamar Products currently conducts its business was retained
by an affiliate of the sellers and is being leased to Clarion. The Company
and the affiliate have entered into an option and put agreement for the
real property whereby Clarion may exercise an option to purchase the real
property and the sellers may exercise an option to sell the real property
to Clarion. The cash purchase price, which ranges from $3.3 million to
$3.7 million, is determined by the date the option or put is exercised, in
accordance with a pre-defined schedule of terms (see Note 3 to the
accompanying financial statements).
The most significant financing activity to date has been the private
offering of options to purchase 1,490,000 shares of 14% convertible
preferred stock. Total proceeds received of $11,901,260, inclusive of
option and exercise price and net of expenses, were used to acquire Wamar
Products, Inc. and to fund general working capital needs. Cash dividends
are payable quarterly in arrears. The Company or a preferred stockholder
may convert all or any portion of the preferred shares outstanding into
common stock at any time (see Note 4 to the accompanying financial
statements).
The Company obtained long-term financing, primarily from a bank, totaling
$11.3 million to fund capital expenditures at the Montpelier facility. The
Company has also obtained short-term bank financing totaling $5.5 million
to fund working capital needs. At September 30, 1999 $11.1 million of
long-term debt and capital lease obligations was outstanding and $4.7
million of short-term borrowings was outstanding. One of the Company's
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Item 2. Management's Discussion and Analysis or Plan of Operation,
continued
revolving credit facilities has an outstanding balance of $3.5 million and
is expiring on December 31, 1999. Management intends to extend the credit
facility and believes the extension will be forthcoming prior to the end of
the fourth quarter.
During 1999, Clarion has raised $6.6 million in cash from private offerings
of its common stock. Proceeds from those offerings have been used to fund
general working capital needs of the Company.
The liquidity provided by the Company's credit facilities, combined
with cash flow from operations and other financing activities, is expected
to be sufficient to finance the Company's existing operations, capital
expenditures, and preferred dividends for at least twelve months. There
can be no assurance, however, that such funds will not be expended prior
thereto due to changes in economic conditions or other unforeseen
circumstances, requiring the Company to obtain additional financing prior
to the end of such twelve month period. In addition, the Company intends
to pursue, as part of its business strategy, future growth through
acquisitions which may involve the expenditure of significant funds.
Depending upon the nature, size and timing of future acquisitions, the
Company may be required to obtain additional debt or equity financing in
connection with such transactions. There can be no assurance, however, that
additional financing will be available to the Company, when and if needed,
on acceptable terms or at all.
RESULTS OF OPERATIONS
Sales in the third quarter and year to date were significantly higher than
the same periods in the prior year. The increases were attributable to the
Montpelier facility moving out of its start-up phase and beginning to ramp
up its operations, in addition to the accretive effect of including Wamar
Products' sales since September 1st. Production at Montpelier is still
well below practical capacity; however, business being booked currently for
2000 and beyond should bring that facility closer to normal operating
levels within the next six to nine months. Wamar Products accounted for
approximately $1.4 million of third quarter and year to date sales. Gross
profit margins have not yet reached levels consistent with the injection
molding industry due to under absorption of overhead costs at Montpelier.
Manufacturing overhead is being minimized where possible; however, the
fixed costs at that facility are now being fully recognized as operations
there are now completely on line.
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Item 2. Management's Discussion and Analysis or Plan of Operation,
continued
Operating expenses in 1999 reflect the ongoing investments being made,
primarily for technical talent, in order to support the Company's long-term
strategy of growth through acquisitions. Sales, engineering and management
personnel have been added in order to sustain and grow the base of business
that is booked for the year 2000.
The increase in interest expense in the third quarter and year to date was
directly attributable to the short and long-term borrowings added in the
current year.
In May of 1999, the Company sold the assets of its Clarion Specialty
Products subsidiary after determining that business was not consistent with
Clarion's strategic growth plan. The Company received $107,500 in cash and
the buyer also assumed certain of that operation's liabilities. A loss of
$221,546 was recognized on the sale.
