UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

(Mark one)

☒	Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the fiscal year ended December 31, 2015.

☐	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from ________ to ________.

 

Commission file number 0-24020

 

SYPRIS SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware	61-1321992
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)
101 Bullitt Lane, Suite 450
Louisville, Kentucky 40222	(502) 329-2000
(Address of principal executive	(Registrant’s telephone number,
offices, including zip code)	including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

(Title of each class)		(Name of each exchange on which registered)
Common Stock, $.01 par value		The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes  ☒ No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes  ☒ No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes  ☐ No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).☒ Yes  ☐ No

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference  in Part  III of this Form  10-K or any amendment to this Form 10-K.  ☒  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

☐ Large accelerated filer

☐ Accelerated filer

☐ Non-accelerated filer

☒ Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐  Yes ☒  No

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter (July 5, 2015) was $15,839,081.

 

There were 21,058,544 shares of the registrant’s common stock outstanding as of March 10, 2016.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held May 10, 2016 are incorporated by reference into Part III to the extent described therein.

 

 

Table of Contents

 

Part I		Page
Item 1.	Business	1
Item 1A.	Risk Factors	8
Item 1B.	Unresolved Staff Comments	16
Item 2.	Properties	17
Item 3.	Legal Proceedings	18
Item 4.	Mine Safety Disclosures	19
Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	20
Item 6.	Selected Financial Data	20
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 8.	Financial Statements and Supplementary Data	35
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	66
Item 9A.	Controls and Procedures	66
Item 9B.	Other Information	66
Part III
Item 10.	Directors, Executive Officers and Corporate Governance	67
Item 11.	Executive Compensation	67
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	67
Item 13.	Certain Relationships and Related Transactions and Director Independence	68
Item 14.	Principal Accounting Fees and Services	68
Part IV
Item 15.	Exhibits and Financial Statement Schedules	69
Signature Page		73

 

 

In this Annual Report on Form 10-K, “Sypris,” “the Company,” “we,” “us” and “our” refer to Sypris Solutions, Inc. and its subsidiaries and predecessors, collectively. “Sypris Solutions” and “Sypris” are our trademarks. All other trademarks, servicemarks or trade names referred to in this Annual Report on Form 10-K are the property of their respective owners.

 

 

PART I

 

Item 1.     Business

 

General

 

We were formed as a Delaware corporation in 1997. We are a diversified provider of outsourced services and specialty products. We perform a wide range of manufacturing, engineering, design and other technical services, often under sole-source contracts with corporations and government agencies principally in the markets for industrial manufacturing and aerospace and defense electronics.

 

We are organized into two business segments, Sypris Technologies and Sypris Electronics. Sypris Technologies, which is comprised of Sypris Technologies, Inc. and its subsidiaries, generates revenue primarily from the sale of goods and manufacturing services to customers in the market for truck components and assemblies and from the sale of products to the energy and chemical markets. Sypris Electronics, which is comprised of Sypris Electronics, LLC and its subsidiary, generates revenue primarily from the sale of manufacturing services, technical services and products to customers in the market for aerospace and defense electronics.

 

We focus on those markets where we believe we have the expertise, qualifications and leadership position to sustain a competitive advantage. We target our resources to support the needs of industry participants that embrace multi-year contractual relationships as a strategic component of their supply chain management. These contracts, many of which are sole-source by part number, historically have created opportunities to invest in leading-edge processes or technologies to help our customers remain competitive. The productivity, flexibility and economies of scale that can result offer an important opportunity for differentiating ourselves from the competition when it comes to cost, quality, reliability and customer service.

 

Sypris Technologies. Through Sypris Technologies, we are a significant supplier of forged and machined components, serving the commercial vehicle, off highway vehicle, light truck and energy markets in North America. We have the capacity to produce drive train components including axle shafts, gear sets, differential cases, steer axle forgings, and other components for ultimate use by the leading truck manufacturers, including Chrysler Group LLC (Chrysler), Ford Motor Company (Ford), Freightliner LLC (Freightliner), Mack Trucks, Inc. (Mack), Navistar International Corporation (Navistar), PACCAR, Inc. (PACCAR) and Volvo Truck Corporation (Volvo). We support our customers’ strategies to outsource non-core operations by supplying additional components and providing additional value added operations for drive train assemblies.

 

In 2015, we implemented cost saving initiatives to adjust our overhead and infrastructure to be more in line with projected levels of customer demand and market requirements in an effort to meet the new challenges from the loss of Dana Holding Corporation (Dana) as a customer in 2015. As previously disclosed, Dana, our largest customer historically, repudiated our supply relationship and stopped placing orders with us as of the end of 2014. In 2014 Dana represented approximately 59% of our net revenue. Our shipments to Dana have been minimal since December 31, 2014. Due to the loss of this customer, we have developed recovery plans to cut costs and rebuild our revenues over time in order to become profitable again. While we hope to take advantage of our excess capacity through our ongoing efforts, there can be no assurances that such conditions will continue or that our efforts to cut costs and rebuild our revenues through new customers will be successful. See “Risk Factors – Customer contracts may not be renewed on acceptable terms or at all. Our largest customer Dana has repudiated our supply relationship” in Part I, Item 1A of this Annual Report on Form 10-K.

 

Our sales of engineered products such as pressurized closures, insulated joints and other specialty products, primarily to oil and gas pipelines and related energy markets have remained an independent source of diversified revenues and are becoming an area of greater focus for the Company going forward. We are committed to exploring new product developments and potential new markets, which will be an increasing area of focus for the Company going forward.

 

Our net revenues from Sypris Technology decreased $214.1 million from 2014 to $108.1 million in 2015. Despite this decline, Sypris Technologies still represented approximately 74% of our net revenues in 2015.

 

 

Sypris Electronics. Sypris Electronics is organized around three primary business lines: Information Security Solutions (ISS), Electronic Manufacturing Services (EMS) and Cyber Security and Analytics (Cyber).

 

●     Information Security Solutions (ISS). Our ISS business provides solutions in secure communications, global electronic key management, Sypris Data Systems branded products, and product design and development to the U.S. Government, both defense and civilian agencies, international government agencies, as well as worldwide aerospace and defense prime contractors. This group has several contracts with the Department of Defense to design and build information assurance products, including link encryptors, data recording products and electronic key fill devices. Our patented SiOMetrics technology and related solutions are designed to authenticate the identity of hardware without requiring the expense or risk of traditional key-based encryption solutions.

 

●     Electronic Manufacturing Services (EMS). Our EMS business is focused on circuit card and full box build manufacturing, dedicated space and high reliability manufacturing, integrated design and engineering services, systems assembly and integration, design for manufacturability, and design to specification work. Our customers include large aerospace and defense companies such as Lockheed Martin Corporation (Lockheed Martin), Northrop Grumman Corporation (Northrop Grumman) and Exelis Inc. (Exelis).

 

●     Cyber Security and Analytics (Cyber). Our Cyber business includes a variety of software, hardware and service solutions, including Cyber Ranges, designed to help our customers better train and equip their security personnel to protect their operations and sensitive information from theft, disruption or other harm in an increasing hostile and volatile, global cyber environment.

 

The industry and business environment of Sypris Electronics continues to be impacted by policy and budget decisions of the U.S. Government, as well as economic conditions. Future budget cuts, including cuts mandated by sequestration, or future procurement decisions associated with the U.S. Government’s authorization and appropriations process could result in reductions, cancellations and/or delays of Sypris Electronics’ existing contracts or programs. Any of these impacts could have a material effect on the results of the Company’s operations, financial position and/or cash flows. Net revenue from Sypris Electronics increased $4.7 million to $37.2 million in 2015 compared to the prior year. Sypris Electronics accounted for approximately 26% of net revenue in 2015, up from 9% of our net revenue in 2014 primarily due to the decline in revenues in Sypris Technologies.

 

Our Markets

 

Sypris Technologies. The industrial manufacturing markets include truck components and assemblies and specialty closures. The truck components and assemblies market consists of the original equipment manufacturers, or OEMs, including Chrysler, Ford, Freightliner, General Motors Company, Mack, Navistar, PACCAR and Volvo, and an extensive supply chain of companies of all types and sizes that are classified into different levels or tiers. Tier I companies represent the primary suppliers to the OEMs and include Meritor, Dana, Detroit Diesel Corporation (Detroit Diesel), Delphi Automotive LLP, Eaton Corporation (Eaton) and Visteon Corporation, among others. Below this group of companies reside numerous suppliers that either supply the OEMs directly or supply the Tier I companies. In all segments of the truck components and assemblies, however, suppliers are under intense competitive pressure to improve product quality and to reduce capital expenditures, production costs and inventory levels. The specialty closures market consists primarily of oil and gas pipelines, which are also facing significant pressures to improve quality, reduce costs and defer capital expenditures.

 

Sypris Electronics.  Our aerospace and defense business faces an aging portfolio of legacy products and services which must be replenished with new technologies if we are to successfully maintain or expand our market share. Our failure to address any of these factors, particularly in our secured electronic communications or space engineering programs, could impair our business model.

 

As noted above, the U.S. Government’s budget process and the ongoing spending reductions to defense programs has adversely impacted our portfolio of traditional business in this segment, which is dependent upon discretionary appropriations for defense programs. Although we believe that our products and programs are well aligned with national defense and other priorities, shifts in domestic and international spending and tax policy, changes in security, defense and intelligence priorities, the affordability of our products and services, changes in or preferences for new or different technologies, general economic conditions and other factors may affect the level of funding for existing or proposed programs. Uncertainty over budget plans and national security spending may prove challenging for our customers, as well as the defense industry as a whole.

 

 

Market conditions for our ISS and Cyber businesses are expected to be favorable over the long term, given the growing cyber security and intelligence markets. However, market conditions for our EMS business, dedicated to the aerospace and defense market, are characterized by a number of obstacles. The nature of providing outsourced manufacturing services to the aerospace and defense electronics industry differs substantially from the commercial electronics manufacturing industry. The cost of failure can be extremely high, the manufacturing requirements are typically complex and products are produced in relatively small quantities. Companies that provide these manufacturing services are required to maintain and adhere to a number of strict and comprehensive certifications, security clearances and traceability standards. As mentioned above, U.S. Government and private customer spending levels remain uncertain.

 

Our Business Strategy

 

Our objective is to improve our position in each of our core markets by increasing our number of multi-year contracts with customers and investing in highly innovative and efficient production capacity to remain competitive on a global scale. We intend to serve our customers and achieve this objective by continuing to:

 

Concentrate on our Core Markets. We are a significant supplier of forged and machined components, serving the commercial vehicle, off highway vehicle, light truck and energy markets in North America. We have been an established supplier of manufacturing and technical services to major aerospace and defense companies and agencies of the U.S. Government for over 40 years, and our experience in cryptography has attracted significant interest in the emerging needs of the Internet of Things (IoT) marketplace. We will continue to focus on those markets where we have the expertise and qualifications to achieve a competitive advantage.

 

Dedicate our Resources to Support Strategic Partnerships. We will continue to prioritize our resources to support the needs of industry leaders that embrace multi-year contractual relationships as a strategic component of their supply chain management and have the potential for long-term growth. We prefer contracts that are sole-source by part number so we can work closely with the customer to the mutual benefit of both parties.

 

Pursue the Strategic Acquisition of Assets. Over the long term, we may consider the strategic acquisition of assets to consolidate our position in our core markets, expand our presence outside the U.S., create or strengthen our relationships with leading companies and expand our range of value-added services in return for multi-year supply agreements. We target assets that can be integrated with our core businesses and that can be used to support other customers, thereby improving asset utilization and achieving greater productivity, flexibility and economies of scale.

 

Grow Through the Addition of New Value-Added Services. We hope to grow through the addition of new value-added manufacturing capabilities and the introduction of additional components in the supply chain that enable us to provide a more complete solution by improving quality and reducing product cost, inventory levels and cycle times for our customers. In many instances, we offer a variety of state-of-the-art machining capabilities to our customers in the industrial manufacturing markets that enable us to reduce labor and shipping costs and minimize cycle times for our customers over the long-term, providing us with additional growth opportunities in the future. Successfully migrating from design and manufacturing of complex circuit card assemblies to box builds would increase product content with our customers and would allow us to be a more significant outsourced manufacturer in the aerospace and defense supply chain.

 

We believe that the number and duration of our strategic relationships should enable us to invest in our business with greater certainty and with less risk than others that do not benefit from the type of longer term contractual commitments we have historically received from certain key customers. The investments we make in support of these contracts are targeted to provide us with the productivity, flexibility, technological edge and economies of scale that we believe will help to differentiate us from the competition in the future when it comes to cost, quality, reliability and customer service.

 

 

Our Services and Products

 

We are a diversified provider of outsourced services and specialty products. Our services consist of manufacturing, technical and other services and products that are delivered as part of our customers’ overall supply chain management. The information below is representative of the types of products we manufacture, services we provide and the customers and industries for which we provide such products or services.

 

Sypris Technologies:
	Meritor	Axle shafts and drive train components for medium and heavy-duty trucks.
	Detroit Diesel	Axle shafts and drive train components for medium and heavy-duty trucks.
	Eaton	Transmission shafts for heavy-duty trucks.
	Jamison Products	Specialty closures for oil and gas pipelines.
Sypris Electronics:
	Northrop Grumman	Circuit card assembly and sub-assembly design and build for electronic sensors and systems ranging from radar and targeting systems to tactical ground stations, navigation systems and integrated avionics.
	U.S. Government	Secure communications equipment, global key management solutions and data recording systems used by the Department of Defense and Intelligence Agencies.
	Lockheed Martin	Complex circuit cards for use in some of the nation’s high priority space programs.
	Exelis	Complex circuit cards and subassemblies for use in weapons systems, targeting and warning systems.
	NEC	Cyber Range hardware and software for modeling, simulation and training.

 

 

Manufacturing Services

 

Our manufacturing services typically involve the fabrication or assembly of a product or subassembly according to specifications provided by our customers. We purchase raw materials or components from our customers and independent suppliers in connection with performing our manufacturing services. We strive to enhance our manufacturing capabilities by advanced quality and manufacturing techniques, lean manufacturing, just-in-time procurement and continuous flow manufacturing, six sigma, total quality management, stringent and real-time engineering change control routines and total cycle time reduction techniques.

 

Industrial Manufacturing Services. We offer our customers a wide range of capabilities, including automated forging, extruding, machining, induction hardening, heat-treating and testing services to meet the exacting requirements. We also design and fabricate production tooling, manufacture prototype products and provide other value-added services for our customers. Our manufacturing services contracts for the truck components and assemblies markets are often sole-source by part number. Part numbers may be specified for inclusion in a single model or a range of models. Where we are the sole-source provider by part number, we are generally the exclusive provider to our customer of those specific parts and for the duration of the manufacturing contract.

 

Electronics Manufacturing Services. We provide our customers with a broad variety of value added solutions, from low-volume prototype assembly to high-volume turnkey manufacturing. We employ a multi-disciplined engineering team that provides comprehensive manufacturing and design support to customers. The manufacturing solutions we offer include design conversion and enhancement, process and tooling development, materials procurement, system assembly, testing and final system configuration. Our manufacturing services contracts for the aerospace and defense electronics market are generally sole-source by part number.

 

 

Products

 

In addition to our outsourced contract manufacturing services, we offer specialized products including light weight axle components, digital and analog data systems and encryption devices used in military applications, a variety of cyber security training and identity authentication solutions, and specialty closures and joints used in pipeline and chemical systems. As we look to grow our products business and seek to replace the revenues lost from the Dana relationship, greater emphasis will be placed on the commercialization of new products to broaden our portfolio and meet the needs of our customers.

 

Our Customers

 

Our customers include large, established companies and agencies of the federal government. We provide some customers with a combination of outsourced services and products, while other customers may be in a single category of our service or product offerings. Our five largest customers in 2015 were Meritor, Sistemas, Corporation (Sistemas), Detroit Diesel Corporation, Northrup Grumman and Eaton, which in the aggregate accounted for 62% of net revenue. Our five largest customers in 2014 were Dana, Meritor, Sistemas, Detroit Diesel and Northrop Grumman, which in the aggregate accounted for 85% of net revenue. In 2015, Meritor, Sistemas and Detroit Diesel represented approximately 30% 11% and 10% of our net revenue, respectively. No other customer accounted for more than 10% of our net revenue in 2015. In 2014, Dana and Meritor represented approximately 59% and 16% of our net revenue, respectively. No other customer accounted for more than 10% of our revenue in 2014. In addition, U.S. governmental agencies accounted for 5% and 2% of net revenue in 2015 and 2014, respectively.

 

Geographic Areas and Currency Fluctuations

 

We are located in the U.S., Mexico, Denmark and the U.K. Our Mexican subsidiaries and affiliates are a part of Sypris Technologies and manufacture and sell a number of products similar to those Sypris Technologies produces in the U.S. Our Denmark subsidiary is a sales office and is part of Sypris Electronics. Our U.K subsidiary is a sales office and is part of Sypris Technologies. In addition to normal business risks, operations outside the U.S. may be subject to a greater risk of changing political, economic and social environments, changing governmental laws and regulations, currency revaluations and market fluctuations. Fluctuations in foreign currency exchange rates have primarily impacted our earnings only to the extent of remeasurement gains or losses related to U.S. dollar denominated accounts of our foreign subsidiaries, because the vast majority of our transactions are denominated in U.S. dollars. For the years ended December 31, 2015 and 2014, other income, net, included foreign currency transaction gains of $0.3 million and $0.7 million, respectively.

 

Net revenues from Mexican operations, were $8.9 million, or 6%, and $111.2 million, or 31%, of our consolidated net revenues in 2015 and 2014, respectively. Our Mexico operations, conducted through our Toluca, Mexico facility, were primarily used to support Dana. The loss of Dana as a customer created significant challenges for the Company, including in our Mexico operations, especially in the near-term as we seek to control our costs while rebuilding and diversifying our customer base. In 2015, the net loss from our Mexican operations was $8.6 million, as compared to our consolidated net loss of $27.2 million. In 2014, net income from our Mexican operations was $10.8 million, as compared to our consolidated net loss of $1.2 million. You can find more information about our regional operating results, including our export sales, in “Note 22 Segment Information” to our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.

 

Sales and Business Development

 

Our principal sources of new business originate from the expansion of existing relationships, referrals and direct sales through senior management, direct sales personnel, domestic and international sales representatives, distributors and market specialists. We supplement these selling efforts with a variety of sales literature, advertising in numerous trade media and participating in trade shows. We also utilize engineering specialists extensively to facilitate the sales process by working with potential customers to reduce the cost of the service they need. Our specialists achieve this objective by working with the customer to improve their product’s design for ease of manufacturing or by reducing the amount of set-up time or material that may be required to produce the product. The award of contracts or programs can be a lengthy process, which in some circumstances can extend well beyond 12 months. Upon occasion, we commit resources to potential contracts or programs that we ultimately do not win.

 

 

Our objective is to increase the value of the services we provide to the customer on an annual basis beyond the contractual terms that may be contained in a supply agreement. To achieve this objective, we commit to the customer that we will continuously look for ways to reduce the cost, improve the quality, reduce the cycle time and improve the life span of the products and/or services we supply the customer. Our ability to deliver on this commitment over time is expected to have a significant impact on customer satisfaction, loyalty and follow-on business.

 

Since the beginning of 2015, we have signed long term supply agreements with Detroit Axle and Volvo. We have also been awarded purchase orders for various services and components from American Axle, Meritor, Sisamex, and Dana. We are launching the Ultra^TM axle shaft with Detroit Axle and have strong interest from others within the customer base who are interested in this patented product. We are continuing to explore other opportunities as they arise and have significant list of outstanding quotations in progress, but there can be no assurances that our efforts to develop new sources of revenues will adequately replace the loss of the Dana business.

 

Competition

 

The markets that we serve are highly competitive, and we compete against numerous domestic companies in addition to the internal capabilities of some of our customers. In the truck components and assemblies market, we compete primarily against other component suppliers such as Ramkrishna Forgings Limited, Mid-West Forge, Inc., GNA Axles Limited, US Manufacturing Corporation, Spencer Forge and Machine, Inc. and Traxle, which serve as suppliers to many Tier I and smaller companies. In the aerospace and defense electronics market, we compete primarily against companies such as Celestica Inc., Jabil Circuit, Inc. and Safenet, Inc. We may face new competitors in the future as the outsourcing industry evolves and existing or start-up companies develop capabilities similar to ours. In addition, we will face new competitors as we attempt to increase and expand our business.

 

We believe that the principal competitive factors in our markets include the availability of capacity, currency exchange rates (especially in low-cost countries), technological capability, flexibility, financial strength and timeliness in responding to design and schedule changes, price, quality and delivery. Although we believe that we generally compete favorably with respect to each of these factors, some of our competitors, as compared to us, are larger and have greater financial and operating resources, greater geographic breadth and range of services, customer bases and brand recognition than we do. We also face competition from manufacturing operations of our current and potential customers that continually evaluate the relative benefits of internal manufacturing compared to outsourcing.

 

Suppliers

 

For significant portions of our business, we purchase raw materials and component parts from our customers or from suppliers chosen by our customers, at prices negotiated by our customers. When these suppliers increase their prices, cause delays in production schedules or fail to meet our customers’ quality standards, our customers have contractually agreed to reimburse us for the costs associated with such price increases and not to charge us for costs caused by such delays or quality issues. Accordingly, our risks are largely limited to accurate inspections of such materials, timely communications and the collection of such reimbursements or charges, along with any additional costs incurred by us due to delays in, interruptions of, or non-optimal scheduling of production schedules. However, for a growing part of our business, we arrange our own suppliers and assume the additional risks of price increases, quality concerns and production delays.

 

Raw steel and fabricated steel parts are a major component of our cost of sales and net revenue for the truck components and assemblies business. We purchase a significant portion of our steel for use in this business at the direction of our customers, with any periodic changes in the price of steel being reflected in the prices we are paid for our services. Increases in the costs of steel or other supplies can increase our working capital requirements, scrap expenses and borrowing costs.

 

There can be no assurance that supply interruptions or price increases will not slow production, delay shipments to our customers or increase costs in the future, any of which could adversely affect our financial results. Delays, interruptions or non-optimal scheduling of production related to interruptions in raw materials supplies can be expected to increase our costs.