YEAR 2000 READINESS DISCLOSURE
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These date code
fields will need to accept four digit entries to distinguish 21st century
dates from 20th century dates. As a result, computer systems and software
used by many companies will need to be upgraded to comply with Year 2000
("Y2K") requirements.
Clarion has actively taken steps to insure that information technology
("IT") systems, embedded technology and material third parties are all
prepared to process date-related information in the Year 2000 without
disruption. The Company has completed its readiness assessment and has
been engaged in the process of upgrading, replacing and testing certain of
its IT and other computer systems.
Company's State of Readiness:
All essential IT hardware and software systems are substantially Y2K ready,
including network, desktop and communication systems.
Embedded technology in facilities systems, machinery and equipment has been
inventoried, assessed and tested. No significant Y2K readiness issues were
identified and all remediation has been completed.
The Company has contacted its suppliers regarding Y2K readiness. Extra
attention has been paid to suppliers that are considered essential for
preventing material interruptions in Clarion's business operations. Y2K
readiness has also been discussed with the Company's strategic customers.
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Item 2. Management's Discussion and Analysis or Plan of Operation,
continued
Costs to Address the Company's Y2K Issues:
Based on costs incurred, the Company's expenses related to Y2K compliance
have not been material to the results of its operations, financial position
or cash flows.
Risks of the Company's Y2K Issues:
Due to the uncertain and unprecedented nature of the Y2K problem, and the
uncertainty of Y2K readiness of third party suppliers and customers, the
Company is not able to provide assurance at this time that the consequences
of Y2K interruptions will not have a material impact on its results of
operations, financial position or cash flows. Possible consequences of Y2K
interruptions include, but are not limited to, a temporary inability to
manufacture or ship product; process transactions; communicate with
customers, suppliers, subsidiary locations and employees; or conduct other
similar corporate activities in a normal business environment.
Company's Contingency Plans:
Contingency plans include, but are not limited to, utilizing emergency
backup and recovery procedures, replacing electronic applications with
manual processes, utilizing alternate suppliers, and increasing certain raw
material and finished goods inventories. Contingency planing is ongoing
and will continue throughout the remainder of 1999.
The preceding Year 2000 Readiness Disclosure is based in part upon repeated
information provided by certain of the Company's IT suppliers and other
third parties without independent verification by the Company.
SAFE HARBOR PROVISIONS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995.
Statements in this filing that are not historical facts are forward-looking
statements, which involve risks and uncertainties that could affect the
Company's results of operations, financial position and cash flows. Actual
results may differ materially from those projected in the forward-looking
statements, due to a variety of factors, some of which may be beyond the
control of the Company. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of the date of
this report.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
During the third quarter, the Company entered into a settlement of its
pending litigation with Plastech Exterior Systems, Inc. ("Plastech").
Plastech originally filed a suit against the Company and other defendants
on August 18, 1998 alleging misappropriation of trade secrets, unjust
enrichment and tortious interference. The settlement agreement provided
for the dismissal of all claims against the Company and the other
defendants. Under the terms of the settlement, Plastech has agreed to
outsource certain of its manufacturing requirements to Clarion and Clarion
has agreed to provide a 5% rebate to Plastech on all agreed-upon prices for
the sourced manufacturing business received from Plastech.
Item 2. Changes in Securities.
During the three months ended September 30, 1999, the Company sold 30,770
shares of common stock to one individual for cash at a price of $100,000
($3.25 per share) in a private transaction, issued 207,954 shares to five
other persons (including two employees and three consultants) as
compensation and issued 400,000 shares in connection with the acquisitions
of Wamar Products, Inc. and Wamar Tool & Machine Co. These transactions
were effected pursuant to Section 4(2) of the Securities Act of 1933, as
amended (the "Act").
During the three months ended September 30, 1999, the Company also sold
options to acquire 1,490,000 shares of convertible preferred stock for cash
at an aggregate price (inclusive of exercise price) of $11,920,000. The
private offering to accredited investors only was conducted pursuant to
Rule 506 promulgated under Regulation D of the Act.
Item 4. Submission of Matters to a Vote of Security Holders.
On August 27, 1999, stockholders owning 9,842,320 of the Company's
17,495,267 shares outstanding (56.26%), acting by a majority written
consent, approved an amendment to the Company's Certificate of
Incorporation to increase the authorized number of preferred shares from
1,000,000 to 3,000,000 and ratified the terms of the Company's offering of
14% convertible preferred stock.
Item 6. Exhibits and Reports on Form 8-K.
(a) See Exhibit Index on Page 17 of this Form 10-QSB report.
(b) The Company filed a report on Form 8-K on September 14, 1999 related
to the acquisitions of Wamar Products, Inc. and Wamar Tool & Machine
Co. (see Note 3 to the Accompanying Financial Statements).
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SIGNATURES
Pursuant to the requirements 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.
CLARION TECHNOLOGIES, INC.
November 15, 1999 /s/ Robert W. Martin
-----------------------
Robert W. Martin
Chief Financial Officer
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EXHIBIT INDEX
- --------------------------------------------------------------------------
The following material contracts are agreements or compensation plans with
or relating to executive officers, directors or related parties.
10(a) Amendment No. 2 to Employment Agreement dated May 14, 1999
between the registrant and R. Townley Rose, Jr.
10(b) Settlement Agreement and Mutual Release dated August 23, 1999
between the registrant and R. Townley Rose, Jr.
27 Financial Data Schedule
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<EXHIBIT> 10(a)
AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT
This AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT ("Amendment No. 2") is
entered into as of May 14th, 1999, by and between CLARION TECHNOLOGIES,
INC., a Delaware corporation (the "Company"), and R. TOWNLEY ROSE, JR.
("Employee") to amend that certain Employment Agreement, dated April 1,
1998 (the "Employment Agreement") by and between CLARION HOUSE, INC., a
Nevada corporation (and predecessor of the Company) and Employee, as
amended by Amendment No. 1 to Employment Agreement dated March 31, 1999
("Amendment No. 1"), by and between the Company and Employee.
RECITALS
A. The Company has requested Employee to waive his right, under
Section 2.2 of the Employment Agreement, to serve as a director of the
Company.
B. Monthly Net Sales, as such term is used and defined in the
Employment Agreement, presently exceed $1,250,000, and therefore Employee
is entitled to the incentive compensation provided for in Section 4.2 of
the Employment Agreement. The Company has requested Employee to agree to a
modification of said section under which Employee would receive only $5,000
of incentive compensation in 1999, with the balance of the incentive
compensation to commence in 2000.
C. Employee is willing to waive the right to serve as a director of
the Company and to amend Section 4.2 of the Employment Agreement as
specified herein.
AGREEMENT
1. Employee hereby waives his right, pursuant to Section 2.2 of the
Employment Agreement, to serve as a member of the Board of Directors of the
Company.
2. Section 4.2 of the Employment Agreement is hereby amended to read
as follows:
4.2 Incentive Compensation. The Company shall pay to Employee, as
additional incentive compensation, a cash bonus of Five Thousand Dollars
($5,000) per month (the "Bonus") for each fiscal year ending after January
1, 2000 during the term hereof in which Clarion's consolidated net sales
("Net Sales") exceed Fifteen Million Dollars ($15,000,000). The Bonus
shall be computed on the Net Sales reflected on Clarion's audited financial
statements as filed with the Securities and Exchange Commission. If such
financial statements are not prepared in sufficient time to permit the
timely payment of the Bonus as provided in the following sentence, the
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<PAGE>
<PAGE> 19
Bonus will be paid on the basis of interim statements or Company-prepared
statements, reconciled with the audited statements as soon as the audited
statements are prepared. The Bonus shall be payable annually within ninety
(90) days after the end of each fiscal year, provided, however, that so
long as Clarion's monthly Net Sales, on an unaudited basis, are in excess
of One Million Two Hundred Fifty Thousand Dollars ($1,250,000), Employee
shall have the option to receive the additional Five Thousand Dollars
($5,000) per month, payable no later than the 20th day of the month
following the month in which said Bonus is earned. In the event that
Employee receives such additional amounts and Clarion's Net Sales for the
year do not attain $15,000,000, the additional amounts which Employee has
received shall be deducted from Employee's base salary during the
succeeding fiscal year. For 1999, Employee shall be entitled to incentive
compensation of $5,000, payable on June 20, 1999.