 

 

Research and Development

 

Our research and development expenditures are mainly related to our product lines that serve the aerospace and defense electronics market. Process improvement expenditures related to our outsourced services are not reflected in research and development expense. Accordingly, our research and development expense represents a relatively small percentage of our net revenue. Company-sponsored research and development costs are expensed as incurred. We invested $0.8 million and $0.6 million in research and development in 2015 and 2014, respectively. Customer-sponsored research and development costs are incurred under U.S. Government-sponsored contracts and require us to provide a product or service meeting certain defined performance or other specifications (such as designs). Customer-sponsored research and development is accounted for under the milestone method and included in our net revenue and cost of sales (see Critical Accounting Policies and Estimates in Item 7 of this Annual Report on Form 10-K).

 

Patents, Trademarks and Licenses

 

We own or license a number of patents and trademarks, but our business as a whole is not materially dependent upon any one patent, trademark, license or technologically related group of patents or licenses.

 

We regard our manufacturing processes and certain designs as proprietary trade secrets and confidential information. We rely largely upon a combination of trade secret laws, non-disclosure agreements with customers, suppliers and consultants, and our internal security systems, confidentiality procedures and employee confidentiality agreements to maintain the trade secrecy of our designs and manufacturing processes.

 

Government Regulation

 

Our operations are subject to compliance with regulatory requirements of federal, state and local authorities, in the U.S., the U.K., Denmark and Mexico, including regulations concerning financial reporting and controls, labor relations, minimum pension funding levels, export and import matters, health and safety matters and protection of the environment. While compliance with applicable regulations has not adversely affected our operations in the past, there can be no assurance that we will continue to be in compliance in the future or that these regulations will not change or that the costs of compliance will not be material to us.

 

We must comply with detailed government procurement and contracting regulations and with U.S. Government security regulations, certain of which carry substantial penalty provisions for nonperformance or misrepresentation in the course of negotiations. Our failure to comply with our government procurement, contracting or security obligations could result in penalties or our suspension or debarment from government contracting, which would have a material adverse effect on our consolidated results of operations.

 

We are required to maintain U.S. Government security clearances in connection with certain activities of Sypris Electronics. These clearances could be suspended or revoked if we were found not to be in compliance with applicable security regulations. Any such revocation or suspension would delay our delivery of products to customers. Although we have adopted policies designed to ensure compliance with applicable regulations, there can be no assurance that the approved status of our facilities or personnel will continue without interruption.

 

We are also subject to comprehensive and changing federal, state and local environmental requirements, both in the U.S. and in Mexico, including those governing discharges to air and water, the handling and disposal of solid and hazardous wastes and the remediation of contamination associated with releases of hazardous substances. We use hazardous substances in our operations and, as is the case with manufacturers in general, if a release of hazardous substances occurs on or from any properties that we may own or operate, we may be held liable and may be required to pay the cost of remedying the condition. The amount of any resulting liability could be material.

 

Employees

 

As of December 31, 2015, we had a total of 735 employees, of which 567 were engaged in manufacturing and providing our technical services, 25 were engaged in sales and marketing, 70 were engaged in engineering and 73 were engaged in administration. Approximately 374 of our employees were covered by collective bargaining agreements with various unions that expire on various dates through 2017. Excluding certain Mexico employees covered under an annually ratified agreement, collective bargaining agreements covering 35 employees expire within the next 12 months. In response to the loss of significant revenues in 2015, we have engaged in layoffs during the year, and our ability to maintain our workforce depends on our ability to attract and retain new and existing customers. Although we believe overall that relations with our labor unions are positive, there can be no assurance that present and future issues with our unions will be resolved favorably, that negotiations will be successful or that we will not experience a work stoppage, which could adversely affect our consolidated results of operations.

 

 

Internet Access

 

Copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge through our website (www.sypris.com) as soon as reasonably practicable after we electronically file the material with, or furnish it to, the Securities and Exchange Commission.

 

Item 1A.     Risk Factors

 

Risks Related to Our Business and Forward-Looking Statements

 

This annual report and our other oral or written communications may contain “forward-looking” statements. These statements include our expectations or projections about the future of our industries, business strategies, the markets in which we operate, potential acquisitions, contracts with customers, new business opportunities, controlling or cutting our costs, finding new customers, replacing the lost revenue from losing Dana as a customer, becoming profitable, our compliance with covenants in our debt agreements, the expectations for Management’s Recovery Plan, and our financial results, financial condition and our views about developments beyond our control including government spending, domestic or global economic conditions, trends and market forces. These statements are based on management’s views and assumptions at the time originally made, and we undertake no obligation to update these statements, except as may be required by law. There can be no assurance that our expectations, projections or views will come to pass, and you should not place undue reliance on these forward-looking statements.

 

A number of significant risk factors could materially affect our specific business operations and cause our performance to differ materially from any future results projected or implied by our prior statements, including those described below. Many of these risk factors are also identified in connection with the more specific descriptions contained throughout this report.

 

Customers

 

We have experienced recent operating losses, and anticipate further operating losses in the near term, as we seek to generate new business revenues to replace the loss of our largest customer during the implementation of our recovery plans.

 

Our businesses generally will require a higher level of new business revenues in order to operate profitably prior to the full implementation of our cost-cutting recovery plans. We have recently experienced operating losses and may not become profitable if we are unable to execute on management’s plans. The loss of revenues from Dana in early 2015 also accelerated our need to launch new programs with existing customers and to diversify our business by adding new customers. While we expect to generate further operating losses in the near term, we are trying to increase our revenues over this time with new or existing customers by utilizing our excess manufacturing capacity. Unless we can develop and offer new products and services to existing customers or obtain new customers, at the levels anticipated in management’s recovery plans, we may be unable to maintain the critical mass of capital investments or talented employees that are needed to succeed in our chosen markets or to maintain our existing facilities, which could result in additional restructuring or exit costs. There can be no assurance that we will be able to generate the additional revenue projected in our recovery plans or to succeed in the execution of the cost-cutting initiatives in those plans.

 

 

Customer contracts may not be renewed on acceptable terms or at all. Our largest customer, Dana, has repudiated our supply relationship.

 

The Company has alleged in litigation and arbitration proceedings that a renewal of our supply agreement with Dana through 2019 was executed in good faith and should be enforceable. However, our litigation efforts to enforce this contract renewal with Dana have so far been unsuccessful (see “Legal Proceedings in Part I, Item 3 of this Annual Report on Form 10-K”). The renewal of supply contracts with our biggest remaining customers on acceptable terms is a central part of management’s recovery plans. Our inability to effectively execute those recovery plans would materially adversely affect our business, results of operations and financial condition, and any unexpected issues or costs that arise during this transitional period could have a disproportionate impact on us compared to prior years due to our financial condition.

 

Customer contracts could be less profitable than expected.

 

We generally bear the risk that our contracts could be unprofitable or less profitable than planned, despite our estimates of revenues and future costs to complete such contracts.

 

A material portion of our business, historically, has been conducted under multi-year contracts, which generally include fixed prices or periodic price reductions without minimum purchase requirements. Over time, our revenues may not cover any increases in our operating costs which could adversely impact our results. Our financial results are at greater risk when we accept contractual responsibility for raw material or component prices, when we cannot offset price reductions and cost increases with operating efficiencies or other savings, when we must submit contract bid prices before all key design elements are finalized or when we are subjected to other competitive pressures which erode our margins. The profitability of our contracts also can be adversely affected by unexpected start-up costs on new programs, operating inefficiencies, ineffective capital investments, inflationary pressures or inaccurate forecasts of future unit costs.

 

In the past, we have signed long-term supply agreements with Dana and Meritor and acquired their facilities in Morganton, North Carolina and Toluca, Mexico, among other manufacturing assets. Although most of these acquired facilities have had well-established product markets, the Company does not currently expect a significant volume of business with Dana and in July of 2015 we sold the Morganton plant and our trailer beam business to Meritor. In addition, our remaining products for Meritor may not continue to be competitive, product enhancements may not be made in a timely fashion, and any long-term pricing agreements could generate lower margins than anticipated.

 

Unexpected changes in our customers’ demand levels have harmed our operating results in the past and could do so in the future. Many of our customers will not commit to firm production or delivery schedules. Disagreements over pricing, quality, delivery, capacity, exclusivity or trade credit terms could disrupt order schedules. Orders may also fluctuate due to changing global capacity and demand, new products, changes in market share, reorganizations or bankruptcies, material shortages, labor disputes or other factors that discourage outsourcing. These forces could increase, decrease, accelerate, delay or cancel our delivery schedules.

 

Inaccurate forecasting of our customers’ requirements can disrupt the efficient utilization of our manufacturing capacity, inventories or workforce. If we lose anticipated revenues, we might not succeed in redeploying our substantial capital investment and other fixed costs, potentially forcing additional plant closures, impairments of long-lived and other assets or increased losses. If we receive unanticipated orders or rapid increases in demand, these incremental volumes could be unprofitable due to the higher costs of operating above our optimal capacity.

 

We depend on a few key customers in challenging industries for most of our revenues. We continue to have substantial customer concentration.

 

Our five largest customers in 2015 were Meritor, Sistemas, Detroit Diesel, Northrup Grumman and Eaton, collectively accounting for 62% of net revenue. Our five largest customers in 2014 were Dana, Meritor, Sistemas, Detroit Diesel and Northrop Grumman, collectively accounting for 85% of net revenue. While we have initiated efforts to replace the loss of Dana business, our inability to retain or increase our revenues while effectively controlling our costs would materially adversely affect our business, results of operations and financial condition. In 2016 and beyond, we will need to attract new clients and attempt to diversify our customer base from a limited number of potential customers and with longer lead times often being required for new programs.

 

 

The truck components and assemblies industry has experienced credit risk, highly cyclical market demand, labor unrest, rising steel costs, bankruptcy and other obstacles, while the aerospace and defense electronics industry has experienced consolidation, increased competition, disruptive new technologies and uncertain funding. We depend on the continued growth and financial stability of these customers and our core markets, as well as general economic conditions. Adverse changes affecting these customers, markets or economic conditions could harm our operating results. The truck components and assemblies market is highly cyclical, due in part to regulatory deadlines, the availability or scarcity of credit, fluctuations in oil prices and pent-up demand for replacement vehicles.

 

Rising costs of steel or component parts could increase our inventory and working capital levels and present challenges to our customers who seek to pass those costs on to their customers. Many of our customers’ labor disputes, financial difficulties and restructuring needs have created rising uncertainty and risk, which could increase our costs or impair our business model.

 

The aerospace and defense industry is pressured by cyclicality, rapid technological change, shortening product life cycles, decreasing margins, unpredictable funding levels and government procurement and certification processes. Our aerospace and defense business faces an aging portfolio of legacy products and services which must be replenished with new technologies if we are to successfully maintain or expand our market share. Our failure to address any of these factors, particularly in our secured electronic communications or space engineering programs, could impair our business model.

 

There can be no assurance that any of our customers will not default on, delay or dispute payment of, or seek to reject our outstanding invoices in bankruptcy or otherwise. In addition, the existence of these factors may result in fewer customers in our target markets due to consolidation, bankruptcy, competitive or other market reasons, making it more difficult to obtain new clients and diversify our customer base in the near future.

 

Congressional budgetary constraints or reallocations could reduce our government sales.

 

Sypris Electronics sells manufacturing services and products to a number of U.S. government agencies, which in the aggregate represented approximately 5% and 2% of our net revenue in 2015 and 2014, respectively. We also serve as a contractor for large aerospace and defense companies such as Northrop Grumman, Exelis, Tyco, and Lockheed Martin typically under federally funded programs, which represented approximately 12% and 4% of net revenue in 2015 and 2014, respectively.

 

Sypris Electronics already has been significantly adversely affected by declines in the overall government defense market due to the effects of sequestration, and may be further affected if funding for programs in which we participate, either by selling services and products directly to U.S. government agencies or as a subcontractor to prime contractors such as Northrup Grumman, Exelis, Tyco and Lockheed Martin, is reduced, delayed or cancelled. Our ability to obtain new contract awards also could be negatively affected.

 

Reductions in U.S. military spending also could materially adversely affect the results of our Sypris Electronics, and we expect that certain military and defense programs will experience delays while the receipt of government approvals remain pending.

 

Future levels of governmental spending, including delays, declines or reallocations in the funding of certain programs could adversely affect our financial results, if we are unable to offset these changes with new business or cost reductions.

 

 

Suppliers

 

Interruptions in the supply of key components could disrupt production.

 

Some of our manufacturing services or products require one or more components that are available from a limited number of providers or from sole-source providers. In the past, some of the materials we use, including steel, certain forgings or castings, capacitors and memory and logic devices, have been subject to industry-wide shortages or capacity allocations. As a result, suppliers have been forced to allocate available quantities among their customers, and we have not been able to obtain all of the materials desired. Some of our suppliers have struggled to implement reliable quality control systems which can negatively impact our operating efficiency and financial results. In downward business cycles, the tightening of credit markets has threatened the financial viability of an increasing number of suppliers of key components and raw materials and forced unanticipated shutdowns. Our inability to reliably obtain these or any other materials when and as needed could slow production or assembly, delay shipments to our customers, impair the recovery of our fixed costs and increase the costs of recovering to customers’ schedules, including overtime, expedited freight, equipment maintenance, operating inefficiencies, higher working capital and the obsolescence risks associated with larger buffer inventories. Each of these factors could adversely affect operating results.

 

Shortages or increased costs of utilities could harm our business and our customers.

 

We and our customers depend on a constant supply of electricity and natural gas from utility providers for the operation of our respective businesses and facilities. In the past, we have experienced power outages which reduced our ability to deliver products and meet our customers’ demand for those products. If we or our customers experience future interruptions in service from these providers, our production and/or delivery of products could be negatively affected. Additionally, due to the heavy consumption of energy in our production process and the businesses of our customers, if the cost of energy significantly increases, our results of operations and those of our customers could be negatively impacted.

 

Execution

 

Contract terminations or delays could harm our business.

 

We often provide manufacturing services and products under contracts that contain detailed specifications, quality standards and other terms. If we are unable to perform in accordance with such terms, our customers might seek to terminate such contracts, demand price concessions or other financial consideration or downgrade our past performance rating, an increasingly critical factor in federal procurement competitions. Moreover, many of our contracts are subject to termination for convenience or upon default. These provisions could provide only limited recoveries of certain incurred costs or profits on completed work and could impose liability for our customers’ costs in procuring undelivered items from another source. If any of our significant contracts were to be repudiated, terminated or not renewed, we would lose substantial revenues, and our operating results as well as prospects for future business opportunities could be adversely affected.

 

We are subject to various audits, reviews and investigations, including private party “whistleblower” lawsuits, relating to our compliance with federal and state laws. Should our business be charged with wrongdoing, or determined not to be a “presently responsible contractor,” we could be temporarily suspended or debarred for up to three or more years from receiving new government contracts or government-approved subcontracts.

 

We must operate more efficiently than usual due to lower revenues.

 

If we are unable to improve the cost, efficiency and yield of our operations, and if we are not able to control costs, our financial results could suffer and we could be forced to sell additional assets, refinance our debt at higher costs or take other measures to restructure our operations or capital structure. A number of major obstacles could include:

 

●

the loss of substantial revenues due to a sluggish economic recovery;

 

●

difficulties arising from our present financial condition, including difficulties in maintaining customer and supplier relationships and difficulties acquiring new business due to lingering concerns over our financial condition;

 

●

inflationary pressures;

 

●

increased borrowing due to declines in sales;

 

●

changes in anticipated product mix and the associated variances in our profit margins;

 

 

●

efforts to increase our manufacturing capacity and launch new programs; efforts to migrate, restructure or move business operations from one location to another;

 

●

the breakdown of critical machinery or equipment;

 

●

the need to identify and eliminate our root causes of scrap;

 

●

our ability to achieve expected annual savings or other synergies from past and future business combinations;

 

●

inventory risks due to shifts in market demand;

 

●

obsolescence; price erosion of raw material or component parts;

 

●

shrinkage, or other factors affecting our inventory valuations;

 

●

and an inability to successfully manage growth, contraction or competitive pressures in our primary markets.

 

Our management or systems could be inadequate to support our existing or future operations, especially as we downsize our operating staff to reduce expenses while we work to increase revenues and address softening market conditions. New customers or new contracts, particularly with new product offerings, could require us to invest in additional equipment or other capital expenditures. We may have limited experience or expertise in installing or operating such equipment, which could negatively impact our ability to deliver products on time or with acceptable costs. In addition, a material portion of our manufacturing equipment requires significant maintenance to operate effectively, and we may experience maintenance and repair issues. Our efforts to restructure, relocate and consolidate a significant number of the operations, especially in our truck component manufacturing plants, could cause certain of these facilities to operate at underutilized levels, which could materially adversely affect our business, results of operations and financial condition. In Sypris Electronics, the risk of technical failures, nonconformance with customer specifications, an inability to deliver next generation products or other quality concerns could materially impair our operating results.

 

Our growth strategies could be ineffective due to the risks associated with further acquisitions.

 

Our growth strategy has included acquiring complementary businesses. We could fail to identify, obtain financing or complete suitable acquisitions on acceptable terms and prices. Acquisition efforts entail a number of risks, including: diversion of management’s attention; difficulties in integrating systems, operations and cultures; potential loss of key employees and customers of the acquired companies; lack of experience operating in the geographic market of the acquired business; an increase in our expenses and working capital requirements; risks of entering into markets or producing products where we have limited or no experience; difficulties in integrating purchased technologies and products with our technologies and products; our ability to improve productivity and implement cost reductions; our ability to secure collective bargaining agreements with employees; and exposure to unanticipated liabilities.

 

Our discovery of, or failure to discover, material issues during due diligence investigations of acquisition targets, either before closing with regard to potential risks of the acquired operations, or after closing with regard to the timely discovery of breaches of representations or warranties, or of certain indemnified environmental conditions, could seriously harm our business.

 

Cyber security risks could negatively affect operations and result in increased costs.

 

Sypris Electronics, as a U.S. defense contractor, and our Company overall, face cyber security threats, threats to the physical security of our facilities and employees and terrorist acts, as well as the potential for business disruptions associated with information technology failures and natural disasters.

 

We routinely experience cyber security threats, threats to our information technology infrastructure and attempts to gain access to our sensitive information, as do our customers, suppliers and subcontractors. Prior cyber attacks directed at us have not had a material impact on our financial results. Due to the evolving nature of these security threats, however, the impact of any future incident cannot be predicted.

 

 

Although we work cooperatively with our customers and our suppliers, subcontractors, and other partners to seek to minimize the impacts of cyber threats, other security threats or business disruptions, we must rely on the safeguards put in place by those entities, and those safeguards might not be effective.

 

The costs related to cyber security or other security threats or disruptions may not be fully insured or indemnified by other means. Occurrence of any of these events could adversely affect our internal operations, the services we provide to customers, loss of competitive advantages derived from our research and development efforts, early obsolescence of our products and services, our future financial results, our reputation or our stock price.

 

Competition

 

Increasing competition could limit or reduce our market share.

 

As an outsourced manufacturer, we operate in highly competitive environments that include our customers’ internal capabilities. We believe that the principal competitive factors in our markets include the availability of manufacturing capacity, increasingly unfavorable currency exchange rates (especially in low-cost countries), technological strength, speed and flexibility in responding to design or schedule changes, price, quality, delivery, cost management and financial strength. Our earnings could decline if our competitors or customers can provide comparable speed and quality at a lower cost, or if we fail to adequately invest in the range and quality of manufacturing services and products our customers require.

 

Many of our competitors, as compared to us, are larger and have greater financial and organizational resources, geographic breadth and range of services, customer bases and brand recognition than we do. As a result, our competitors may respond more quickly to technological changes or customer needs, consume lower fixed and variable unit costs, negotiate reduced component prices, and obtain better terms for financing growth. If we fail to compete in any of these areas, we may lose market share and our business could be seriously harmed. There can be no assurance that we will not experience increased competition or that we will be able to maintain our profitability if our competitive environment changes.

 

Our technologies could become obsolete, reducing our revenues and profitability.

 

The markets for our products and services are characterized by changing technology and continuing process development. The future of our business will depend in large part upon the continuing relevance of our technological capabilities. We could fail to make required capital investments, develop or successfully market services and products that meet changing customer needs and anticipate or respond to technological changes in a cost-effective and timely manner. Our inability to successfully launch or sustain new or next generation programs or product features, especially in accordance with budgets or committed delivery schedules, could materially adversely affect our financial results. We could encounter competition from new or developing technologies that render our technologies and equipment less profitable or obsolete in our chosen markets and our operating results may suffer. In particular, the Company is currently developing new products and pursuing new programs in an attempt to increase Sypris Electronics’ revenue stream. However, commercializing the new products and programs is costly and has been slower than anticipated. The launch of any new products or programs within Sypris Electronics may not be successful.

 

Access to Capital

 

We could fail to fully implement our business recovery plans.

 

While Management’s recovery plans have been partially executed during 2015, we could fail to adequately overcome new obstacles such as slowing markets, the loss of key employees, unexpected increases in costs, or new competitors or technologies in our key markets, among other risks. The failure to fully implement our recovery plans could materially adversely affect our revenues, operating results and financial condition.

 

 

Our ability to finance expansion or new business opportunities may be limited.

 

Our future liquidity and capital requirements depend on numerous factors other than bank borrowings or debt financing, including the pace at which we can effectively cut costs, increase revenues or successfully launch new products and services. One method we have historically used to increase our revenues and obtain multi-year supply agreements is to buy a customer’s non-core manufacturing assets and produce products for them. We have also pursued strategies that rely on research and development efforts to develop and commercialize our new products and services. We may not have the financial resources or be able to raise funds necessary to pursue these strategies under our existing and future debt agreements which could further limit our ability to replace the loss of revenues.

 

We may be unable to comply with the covenants in our New Credit Facility and Term Loan.

 

The financial covenants in our New Credit Facility and Term Loan require us to achieve certain financial and other business results. In February 2016, certain covenants were amended to allow for current and future compliance. A failure to comply with these or other covenants could, if we were unable to obtain a waiver or another amendment of the covenant terms, cause an event of default that would cause our debt under the New Credit Facility and Term Loan to become immediately due and payable. In the event that our outstanding debt under the Credit Facility was declared immediately due and payable, which could materially adversely affect our revenues, operating results and financial condition. See Note 14 “Debt” and Note 23 “Subsequent Events” to the consolidated financial statement in this Form 10-K.

 

Labor Relations

 

We must attract and retain qualified employees while successfully managing related costs.

 

Our future success in a changing business environment, including during rapid changes in the size, complexity or skills required of our workforce, as we experienced in 2015, will depend to a large extent upon the efforts and abilities of our executive, managerial and technical employees. The loss of key employees, especially in a recovering economic environment, could have a material adverse effect on our operations. Our future success will also require an ability to attract and retain qualified employees, especially those with engineering or production expertise in our core business lines. Labor disputes or changes in the cost of providing pension and other employee benefits, including changes in health care costs, investment returns on plan assets and discount rates used to calculate pension and related liabilities or other requirements to accelerate the level of our pension fund contributions to reduce or eliminate underfunded liabilities, could lead to increased costs or disruptions of operations in any of our business units.

 

Disputes with labor unions could disrupt our business plans.

 

As of December 31, 2015, we had collective bargaining agreements covering approximately 374 employees (all of which were in Sypris Technologies), or 51% of total employees. Excluding certain Mexico employees covered under an annually ratified agreement, collective bargaining agreements covering 35 employees expire within the next 12 months. Certain Mexico employees are covered by an annually ratified collective bargaining agreement. These employees in Mexico represented approximately 26% of the Company’s workforce, or 191 employees at December 31, 2015. Our ability to maintain our workforce depends on our ability to attract and retain new and existing customers. We could experience a work stoppage or other disputes which could disrupt our operations or the operations of our customers and could harm our operating results.

 

Regulatory

 

Environmental, health and safety risks could expose us to potential liability.

 

We are subject to a variety of environmental regulations relating to the use, storage, discharge and disposal of hazardous chemicals and substances used in our operations. If we fail to comply with present or future regulations, we could be forced to alter, suspend or discontinue our manufacturing processes and pay substantial fines or penalties.

 

 

Groundwater and other contamination has occurred at certain of our current and former facilities during the operation of those facilities by their former owners, and this contamination may occur at future facilities we operate or acquire. There is no assurance that environmental indemnification agreements we have secured from former owners of these properties will be adequate to protect us from liability.

 

The Marion, Ohio property formerly owned by Sypris is subject to soil and groundwater contamination involving petroleum compounds, semi-volatile and volatile organic compounds, certain metals, PCBs and other contaminants, some of which exceed the state voluntary action program standards applicable to the site. The property was sold in March 2013 to Whirlpool Corporation (Whirlpool). Whirlpool has indemnified the Company against the legacy environmental risks on the property.

 

We previously acquired certain business assets formerly located at a leased facility in Littleton, Colorado, where chlorinated solvents had been disposed of on site by a prior owner of the business at the site, contaminating the groundwater at and around the site. The seller of the assets to us is operating a remediation system on the site approved by the State of Colorado and has entered into a consent order with the EPA providing for additional investigation at the site. In addition, Sypris has been contractually indemnified by the prior owners of the facility.

 

Our Morganton, North Carolina facility, which was sold to Meritor during the third quarter of 2015, is subject to soil and groundwater contamination involving petroleum compounds, certain metals and other contaminants, some of which may exceed the State of North Carolina standards applicable to the site. The Company is aware of no current litigation, material remediation claims or other proceedings with respect to this facility.

 

Our formerly owned Toluca, Mexico property is subject to soil and groundwater contamination involving petroleum compounds and volatile organic compounds, among other concerns. We continue to test and assess this site to determine the extent of any contamination by the prior owners of the facility. Under our original purchase agreement for this facility, Dana has agreed to indemnify us for, among other things, environmental conditions that existed on the site as of closing and as to which we notified Dana prior to June 30, 2006, subject to certain other conditions involving Dana’s release of, or continuing right to seek indemnity from, Eaton, from which Dana acquired the property. In connection with our recent sale of the Toluca property in March 2016, we have agreed to remediate certain soil contamination and approximately $230,000 of the property sales proceeds have been withheld in escrow, pending certain Mexican regulatory approvals of such remediation. Dana has agreed to reimburse our costs in connection with such remediation.

 

The Kenton, Ohio property formerly owned by Sypris is subject to soil and groundwater contamination involving petroleum compounds, volatile organic compounds, certain metals, PCBs and other contaminants. Under our purchase agreement for this property, Meritor agreed to indemnify us for, among other things, environmental conditions that existed on the site as of closing and as to which we notified Meritor prior to May 2, 2006. The building and real property were sold in January 2012.

 

Our business is also subject to potential liabilities with respect to health and safety matters. We are required to comply with federal, state, local and foreign laws and regulations governing the health and safety of our workforce, and we could be held liable for damages arising out of human exposure to hazardous substances or other dangerous working conditions. Health and safety laws and regulations are complex and change frequently. As a result, our future costs to comply with such laws or the liabilities incurred in the event of any violations may increase significantly.

 

Adverse regulatory developments or litigation could harm our business.

 

Our businesses operate in heavily regulated environments. We must successfully manage the risk of changes in or adverse actions under applicable law or in our regulatory authorizations, licenses and permits, governmental security clearances or other legal rights to operate our businesses, to manage our work force or to import and export goods and services as needed. Our business activities expose us to the risks of litigation with respect to our customers, suppliers, creditors, stockholders or from product liability, environmental or asbestos-related matters. We also face the risk of other adverse regulatory actions, compliance costs or governmental sanctions, as well as the costs and risks related to our ongoing efforts to design and implement effective internal controls.

 

 

Other Risks

 

We face other factors which could seriously disrupt our operations.

 

Many other risk factors beyond our control could seriously disrupt our operations, including: risks relating to war, future terrorist activities, computer hacking or other cyber attacks, or political uncertainties; risks relating to natural disasters or other casualties which could shut down our domestic or foreign facilities, disrupt transportation of products or supplies, increase the costs under our self insurance program or change the timing and availability of funding in our aerospace and defense electronics markets; risks inherent in operating abroad, including foreign currency exchange rates, adverse regulatory developments, and miscommunications or errors due to inaccurate foreign language translations or currency exchange rates; or our failure to anticipate or to adequately insure against other risks and uncertainties present in our businesses including unknown or unidentified risks.

 

Item 1B.     Unresolved Staff Comments

 

None.

 

 

Item 2.     Properties

 

Our principal manufacturing services operations are engaged in electronics manufacturing services for our aerospace and defense customers and industrial manufacturing services for our truck components and assemblies customers. The following chart indicates the significant facilities that we own or lease, the location and size of each such facility and the manufacturing certifications that each facility possesses. The facilities listed below (other than the corporate office) are used principally as manufacturing facilities.

 

Location	Segment (Market Served)	Own or Lease (Expiration)	Approximate  Square Feet	Certifications
Corporate Office:
Louisville, Kentucky		Lease (2024)	21,600
Manufacturing and Service Facilities:
Louisville, Kentucky	Sypris Technologies (Truck and Off-Highway Components & Assemblies)	Own	450,000	TS 16949
Louisville, Kentucky	Sypris Technologies (Specialty Closures)	Own	57,000	ISO 9001
Tampa, Florida	Sypris Electronics (Aerospace & Defense Electronics)	Lease (2016)	318,000	ISO 9001 ISO 14001 AS 9100 NASA-STD-8739 IPC-A-610, Rev D, Class 3 J-STD-001, Rev D, Class 3 CMMI Level 3
Toluca, Mexico*	Sypris Technologies (Automotive and Truck Components & Assemblies)	Lease (2026)	217,000	TS 16949

*Location sold and leased back in March 2016.

 

In addition, we lease space in one other facility in Copenhagen, Denmark, which is utilized as a sales office for Sypris Electronics.

 

Below is a listing and description of the various manufacturing certifications or specifications that we utilize at various of our facilities.     

 

	Certification/Specification		Description
	AS 9100		A quality management system developed by the aerospace industry to measure supplier conformance with basic common acceptable aerospace quality requirements.
	IPC-A-610		A certification process for electronics assembly manufacturing which describes materials, methods and verification criteria for producing high quality electronic products. Class 3 specifically includes high performance or performance-on-demand products where equipment downtime cannot be tolerated, end-use environment may be uncommonly harsh, and the equipment must function when required.

 

 

 

Certification/Specification

Description

 

J-STD-001

A family of voluntary standards of industry-accepted workmanship criteria for electronic assemblies.

 

CMMI Level-3

An internationally recognized measure of an organization’s engineering process maturity.

 

ISO 9001

A certification process comprised of quality system requirements to ensure quality in the areas of design, development, production, installation and servicing of products.

 

ISO 14001

A family of voluntary standards and guidance documents defining specific requirements for an Environmental Management System.

 

NASA-STD-8739

A specification for space programs designated by the National Aeronautics and Space Administration.

	TS 16949	A quality certification system developed within the automotive sector. Using ISO 9001:2000 as its foundation, ISO/TS 16949:2002 specifies the quality management system (QMS) requirements for the design, development, production, installation and servicing of automotive related products.

  

Item 3.     Legal Proceedings

 

We are involved from time to time in litigation and other legal or environmental proceedings incidental to our business. On November 25, 2013, Sypris Technologies, Inc. initiated an arbitration proceeding against Dana Limited under the Non-Administered Arbitration Rules of the International Institute for Conflict Prevention & Resolution alleging that Dana Limited had entered and then repudiated a five year extension of the parties’ long term supply agreement, to run through 2019 or in the alternative had acted in bad faith by refusing to formalize that agreement. On December 30, 2013, Sypris filed a Notice of Supplemental Claims in the same arbitration proceeding, seeking damages for Dana’s alleged breach of the parties’ original 2007 supply agreement; and Dana filed a counterclaim for certain unpaid price rebates. The arbitrator awarded $505,000 to Sypris Technologies and dismissed Dana’s claims. On January 17, 2014, Dana initiated a declaratory judgment action in the Court of Common Pleas for Lucas County, Ohio challenging the arbitrability of the existence and enforceability of the extended supply agreement and seeking a ruling that the extended agreement was unenforceable. On February 28, 2015, the Lucas County Court granted Dana’s motion, which was subsequently upheld by the Sixth District Court of Appeals for Ohio. Our claim of bad faith remains currently unresolved. There are currently no other material pending legal proceedings to which we are a party.

 

Ongoing environmental matters include the following:

 

●

The Marion, Ohio property formerly owned by Sypris is subject to soil and groundwater contamination involving petroleum compounds, semi-volatile and volatile organic compounds, certain metals, PCBs and other contaminants, some of which exceed the State of Ohio voluntary action program standards applicable to the site. The property was sold in March 2013 to Whirlpool. Whirlpool has indemnified the Company against the legacy environmental risks on the property.

 

●

In December 1992, we acquired certain business assets formerly located at a leased facility in Littleton, Colorado. Certain chlorinated solvents disposed of on the site by Honeywell, a previous owner of the business, have contaminated the groundwater at and around the site. Alliant Techsystems, from which we acquired the business assets, operates a remediation system approved by the State of Colorado and has also entered into a consent order with the EPA providing for additional investigation at the site. Alliant Techsystems has agreed to indemnify us with respect to these matters.

 

●

The Morganton, North Carolina property formerly owned by Sypris is subject to soil and groundwater contamination involving petroleum compounds, certain metals and other contaminants, some of which exceed the State of North Carolina notification standards applicable to the site. No litigation or other proceedings are underway with respect to this site.

 

 

●

The Toluca, Mexico facility formerly owned by Sypris is subject to soil and groundwater contamination involving petroleum compounds and volatile organic compounds, among other concerns. Under our original purchase agreement for this facility, Dana has agreed to indemnify us for, among other things, environmental conditions that existed on the site as of closing and as to which we notified Dana prior to June 30, 2006, to the extent of any indemnification owed to Dana by Eaton or any other matters for which Dana has released Eaton. In connection with our recent sale of the Toluca property, we have agreed to remediate certain soil contamination and approximately $230,000 of the property sales proceeds have been withheld in escrow, pending certain Mexican regulatory approvals of such remediation. Dana has agreed to reimburse our costs in connection with such remediation.

 

●

The Kenton, Ohio property formerly owned by Sypris is subject to soil and groundwater contamination involving petroleum compounds, volatile organic compounds, certain metals, PCBs and other contaminants. Under our purchase agreement for this facility, Meritor has agreed to indemnify us for, among other things, environmental conditions that existed on the site as of closing and as to which we notified Meritor prior to May 2, 2006. The building and real property were sold in January 2012, and the building was subsequently razed by the buyer. Under the terms of the sale agreement, no warranties relating to the property were made including existing environmental conditions and we believe that all liability has been passed to the buyer.

  

Item 4.     Mine Safety Disclosures

 

 

Not applicable.

 

 

PART II

 

Item 5.     Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

We are a smaller reporting company as defined in Item 10(f)(1) of Regulation S-K and thus are not required to provide the performance graph required in paragraph (e) of Item 201 of Regulation S-K.

 

Our common stock is traded on the NASDAQ Global Market under the symbol “SYPR.” The following table sets forth, for the periods indicated, the high and low sale prices per share of our common stock as reported by the NASDAQ Global Market.

 

		High				Low
Year ended December 31, 2015:
First Quarter		$	2.84			$	2.05
Second Quarter			2.05				1.18
Third Quarter			1.89				0.96
Fourth Quarter			2.74				0.64
Year ended December 31, 2014:
First Quarter		$	3.14			$	2.76
Second Quarter			6.10				2.76
Third Quarter			5.66				3.47
Fourth Quarter			3.69				2.36

 

As of March 3, 2016, there were 703 holders of record of our common stock. The amount of cash dividends declared per share for each fiscal quarter in 2015 and 2014 is presented in the table below.

 

		Dividends per
		Common Share
Year ended December 31, 2015:
First Quarter		$	—
Second Quarter			—
Third Quarter			—
Fourth Quarter			—
Year ended December 31, 2014:
First Quarter		$	0.02
Second Quarter			0.02
Third Quarter			0.02
Fourth Quarter			0.02

 

Dividends may be paid on common stock only when, as and if declared by our Board of Directors in its sole discretion. The Company’s New Credit Facility and Term Loan prohibits dividend payments, as further described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations–Liquidity and Capital Resources” below. As a result, we do not anticipate paying dividends in 2016.

 

There were no shares of common stock repurchased during the three months ended December 31, 2015.

 

Item 6.     Selected Financial Data

 

We are a smaller reporting company as defined in Item 10(f)(1) of Regulation S-K and thus are not required to report the selected financial data in Item 301 of Regulation S-K.

 

 

Item 7.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion of our consolidated results of operations and financial condition should be read together with the other financial information and consolidated financial statements included in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the results anticipated in the forward-looking statements as a result of a variety of factors, including those discussed in “Item 1A. Risk Factors” and elsewhere in this Annual Report on Form 10-K.

 

Overview

 

We are a diversified provider of outsourced services and specialty products. We perform a wide range of manufacturing, engineering, design and other technical services, often under sole-source contracts with corporations and government agencies principally in the markets for industrial manufacturing and aerospace and defense electronics.

 

We are organized into two business segments, Sypris Technologies and Sypris Electronics. Sypris Technologies, which is comprised of Sypris Technologies, Inc. and its subsidiaries, generates revenue primarily from the sale of manufacturing services to customers in the market for truck components and assemblies and from the sale of products to the energy and chemical markets. Sypris Electronics, which is comprised of Sypris Electronics, LLC and its subsidiary, generates revenue primarily from the sale of manufacturing services, technical services and products to customers in the market for aerospace and defense electronics.

 

We focus on those markets where we have the expertise, qualifications and leadership position to sustain a competitive advantage. We target our resources to support the needs of industry leaders that embrace multi-year contractual relationships as a strategic component of their supply chain management. These contracts, many of which are sole-source by part number, historically, have been renewed for sufficient periods to enable us to invest in leading-edge processes or technologies to help our customers remain competitive. The productivity, flexibility and economies of scale that can result offer an important opportunity for differentiating ourselves from our competitors when it comes to cost, quality, reliability and customer service.

 

Sypris Technologies Outlook

 

In North America, production levels for light, medium and heavy duty trucks steadily increased from a low in the depressed economic environment of 2008 and 2009 through 2015, but are anticipated to decrease in 2016. Oil and gas markets, served by our engineered products line of Tube Turns® products, have been impacted, as some of our customers’ revenues and near term capital expenditures have declined along with oil prices generally.

 

Despite modest growth in production levels for the commercial vehicle market during 2015, Sypris Technologies’ production levels declined significantly in 2015. Our largest customer historically, Dana, repudiated our supply relationship and stopped placing orders with us as of the end of 2014. In 2014, Dana represented approximately 59% of our net revenue. Our shipments to Dana have been minimal since December 31, 2014.

 

The loss of Dana’s revenues created significant challenges for the Company, especially in the near-term as we have worked to control our costs while taking actions to rebuild and diversify our customer base. See the discussion in Note 2 “Management’s Recovery Plans” to the consolidated financial statements in this Form 10-K which discussion is incorporated in this Item by reference.

 

Sypris Electronics Outlook

 

We continue to face challenges within Sypris Electronics, such as the uncertainty in the worldwide macroeconomic climate and its impact on aerospace and defense spending patterns globally, the emergence of new competitors to our product and service offerings, as well as federal government spending uncertainties in the U.S. and the allocation of funds by the U.S. Department of Defense.

 

 

Sypris Electronics’ revenue had declined from 2009 through 2014 primarily due to our inability to replace the declining demand for certain legacy products and services with competitive new offerings. While revenues increased in 2015 and we have begun to generate revenue from the ramp-up of new electronic manufacturing services and other technical service programs, the process of fully replacing our legacy programs will continue through 2016. The Company is continuing to develop new products and pursue new programs to attempt to replenish its revenue stream within Sypris Electronics.

 

The U.S. Government's continued focus on addressing federal budget deficits and the growing national debt exacerbates this challenging environment for Sypris Electronics. It is likely that U.S. government discretionary spending levels for Fiscal Year 2016 and beyond will continue to be subject to significant pressure, including risk of future budget cuts. Significant uncertainty also continues with respect to program-level appropriations for the U.S. Department of Defense (U.S. DoD) and other government agencies within the overall budgetary framework described above. Future budget cuts, including cuts mandated by sequestration, or future procurement decisions associated with the authorization and appropriations process could result in reductions, cancellations and/or delays of existing contracts or programs. Congress and the Administration continue to debate these long and short-term funding issues, but reductions in U.S. DoD spending could materially and adversely affect the results of Sypris Electronics, and we expect that certain military and defense programs will experience delays while the receipt of government approvals remain pending.

 

As a result, the Company expects ongoing uncertainty within this segment in the near term. For the longer term, we are continuing to evaluate all of our strategic alternatives, including new investments in products and programs to further improve the attractiveness of our business portfolio, with a specific emphasis on trusted solutions for identity management, cryptographic key distribution and cyber analytics, among other strategies. There can be no assurance that the Company’s investment in and efforts to introduce any new products and services will result in new business or revenue. In addition, while the Company continues to evaluate and implement cost reduction measures in this segment, the Company may not be able to reduce its cost structure to offset the impact of lower revenues. The Company is considering all of its strategic alternatives, including potential divestitures and further cost reductions or other downsizing measures, which could be costly and adversely impact our financial performance.

 

Management’s Recovery Plans

 

Given the loss of the Dana business and unfavorable growth trends and softness in commercial vehicle manufacturing and the oil and gas markets served by Sypris Technologies, management has developed various profit recovery and protection plans and is evaluating strategic alternatives to optimize asset values in each of the Company’s segments. Management has engaged advisors to provide recommendations for cost reductions and actions that can be taken to improve profitability. Management prepared a revised forecast during March 2016 with plans to control costs, manage cash flow and remain in compliance with debt covenant requirements throughout 2016. In addition, Management has embarked on a project to evaluate various strategic alternatives to optimize asset values. The Company completed a number of its initial profit recovery and protection actions in 2015, including: (i) the sale of certain assets used in the Company’s manufacturing facility in Morganton, North Carolina within the Sypris Technologies segment (ii) reduction in workforce at all locations, and (iii) other reductions in employment costs through reduced work schedules, senior management pay reductions, deferral of merit increases and certain benefit payments. The Company’s debt was restructured and the prior Credit Facility was paid in full, while the Company has received the benefit of three cash infusions from Gill Family Capital Management, Inc. (“GFCM”), in the form of subordinated promissory note obligations totaling $6.5 million in principal through the first quarter of 2016.

 

The commercial vehicle industry has softened beginning in the fourth quarter of 2015 along with other durable and non-durable goods sectors in the North America economy. Management has identified additional cost reduction actions in the Sypris Technologies segment. Reductions in selling, general and administrative expense and labor expense were implemented during the first quarter of 2016, and additional cost reductions are planned during the second and third quarters. Although the expected benefits of the cost reductions will be partially offset by the impact of minor investments and severance required to enable the cost reductions, the actions are expected to contribute to improved liquidity during 2016.

 

Management has identified a number of new customer opportunities that provide higher margin opportunities, even at lower volumes. Management is implementing operational efficiencies that are expected to enable reductions in the machinery set-up time for new orders which enables the Company to quote on customer requirements that are higher margin but with somewhat shorter run lengths. These new business activities are anticipated to enable the Company to diversify its revenue volume over a larger and more profitable customer base.

 

 

One of the additional actions implemented by management during the first quarter of 2016 was to consummate the sale and partial lease back of its facility located in Toluca, Mexico, which generated gross proceeds of approximately $12.1 million. Of this total, $6.0 million was deposited into a cash collateral account to be held for up to one year as additional collateral for the Term Loan (see Note 14 “Debt” to the consolidated financial statement in this Form 10-K). Management will continue to operate in Toluca but given the 2015 reduction in the Dana business and the overall downturn in the commercial vehicle markets, management determined that the underutilized Toluca real estate value could be best optimized with a sale and lease back arrangement where some but not all of the facility would continue to be occupied and managed by Sypris Technologies.