3. The Company agrees to pay all costs and expenses incurred by
Employee in negotiating and preparing this Amendment No. 2.
4. Other than as specifically provided in this Amendment No. 2, all
other provisions of the Employment Agreement, as amended by Amendment No.
1, shall remain in full force and effect, the Employment Agreement as
amended by Amendment No. 1 and this Amendment No. 2 constituting the sole
and entire agreement between the parties as to the matters contained
herein, and superseding any and all conversations, letters and other
communications which may have been disseminated by the parties relating to
the subject matter hereof, all of which are void and of no effect.
IN WITNESS WHEREOF, the parties have executed this Amendment No. 2 the
day and year first above written.
"Company"
CLARION TECHNOLOGIES, INC.,
a Delaware corporation
By: /s/ Jack D. Rutherford
--------------------------
Jack D. Rutherford
Chief Executive Officer
"Employee"
/s/ R. Townley Rose Jr.
-----------------------------
R. Townley Rose, Jr.
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<PAGE>
<PAGE> 20
<EXHIBIT> 10(b)
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
This Settlement Agreement and Mutual Release ("Agreement") is
entered into as of this 23rd day of August, 1999 by and between CLARION
TECHNOLOGIES, INC., a Delaware corporation ("Clarion"), and the members of
the Board of Directors of Clarion identified on the signature page hereof
(in their capacities as investors in Clarion referred to herein as the
"Investors"), on the one hand, and R. TOWNLEY ROSE ("Rose"), on the other
hand.
WHEREAS, Clarion engaged Rose as its Executive Vice President
pursuant to an Employment Agreement dated April 1, 1998 ("Original
Employment Agreement");
WHEREAS, Clarion and Rose entered into an Agreement and Plan of
Merger dated June 3, 1998 ("Merger Agreement") pertaining to the
acquisition by Clarion from Rose of all of the outstanding shares of
capital stock of Rose & Associates, Inc., a Delaware corporation;
WHEREAS, Clarion and Rose entered into Amendment No. 1 to
Employment Agreement dated March 31, 1999 ("Amendment No. 1 to Employment
Agreement") in order to modify certain provisions of the Original
Employment Agreement;
WHEREAS, Clarion and Rose entered into an Agreement dated March
31, 1999 ("Modification Agreement") in order to modify the consideration
delivered pursuant to the Merger Agreement;
WHEREAS, Clarion and Rose entered into Amendment No. 2 to
Employment Agreement dated May 14, 1999 ("Amendment No. 2 to Employment
Agreement", the Original Employment Agreement, together with Amendment No.
1 to Employment Agreement and Amendment No. 2 to Employment Agreement, the
"Employment Agreement");
WHEREAS, Clarion and Rose entered into Amendment No. 1 to
Agreement dated May 14, 1999 modifying certain provisions of the
Modification Agreement ("Amendment No. 1 to Agreement");
WHEREAS, certain disputes and differences have arisen between
Clarion and Rose with regard to the Employment Agreement, the Merger
Agreement, the Modification Agreement and Amendment No. 1 to Agreement;
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<PAGE>
<PAGE> 21
WHEREAS, the parties desire to resolve the disputes and
differences, and the Investors, in consideration of the benefits which they
expect to accrue to them as a result of the execution and delivery of this
Agreement by Rose and the consummation of the transactions referred to
herein, desire to release all claims against Rose arising out of their
investments in Clarion.