 

The oil and gas industry has experienced significant price erosion, and as a result the Company’s customers are delaying capital expenditures that support their growth and maintenance projects. The Company has identified some capacity reallocation opportunities between plants in the United States and Mexico. The Company has initiated the process of qualifying production for certain components in Mexico that are currently produced in the United States and completed the qualification for the first group of these components. The Company expects the capacity reallocation will accelerate during 2016 as the capital necessary to fund the reallocation becomes available and the qualification process for the production is complete.

 

Sypris Electronics has continued to invest in a number of product development projects. The Company was awarded a significant engineering services contract in the defense sector during March of 2016. Nevertheless, the Company has identified certain cost reduction and cash flow enhancements in the Sypris Electronics segment that can be implemented during the second and third quarters that are not expected to impact the future growth in the Electronics segment.

 

Sypris Electronics has filed a number of patent applications for technology related to its new SiOMetrics hardware authentication solutions, which may enable the Company to address commercial markets for infrastructure and the Internet of Things (IoT) markets. New commercial opportunities in the automotive, industrial controls, communications, infrastructure, utilities, automation, aviation, retail, and personal communication devices could benefit from the technology that Sypris Electronics has patented or for which it has patents pending. Sypris Electronics now provides a platform of layered security protocols that will enable customers in a number of industries to tailor the security solutions to their individual requirements. Management has taken steps to diversify its product and service offerings in the Sypris Electronics segment whereby the Company intends to be less dependent upon the Defense markets and better positioned to take advantage of the rapidly growing commercial security and encryption markets going forward.

 

Management has identified certain cost reductions at the corporate headquarters that are expected to improve profitability and cash flow throughout 2016. Salary reductions and other SG&A cost reductions were implemented during the first quarter of 2016 that management believes will continue to benefit the company throughout future periods. Additional cost reductions have been identified in the area of professional services, administration and lease expense.

 

Our failure or inability to realize our key financial objectives could materially and adversely impair the Company’s ability to operate, its cash flows, financial condition and ongoing results. See “Risk Factors – Customer contracts may not be renewed on acceptable terms or at all. Our largest customer Dana has repudiated our supply relationship.” in Part I, Item 1A of this Annual Report on Form 10-K. See also Note 2 “Management’s Recovery Plans” to the consolidated financial statements in this Form 10-K.

 

 

Critical Accounting Policies and Estimates

 

The preparation of the consolidated financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles requires that we make estimates and assumptions that affect the amounts reported. Changes in facts and circumstances could have a significant impact on the resulting estimated amounts included in our consolidated financial statements. We believe the following critical accounting policies affect our more complex judgments and estimates. We also have other policies that we consider to be key accounting policies, such as our policies for revenue recognition for Sypris Technologies, including cost of sales; however, these policies do not meet the definition of critical accounting policies because they do not generally require us to make estimates or judgments that are difficult or subjective.

 

Allowance for Doubtful Accounts. We establish reserves for uncollectible accounts receivable based on overall receivable aging levels, a specific evaluation of accounts for customers with known financial difficulties and evaluation of customer chargebacks, if any. These reserves and corresponding write-offs could significantly increase if our customers experience deteriorating financial results or in the event we receive a significant chargeback, which is deemed uncollectible.

 

Net Revenue and Cost of Sales. Net revenue of products and services under commercial terms and conditions are recorded upon delivery and passage of title, or when services are rendered. Related shipping and handling costs, if any, are included in costs of sales.

 

Net revenue on fixed-price contracts is recognized as services are performed. Revenue is deferred until all of the following have occurred: (1) there is a contract in place, (2) delivery has occurred, (3) the price is fixed or determinable, and (4) collectability is reasonably assured. Contract profits are taken into earnings based on actual cost of sales for units shipped. Amounts representing contract change orders or claims are included in revenue when such costs are invoiced to the customer.

 

The Company periodically enters into research and development contracts with customers related primarily to key encryption products. When the contracts provide for milestone or other interim payments, the Company will recognize revenue under the milestone method in accordance with Accounting Standards Codification (“ASC”) 605-28, Revenue Recognition – Milestone Method. The milestone method requires the Company to deem all milestone payments within each contract as either substantive or non-substantive. That conclusion is determined based upon a thorough review of each contract and the deliverables to which the Company has committed to in each contract. For substantive milestones, the Company concludes that upon achievement of each milestone, the amount of the corresponding defined payment is commensurate with the effort required to achieve such milestone or the value of the delivered item. The payment associated with each milestone relates solely to past performance and is deemed reasonable upon consideration of the deliverables and the payment terms within the contract. Milestones may include, for example, the successful completion of design review or technical review, the submission and acceptance of technical drawings, delivery of hardware, software or regulatory agency certifications. The Company had no such contracts in process as of December 31, 2015 and one such milestone contract in process as of December 31, 2014. All milestones under the contract in process as of December 31, 2014 were deemed substantive. Revenue recognized through the achievement of multiple milestones during 2015 and 2014 amounted to $0.3 million and $3.1 million, respectively. There are no performance, cancellation, termination or refund provisions in the arrangement that contain material financial consequences to the Company.

 

Long-lived asset impairment. We perform periodic impairment analysis on our long-lived amortizable assets whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. When indicators are present, we compare the estimated future undiscounted net cash flows of the operations to which the assets relate to their carrying amount. If the operations are unable to recover the carrying amount of their assets, the long-lived assets are written down to their estimated fair value. Fair value is determined based on discounted cash flows, third party appraisals or other methods that provide appropriate estimates of value. A considerable amount of management judgment and assumptions are required in performing the impairment test, principally in determining whether an adverse event or circumstance has triggered the need for an impairment review.

 

 

Pension Plan Funded Status.  Our U.S. defined benefit pension plans are closed to new entrants and only $14 thousand of service-related costs was recorded in 2015 related to a small number of participants who are still accruing benefits in the Louisville Hourly and Salaried Plans. Changes in our net obligations are principally attributable to changing discount rates and the performance of plan assets. Pension obligations are valued using discount rates established annually in consultation with our outside actuarial advisers using a theoretical bond portfolio, adjusted according to the timing of expected cash flows for our future obligations. Plan liabilities at December 31, 2015 are based upon a discount rate of 4.35% which reflects the Above Mean Mercer Yield Curve rate as of December 31, 2015 rounded to the nearest 5^th basis point. Declining discount rates increase the present value of future pension obligations – a 25 basis point decrease in the discount rate would increase our U.S. pension liability by about $1.025 million. As indicated above, when establishing the expected long-term rate of return on our U.S. pension plan assets, we consider historical performance and forward looking return estimates reflective of our portfolio mix and investment strategy. Based on the most recent analysis of projected portfolio returns, we concluded that the use of 5.75% for the Louisville Hourly Plan, 6.25% for the Marion Plan and 6.75% for the Louisville Salaried Plan as the expected return on our U.S. pension plan assets for 2015 was appropriate. A change in the assumed rate of return on plan assets of 100 basis points would result in a $0.3 million change in the estimated 2016 pension expense.

 

During the fourth quarter of 2015, the Society of Actuaries (SOA) issued new mortality improvement scales (MP-2015). The mortality table for healthy participants was updated to the RP-2014 employee and retiree tables backed off to 2006, no collar, with generational projection based upon scale MP-2015 and the mortality table for disabled participants was updated to the RP-2014 disabled table with generational projection based upon scale MP-2015 for accounting purposes as of December 31, 2015.

 

At December 31, 2015, we have $16.2 million of unrecognized losses relating to our U.S. pension plans. Actuarial gains and losses, which are primarily the result of changes in the discount rate and other assumptions and differences between actual and expected asset returns, are deferred in Accumulated Other Comprehensive Income and amortized to expense following the corridor approach. We use the average remaining service period of active participants unless almost all of the plan’s participants are inactive, in which case we use the average remaining life expectancy for all active and inactive participants.

 

Reserve for Excess, Obsolete and Scrap Inventory. We record inventory at the lower of cost, determined under the first-in, first-out method, or market, and we reserve for excess, obsolete or scrap inventory. These reserves are primarily based upon management’s assessment of the salability of the inventory, historical usage of raw materials, historical demand for finished goods and estimated future usage and demand. An improper assessment of salability or improper estimate of future usage or demand, or significant changes in usage or demand could result in significant changes in the reserves and a positive or a negative impact on our consolidated results of operations in the period the change occurs.

 

Stock-based Compensation. We account for stock-based compensation in accordance with the fair value recognition provisions using the Black-Scholes option-pricing method, which requires the input of several subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (expected term), the estimated volatility of our common stock price over the expected term and the number of options that will ultimately not complete their vesting requirements (forfeitures). Changes in the subjective assumptions can materially affect the fair value estimate of stock-based compensation and consequently, the related expense recognized in the consolidated statements of operations.

 

Income Taxes. We account for income taxes as required by the provisions of ASC 740, Income Taxes, under which deferred tax assets and liabilities are recognized for the tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities measured using enacted tax rates.

 

Management judgment is required in determining income tax expense and the related balance sheet amounts. In addition, under ASC 740-10, Accounting for Uncertainty in Income Taxes, judgments are required concerning the ultimate outcome of uncertain income tax positions. Actual income taxes paid may vary from estimates, depending upon changes in income tax laws, actual results of operations and the final audit of tax returns by taxing authorities. Tax assessments may arise several years after tax returns have been filed. We believe that our recorded income tax liabilities adequately provide for the probable outcome of these assessments.

 

 

Deferred tax assets are also recorded for operating losses and tax credit carryforwards. However, ASC 740 requires that a valuation allowance be recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. This assessment is largely dependent upon projected near-term profitability including the effects of tax planning. Deferred tax assets and liabilities are determined separately for each tax jurisdiction in which we conduct our operations or otherwise incur taxable income or losses. We have recorded valuation allowances against deferred tax assets in the U.S. and Mexico where realization has been determined to be uncertain.

 

As a result of the increased uncertainty surrounding the Company’s forecast of taxable income in Mexico, it was determined that the Company no longer met the “more likely than not” threshold required under ASC 740-10 in order to maintain the Mexico deferred tax asset. Accordingly, the Company recorded a valuation allowance on its net deferred tax asset related to certain non-U.S. tax benefits, resulting in deferred tax expense of $2.2 million during year ended December 31, 2015. Until an appropriate level and characterization of profitability is attained, the Company expects to continue to maintain a valuation allowance on its net deferred tax assets related to future U.S. and non-U.S. tax benefits.

 

  

Results of Operations

 

We operate in two segments, Sypris Technologies and Sypris Electronics. The table presented below compares our segment and consolidated results of operations from 2015 to 2014. The table presents the results for each year, the change in those results from one year to another in both dollars and percentage change and the results for each year as a percentage of net revenue.

 

●

The first two columns in each table show the absolute results for each period presented.

 

●

The columns entitled “Year-Over-Year Change” and “Year-Over-Year Percentage Change” show the change in results, both in dollars and percentages. These two columns show favorable changes as positive and unfavorable changes as negative. For example, when our net revenue increases from one period to the next, that change is shown as a positive number in both columns. Conversely, when expenses increase from one period to the next, that change is shown as a negative number in both columns.

 

●

The last two columns in each table show the results for each period as a percentage of net revenue. In these two columns, the cost of sales and gross profit for each are given as a percentage of each segment’s net revenue. These amounts are shown in italics.

 

In addition, as used in the table, “NM” means “not meaningful.”

 

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

 

		Year Ended December 31,								Year Over Year Change				Year Over Year Percentage Change				Results as Percentage of Net Revenue for the Year Ended December 31,
										Favorable				Favorable
		2015				2014				(Unfavorable)				(Unfavorable)				2015				2014
		(in thousands, except percentage data)
Net revenue:
Sypris Technologies		$	108,134			$	322,262			$	(214,128	)			(66.4	)%			74.4	%			90.8	%
Sypris Electronics			37,189				32,514				4,675				14.4				25.6				9.2
Total net revenue			145,323				354,776				(209,453	)			(59.0	)			100.0				100.0
Cost of sales:
Sypris Technologies			108,924				280,241				171,317				61.1				100.7				87.0
Sypris Electronics			36,081				35,705				(376	)			(1.1	)			97.0				109.8
Total cost of sales			145,005				315,946				170,941				54.1				99.8				89.1
Gross profit (loss):
Sypris Technologies			(790	)			42,021				(42,811	)			(101.9	)			(0.7	)			13.0
Sypris Electronics			1,108				(3,191	)			4,299				134.7				3.0				(9.8	)
Total gross profit			318				38,830				(38,512	)			(99.2	)			0.2				10.9
Selling, general and administrative			27,845				35,531				7,686				21.6				19.2				10.0
Research and development			779				579				(200	)			(34.5	)			0.5				0.1
Severance and relocation costs			1,338				—				(1,338	)			NM				0.9				—
Operating (loss) income			(29,644	)			2,720				(32,364	)			NM				(20.4	)			0.8
Interest expense, net			4,223				617				(3,606	)			NM				2.9				0.2
Other (income), net			(8,643	)			(1,282	)			7,361				NM				(6.0	)			(0.4	)
(Loss) income before income taxes			(25,224	)			3,385				(28,609	)			NM				(17.3	)			1.0
Income tax expense, net			1,992				4,569				2,577				56.4				1.4				1.3
Net loss		$	(27,216	)		$	(1,184	)		$	(26,032	)			NM				(18.7	)%			(0.3	)%

 

 

Net Revenue. Sypris Technologies derives its revenue from manufacturing services and product sales. Net revenue for Sypris Technologies decreased $214.1 million from the prior year to $108.1 million in 2015. The loss of the Dana business accounted for $207.9 million of the decline. Additionally, the loss of the trailer axle revenue with the sale of assets in Morganton accounted for $12.2 million of the decline. Partially offsetting this was a net increase in other volumes of $6.0 million attributable to favorable demand from our commercial vehicle market customers.

 

Sypris Electronics derives its revenue from product sales and technical outsourced services. Net revenue for Sypris Electronics increased $4.7 million to $37.2 million in 2015, reflecting the start and completion of a new electronic manufacturing service program for $5.9 million and the commissioning of a Cyber Range during the year for $2.0 million. Partially offsetting this was a decline in engineering services revenue during the year. Despite the increase in revenue over the prior year, Sypris Electronics’ outlook continues to be negatively affected by the budgetary factors described above. For information about the budgetary and funding uncertainty, see “Risk Factors – Congressional budgetary constraints or reallocations could reduce our government sales” in Part I, Item 1A of this Annual Report on Form 10-K.

 

Gross Profit. Sypris Technologies’ gross profit decreased $42.8 million to a loss of $0.8 million in 2015 as compared to profit of $42.0 million in the prior year. The net decrease in sales volumes, primarily from the loss of the Dana business, resulted in a decrease in gross profit of $47.9 million. Partially offsetting this was a decrease in depreciation expense of $3.1 million.

 

Sypris Electronics’ gross profit increased $4.3 million to $1.1 million in 2015. The improvement in gross profit for the year ended December 31, 2015 was primarily as a result of higher revenue and a favorable mix in sales of higher margin products and services.

 

Selling, General and Administrative. Selling, general and administrative expense decreased $7.7 million to $27.8 million in 2015 as compared to $35.5 million in 2014, primarily as a result of certain cost reduction activities initiated in 2015 in response to the loss of Dana as a customer including employee compensation and headcount reductions and the sale of the Company’s Morganton facility (See Note 3 “Morganton Sale” to the consolidated financial statements in this Form 10-K). Additionally, legal expenses decreased in connection with contract negotiations and the related disputes with Dana (see Note 2 “Management’s Recovery Plans” to the consolidated financial statements in this Form 10-K), as the legal expenses regarding the contract negotiations and litigation are currently estimated to be substantially complete. Partially offsetting this was an increase in consulting fees related to our debt refinancing and cash management efforts. Selling, general and administrative expense increased as a percentage of revenue to 19.2% in 2015 from 10.0% in 2014 as a result of the rapid decline in revenue.

 

Research and Development. Research and development costs were $0.8 million and $0.6 million for the years ended December 31, 2015 and 2014, respectively, primarily in support of Sypris Electronics’ self-funded product and technology development activities.

 

Severance and Relocation Costs. Severance and relocation costs for the year ended December 31 2015 was $1.3 million and is comprised primarily of headcount reductions related to the loss of the Dana business within Sypris Technologies. Additionally, it includes certain equipment relocation costs incurred in conjunction with the sale of the Morganton facility. See also Note 2 “Management’s Recovery Plans” and Note 3 “Morganton Sale” to the consolidated financial statements in this Form 10-K.

 

Interest Expense, Net. Interest expense for the year ended December 31, 2015 increased $3.6 million primarily due to an increase in interest rates as a result of the amendments to the previous Credit Facility in 2015, the notes payable to Meritor and GFCM entered into during 2015 and the New Credit Facility and Term Loan entered into in 2015, which increased the Company’s interest rate structure (see Note 14 “Debt” to the consolidated financial statement in this Form 10-K). The weighted average interest rate increased to 7.2% in 2015 from 2.5% in 2014, while our weighted average debt outstanding increased to $18.6 million during 2015 from $16.6 million during 2014. As a result of the New Credit Facility and Term Loan entered into during the fourth quarter of 2015, which increased the Company’s interest rate structure, interest expense is expected to increase in 2016.

 

 

Other (Income), Net. Other income, net, increased $7.4 million to $8.6 million for 2015 from $1.3 million in 2014. Other income, net for the year ended December 31, 2015 included a gain of $7.7 million related to the Morganton sale (see Note 3 “Morganton Sale” in the consolidated financial statements in this Form 10-K). Additionally, during the year ended December 31, 2015, the Company recognized $0.5 million related to an arbitration settlement in the Dana dispute received in the second quarter of 2015. During the year ended December 31, 2015, the Company recognized net foreign currency gains of $0.3 million related to the net U.S. dollar denominated monetary asset position of our Mexican subsidiaries for which the Mexican peso is the functional currency.

 

Other income, net for the year ended December 31, 2014 includes gains of $0.7 million within Sypris Technologies from the receipt of federal grant funds for improvements made under a flood relief program, along with foreign currency related gains of $0.7 million related to the net U.S. dollar denominated monetary asset position of our Mexican subsidiaries for which the Mexican peso is the functional currency.

 

Income Taxes.  Income tax expense for the year ended December 31, 2015 was $2.0 million as compared to $4.6 million for the year ended December 31, 2014. As a result of the loss incurred by our Mexico operation in 2015 and increased uncertainty surrounding the Company’s forecast of taxable income in Mexico, it was determined that the Company no longer met the “more likely than not” threshold required under ASC 740-10 in order to maintain the Mexico deferred tax asset. Accordingly, the Company recorded a valuation allowance on its net deferred tax asset related to certain non-U.S. tax benefits, resulting in deferred tax expense of $2.2 million during 2015.

 

The 2014 income tax provision consists of current tax expense of $3.5 million and a deferred tax expense of $1.1 million. The current tax expense is primarily attributable to taxes paid by our Mexican subsidiaries. Included in deferred taxes in both years is an increase in the valuation allowance on U.S. deferred tax assets.

 

 

Quarterly Results

 

The following table presents our unaudited condensed consolidated statements of operations data for each of the eight quarters in the two-year period ended December 31, 2015. The quarterly results are presented on a 13-week period basis. We have prepared this data on the same basis as our audited consolidated financial statements and, in our opinion, have included all normal recurring adjustments necessary for a fair presentation of this information. You should read these unaudited quarterly results in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. The consolidated results of operations for any quarter are not necessarily indicative of the results to be expected for any subsequent period.

 

		2015																2014
		First				Second				Third				Fourth				First				Second				Third				Fourth
		(in thousands, except per share data)
Net revenue:
Sypris Technologies		$	28,070			$	32,010			$	27,824			$	20,230			$	75,839			$	83,710			$	82,555			$	80,158
Sypris Electronics			8,939				8,746				10,613				8,891				8,405				9,403				7,649				7,057
Total net revenue			37,009				40,756				38,437				29,121				84,244				93,113				90,204				87,215
Cost of sales:
Sypris Technologies			32,174				31,429				25,851				19,470				64,685				72,327				73,256				69,973
Sypris Electronics			7,992				9,361				10,118				8,610				8,995				9,959				8,739				8,012
Total cost of sales			40,166				40,790				35,969				28,080				73,680				82,286				81,995				77,985
Gross profit (loss):
Sypris Technologies			(4,104	)			581				1,973				760				11,154				11,383				9,299				10,185
Sypris Electronics			947				(615	)			495				281				(590	)			(556	)			(1,090	)			(955	)
Total gross profit (loss)			(3,157	)			(34	)			2,468				1,041				10,564				10,827				8,209				9,230
Selling, general and administrative			9,118				7,327				5,969				5,431				7,992				9,141				8,273				10,125
Research and development			333				195				119				132				151				10				116				302
Severance			285				281				457				315				—				—				—				—
Operating (loss) income			(12,893	)			(7,837	)			(4,077	)			(4,837	)			2,421				1,676				(180	)			(1,197	)
Interest expense, net			334				1,154				1,783				952				132				155				179				151
Other (income) expense, net			(179	)			(575	)			(7,841	)			(48	)			(528	)			75				(397	)			(432	)
(Loss) income before tax			(13,048	)			(8,416	)			1,981				(5,741	)			2,817				1,446				38				(916	)
Income tax (benefit) expense			(15	)			—				2,255				(248	)			1,165				1,076				1,197				1,131
Net (loss) income		$	(13,033	)		$	(8,416	)		$	(274	)		$	(5,493	)		$	1,652			$	370			$	(1,159	)		$	(2,047	)
(Loss) income per common share:
Basic		$	(0.66	)		$	(0.43	)		$	(0.01	)		$	(0.28	)		$	0.08			$	0.02			$	(0.06	)		$	(0.11	)
Diluted		$	(0.66	)		$	(0.43	)		$	(0.01	)		$	(0.28	)		$	0.08			$	0.02			$	(0.06	)		$	(0.11	)

 

Liquidity and Capital Resources

 

As described in more detail elsewhere in this report, as a result of the loss of Dana as a customer, the Company experienced substantially reduced levels of revenue and cash flows in 2015. These developments have required us to reexamine our strategies and cut our costs significantly. Reductions in our available liquidity have also required closer monitoring of the timing of our capital expenditures and cash flows in order to manage our business operations.

 

In response, we have taken significant actions during 2015 and subsequent to year-end to pursue new business opportunities with existing and potential customers, identify alternative uses for the related assets and other contingency plans, including the sale of certain assets used in the Company’s manufacturing facility in Morganton, North Carolina within the Sypris Technologies segment. In 2015 we received approximately $15.7 million in total consideration for the Morganton Sale and related transactions, all of which were applied to pay down the amounts drawn under our Credit Facility (See Note 3 “Morganton Sale” to the consolidated financial statements in this Form 10-K). On October 30, 2015, the Company’s prior Credit Facility was replaced by the New Loan Agreements and paid in full. In addition, the Company has received three cash infusions from GFCM, in the form of subordinated promissory note obligations totaling $6,500,000 in principal through the first quarter of 2016.

 

 

Additionally, subsequent to year end, in compliance with these New Loan Agreements, the Company entered into a sale lease-back agreement with Promotora y Desarrolladora Pulso Inmobiliario, S.C. (“Pulso”) whereby we sold the entire facility and leased back the portion of the facility currently occupied by the Company in Toluca, Mexico, for our continued use as a manufacturing facility for ten years commencing upon the execution of the lease and terminating on March 9, 2026 (“Toluca Sale-Leaseback”). The Company’s base rent, which is denominated in U.S. currency, is $936,000 annually, adjusted based on U.S. CPI with certain cap conditions. The transaction generated gross proceeds of 215.0 million Mexican Pesos, or approximately $12.1 million dollars in U.S. currency.

 

New Credit Facility and Term Loan. On October 30, 2015, the Company entered into New Loan Agreements providing for a $12.0 million Term Loan and a $15.0 million New Credit Facility. Proceeds from the New Loan Agreements were used to repay the prior Credit Facility and the Meritor Note. Borrowing availability under the New Credit Facility is determined by a weekly borrowing base collateral calculation that is based on specified percentages of the value of eligible accounts receivable and inventory, less certain reserves and subject to certain other adjustments. Borrowing availability under the Term Loan is also evaluated using a separate borrowing base collateral calculation that includes designated percentages of real estate, machinery and equipment appraisals, in each case less certain reserves and subject to certain other adjustments. If the appraised values of such collateral causes the Term Loan borrowing base to fall below the then current Term Loan balance, the Company can be required to make a partial prepayment of such difference and related fees.

 

Obligations under the New Credit Facility and Term Loan are guaranteed by all of our U.S. subsidiaries and are secured by a first priority lien on substantially all assets of the Company.

 

On February 25, 2016, the Company entered into an amendment (the “Term Loan Amendment”) to the Term Loan and an amendment (the “New Credit Facility Amendment”) to the New Credit Facility (together, the “Amendments”). The Amendments will have the effect, among other things, of increasing the Company’s borrowing capability under its Revolving Credit Agreement and providing for an agreement on the use of proceeds from the Toluca Sale-Leaseback, as described below. As part of the Amendments, the Company also received an additional $1.0 million subordinated loan from GFCM, as described below.

 

As a result of the Term Loan Amendment, the Company deposited $6.0 million of the proceeds of the Toluca Sale-Leaseback into a Cash Collateral Account, to be held for one year as additional collateral for the Term Loan. Amounts deposited in the Cash Collateral Account that are used to prepay the principal of the Term Loan must be accompanied by the payment of a make-whole amount by the Company equal to the present value of any unpaid interest that would have been paid on the prepaid portion of the Term Loan through the one year anniversary of the Term Loan Amendment. The Term Loan Amendment further provides that the Company will be permitted to retain the remaining balance of the proceeds from Toluca Sale-Leaseback, and increases the interest rate of the Term Loan by 1.0%.

 

In addition, under the Term Loan Amendment and New Credit Facility Amendment, the Company’s minimum excess availability provisions were reduced from $4.0 million to $3.0 million. The lender further agreed to remove certain reserves which were counted against the Company’s “borrowing base.” These changes are estimated to provide the Company with approximately $1.7 million in additional borrowing capacity under the amended New Credit Facility.

 

In connection with the Amendments, the Company has retained a financial advisor to review the Company’s existing business plan and make recommendations in the form of a revised business plan. If the Company meets certain milestones as determined by the lender after its review of such plan, up to $1.0 million may be released from the Cash Collateral Account to the Company.

 

The Company’s obligations under each of the amended New Credit Facility and the amended Term Loan Credit Agreement, as amended, continue to be guaranteed by the Company’s U.S. subsidiaries and are secured by a first priority lien on substantially all assets of the Company and the guarantors. Each of the New Credit Facility Loan Amendment and the Term Loan Amendment contains certain customary representations, warranties and covenants.

 

The amended New Loan Agreements contain a number of affirmative, negative and financial maintenance covenants, representations, warranties, events of default and remedies upon default, including acceleration and rights to foreclose on the collateral securing each lender. If the Company’s borrowing availability under the amended New Credit Facility falls below $3.0 million, the Company must maintain a fixed charge coverage ratio of at least 1 to 1, as measured on a trailing twelve months’ basis.

 

 

Based on the borrowing base calculation at December 31, 2015, the Company had actual total availability for borrowing under the New Credit Facility of $8.4 million, of which we had drawn $2.1 million, leaving $6.3 million still available for borrowing, $4.0 million of which was reserved for compliance with the minimum excess availability provisions of the New Credit Facility. Along with an unrestricted cash balance of $1.3 million, we had total cash and borrowing capacity of $3.6 million as of December 31, 2015. Approximately $1.2 million of the unrestricted cash balance relates to the Company’s Mexican subsidiaries. It is anticipated that the Company will utilize a substantial portion of its borrowing availability from time to time in the ordinary course of business.

 

Non-compliance with the Company’s debt covenants would provide the debt holders with certain contractual rights, including the right to demand immediate repayment of all outstanding borrowings.  Since the loss of the Dana business (see Note 2 “Management’s Recovery Plans”), the Company has also experienced negative cash flows from operating activities which could hamper or materially increase the costs of the Company’s ability to comply with such covenants.  The Company’s consolidated financial statements have been prepared assuming the ongoing realization of assets, satisfaction of liabilities and continuity of operations as a going concern in the ordinary course of business, but there can be no assurances that the Company’s current initiatives and plans will ultimately succeed, which could materially and adversely impair the Company’s ability to operate, its cash flows, financial condition and ongoing results.

 

The Company is considering opportunities to support its cash flow from operations in 2016 through other investing activities. The Company is exploring alternatives to monetize certain assets of the Company for values in excess of the availability being provided under the Amended New Loan Agreements, thereby generating additional sources of liquidity for the Company.

 

Our ability to service our indebtedness will require a significant amount of cash. Our ability to generate this cash will depend largely on future operations including the success of our revenue recovery plans. Based upon our current forecast for 2016, we expect to be able to meet the financial covenants of our amended New Loan Agreements, and we believe that we will have sufficient liquidity to finance our operations throughout 2016. Although we believe the assumptions underlying our current forecast are reasonable, we have considered the possibility of even lower revenues and other risks. If we are unable to achieve our forecasted revenue, or if our costs are higher than expected, we may be required to revise our recovery plans to provide for additional cost-cutting measures or to consider other strategic alternatives.

 

If we have insufficient cash flow to fund our liquidity needs and are unable to raise additional capital, we would risk being in default under our New Credit Facility and Term Loan, unless our lenders agreed to modify or waive such requirements. In such circumstances, we believe that the Company would have the continuing ability to sell certain of its assets if necessary to repay its outstanding indebtedness. However, there can be no assurances that such efforts will succeed, and if we sold such assets we may be unable to pursue certain opportunities for new revenues that are part of our recovery plan and we may be required to defer our planned capital expenditures. See the discussion in Note 14 “Debt” to the consolidated financial statements in this Form 10-K which discussion is incorporated in this Item by reference. See “Risk Factors – An inability to obtain new financing could require us to sell assets and could impair our ability to continue operation.” in Part I, Item 1A of this Annual Report on Form 10-K.

 

Gill Family Capital Management Note. In connection with the amendments to the prior Credit Facility, the Company received the proceeds of new subordinated indebtedness from GFCM in an amount of $5.5 million (“GFCM Note”). GFCM is an entity controlled by our president and chief executive officer, Jeffrey T. Gill and one of our directors, R. Scott Gill. GFCM, Jeffrey T. Gill and R. Scott Gill are significant beneficial stockholders of the Company. The promissory note bears interest at a rate of 8.0% per year and all principal and interest on the promissory note will be due and payable on the maturity date, January 30, 2019. On February 26, 2016, the Company amended the GFCM Note to increase the amount to $6.5 million in connection with the amendments to the New Credit Facility and Term Loan.

 

Meritor Note and Morganton Sale to Meritor. On July 2, 2015, the Company entered into a secured promissory note (the “Meritor Note”) in the principal amount of $3.0 million, with Meritor, in exchange for the release of certain outstanding net trade payables owed to Meritor for ongoing purchases of raw materials, and the guarantee of certain inventory values related to Meritor’s business as collateral under the Company’s prior Credit Facility. The Meritor Note was secured by substantially all of the collateral for the Loan Agreement, was senior to the promissory note previously issued to GFCM, and was subordinate to the rights of PNC within the previous Credit Facility. The Meritor Note accrued interest at a rate of 10.0% per year.

 

 

On July 9, 2015, the Company entered an asset purchase agreement to sell certain assets and related liabilities used in the Company’s manufacturing facility in Morganton, North Carolina, to Meritor for $12.5 million. Meritor also agreed to purchase the Morganton facility for an additional $3.2 million. At closing, the parties also entered into a Meritor Note Amendment, whereby the Company issued an additional secured obligation to Meritor of $0.4 million on July 9, 2015 and further agreed to increase the Meritor Note by an additional $0.3 million to reflect certain roof repairs required at the Morganton facility. The total proceeds received of $15.7 million in consideration for the Morganton sale was used to pay down the Company’s outstanding debt on the previous Credit Facility with PNC.

 

All principal and interest on the Meritor Note was due and payable on the maturity date. The Meritor Note was paid in full on October 30, 2015 with the proceeds received as part of the New Loan Agreements.

 

Purchase Commitments. We also had purchase commitments totaling approximately $6.2 million at December 31, 2015, primarily for inventory.

 

Financial Condition

 

Operating Activities. Net cash used by operating activities was $13.4 million in 2015, as compared to cash provided of $3.0 million in 2014. The aggregate decrease in accounts receivable including the collection of Dana accounts receivable in 2015 provided cash of $24.7 million. Similarly, decreases in accounts payable, including amounts paid to Dana under a rebill arrangement for inventory, resulted in a usage of cash of $13.4 million. Decreases in inventory provided cash of $5.4 million during 2015. Cash of $4.5 million was used to finance changes within other current assets primarily consisting of deferred costs related to the development of a cyber-range and a change in income taxes receivable by our Mexican subsidiaries.

 

Investing Activities. Net cash provided by investing activities was $13.9 million in 2015 as compared to net cash used of $5.2 million in 2014. Net cash provided by investing activities for 2015 included proceeds of $15.7 million from the Morganton sale (see Note 3 “Morganton Sale” to the consolidated financial statements in this Form 10-K). Capital expenditures in both periods represented maintenance levels of investment.

 

Financing Activities. Net cash used in financing activities was $6.1 million in 2015 as compared to $9.5 million in 2014. During 2015, the Company used net proceeds of $12.0 million received under the new Term Loan, $2.1 million received under the New Credit Facility and $5.5 million received under the GFCM Note to repay its former Revolving Credit Agreement and the Meritor Note. Additionally, we paid $4.2 million in debt issuance and modification costs in conjunction with the New Loan Agreements and amendments of the prior Credit Facility, Meritor Note and GFCM Note in 2015. Net cash used in financing activities in 2015 also included dividend payments of $0.4 million and payments of $0.1 million for minimum statutory tax withholding on stock-based compensation.

 

During 2014, the Company reduced its debt under the Credit Facility by $7.0 million, paid dividends of $1.6 million and paid $0.9 million for the repurchase of stock and minimum statutory tax withholdings on stock-based compensation.

 

Off-Balance Sheet Arrangements

 

We do not have any material off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources as of December 31, 2015.

 

Recent Accounting Pronouncements

 

See Note 1 to our consolidated financial statements for a full description of recent accounting pronouncements, including the respective dates of adoption and effects on our results of operations and financial condition.

 

 

Item 7A.     Quantitative and Qualitative Disclosures About Market Risk

 

We are a smaller reporting company as defined in Item 10(f)(1) of Regulation S-K and thus are not required to provide the quantitative and qualitative disclosures about market risk specified in Item 305 of Regulation S-K.

 

 

Item 8.     Financial Statements and Supplementary Data

 

SYPRIS SOLUTIONS, INC.

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Report of Independent Registered Public Accounting Firm	36
Consolidated Statements of Operations	37
Consolidated Statements of Comprehensive Loss	38
Consolidated Balance Sheets	39
Consolidated Statements of Cash Flows	40
Consolidated Statements of Stockholders’ Equity	41
Notes to Consolidated Financial Statements	42

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Board of Directors and Stockholders

Sypris Solutions, Inc.

Louisville, Kentucky

 

We have audited the accompanying consolidated balance sheets of Sypris Solutions, Inc. (the Company) as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive loss, stockholders' equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sypris Solutions, Inc. as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

 

 

 

/s/ CROWE HORWATH LLP

 

Louisville, Kentucky

March 30, 2016

 

 

 SYPRIS SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except for per share data)

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

SYPRIS SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

SYPRIS SOLUTIONS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except for share data)

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

SYPRIS SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

SYPRIS SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except for share data)

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

SYPRIS SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2015 and 2014

 

 

SYPRIS SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

 

(

 

SYPRIS SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

 

 

 

SYPRIS SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

 

 

SYPRIS SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

 

 

SYPRIS SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

 

 

 

SYPRIS SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

 

 

 

SYPRIS SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

 

 

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

 

None.

 

Item 9A.

Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

An evaluation was performed under the supervision and with the participation of the Company’s management, including the President and Chief Executive Officer (the CEO) and the Chief Financial Officer (the CFO), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

 

Management’s Report on Internal Control over Financial Reporting

 

The management of Sypris Solutions, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Our internal control system was designed to provide reasonable assurance to Sypris management and its Board of Directors regarding the preparation and fair presentation of published consolidated financial statements.

 

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can only provide reasonable assurance with respect to the accuracy of consolidated financial statement preparation and presentation.

 

Under the supervision and with participation of our management, including the Chief Executive Officer and Chief Financial Officer, we assessed the effectiveness of Sypris Solutions, Inc.’s internal control over financial reporting as of December 31, 2015. In making our assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework (2013). Based on our assessment, we concluded that as of December 31, 2015, Sypris’ internal control over financial reporting is effective based on these criteria.

 

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company (non-accelerated filer) to provide only management’s report in this annual report.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2015, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B.

Other Information

 

None.

 

 

PART III

 

Item 10.     Directors, Executive Officers and Corporate Governance

 

The information required herein is incorporated by reference from sections of the Company’s Proxy Statement titled “Section 16(a) Beneficial Ownership Reporting Compliance,” “Governance of the Company –Committees of the Board of Directors,” “Governance of the Company – Audit and Finance Committee,” “Proposal One, Election of Directors,” and “Executive Officers,” which Proxy Statement will be filed with the Securities and Exchange Commission pursuant to instruction G(3) of the General Instructions to Form 10-K.

 

The Company has adopted a Code of Conduct that applies to all of its directors, officers (including its chief executive officer, chief financial officer, chief accounting officer and any person performing similar functions) and employees. The Company has made the Code of Conduct, and will make any amendments and waivers thereto, available on its website at www.sypris.com.

 

Item 11.     Executive Compensation

 

The information required herein is incorporated by reference from sections of the Company’s Proxy Statement titled “2015 Director Compensation,” “Governance of the Company,” “Summary Compensation Table,” and “Outstanding Equity Awards at Fiscal Year-End 2015,” which Proxy Statement will be filed with the Securities and Exchange Commission pursuant to instruction G(3) of the General Instructions to Form 10-K.

 

Item 12.     Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The information required herein is incorporated by reference from the section of the Company’s Proxy Statement titled “Stock Ownership of Certain Beneficial Owners and Management,” which Proxy Statement will be filed with the Securities and Exchange Commission pursuant to instruction G(3) of the General Instructions to Form 10-K.

 

Equity Compensation Plan Information

 

The following table provides information as of December 31, 2015 with respect to shares of Sypris common stock that may be issued under our equity compensation plans.

 

Plan Category		Number of Securities To be Issued Upon Exercise of Outstanding Options (a)				Weighted Average Exercise Price of Outstanding Options (b)				Number of Securities Remaining Available For Future Issuance Under Equity Compensation Plans (Excluding Securities  Reflected in Column (a)) (c)
Equity Compensation Plans Approved by Stockholders			1,222,000	(1)		$	2.33				3,476,021	(2)
Equity Compensation Plans Not Approved by Stockholders			—				—				—
Total			1,222,000			$	2.33				3,476,021

                                              

(1)	Consists of 1,222,000 outstanding options under the 2010 Omnibus Plan.

 

(2)	Shares remaining available for issuance under the 2015 Omnibus Plan.

 

 

Item 13.     Certain Relationships and Related Transactions, and Director Independence

 

The information required herein is incorporated by reference from the sections of the Company’s Proxy Statement titled “Governance of the Company – Transactions with Related Persons” and “Governance of the Company – Independence,” which Proxy Statement will be filed with the Securities and Exchange Commission pursuant to instruction G(3) of the General Instructions to Form 10-K.

 

Item 14.     Principal Accounting Fees and Services

 

The information required herein is incorporated by reference from the section of the Company’s Proxy Statement titled “Relationship with Independent Public Accountants,” which Proxy Statement will be filed with the Securities and Exchange Commission pursuant to instruction G(3) of the General Instructions to Form 10-K.

 

 

PART IV

 

Item 15.     Exhibits and Financial Statement Schedules

 

(a)     The following documents are filed as part of this Annual Report on Form 10-K:

 

1.     Financial Statements

 

The financial statements as set forth under Item 8 of this Annual Report on Form 10-K are included.

 

2.     Exhibits

 

Exhibit
Number		Description
3.1		Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q for the quarterly period ended June 30, 2004 filed on August 3, 2004 (Commission File No. 000-24020)).
3.2		Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Form 8-K filed October 31, 2011 (Commission File No. 000-24020)).
4.1		Specimen common stock certificate (incorporated by reference to Exhibit 4.1 to the Company’s Form 10-K for the fiscal year ended December 31, 1998 filed on March 5, 1999 (Commission File No. 000-24020)).
10.1		Revolving Credit and Security Agreement between PNC Bank, National Association, Sypris Solutions, Inc., Sypris Technologies, Inc., Sypris Electronics, LLC, Sypris Data Systems, Inc., Sypris Technologies Marion, LLC, Sypris Technologies Kenton, Inc. and Sypris Technologies Mexican Holdings, LLC dated as of May 12, 2011 (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on August 9, 2011 (Commission File No. 000-24020)).
10.1.1		Joinder and Amendment No. 1 to Loan Documents between PNC Bank, National Association, Sypris Solutions, Inc., Sypris Technologies, Inc., Sypris Electronics, LLC, Sypris Data Systems, Inc., Sypris Technologies Marion, LLC, Sypris Technologies Kenton, Inc., Sypris Technologies Mexican Holdings, LLC, Sypris Technologies Northern, Inc., Sypris Technologies Southern, Inc. and Sypris Technologies International, Inc. dated as of February 10, 2015 incorporated by reference to Exhibit 10.1.1 to the Company’s Form 10-K filed on March, 31, 2015 (Commission File No. 000-24020)).
10.1.2		Amendment No. 2 to Loan Documents between PNC Bank, National Association, Sypris Solutions, Inc., Sypris Technologies, Inc., Sypris Electronics, LLC, Sypris Data Systems, Inc., Sypris Technologies Marion, LLC, Sypris Technologies Kenton, Inc., Sypris Technologies Mexican Holdings, LLC, Sypris Technologies Northern, Inc., Sypris Technologies Southern, Inc. and Sypris Technologies International, Inc. dated as of March 12, 2015 (incorporated by reference to Exhibit 10.1.2 to the Company’s Form 10-K filed on March, 31, 2015 (Commission File No. 000-24020)).
10.1.3		Amendment No. 3 to Loan Documents between PNC Bank, National Association, Sypris Solutions, Inc., Sypris Technologies, Inc., Sypris Electronics, LLC, Sypris Data Systems, Inc., Sypris Technologies Marion, LLC, Sypris Technologies Kenton, Inc., Sypris Technologies Mexican Holdings, LLC, Sypris Technologies Northern, Inc., Sypris Technologies Southern, Inc. and Sypris Technologies International, Inc. dated as of July 2, 2015 (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q filed on August 18, 2015 (Commission File No. 000-24020)).
10.1.4		Amendment No. 4 to Loan Documents between PNC Bank, National Association, Sypris Solutions, Inc., Sypris Technologies, Inc., Sypris Electronics, LLC, Sypris Data Systems, Inc., Sypris Technologies Marion, LLC, Sypris Technologies Kenton, Inc., Sypris Technologies Mexican Holdings, LLC, Sypris Technologies Northern, Inc., Sypris Technologies Southern, Inc. and Sypris Technologies International, Inc. dated as of September 30, 2015 (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on November 17, 2015 (Commission File No. 000-24020)).