NOW THEREFORE, the parties hereto agree as follows:
1. Release.
A. General Release. Effective upon performance by the other
party of the obligations set forth in Paragraph 2 below, each of the
parties does hereby release, acquit and forever discharge the other, their
heirs, executors, administrators, predecessors, spouses, successors and
assigns, agents, directors, officers and employees, from any and all
claims, demands, actions, causes of action, damages, costs, or other claims
whatsoever in law or equity, which any party may have against the other
party pertaining to, relating to, connected with, or arising out of any
matter or thing whatsoever, from the beginning of time unto the date of
these presents. In so doing, said parties release, relinquish, remise,
waive forever, discharge, absolve, and quit each other of and from each,
every and all things, including by way of example, but not limitation,
each, every and all manner of actions, causes of action, liabilities,
debts, sums of money, controversies, indebtedness, breaches of contract,
breaches of duty or any relationships, acts, omissions, promises,
agreements, representations, damages and any demand of any type, nature,
kind or description, whether in law or in equity, or otherwise, by reason
of any matters, causes or things, whatsoever, whether known or unknown,
suspected or unsuspected, heretofore or now existing which could, might or
may be claimed to exist from the beginning of time unto the date of these
presents. Nothing herein shall be construed to release (a) the obligation
of Clarion to pay and perform the Note, as hereafter defined, or (b) the
obligations of Clarion under Section 11 of the Employment Agreement, the
obligation to provide the benefits referred to in the last paragraph of
Section 6.3 of the Original Employment Agreement and the indemnification
covenant of Clarion under Section 2 of the Modification Agreement.
B. Waiver. Each of the parties hereto does hereby acknowledge
and agree that it is their intention that this Agreement shall be effective
as a full and final accord and satisfaction and settlement of and as a bar
to each and every claim, demand, debt, account, reckoning, liability,
obligation, cost, expense, lien, action and cause of action, heretofore
referred to and released, which any party hereto has, or has had against
the other parties hereto. In connection with such waiver and
relinquishment, each of the parties hereto acknowledges that they are aware
that they or their attorney may hereafter discover facts different from or
in addition to the facts which they or their attorney now know or believe
to be true with respect to the subject matter of this Agreement, but that
it is their intention to fully, finally, absolutely and forever settle any
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<PAGE>
<PAGE> 22
and all claims, disputes and differences which now exist or heretofore have
existed between the parties to this Agreement, and that in furtherance of
such intention the mutual releases herein given shall be and remain in
effect as full and complete general mutual releases notwithstanding the
discovery of any such different or additional facts. Each of the parties
hereto does hereby abandon, release, waive and relinquish all rights and
benefits which they may acquire under any statutory provision pertaining to
the subject matter of this Agreement.
C. No Admission of Liability. It is expressly understood,
acknowledged and agreed to that by reason of entering into this Agreement,
none of the parties admit, expressly or impliedly, any fact or liability of
any type or nature with respect to any matter, whether or not referred to
herein, and none of the parties have made any such admission and this
Agreement is entered into solely by way of compromise and settlement only.
D. Ownership of Claims. The parties represent and warrant that
there has been no assignment or other transfer of any interest in any claim
which they might have and therefore each of the undersigned agree to
defend, indemnify and hold the other harmless from any liabilities, claims,
demands, damages, costs, expenses and attorneys' fees incurred, as a result
of any person asserting any such assignment or transfer of any rights or
claims under such assignment or transfer.
2. Consideration. In consideration of the mutual releases and
waivers provided herein:
A. Obligations of Clarion. Clarion agrees that it shall: (i)
pay Rose the sum of Ten Thousand Dollars ($10,000); (ii) issue and deliver
to Rose 15,926 shares of Clarion's common stock, $.001 par value ("Clarion
Common Stock"); (iii) deliver to Rose a promissory note in the original
principal amount of Three Hundred Eighty Six Thousand Nine Hundred Thirty
Five Dollars ($386,935) bearing interest at the rate of eight percent (8%)
per annum in the form attached hereto as Exhibit "A" (the "Note"); (iv) pay
Rose's legal fees and expenses incurred in connection with the Modification
Agreement, Amendment No. 1 to Agreement, Amendment No. 1 to Employment
Agreement and Amendment No. 2 to Employment Agreement in the amount of
$10,422.50; (v) pay the legal fees and expenses of Rose in connection with
the negotiation and buy-out of Rose's employment agreement, including the
negotiation and preparation of this Agreement; (vi) pay Rose's salary under
the Employment Agreement to and including the Closing Date; and (vii) pay
Rose's accrued expenses in the amount of $4,385.42. The deliveries
specified in clauses (i), (iii), (iv), (v), except as specified below, and
(vii) shall be made on the date of execution of this Agreement; the
delivery specified in clause (ii) shall be made on the "Closing Date", as
hereafter defined. Payment of Rose's salary to and including the Closing
Date shall be made in accordance with the Company's standard payroll
procedures. The Company acknowledges that there will be some additional
-22-
<PAGE>
<PAGE> 23
fees and expenses under clause (v) in addition to the bill for services
rendered through August 16, 1999 which has been previously submitted by
Freeborn & Peters. That bill will be paid on the date hereof and the
additional amounts will be paid on the Closing Date against delivery of a
bill on such date. The "Closing Date" shall mean the date upon which Rose
delivers the items specified in Section 2.B, which date shall be as soon as
reasonably practicable following the execution and delivery of this
Agreement.
B. Obligations of Rose. Rose agrees: (i) to deliver his
resignation as Executive Vice President of Clarion voluntarily terminating
his employment; and (ii) to execute and deliver, in connection with the
settlement of the Rose Industries, Inc. ("Rose Industries") litigation with
Plastech Exterior Systems, Inc. ("Plastech"), documentation: (a)
authorizing Freeborn & Peters, as counsel to Clarion, to file the necessary
court papers to dismiss with prejudice all claims of Rose Industries
against Plastech referred to in the Settlement Agreement and General
Release dated July 19, 1999 (the "Settlement Agreement and General
Release") by and among Plastech and Plastech Engineered Products, Inc., on
the one hand, and Clarion, certain affiliates of Clarion, Rose Industries
and Timothy Kline, on the other hand, and (b) ratifying and confirming the
execution by Jack Rutherford, Chief Executive Officer of Clarion, of the
Settlement Agreement and General Release on behalf of Rose Industries.
Clarion hereby waives the 60-day notice of voluntary termination of
employment required of Rose under Section 6.2 of the Employment Agreement.
The parties acknowledge and agree that: (a) neither Rose nor Clarion will
be bound by the covenants specified in Section 6.4 of the Employment
Agreement, as amended, which shall become null and void as of the Closing
Date; (b) Rose shall be entitled to the benefits referred to in the last
paragraph of Section 6.3 of the Original Employment Agreement; (c) the
covenants of Clarion in Section 11 of the Original Employment Agreement
shall remain in full force and effect; and (d) the indemnification covenant
of Clarion in Section 2 of the Modification Agreement shall remain in full
force and effect.
C. Certification of Jack Rutherford. Jack Rutherford, by his
signature below, certifies to Rose that, with the exception of the
Settlement Agreement and General Release, he has signed no other document
on behalf of Rose Industries.
3. Interpretation and Enforcement.
A. Effect of Headings. The subject heading of the paragraphs
and subparagraphs of this agreement are included for purposes of
convenience only, and shall not affect the construction or interpretation
of any of its provisions.
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<PAGE>
<PAGE> 24
B. Entire Agreement. This Agreement constitutes the entire
agreement between the parties pertaining to the subject matter contained in
this Agreement and supersedes all prior and contemporaneous agreements,
representations, and understandings of the parties. No supplement,
modification or amendment to this Agreement shall be binding unless
executed in writing by all parties. No waiver of any of the provisions of
this Agreement shall be deemed, or shall constitute, a waiver of any other
provisions, whether or not similar, nor shall any waiver constitute a
continuing waiver. No waiver shall be binding unless executed in writing
by the party making the waiver.
C. 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.
D. Recovery of Litigation Expenses. If any legal action is
brought for declaratory relief for the enforcement of this Agreement, or
because of an alleged dispute, breach, default or misrepresentation in
connection with any of the provisions of this Agreement or the subject
matter hereof, the successful or prevailing party or parties shall be
entitled to recover their costs, including reasonable attorneys' fees, and
other expenses incurred in that action or proceeding, in addition to any
other relief to which they may be entitled.