 

 

Exhibit
Number		Description
10.2		Promissory Note between Gill Family Capital Management, Inc., Sypris Solutions, Inc., Sypris Technologies, Inc., Sypris Electronics, LLC, Sypris Data Systems, Inc., Sypris Technologies Marion, LLC, Sypris Technologies Kenton, Inc., Sypris Technologies Mexican Holdings, LLC, Sypris Technologies Northern, Inc., Sypris Technologies Southern, Inc. and Sypris Technologies International, Inc. dated as of March 12, 2015 (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-K filed on March, 31, 2015 (Commission File No. 000-24020)).
10.2.1		Amended Promissory Note between Gill Family Capital Management, Inc., Sypris Solutions, Inc., Sypris Technologies, Inc., Sypris Electronics, LLC, Sypris Data Systems, Inc., Sypris Technologies Marion, LLC, Sypris Technologies Kenton, Inc., Sypris Technologies Mexican Holdings, LLC, Sypris Technologies Northern, Inc., Sypris Technologies Southern, Inc. and Sypris Technologies International, Inc. dated as of June 11, 2015 (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on August 18, 2015 (Commission File No. 000-24020)).
10.2.2		Amended and Restated Promissory Note between Gill Family Capital Management, Inc., Sypris Solutions, Inc., Sypris Technologies, Inc., Sypris Electronics, LLC, Sypris Data Systems, Inc., Sypris Technologies Marion, LLC, Sypris Technologies Kenton, Inc., Sypris Technologies Mexican Holdings, LLC, Sypris Technologies Northern, Inc., Sypris Technologies Southern, Inc. and Sypris Technologies International, Inc. dated as of October 30, 2015.
10.2.3		Security Agreement between Sypris Solutions, Inc., Sypris Technologies, Inc., Sypris Electronics, LLC, Sypris Data Systems, Inc., Sypris Technologies Marion, LLC, Sypris Technologies Kenton, Inc., Sypris Technologies Mexican Holdings, LLC, Sypris Technologies Northern, Inc., Sypris Technologies Southern, Inc. and Sypris Technologies International, Inc. and Gill Family Capital Management, Inc., dated as of March 12, 2015 (incorporated by reference to Exhibit 10.2.1 to the Company’s Form 10-K filed on March, 31, 2015 (Commission File No. 000-24020)).
10.3		Promissory Note between Meritor Heavy Vehicle Systems, LLC, Sypris Solutions, Inc., Sypris Technologies, Inc., Sypris Electronics, LLC, Sypris Data Systems, Inc., Sypris Technologies Marion, LLC, Sypris Technologies Kenton, Inc., Sypris Technologies Mexican Holdings, LLC, Sypris Technologies Northern, Inc., Sypris Technologies Southern, Inc. and Sypris Technologies International, Inc. dated as of July 2, 2015 (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q filed on August 18, 2015 (Commission File No. 000-24020)).
10.3.1		Amended and Restated Promissory Note between Meritor Heavy Vehicle Systems, LLC, Sypris Solutions, Inc., Sypris Technologies, Inc., Sypris Electronics, LLC, Sypris Data Systems, Inc., Sypris Technologies Marion, LLC, Sypris Technologies Kenton, Inc., Sypris Technologies Mexican Holdings, LLC, Sypris Technologies Northern, Inc., Sypris Technologies Southern, Inc. and Sypris Technologies International, Inc. dated as of September 30, 2015 (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q filed on November 17, 2015 (Commission File No. 000-24020)).
10.3.2		Asset Purchase Agreement between Meritor Heavy Vehicle Systems, LLC and Sypris Solutions, Inc. dated as of July 9, 2015 (incorporated by reference to Exhibit 10.4 to the Company’s Form 10-Q filed on August 18, 2015 (Commission File No. 000-24020)).
10.3.3		Access Agreement between Meritor Heavy Vehicle Systems, LLC, Gill Family Capital Management, Inc. and Sypris Technologies Kenton, Inc., Sypris Technologies, Inc. and Sypris Solutions, Inc. dated as of July 9, 2015 (incorporated by reference to Exhibit 10.4.1 to the Company’s Form 10-Q filed on August 18, 2015 (Commission File No. 000-24020)).
10.3.4		Accommodation Agreement between Meritor Heavy Vehicle Systems, LLC, Gill Family Capital Management, Inc. and Sypris Technologies Kenton, Inc., Sypris Technologies, Inc. and Sypris Solutions, Inc. dated as of July 9, 2015 (incorporated by reference to Exhibit 10.4.2 to the Company’s Form 10-Q filed on August 18, 2015 (Commission File No. 000-24020)).

 

 

Exhibit
Number		Description
10.3.5		Amended Promissory Note between Meritor Heavy Vehicle Systems, LLC, Sypris Solutions, Inc., Sypris Technologies, Inc., Sypris Electronics, LLC, Sypris Data Systems, Inc., Sypris Technologies Marion, LLC, Sypris Technologies Kenton, Inc., Sypris Technologies Mexican Holdings, LLC, Sypris Technologies Northern, Inc., Sypris Technologies Southern, Inc. and Sypris Technologies International, Inc. dated as of July 9, 2015 (incorporated by reference to Exhibit 10.4.3 to the Company’s Form 10-Q filed on August 18, 2015 (Commission File No. 000-24020)).
10.4		Amended and Restated Loan and Security Agreement dated October 30, 2015 among Siena Lending Group, LLC and Sypris Solutions, Inc., Sypris Data Systems, Inc., Sypris Electronics, LLC, Sypris Technologies, Inc., Sypris Technologies International, Inc., Sypris Technologies Kenton, Inc., Sypris Technologies Marion, LLC, Sypris Technologies Mexican Holdings, LLC, Sypris Technologies Northern, Inc., and Sypris Technologies Southern, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on November 3, 2015 (Commission File No. 000-24020)).
10.5		Loan and Security Agreement dated October 30, 2015 among Great Rock Capital Partners Management, LLC and Sypris Solutions, Inc., Sypris Data Systems, Inc., Sypris Electronics, LLC, Sypris Technologies, Inc., Sypris Technologies International, Inc., Sypris Technologies Kenton, Inc., Sypris Technologies Marion, LLC, Sypris Technologies Mexican Holdings, LLC, Sypris Technologies Northern, Inc., and Sypris Technologies Southern, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on November 3, 2015 (Commission File No. 000-24020)).
10.6		Lease between John Hancock Mutual Life Insurance Company and Honeywell, Inc. dated April 27, 1979; related Notice of Assignment from John Hancock Mutual Life Insurance Company to Sweetwell Industrial Associates, L.P., dated July 10, 1986; related Assignment and Assumption of Lease between Honeywell, Inc. and Defense Communications Products Corporation (prior name of Group Technologies Corporation) dated May 21, 1989; and related Amendment I to Lease Agreement between Sweetwell Industries Associates, L.P. and Group Technologies Corporation dated October 25, 1991, regarding Tampa industrial park property (incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form S-1 filed May 18, 1994 (Registration No. 33-76326)).
10.6.1		Agreement related to Fifth Renewal of Lease between Sweetwell Industries Associates, L.P. and Group Technologies Corporation dated October 12, 2006, regarding Tampa industrial park property (incorporated by reference to Exhibit 10.8.2 to the Company’s Form 10-K for the fiscal year ended December 31, 2006 filed on March 14, 2007 (Commission File No. 000-24020)).
10.6.2		Agreement related to Sixth Renewal of Lease between Sweetwell Industries Associates, L.P. and Group Technologies Corporation dated August 13, 2008, regarding Tampa industrial park property (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarterly period ended September 28, 2008 filed on November 5, 2008 (Commission File No. 000-24020)).
10.7*		Sypris Solutions, Inc., Directors Compensation Program As Amended and Restated Effective February 24, 2004 and as amended December 15, 2004, (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on December 21, 2004 (Commission File No. 000-24020)).
10.8*		Sypris Solutions, Inc. Directors Compensation Program adopted on September 1, 1995 Amended and Restated on December 17, 2008 (incorporated by reference to Exhibit 10.17 to the Company’s Form 10-K for the fiscal year ended December 31, 2008 filed on March 31, 2009 (Commission File No. 000-24020)).
10.9*		Sypris Solutions, Inc., Directors Compensation Program adopted on September 1, 1995 Amended and Restated on January 21, 2016.
10.10*		Form of Discretionary Director Restricted Stock Award Agreement.
10.11*		2004 Sypris Equity Plan effective as of April 27, 2004 (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarterly period ended March 31, 2004 filed on April 30, 2004 (Commission File No. 000-24020)).

 

 

Exhibit
Number		Description
10.12*		2010 Sypris Omnibus Plan effective as of May 11, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-8 filed on May 19, 2010 (Commission File No. 333-166951)).
10.13*		2015 Sypris Omnibus Plan effective as of May 5, 2015 (incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-8 filed on May 19, 2015 (Commission File No. 333-204299)).
10.14*		Form of Eighteen Month Restricted Stock Award Agreement.
10.15*		Form of Three Year Restricted Stock Award Agreement.
10.16*		Form of Four Year Non-Qualified Stock Option Award Agreement.
10.17*		Form of Five Year Non-Qualified Stock Option Award Agreement.
10.18*		Amended Executive Long-Term Incentive Program and Alternate Form of Executive Long-Term Incentive Award Agreements for Grants to Executive Officers and Other Key Employees (incorporated by reference to Exhibit 10.10 to the Company’s Form 10-Q filed on August 5, 2005 (Commission File No. 000-24020)).
10.19*		Amended 2010 Executive Long-Term Incentive Program and Alternate Form of Executive Long-Term Incentive Award Agreements for Grants to Executive Officers (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on May 18, 2010 (Commission File No. 000-24020)).
10.20*		Executive Equity Repurchase Agreement dated December 20, 2011 (incorporated by reference to Exhibit 10.19 to the Company’s Form 10-K filed on March 13, 2012 (Commission File No. 000-24020)).
10.21*		Form of Employment Agreement between Sypris Solutions, Inc. and participants in the Sypris Solutions, Inc. Executive Long-Term Incentive Program for 2015 dated as of March 5, 2015 (incorporated by reference to Exhibit 10.12 to the Company’s Form 10-K filed on March 31, 2015 (Commission File No. 000-24020)).
10.22		Preliminary Settlement Agreement between Sypris Solutions, Inc., and Dana Corporation (Debtor in Possession) dated May 10, 2006 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on May 10, 2006 (Commission File No. 000-24020)).
10.23		Settlement Agreement with Dana Corporation signed on July 24, 2007 and effective as of August 7, 2007, replaces redacted copy of Settlement Agreement with Dana Corporation signed on July 24, 2007 and effective as of August 7, 2007 (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on August 7, 2008 (Commission File No. 000-24020)).
10.24		Redacted copy of Supply Agreement with Dana Corporation signed on July 24, 2007 and effective as of August 7, 2007 (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q filed on November 2, 2007 (Commission File No. 000-24020)).
21		Subsidiaries of the Company
23.1		Consent of Crowe Horwath LLP
31.1		CEO certification pursuant to Section 302 of Sarbanes - Oxley Act of 2002.
31.2		CFO certification pursuant to Section 302 of Sarbanes - Oxley Act of 2002.
32		CEO and CFO certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

 

* Management contract or compensatory plan or arrangement.

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 30, 2016.

 

	SYPRIS SOLUTIONS, INC.
	(Registrant)
	/s/ Jeffrey T. Gill
	(Jeffrey T. Gill)
	President and Chief Executive Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 30, 2016:

 

 

/s/ Robert E. Gill		Chairman of the Board
(Robert E. Gill)
/s/ Jeffrey T. Gill		President, Chief Executive Officer and Director
(Jeffrey T. Gill)
/s/ Anthony C. Allen		Vice President and Chief Financial Officer
(Anthony C. Allen)		(Principal Financial Officer)
/s/ Rebecca R. Eckert		Controller
(Rebecca R. Eckert)		(Principal Accounting Officer)
/s/ John F. Brinkley		Director
(John F. Brinkley)
/s/ Gary L. Convis		Director
(Gary L. Convis)
/s/ William G. Ferko		Director
(William G. Ferko)
/s/ R. Scott Gill		Director
(R. Scott Gill)
/s/ William L. Healey		Director
(William L. Healey)
/s/ Robert F. Lentz		Director
(Robert F. Lentz)
/s/ Sidney R. Petersen		Director
(Sidney R. Petersen)
/s/ Robert Sroka		Director
(Robert Sroka)

 

 

73

Exhibit 10.2.2

 

 

THIS INSTRUMENT, AND THE RIGHTS AND OBLIGATIONS EVIDENCED HEREBY, ARE SUBORDINATE IN THE MANNER AND TO THE EXTENT SET FORTH IN THAT CERTAIN SECOND AMENDED AND RESTATED SUBORDINATION AGREEMENT DATED OCTOBER 30, 2015 BETWEEN SIENA LENDING GROUP LLC, AS LENDER, AND GILL FAMILY CAPITAL MANAGEMENT, INC., AND CONSENTED TO BY THE BORROWERS DEFINED THEREIN.

 

THIS INSTRUMENT, AND THE RIGHTS AND OBLIGATIONS EVIDENCED HEREBY, ARE SUBORDINATE IN THE MANNER AND TO THE EXTENT SET FORTH IN THAT CERTAIN SUBORDINATION AGREEMENT DATED OCTOBER 30, 2015 BETWEEN GREAT ROCK CAPITAL PARTNERS MANAGEMENT, LLC, AS AGENT, AND GILL FAMILY CAPITAL MANAGEMENT, INC., AND CONSENTED TO BY THE BORROWERS DEFINED THEREIN.

 

AMENDED AND RESTATED PROMISSORY NOTE

 

This Amended and Restated Promissory Note represents an amendment and restatement of, and not a novation of, that certain Promissory Note made by Makers in favor of the Lender dated effective March 12, 2015, as heretofore amended, restated, modified and supplemented from time to time, in the maximum principal amount of $5,500,000.00.

 

 

$5,500,000.00	Louisville, Kentucky
	October 30, 2015

 

FOR VALUE RECEIVED, each of the undersigned, Sypris Solutions, Inc., a Delaware corporation (“Solutions”), Sypris Technologies, Inc., a Delaware corporation (“Technologies”), Sypris Electronics, LLC, a Delaware limited liability company (“Electronics”), SYPRIS DATA SYSTEMS, INC., a Delaware corporation (“Data Systems”), SYPRIS TECHNOLOGIES MARION, LLC, a Delaware limited liability company, SYPRIS TECHNOLOGIES KENTON, INC., a Delaware corporation, SYPRIS TECHNOLOGIES MEXICAN HOLDINGS, LLC, a Delaware limited liability company, SYPRIS TECHNOLOGIES NORTHERN, INC., a Delaware corporation, SYPRIS TECHNOLOGIES SOUTHERN, INC., a Delaware corporation, and SYPRIS TECHNOLOGIES INTERNATIONAL, INC., a Delaware corporation (each a “Maker” and collectively, the “Makers”), hereby jointly and severally promise and agree to pay to the order of GILL FAMILY CAPITAL MANAGEMENT, INC., a Delaware corporation with principal office and place of business at 101 Bullitt Lane, Suite 450, Louisville, Kentucky 40222 (the “Lender”), the principal sum of up to FIVE MILLION FIVE HUNDRED THOUSAND DOLLARS ($5,500,000.00) (the “Loan”), together with interest thereon as provided below. The terms and provisions of this Amended and Restated Promissory Note (this “Note”) are as follows:

 

1.     Calculation of Interest. From the date hereof to and until January 30, 2019, which date shall be the maturity date of this Note (the “Maturity Date”), the outstanding principal balance of this Note shall bear interest at the fixed rate per annum equal to eight percent (8.00%).

 

2.     Payment of Principal and Interest. The entire unpaid principal balance of and all accrued and unpaid interest on this Note, together with all other amounts due and owing under this Note, shall be due and payable in full on the Maturity Date.

 

3.     Interest Calculated on 30-Day Month. All accrued interest on this Note shall be calculated on the basis of the actual number of days elapsed over twelve (12) assumed months consisting of thirty (30) days each.

 

 

4.     Default Rate. Commencing five (5) days after written notice from the Lender (by facsimile transmission or otherwise) to the Makers to the effect that any installment of principal of and/or accrued interest on this Note is overdue (provided such notice shall be given no earlier than five (5) days after the due date of any such installment), such overdue installment of principal and/or accrued interest, provided it remains unpaid, shall commence to bear interest at the ten percent (10%) per annum (the “Default Rate”), and such overdue installment of principal and/or accrued interest together with all interest accrued thereon at the rate set forth herein shall continue to be immediately due and payable in full to the Lender. In the event the Lender accelerates the maturity date of this Note due to the occurrence of any Event of Default hereunder, the entire unpaid principal balance of this Note together with all accrued and unpaid interest thereon shall, beginning five (5) days after notice of acceleration of the maturity date of this Note has been given to the Makers, commence to bear interest at the Default Rate, and all such unpaid principal together with all interest accrued and unpaid thereon, including, without limitation, all interest accrued and accruing thereon as provided in this sentence, shall continue to be immediately due and payable in full to the Lender.

 

5.     Place of Payment. All payments of principal and interest on this Note shall be made to the Lender in legal tender of the United States of America at its offices located at 101 Bullitt Lane, Suite 450, Louisville, Kentucky 40222, or to such other person or such other place as may be designated in writing by the Lender.

 

6.     Security Agreements; Mortgages; Security for Note; Subordination Agreement. This Note is secured by, among other instruments, each of the following: [i] that certain Amended and Restated Security Agreement dated as of October 30, 2015 by and between the Makers and the Lender (as amended from time to time, the “General Security Agreement”), [ii] that certain Amended and Restated Patent Security Agreement dated as of October 30, 2015 by and among Technologies, Electronics and the Lender (as amended from time to time, the “Patent Security Agreement”), [iii] that certain Amended and Restated Trademark Security Agreement dated as of October 30, 2015 by and between Electronics and the Lender (as amended from time to time, the “Amended and Restated Trademark Security Agreement”), [iv] that certain Trademark Security Agreement dated as of October 30, 2015 by and among Solutions, Data Systems, Technologies and the Lender (as amended from time to time, the “Trademark Security Agreement”) (the General Security Agreement, the Patent Security Agreement, the Amended and Restated Trademark Security Agreement and the Trademark Security Agreement are collectively referred to herein as the “Security Agreements”), and [v] that certain Amended and Restated Mortgage and Security Agreement with Assignment of Rents and Fixture Financing Statement dated as of October 30, 2015 made by Technologies for the benefit of Lender with respect to the Property described therein (as amended from time to time, collectively, the “Mortgage”) (the Security Agreements, Mortgage, and this Note may be referred to individually as a “Loan Instrument” and collectively as the “Loan Instruments”). This Note is subject to the respective terms and provisions of (i) that certain Second Amended and Restated Subordination Agreement of even date herewith by and between the Lender and Siena Lending Group LLC (“Siena”), as consented to by the Makers (the “Siena Subordination Agreement”), and (ii) that certain Subordination Agreement of even date herewith by and between the Lender and Great Rock Capital Partners Management, LLC, as Agent (“Great Rock”), as consented to by the Makers (the “Great Rock Subordination Agreement”) (Siena and Great Rock are each referred to herein individually as a “Senior Lender” and collectively as the “Senior Lenders”) (the Siena Subordination Agreement and the Great Rock Subordination Agreement are each referred to herein individually as a “Subordination Agreement” and collectively as the “Subordination Agreements”).

 

 

7.           Representations and Warranties. Each Maker hereby jointly and severally represents and warrants to the Lender, as follows, which representations and warranties shall survive the execution and delivery of this Note and the making of the disbursement of Loan proceeds hereunder:

 

7.1     Maker’s Existence. Each Maker is a duly organized or incorporated and validly existing corporation or limited liability company, as applicable, in good standing under the laws of the State of Delaware and has all requisite authority to own its property and to carry on its business as presently conducted. Each Maker is duly qualified to transact business and is validly existing and in good standing as a foreign entity in every foreign jurisdiction where the failure to so qualify would materially and adversely affect such Maker’s business or its properties.

 

7.2     Authority of Maker. The obtaining of the Loan by each Maker from the Lender and the execution, delivery and performance by each Maker of this Note, the Security Agreements, the Mortgages and the other Loan Instruments to which it is a party are within the organizational powers of each Maker, have been duly authorized by all of the Directors or Members of such Maker, are not in contravention of the Certificate of Incorporation, Certificate of Formation, Bylaws or Operating Agreement of such Maker, as applicable, or the terms of any indenture, agreement or undertaking to which such Maker is a party or by which it or any of its property is bound, and do not contravene the provisions of, or constitute a default under, or result in the creation of any lien (except as expressly contemplated herein) upon the property of such Maker under any indenture, mortgage, contract or other agreement to which such Maker is a party or by which it or any of its properties is bound. Each Maker is duly qualified to do business as a foreign limited liability company in each state in which it is so required to be qualified.

 

7.3     Taxes. Each Maker has filed or caused to be filed all federal, state and local tax returns which, to the knowledge of its Members or Directors, are required to be filed, and each Maker has paid or caused to be paid all taxes as shown on such returns, on any assessment received by such Maker. Each Maker has established reserves which are believed to be adequate for the payment of additional taxes for years that have not been audited by the respective tax authorities.

 

7.4     Enforceability. This Note, the Security Agreements, the Mortgages and the other Loan Instruments to which any Maker is a party constitute valid and legally binding obligations of each such Maker, enforceable in accordance with their respective terms, subject to applicable bankruptcy, insolvency or similar laws affecting the rights of creditors generally and to general principles of equity, whether asserted in an action at law or in equity.

 

8.           Affirmative Covenants. Each Maker hereby jointly and severally agrees that until the Loan and other secured indebtedness has been paid in full to the Lender and this Note has been terminated, each Maker, shall perform and observe all of the following provisions:

 

8.1     Financial Statements. Each Maker shall furnish to the Lender all financial statements and other financial information in form and at the times required to be furnished to either Senior Lender under its respective Loan Agreement (as defined in either Subordination Agreement).

 

8.2     Inspection. Each Maker covenants that it will permit the Lender and its employees and agents, at the Lender’s expense (unless an Event of Default or Unmatured Event of Default has occurred hereunder, in which event the same shall be at the expense of said Maker) to examine corporate books and financial records of said Maker, and to discuss the affairs, finances and accounts of the Maker at such reasonable times and as often as the Lender may reasonably request.

 

8.3     Maker’s Existence. Each Maker shall preserve its existence as a limited liability company or corporation, as applicable, under the laws of the State of Delaware.

 

8.4     Further Assurances. Each Maker shall execute and deliver to the Lender all agreements, documents and instruments, shall pay all filing fees and taxes in connection therewith and shall take such further actions as the Lender may reasonably request or as may be necessary or appropriate to effectuate the intent of this Note and the other Loan Instruments.

 

 

8.5     Notice of Default. The Makers shall promptly notify the Lender in writing of the occurrence of any Event of Default, specifying in connection with such notification all actions proposed to be taken to remedy such circumstance.

 

8.6     Notice of Legal Proceedings. The Makers shall, promptly upon becoming aware of the existence thereof, notify the Lender in writing of the institution of any litigation, legal proceeding, or dispute with any person or tribunal, that might materially and adversely affect the condition, financial or otherwise, or the earnings, affairs, business prospects or properties of any Maker.

 

8.7     Maintenance of Qualification and Assets. Each Maker shall at all times maintain: (i) its qualification to transact business and good standing as a foreign entity in all jurisdictions where the failure to so qualify would materially and adversely affect the nature of its properties or the conduct of its businesses; and (ii) all franchises, licenses, rights and privileges necessary for the proper conduct of its businesses.

 

8.8     Payment of Taxes and Claims. Each Maker shall pay all taxes imposed upon it or upon any of its properties or with respect to its franchises, business, income or profits before any material penalty or interest accrues thereon. Each Maker shall also pay all material claims (including without limitation claims for labor, services, materials and supplies) for sums which have or shall become due and payable and which by law have or might become a vendors lien or a mechanics, laborers’, materialmen’s, statutory or other lien affecting any of its properties; provided, however, that the respective Maker shall not be required to pay any such taxes or claims if (i) the amount, applicability or validity thereof is being contested in good faith by appropriate legal proceedings promptly initiated and diligently conducted and (ii) each Maker shall have set aside on its books reserves (segregated to the extent required by generally accepted accounting principles) adequate with respect thereto.

 

 

9.     Acceleration; Offset; Special Rights Relating to Collateral. Each of the following events shall constitute an “Event of Default” under this Note: (a) the Makers shall fail to pay the principal of and/or any accrued interest on this Note when due and such failure shall continue for more than five (5) days after such due date; (b) a representation contained herein or in any of the Security Agreements, Mortgages or other Loan Instruments shall be untrue or any Maker shall violate any of the other terms or covenants contained in this Note or in any of the Security Agreements, Mortgages or other Loan Instruments and such failure shall continue for a period of thirty (30) days after receipt by such Maker of notice thereof from the Lender; (c) any Maker shall (i) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code or any other federal, state or foreign bankruptcy, insolvency, receivership, liquidation or similar law, (ii) consent to the institution of, or fail to contravene in a timely and appropriate manner, in any such proceeding or the filing of any such petition, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator or similar official for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) become unable, admit in writing its inability or fail generally, to pay its debts as they become due, or (vii) take any action for the purpose of effecting any of the foregoing; (d) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of said Maker or of a substantial part of the property or assets of said Maker under Title 11 of the United States Code or any other federal, state or foreign bankruptcy, insolvency, receivership, liquidation or similar, law or (ii) the appointment of a receiver, trustee, custodian, sequestrator or similar official of said Maker, or of a substantial part of the property or assets of said Maker; and any such proceeding or petition shall continue undismissed for sixty (60) consecutive days or an order or decree approving or ordering any of the foregoing shall continue unstayed and in effect for sixty (60) consecutive days; then, and in each such event (other than an event described in subsections (c) or (d) above); or (e) if there occurs any other “Event of Default” as defined in the Security Agreements, the Mortgages, any of the other Loan Instruments or in either Loan Agreement (as defined in either Subordination Agreement) or any of the other agreements or documents executed in connection with the Senior Debt (as defined in either Subordination Agreement) and the same continues past any applicable grace period. After the occurrence and continuation of any Event of Default, the Lender shall have full power and authority at any time or times to exercise, at its sole option, all or any one or more of the rights and remedies of a secured party under the Uniform Commercial Code of the Commonwealth of Kentucky (the “Kentucky UCC”), the Uniform Commercial Code of the State of Delaware (the “Delaware UCC”) and/or all other applicable laws, including without limitation, declare the entire unpaid principal balance of and all accrued and unpaid interest on this Note to be, whereupon the same shall be, immediately due and payable in full to the Lender (unless the Event of Default is of the type referred to in subsection (c) or (d) above, in which event the entire unpaid principal balance of and all accrued and unpaid interest on this Note shall automatically be due and payable in full to the Lender without notice or demand). If any Event of Default shall occur and be continuing, the Lender shall have the right then, or at any time thereafter, to set off against, and appropriate and apply toward the payment of the unpaid principal of and/or accrued and unpaid interest on this Note in such order as the Lender may select in its sole and absolute discretion, whether or not this Note shall then have matured or be due and payable and whether or not the Lender has declared this Note to be in default and immediately due and payable, any and all deposit balances and other sums and indebtedness and other property then held or owed by the Lender to or for the credit or account of the Makers, and in and on all of which the Makers hereby grant the Lender a first priority security interest in and lien on to secure the payment of this Note, all without prior notice to or demand upon the Makers or any other Person, all such prior notices and demands being hereby expressly waived by the Makers. Any requirement of the Kentucky UCC or the Delaware UCC for reasonable notice shall be met if such notice is mailed, postage pre-paid, to the Makers at least five (5) days prior to the time of the event given rise to the requirement of notice. Notice shall be mailed to the address of the Makers as shown on the records of the Lender maintained with respect to the Loan. The Lender shall have no responsibility for the collection or protection of the Collateral or any part thereof or to exercise (or give notice to the Makers of) any option, privilege or right with respect to the Collateral, all of which are waived by the Makers. The Lender, at its option, may transfer or register all or any part of the Collateral into its or its nominee’s name without any indication of security interest, without notice in either before or after the maturity of this Note. The Lender may transfer this Note, and deliver the Collateral to the transferee, and the transferee shall become vested with all powers and rights given to the Lender with respect to the Collateral.

 

10.     Rights Under Security Instruments; Cumulative Rights. Upon the occurrence of any Event of Default, the Lender shall have all of the rights and remedies under this Note, the Mortgages, the Security Agreements, the other Loan Instruments and at law or in equity. All of the rights and remedies of the Lender upon the occurrence of an Event of Default hereunder shall be cumulative to the greatest extent permitted by law.

 

 

11.     Indemnity. The Makers shall jointly and severally indemnify and hold harmless the Lender, its successors, assigns, officers, shareholders, agents and employees, from and against any and all claims, actions, suits, proceedings, costs, expenses, damages, fines, penalties and liabilities, including, without limitation, reasonable attorneys’ fees and costs, arising out of, connected with or resulting from (a) this Note or any of the other Loan Instruments, (b) the Lender’s preservation or attempted preservation of any of the collateral taken pursuant to any of the Loan Instruments, and/or (c) any failure of the security interests and liens granted to the Lender pursuant to the Loan Instruments to be or to remain perfected or to have the priority as contemplated herein and in the Loan Instrument; provided, however, the Makers shall not have any obligation to indemnify the Lender for any such claims, actions, suits, proceedings, costs, expenses, damages, fines, penalties and/or liabilities to the extent the same have been caused by or have arisen solely and completely from any gross negligence or willful misconduct committed by the Lender. At the Lender’s request, the Makers shall, at their own cost and expense, defend or cause to be defended any and all such actions or suits that may be brought against the Lender and, in any event, shall satisfy, pay and discharge any and all judgments, awards, penalties, costs and fines that may be recovered against the Lender in any such action, plus all attorneys’ fees and costs related thereto to the extent permitted by applicable law; provided, however, that the Lender shall give the Makers (to the extent the Lender seeks indemnification from the Makers under this section) prompt written notice of any such claim, demand or suit after the Lender has received written notice thereof, and the Lender shall not settle any such claim, demand or suit, if the Lender seeks indemnification therefor from the Makers, without first giving notice to the Makers of the Lender’s desire to settle and obtaining the consent of the Makers to the same, which consent the Makers hereby agree not to unreasonably withhold. All obligations of the Makers under this section shall survive the payment of the Note.

 

12     Invalidity. If any part of this Note shall be adjudged invalid or unenforceable, whether in general or in any particular circumstance, then such partial invalidity or enforcement shall not cause the remainder of this Note to be or to become invalid or unenforceable, and if a provision hereof is held invalid or unenforceable, and if a provision hereof is held invalid or unenforceable in one or more of its applications, the Lender and the Makers hereby agree that said provision shall remain in effect in all valid applications that are severable from the invalid or unenforceable application or applications.

 

13.     Assignment. This Note may not be assigned by any or all of the Makers. This Note and the other Loan Instruments may be assigned by the Lender. All rights of the Lender hereunder shall inure to the benefit of its successors and assigns, and all obligations, covenants and agreements of the Makers shall bind its successors and assigns, if any.

 

14.     Entire Agreement. This Note and the other Loan Instruments constitute the entire agreement between the Lender and the Makers with respect to the subject matter hereof.

 

15.     Costs and Expenses. The Makers jointly and severally agree to pay: (a) the reasonable fees of Lender’s counsel, including all out-of-pocket expenses incurred by such counsel, including costs incurred on behalf of the Lender in the negotiation, preparation, printing, documentation, review and execution of this Note and other Loan Instruments, and (b) all other charges, out-of-pocket costs and expenses incurred by the Lender or Lender’s counsel including, without limitation, including all documentary stamp or other tax liabilities, recording fees and costs of lien searches, certified documents and flood zone verifications. All obligations of the Makers under this section shall survive the termination or cancellation of this Note for any reason whatsoever.

 

16.     No Third Party Beneficiaries. All conditions of the obligations of the Lender to disburse the proceeds of the Loan hereunder are imposed solely and exclusively for the benefit of the Lender and its successors and assigns and the Makers, and no other Person shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled to assume that the Lender will refuse to disburse proceeds of the Loan in the absence of strict compliance with any or all of such conditions, and no other Person shall, under any circumstances, be deemed to be beneficiary of such conditions, any or all of which may be freely waived in whole or in part by the Lender at any time in its sole and absolute discretion.

 

17.      Amendments. No amendment, modification, or supplement to this Note or the other Loan Instruments, or to any other document or instrument executed or issued by any of the parties hereto in connection with the transactions contemplated herein, shall be binding unless executed in writing by all parties hereto or thereto; and this provisions of this Note and the other Loan Instruments shall not be subject to waiver by any party and shall be strictly enforced.

 

 

18.      Role of the Lender. Notwithstanding any of the terms or conditions hereof or of the other Loan Instruments to the contrary, the Lender shall not have, and by its execution and acceptance of this Note hereby expressly disclaims, any obligation or responsibility for the management, conduct or operation of the business and affairs of any of the Makers. Any term or condition hereof, or of any of the other Loan Instruments, permitting the Lender to take or refrain from taking any action with respect to the Makers or the collateral shall be deemed solely to permit the Lender to audit and review the management, operation and conduct of the business and affairs of the Makers and to maintain and preserve the security given by the Makers to the Lender, for the secured obligations, and may not be relied upon by any other Person. Further, the Lender shall not have, has not assumed, and by its execution and acceptance of this Note and the other Loan Instruments hereby expressly disclaims, any liability or responsibility for the payment or performance of any indebtedness or obligation of the Makers, and no term or condition hereof, or of any of the other Loan Instruments, shall be construed otherwise.

 

19.     No Implied Waivers; Time is of the Essence. The failure of the Lender to exercise any of its rights, powers and/or remedies shall not constitute a waiver of the right to exercise the same at that or any other time. All rights and remedies of the Lender for an Event of Default hereunder and/or under the other Loan Instruments, shall be cumulative to the greatest extent permitted by law. Time shall be of the essence in (i) the payment of all installments of principal of and accrued interest on this Note, and (ii) the performance of the Makers’ other obligations hereunder and under the Security Agreements, Mortgages and the other Loan Instruments.

 

20.     Attorneys’ Fees. If there is any Event of Default under this Note, the Security Agreements, the Mortgages and/or the other Loan Instruments which is not timely cured, and this Note is placed in the hands of any attorney for collection, or is collected through any court, including any bankruptcy court, the Makers promise and agree to pay to the Lender its reasonable attorneys’ fees, court costs and other expenses incurred in collecting or attempting to collect or securing or attempting to secure this Note or enforcing the Lender’s rights hereunder and under the Security Agreements, Mortgages and the other Loan Instruments.

 

21.     Prepayment. This Note may be prepaid at any time, in whole or in part, without penalty or premium.

 

22.     Governing Law; Jurisdiction. This Note and all of the rights and remedies of the holder hereof shall be governed by, and construed in accordance with, the laws of the Commonwealth of Kentucky without regard to conflicts of law principles. THE MAKERS SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF KENTUCKY AND OF ANY KENTUCKY STATE COURT SETTING IN JEFFERSON COUNTY, KENTUCKY FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS NOTE, THE SECURITY AGREEMENTS, MORTGAGES OR ANY OF THE OTHER LOAN INSTRUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

 

23.     Waivers. The Makers hereby waive presentment, demand, notice of dishonor, protest, notice of protest and nonpayment, and further waives all exemptions to which it may now or hereafter be entitled to under the laws of this or any other state or of the United States. The Lender shall have the right to grant the Makers any extension of time for payment of this Note or any other indulgence or forbearance whatsoever, and may release any security for the payment of this Note if any, as applicable, in every instance without the consent of the Makers and without in any way affecting the liability of the Makers hereunder and without waiving any rights the Lender may have hereunder or by virtue of the laws of the Commonwealth of Kentucky or any other state or of the United States.

 

 

24.     Legal Rate of Interest. Nothing herein contained shall be construed or so operate as to require payment of interest at a rate greater than the highest permitted contract rate under applicable law, or to make any payment or to do any act contrary to applicable law. To this end, if during the course of any litigation involving the enforceability of the obligations represented by this Note, a court having jurisdiction of the subject matter or of the parties to said litigation shall determine that either the interest rate as set forth herein, or the effect of said rate in relation to the particular circumstances of default resulting in said litigation, are separately or collectively usurious, then the interest rate set forth herein shall be reduced, or the operation and effect thereof ameliorated, to achieve the highest interest rate or charge which shall not be usurious. As an example of such an amelioration, in the event the indebtedness represented by this Note is declared due by the Lender prior to maturity, and the total amount of interest paid causes interest to exceed the highest rate permitted by law, such interest rate shall be recalculated at the highest rate which shall not be usurious and any excess paid over such recalculated interest rate shall be credited to the unpaid principal of this Note.

 

25.     Captions. The section headings of this Note are inserted herein solely for convenience of reference and shall not affect the construction or interpretation of the provisions hereof.

 

26.     WAIVER OF JURY TRIAL. THE MAKERS HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY (AFTER ACTUAL CONSULTATION OR THE OPPORTUNITY TO HAVE CONSULTATION WITH LEGAL COUNSEL) WAIVE THE RIGHT EACH MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON THIS NOTE, THE SECURITY AGREEMENTS, MORTGAGES OR ANY OF THE OTHER LOAN INSTRUMENTS, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THE NOTE, THE LOAN OR ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION THEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER IN MAKING THE LOAN TO THE MAKERS. THE PROVISIONS OF THIS SECTION MAY ONLY BE MODIFIED BY A WRITTEN INSTRUMENT EXECUTED BY THE MAKERS AND THE LENDER.

 

 

 

 

[The remainder of this page has intentionally been left blank]

 

 

IN WITNESS WHEREOF, the Makers agree to each of the terms set forth above and has executed this Note as of the 30th day of October, 2015.

 

 

Sypris Solutions, Inc., a Delaware corporation   By: /s/ John R. McGeeney                         Title: Vice President, General Counsel and Secretary     Sypris Technologies, Inc., a Delaware corporation   By: /s/ John R. McGeeney                         Title: General Counsel                                  Sypris Electronics, LLC, a Delaware limited liability company   By: /s/ John R. McGeeney                         Title: General Counsel                                SYPRIS DATA SYSTEMS, INC., a Delaware corporation   By: /s/ John R. McGeeney                         Title: General Counsel                                SYPRIS TECHNOLOGIES MARION, LLC, a Delaware limited liability company   By: /s/ John R. McGeeney                         Title: General Counsel

 

 

 

SYPRIS TECHNOLOGIES KENTON, INC., a Delaware corporation   By: /s/ John R. McGeeney                         Title: General Counsel                                  SYPRIS TECHNOLOGIES MEXICAN  HOLDINGS, LLC, a Delaware limited liability company   By: /s/ John R. McGeeney                         Title: General Counsel                                  SYPRIS TECHNOLOGIES NORTHERN, INC., a Delaware corporation   By: /s/ John R. McGeeney                         Title: General Counsel                                  SYPRIS TECHNOLOGIES SOUTHERN, INC., a Delaware corporation   By: /s/ John R. McGeeney                         Title: General Counsel                                  SYPRIS TECHNOLOGIES INTERNATIONAL, INC., a Delaware corporation   By: /s/ John R. McGeeney                         Title: General Counsel                                                   (the “Makers”)

 

 

COMMONWEALTH OF KENTUCKY	)
	) SS:
COUNTY OF JEFFERSON	)

 

The foregoing instrument was subscribed, sworn to and acknowledged before me this 30th day of October, 2015, by John R. McGeeney, as the Vice President, General Counsel and Secretary of Sypris Solutions, Inc., a Delaware corporation, to be his free act and voluntary deed and the free act and voluntary deed of such company.

 

 

	/s/ Andrea Luescher
	NOTARY PUBLIC
[SEAL]
	My Commission Expires: July 20, 2017

                              

 

 

COMMONWEALTH OF KENTUCKY	)
	) SS:
COUNTY OF JEFFERSON	)

 

The foregoing instrument was subscribed, sworn to and acknowledged before me this 30th day of October, 2015, by John R. McGeeney, as the General Counsel of Sypris Technologies, Inc., a Delaware corporation, to be his free act and voluntary deed and the free act and voluntary deed of such company.

 

 

 

	/s/ Andrea Luescher
	NOTARY PUBLIC
[SEAL]
	My Commission Expires: July 20, 2016

 

 

 

COMMONWEALTH OF KENTUCKY	)
	) SS:
COUNTY OF JEFFERSON	)

 

The foregoing instrument was subscribed, sworn to and acknowledged before me this 30th day of October, 2015, by John R. McGeeney, as the General Counsel of Sypris Electronics, LLC, a Delaware limited liability company, to be his free act and voluntary deed and the free act and voluntary deed of such company.

 

	/s/ Andrea Luescher
	NOTARY PUBLIC
[SEAL]
	My Commission Expires: July 20, 2016

 

 

 

COMMONWEALTH OF KENTUCKY	)
	) SS:
COUNTY OF JEFFERSON	)

 

The foregoing instrument was subscribed, sworn to and acknowledged before me this 30th day of October, 2015, by John R. McGeeney, as the General Counsel of SYPRIS DATA SYSTEMS, INC., a Delaware corporation, to be his free act and voluntary deed and the free act and voluntary deed of such company.

 

 

	/s/ Andrea Luescher
	NOTARY PUBLIC
[SEAL]
	My Commission Expires: July 20, 2016

 

 

 

 

COMMONWEALTH OF KENTUCKY	)
	) SS:
COUNTY OF JEFFERSON	)

 

The foregoing instrument was subscribed, sworn to and acknowledged before me this 30th day of October, 2015, by John R. McGeeney, as the General Counsel of SYPRIS TECHNOLOGIES MARION, LLC, a Delaware limited liability company, to be his free act and voluntary deed and the free act and voluntary deed of such company.

 

 

	/s/ Andrea Luescher
	NOTARY PUBLIC
[SEAL]
	My Commission Expires: July 20, 2016

 

 

 

COMMONWEALTH OF KENTUCKY	)
	) SS:
COUNTY OF JEFFERSON	)

 

The foregoing instrument was subscribed, sworn to and acknowledged before me this 30th day of October, 2015, by John R. McGeeney, as the General Counsel of SYPRIS TECHNOLOGIES KENTON, INC., a Delaware corporation, to be his free act and voluntary deed and the free act and voluntary deed of such company.

 

 

	/s/ Andrea Luescher
	NOTARY PUBLIC
[SEAL]
	My Commission Expires: July 20, 2016

 

 

12 

---

 

 

COMMONWEALTH OF KENTUCKY	)
	) SS:
COUNTY OF JEFFERSON	)

 

The foregoing instrument was subscribed, sworn to and acknowledged before me this 30th day of October, 2015, by John R. McGeeney, as the General Counsel of SYPRIS TECHNOLOGIES MEXICAN HOLDINGS, LLC, a Delaware limited liability company, to be his free act and voluntary deed and the free act and voluntary deed of such company.

 

 

	/s/ Andrea Luescher
	NOTARY PUBLIC
[SEAL]
	My Commission Expires: July 20, 2016

   

 

 

 

COMMONWEALTH OF KENTUCKY	)
	) SS:
COUNTY OF JEFFERSON	)

 

The foregoing instrument was subscribed, sworn to and acknowledged before me this 30th day of October, 2015, by John R. McGeeney, as the General Counsel of SYPRIS TECHNOLOGIES NORTHERN, INC., a Delaware corporation, to be his free act and voluntary deed and the free act and voluntary deed of such company.

 

 

	/s/ Andrea Luescher
	NOTARY PUBLIC
[SEAL]
	My Commission Expires: July 20, 2016

 

 

 

COMMONWEALTH OF KENTUCKY	)
	) SS:
COUNTY OF JEFFERSON	)

 

The foregoing instrument was subscribed, sworn to and acknowledged before me this 30th day of October, 2015, by John R. McGeeney, as the General Counsel of SYPRIS TECHNOLOGIES SOUTHERN, INC., a Delaware corporation, to be his free act and voluntary deed and the free act and voluntary deed of such company.

 

 

	/s/ Andrea Luescher
	NOTARY PUBLIC
[SEAL]
	My Commission Expires: July 20, 2016

 

 

COMMONWEALTH OF KENTUCKY	)
	) SS:
COUNTY OF JEFFERSON	)

 

The foregoing instrument was subscribed, sworn to and acknowledged before me this 30th day of October, 2015, by John R. McGeeney, as the General Counsel of SYPRIS TECHNOLOGIES INTERNATIONAL, INC., a Delaware corporation, to be his free act and voluntary deed and the free act and voluntary deed of such company.