E. Agreement Understood. The parties acknowledge that they and
those authorized to sign this Agreement are over the age of 18 and legally
competent and authorized to execute this Agreement which is intended to be
a legally binding contract dealing with the release and/or conveyance of
certain valuable and important rights. Before signing this document, each
of said parties has read the same from beginning to end and fully
understands the Agreement from its beginning. Each party has had the
opportunity to consult with counsel regarding this document and has
received a copy of the same for their own records.
F. Further Documents. Each party agrees it will execute or
cause to be executed such further and other documents as are needed to
carry out the expressed intents and purposes of this Agreement. It is
understood that should it develop that there are any mistakes in this
Agreement which would cause the release and discharge of the parties to be
defective or less than complete, or if it or any provision is declared
unenforceable by a court or arbitrator for any reason, then the parties
shall execute any and all other instruments and do any and all other things
necessary to effectuate a full, final and complete release of claims or
possible claims in connection with the matters set forth in this Agreement.
G. Modification. This Agreement shall not be modified by
either party by oral representation made before or after the execution of
this Agreement. All modifications must be in writing and signed by the
parties.
-24-
<PAGE>
<PAGE> 25
H. Binding on Successors. This Agreement and the covenants and
conditions contained herein shall apply to, be binding upon, and inure to
the administrators, executors, legal representatives, assignees,
successors, agents and assigns of the parties hereto.
I. Construction. This Agreement shall not be construed against
the party preparing it, but shall be construed as if all parties jointly
prepared this Agreement and any uncertainty and ambiguity shall not be
interpreted against a party. This Agreement is to be interpreted, enforced
and governed by and under the laws of the State of Illinois.
J. Fees and Expenses. Each party shall bear all of its own
costs, expenses and attorneys' fees in connection with the matters released
and the entering into of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Settlement
Agreement and Release on the date first above written.
CLARION TECHNOLOGIES, INC.,
a Delaware corporation
By: /s/ Jack D. Rutherford
-------------------------------
Jack D. Rutherford,
Chief Executive Officer
/s/ Jack D. Rutherford
-------------------------------
JACK D. RUTHERFORD
/s/ Troy D. Wiseman
-------------------------------
TROY D. WISEMAN
/s/ Bryan C. Cressy
-------------------------------
BRYAN C. CRESSEY
/s/ Terence M. Graunke
-------------------------------
TERENCE M. GRAUNKE
-25-
<PAGE>
<PAGE> 26
/s/ Frank T. Steck
-------------------------------
FRANK T. STECK
/s/ Craig Weirda
-------------------------------
CRAIG WEIRDA
/s/ Fred Sotok
-------------------------------
FRED SOTOK
/s/ Harrington Bischof
-------------------------------
HARRINGTON BISCHOF
/s/ R. Townley Rose Jr.
-------------------------------
R. TOWNLEY ROSE, JR.
-26-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,333,928
<SECURITIES> 0
<RECEIVABLES> 7,199,162
<ALLOWANCES> 199,106
<INVENTORY> 2,277,588
<CURRENT-ASSETS> 14,009,210
<PP&E> 35,005,609
<DEPRECIATION> 10,240,101
<TOTAL-ASSETS> 44,180,706
<CURRENT-LIABILITIES> 12,963,537
<BONDS> 0
0
11,901,260
<COMMON> 18,087
<OTHER-SE> 9,579,767
<TOTAL-LIABILITY-AND-EQUITY> 44,180,706
<SALES> 13,047,728
<TOTAL-REVENUES> 13,047,728
<CGS> 13,136,606
<TOTAL-COSTS> 13,136,606
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 59,000
<INTEREST-EXPENSE> 606,629
<INCOME-PRETAX> (6,524,201)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,524,201)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,524,201)
<EPS-BASIC> (.40)
<EPS-DILUTED> (.37)
</TABLE>