 

 

	/s/ Andrea Luescher
	NOTARY PUBLIC
[SEAL]
	My Commission Expires: July 20, 2016

 

 

14

Exhibit 10.9

 

 

 

ADOPTED ON SEPTEMBER 1, 1995

 

AMENDED AND RESTATED ON JANUARY 21, 2016

 

Description of the Program

 

 

Name. The name of this benefit program shall be the “Directors Compensation Program.”

 

Purpose. The purpose of the Directors Compensation Program is to enable Sypris Solutions, Inc. (the “Company”) to attract, retain and motivate experienced directors by providing compensation that is competitive with compensation offered to directors of other similarly-situated public corporations in the United States.

 

Eligibility and Participation. Only “Eligible Directors,” defined as those members of the Board of Directors of the Company (the “Board”) who are not otherwise employed by the Company, its subsidiaries or any affiliate of the Company in any other capacity, are eligible to participate in the Directors Compensation Program. Any Eligible Director on the Board as of January 21, 2016 (the “Effective Date”) and thereafter shall be eligible for compensation under the Directors Compensation Program.

 

Compensation. Eligible Directors shall be compensated as set forth below:

 

 

(a)             Annual Retainer.

 

(i) Amount. Each Eligible Director shall receive an annual retainer in the amount set forth on Exhibit 1 hereto which may include cash and/or equity grants under the 2015 Sypris Omnibus Plan (the “Annual Retainer”). Service for a partial year will be compensated on a prorated basis as determined by the Committee.

 

(ii) Quarterly Payment. The cash portion of the Annual Retainer or the Prorated Annual Retainer, as applicable, shall be earned by the Eligible Directors and paid by the Company in equal quarterly installments for each Eligible Director. The quarterly installments of the Annual Retainer or Prorated Annual Retainer shall be payable, in arrears by checks issued to each Eligible Director no later than the 15th calendar day following the end of each of the Company’s fiscal quarters during which the respective Eligible Director served on the Board.

 

(b)         Extraordinary Awards.

 

The Committee has the authority to recommend to the Board, grants of individual equity awards for services as a Director, beyond the normal scope in their sole discretion.

 

 

Page 1 of 2

 

Exhibit 10.9

 

Expense Reimbursement. Each Eligible Director shall be reimbursed for travel and other expenses incurred in the performance of his or her duties.

 

Administration. The Directors Compensation Program is administered by the Compensation Committee of the Board. The Committee members are selected by the Board and have no specific term of office.

 

Resignation from the Board of Directors. The resignation of any Eligible Director shall cause such director to be ineligible to receive any amount of the Fee installments not yet earned by him or her as of the date of resignation.

 

Program Termination or Modification. The Compensation Committee shall review the Directors Compensation Program on at least an annual basis and may make changes, alterations or modifications to the program which are deemed to be in the Company’s best interest. Any change, alteration or modification shall be made by a written instrument consented to by the Board. The Board may similarly terminate the Directors Compensation Program at any time if, in the judgment of the Board, such termination is in the Company’s best interest.

 

 

IN WITNESS WHEREOF, the Company has caused this Directors Compensation Program to be executed in its name and on its behalf on January 21, 2016.

 

 

	SYPRIS SOLUTIONS, INC.
	By:	/s/ Jeffrey T. Gill
		Jeffrey T. Gill
		President and CEO

 

 

Page 2 of 2

Exhibit 10.10

 

 

 

Restricted Stock

 

Effective as of __[Date]__ (the “Grant Date”) contingent on your continued service as of that date, the Company hereby grants to _[Director Name] certain rights to ownership of up to: [#shares] Restricted Shares on the terms of this Award Agreement (the “Terms”), the attached Program, and the 2015 Sypris Omnibus Plan (as amended from time to time, the “Plan”) as follows:

 

 

 

Vesting Dates	# of Shares Vesting
[3rd Anniversary]	[xxx]

 

  

 

Intending to be legally bound by all such Terms, the Program, and the Plan, I acknowledge the sole authority of the Committee to interpret the terms of the foregoing, the forfeiture of my rights upon any termination of my service as a Director under such Terms. I have received and had an opportunity to review, with the benefit of any legal counsel of my choosing (any such legal counsel to be retained at my own expense), the Plan, the Program, and this Award Agreement.

 

 

 

SYPRIS SOLUTIONS, INC.	PARTICIPANT
By:	Signature:
Name: Jeffrey T. Gill	Name:
Title:  President & CEO

 

 

 

1.

Purpose of the Program. The Company’s Discretionary Director Restricted Stock Program (“Program”) under the 2015 Sypris Omnibus Plan (as amended from time to time, the “Plan”) shall be effective for all Awards incorporating these terms on or after January 21, 2016, to advance the Company’s growth and prosperity by providing long-term financial incentives to its Directors, and to further the Company’s philosophy of equity ownership by the Company’s Directors in accordance with the Company’s Equity Ownership Guidelines.

 

2.	Restricted Shares. Each “Restricted Share” is one Share of the Common Stock (subject to adjustments per the Plan) which is subject to forfeiture before its Vesting Date, as set forth below.

 

2.1.

Restricted Share Vesting. Unless otherwise determined by the Committee, grants of Restricted Shares will vest 100% on the third anniversary of the Grant Date (the “Vesting Date”), unless forfeited before such Vesting Date.

 

2.2.

Distribution. All Restricted Shares will be held by the Company or issued in book entry form until the Vesting Date, and physically distributed to the Participant thereafter, with any legends required by applicable Rules. Participants may vote and receive cash dividends on such Restricted Shares, as applicable, after the Grant Date.

 

3.	Future Awards. Future awards, if any, are strictly subject to the sole discretion of the Committee and receipt of any Award does not guarantee that a Participant will receive future Awards.

 

4.	Termination. If the Participant’s service on the Board of Directors is terminated for any reason or no reason, each unvested Restricted Share will terminate, expire, and be forfeited as provided in Article V of the Plan.

 

5.

Administration. The Committee shall have complete authority to administer or interpret the Program or any Award, to prescribe, amend, and rescind rules and regulations relating thereto, and to make all other determinations necessary or advisable for the administration of the Program or any Award Agreements (including to establish or amend any rules regarding the Program that are necessary or advisable to comply with, or qualify under, any applicable law, listing requirement, regulation, or policy of any entity, agency, organization, governmental entity, or the Company, in the Committee’s sole discretion (“Rule”)). In addition, with respect to any future grants or the unvested portion of any Award, the Committee may amend or terminate these Terms or any Awards, in its sole discretion without the consent of any Director or beneficiary, subject to applicable Rules, at any time and from time-to-time. With respect to any amendment, action, or approval hereunder, the Committee may require the approval of any other persons or entities, pursuant to applicable Rules. The decisions of the Committee in interpreting and applying the Program will be final.

 

 

 

6.

Section 83(b) Election. Under Section 83 of the Internal Revenue Code of 1986, as amended (the "Code"), a Participant may elect to be taxed at the time the Restricted Shares are acquired, rather than when such Restricted Shares vest, by filing an election with the Internal Revenue Service within thirty (30) days after the Grant Date. IT IS THE PARTICIPANT’S SOLE RESPONSIBILITY, AND NOT THE COMPANY'S, TO FILE A TIMELY ELECTION UNDER CODE SECTION 83(b), EVEN IF THE PARTICIPANT REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON THE PARTICIPANT’S BEHALF. THE PARTICIPANT MUST RELY SOLELY ON HIS OR HER OWN ADVISORS WITH RESPECT TO THE DECISION AS TO WHETHER OR NOT TO FILE ANY CODE SECTION 83(b) ELECTION.

 

 

7.	Miscellaneous. Unless otherwise specified, all capitalized terms herein shall have the meanings assigned to them in the Plan or in the Award Agreement.

 

7.1.

No Other Rights. The Awards include no other rights beyond those expressly provided in the Plan, the Program, or the Award Agreement. Awards are non-assignable and non-transferable except by will or the laws of descent and distribution, unless otherwise approved by the Committee.

 

7.2.

Taxes. The Participant must arrange for all tax withholding obligations related to any Award. Tax withholding obligations may be satisfied by any of the following methods, as determined by the Committee in its sole discretion: (i) cash, (ii) surrender of Shares of then-equivalent value (including the surrender of Shares otherwise to be received in connection with the vesting of an Award), or (iii) other forms of payment as determined by the Committee. The maximum number of Shares that may be withheld from any Award to satisfy any federal, state, or local tax withholding requirements upon the lapse of restrictions applicable to an Award cannot exceed such number of Shares having a Fair Market Value equal to the minimum statutory amount required by the Company to be withheld and paid to any such federal, state, or local taxing authority with respect to such lapse of restrictions.

 

7.3.

Delegation. The Committee may delegate any portion of their responsibilities and powers to one or more persons selected by them, subject to applicable Rules. Such delegation may be revoked by the Committee at any time.

 

 

- 3 -

Exhibit 10.14

  

 

 

Restricted Stock

 

Effective as of __[Date]__ (the “Grant Date”) contingent on your continued employment as of that date, the Company hereby grants to _[Employee Name] certain rights to ownership of up to: [#shares] Restricted Shares on the terms of this Award Agreement (the “Terms”), the attached Program, and the 2015 Sypris Omnibus Plan (as amended from time to time, the “Plan”) as follows:

 

 

 

Vesting Date	# of Shares Vesting
[18 Month Anniversary]	[xxx]

 

 

  

Intending to be legally bound by all such Terms, the Program, and the Plan, I acknowledge the sole authority of the Committee to interpret the terms of the foregoing, the forfeiture of my rights upon any termination of my employment under such Terms, and my continuing status as an “at will” employee (subject to termination without cause or notice). I have received and had an opportunity to review, with the benefit of any legal counsel of my choosing (any such legal counsel to be retained at my own expense), the Plan, the Program, and this Award Agreement.

 

 

 

SYPRIS SOLUTIONS, INC.	PARTICIPANT
By:	Signature:
Name: Jeffrey T. Gill	Name:
Title:  President & CEO

 

 

 

1.

Purpose of the Program. The Company’s Eighteen Month Restricted Stock Program (“Program”) under the 2015 Sypris Omnibus Plan (as amended from time to time, the “Plan”) shall be effective for all Awards incorporating these terms on or after May 19, 2015, to advance the Company’s growth and prosperity by providing long-term financial incentives to its key employees, and to further the Company’s philosophy of equity ownership by the Company’s officers in accordance with the Company’s Equity Ownership Guidelines.

 

2.	Restricted Shares. Each “Restricted Share” is one Share of the Common Stock (subject to adjustments per the Plan) which is subject to forfeiture before its Vesting Date, as set forth below.

 

2.1.

Restricted Share Vesting. Unless otherwise determined by the Committee, grants of Restricted Shares will vest 100% on or about the eighteen month anniversary of the Grant Date (the “Vesting Date”), unless forfeited before such Vesting Date.

 

2.2.

Distribution. All Restricted Shares will be held by the Company or issued in book entry form until the Vesting Date, and physically distributed to the Participant thereafter, with any legends required by applicable Rules. Participants may vote and receive cash dividends on such Restricted Shares, as applicable, after the Grant Date.

 

3.	Future Awards. Future awards, if any, are strictly subject to the sole discretion of the Committee and receipt of any Award does not guarantee that a Participant will receive future Awards.

 

4.	Leaves of Absence. The Committee may in its discretion treat all or any portion of any period during which a Participant is on military or other approved leave of absence as a period of employment for purposes of the accrual of rights hereunder.

 

5.	Termination. If the Participant’s employment is terminated for any reason or no reason, each unvested Restricted Share will terminate, expire, and be forfeited as provided in Article V of the Plan. (The Committee has sole discretion to determine whether a demotion is a “termination” of employment.)

 

6.

Administration. The Committee shall have complete authority to administer or interpret the Program or any Award, to prescribe, amend, and rescind rules and regulations relating thereto, and to make all other determinations necessary or advisable for the administration of the Program or any Award Agreements (including to establish or amend any rules regarding the Program that are necessary or advisable to comply with, or qualify under, any applicable law, listing requirement, regulation, or policy of any entity, agency, organization, governmental entity, or the Company, in the Committee’s sole discretion (“Rule”)). In addition, with respect to any future grants or the unvested portion of any Award, the Committee may amend or terminate these Terms or any Awards, in its sole discretion without the consent of any employee or beneficiary, subject to applicable Rules, at any time and from time-to-time. With respect to any amendment, action, or approval hereunder, the Committee may require the approval of any other persons or entities, pursuant to applicable Rules. The decisions of the Committee in interpreting and applying the Program will be final.

 

 

 

7.

Section 83(b) Election. Under Section 83 of the Internal Revenue Code of 1986, as amended (the "Code"), a Participant may elect to be taxed at the time the Restricted Shares are acquired, rather than when such Restricted Shares vest, by filing an election with the Internal Revenue Service within thirty (30) days after the Grant Date. IT IS THE PARTICIPANT’S SOLE RESPONSIBILITY, AND NOT THE COMPANY'S, TO FILE A TIMELY ELECTION UNDER CODE SECTION 83(b), EVEN IF THE PARTICIPANT REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON THE PARTICIPANT’S BEHALF. THE PARTICIPANT MUST RELY SOLELY ON HIS OR HER OWN ADVISORS WITH RESPECT TO THE DECISION AS TO WHETHER OR NOT TO FILE ANY CODE SECTION 83(b) ELECTION.

 

 

8.	Miscellaneous. Unless otherwise specified, all capitalized terms herein shall have the meanings assigned to them in the Plan or in the Award Agreement.

 

8.1.

No Other Rights. The Awards include no other rights beyond those expressly provided in the Plan, the Program, or the Award Agreement. Awards are non-assignable and non-transferable except by will or the laws of descent and distribution, unless otherwise approved by the Committee.

 

8.2.

Taxes. The Participant must arrange for all tax withholding obligations related to any Award. Tax withholding obligations may be satisfied by any of the following methods, as determined by the Committee in its sole discretion: (i) cash, (ii) surrender of Shares of then-equivalent value (including the surrender of Shares otherwise to be received in connection with the vesting of an Award), or (iii) other forms of payment as determined by the Committee. The maximum number of Shares that may be withheld from any Award to satisfy any federal, state, or local tax withholding requirements upon the lapse of restrictions applicable to an Award cannot exceed such number of Shares having a Fair Market Value equal to the minimum statutory amount required by the Company to be withheld and paid to any such federal, state, or local taxing authority with respect to such lapse of restrictions.

 

8.3.

Delegation. The Committee may delegate any portion of their responsibilities and powers to one or more persons selected by them, subject to applicable Rules. Such delegation may be revoked by the Committee at any time.

 

 

- 3 -

Exhibit 10.15

 

 

 

Restricted Stock

 

Effective as of __[Date]__ (the “Grant Date”) contingent on your continued employment as of that date, the Company hereby grants to _[Employee Name] certain rights to ownership of up to: [#shares] Restricted Shares on the terms of this Award Agreement (the “Terms”), the attached Program, and the 2015 Sypris Omnibus Plan (as amended from time to time, the “Plan”) as follows:

 

 

 

Vesting Dates	# of Shares Vesting
[3rd Anniversary]	[100%]

 

 

  

Intending to be legally bound by all such Terms, the Program, and the Plan, I acknowledge the sole authority of the Committee to interpret the terms of the foregoing, the forfeiture of my rights upon any termination of my employment under such Terms, and my continuing status as an “at will” employee (subject to termination without cause or notice). I have received and had an opportunity to review, with the benefit of any legal counsel of my choosing (any such legal counsel to be retained at my own expense), the Plan, the Program, and this Award Agreement.

 

 

 

SYPRIS SOLUTIONS, INC.	PARTICIPANT
By:	Signature:
Name: Jeffrey T. Gill	Name:
Title:  President & CEO

 

 

 

---

 

 

 

1.

Purpose of the Program. The Company’s Three Year Restricted Stock Program (“Program”) under the 2015 Sypris Omnibus Plan (as amended from time to time, the “Plan”) shall be effective for all Awards incorporating these terms on or after May 19, 2015, to advance the Company’s growth and prosperity by providing long-term financial incentives to its key employees, and to further the Company’s philosophy of equity ownership by the Company’s officers in accordance with the Company’s Equity Ownership Guidelines.

 

2.	Restricted Shares. Each “Restricted Share” is one Share of the Common Stock (subject to adjustments per the Plan) which is subject to forfeiture before its Vesting Date, as set forth below.

 

2.1.

Restricted Share Vesting. Unless otherwise determined by the Committee, grants of Restricted Shares will vest 100% on the third anniversary of the Grant Date (the “Vesting Date”), unless forfeited before such Vesting Date.

 

2.2.

Distribution. All Restricted Shares will be held by the Company or issued in book entry form until the Vesting Date, and physically distributed to the Participant thereafter, with any legends required by applicable Rules. Participants may vote and receive cash dividends on such Restricted Shares, as applicable, after the Grant Date.

 

3.	Future Awards. Future awards, if any, are strictly subject to the sole discretion of the Committee and receipt of any Award does not guarantee that a Participant will receive future Awards.

 

4.	Leaves of Absence. The Committee may in its discretion treat all or any portion of any period during which a Participant is on military or other approved leave of absence as a period of employment for purposes of the accrual of rights hereunder.

 

5.	Termination. If the Participant’s employment is terminated for any reason or no reason, each unvested Restricted Share will terminate, expire, and be forfeited as provided in Article V of the Plan. (The Committee has sole discretion to determine whether a demotion is a “termination” of employment.)

 

6.

Administration. The Committee shall have complete authority to administer or interpret the Program or any Award, to prescribe, amend, and rescind rules and regulations relating thereto, and to make all other determinations necessary or advisable for the administration of the Program or any Award Agreements (including to establish or amend any rules regarding the Program that are necessary or advisable to comply with, or qualify under, any applicable law, listing requirement, regulation, or policy of any entity, agency, organization, governmental entity, or the Company, in the Committee’s sole discretion (“Rule”)). In addition, with respect to any future grants or the unvested portion of any Award, the Committee may amend or terminate these Terms or any Awards, in its sole discretion without the consent of any employee or beneficiary, subject to applicable Rules, at any time and from time-to-time. With respect to any amendment, action, or approval hereunder, the Committee may require the approval of any other persons or entities, pursuant to applicable Rules. The decisions of the Committee in interpreting and applying the Program will be final.

 

 

 

7.

Section 83(b) Election. Under Section 83 of the Internal Revenue Code of 1986, as amended (the "Code"), a Participant may elect to be taxed at the time the Restricted Shares are acquired, rather than when such Restricted Shares vest, by filing an election with the Internal Revenue Service within thirty (30) days after the Grant Date. IT IS THE PARTICIPANT’S SOLE RESPONSIBILITY, AND NOT THE COMPANY'S, TO FILE A TIMELY ELECTION UNDER CODE SECTION 83(b), EVEN IF THE PARTICIPANT REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON THE PARTICIPANT’S BEHALF. THE PARTICIPANT MUST RELY SOLELY ON HIS OR HER OWN ADVISORS WITH RESPECT TO THE DECISION AS TO WHETHER OR NOT TO FILE ANY CODE SECTION 83(b) ELECTION.

 

 

8.	Miscellaneous. Unless otherwise specified, all capitalized terms herein shall have the meanings assigned to them in the Plan or in the Award Agreement.

 

8.1.

No Other Rights. The Awards include no other rights beyond those expressly provided in the Plan, the Program, or the Award Agreement. Awards are non-assignable and non-transferable except by will or the laws of descent and distribution, unless otherwise approved by the Committee.

 

8.2.

Taxes. The Participant must arrange for all tax withholding obligations related to any Award. Tax withholding obligations may be satisfied by any of the following methods, as determined by the Committee in its sole discretion: (i) cash, (ii) surrender of Shares of then-equivalent value (including the surrender of Shares otherwise to be received in connection with the vesting of an Award), or (iii) other forms of payment as determined by the Committee. The maximum number of Shares that may be withheld from any Award to satisfy any federal, state, or local tax withholding requirements upon the lapse of restrictions applicable to an Award cannot exceed such number of Shares having a Fair Market Value equal to the minimum statutory amount required by the Company to be withheld and paid to any such federal, state, or local taxing authority with respect to such lapse of restrictions.

 

8.3.

Delegation. The Committee may delegate any portion of their responsibilities and powers to one or more persons selected by them, subject to applicable Rules. Such delegation may be revoked by the Committee at any time.

 

 

- 3 -

Exhibit 10.16

 

Non-Qualified Stock Option

Award Agreement

 

 

Effective as of __[Date]__ (“Grant Date”), the Company hereby grants to _[Employee]_ an option (the “Options”) to purchase up to: [# of Shares] shares of Common Stock (each, a “Share” and collectively, the “Shares”) for $[Price] per Share until [4^th Anniversary of Grant Date] (the “Expiration Date”) on the terms of this Agreement (the “Terms”) and the 2015 Sypris Omnibus Plan (as amended from time to time, the “Plan”) as follows:

 

 

Vesting Dates	# of Options Vesting	Option Prices	Expiration Date
[3rd Anniversary]	[100%]	[FMV at grant]	[4th Anniversary]

 

 

Intending to be legally bound by all the Terms and the Plan, I acknowledge the sole authority of the Committee to interpret the provisions of the foregoing, the forfeiture of my rights upon any termination of my employment under the terms of the foregoing and my continuing status as an “at will” employee (subject to termination without cause or notice). I have received and had an opportunity to review, with the benefit of any legal counsel of my choosing (any such legal counsel to be retained at my own expense), the Plan and the Terms.

 

 

 

SYPRIS SOLUTIONS, INC.	PARTICIPANT
By:	Signature:
Name:	Name:
Title:

 

 

Exhibit 10.16

 

Four-Year Stock Option Terms of Awards

of the 2015 Sypris Omnibus Plan (“Plan”)

 

 

1.     Awards – All Options granted hereunder will be non-qualified Options subject to, and governed by, the terms of the Plan, the Terms and a valid, executed Award Agreement.

 

2.     Options – Each Option is the right to purchase one Share at the Option Price, from its Vesting Date until its Expiration Date or forfeiture (subject to adjustments per the Plan). Options must be exercised with 48 hours advance written notice, unless waived by the Company.

 

3.     Option Price – “Option Price” means the closing price per Share on the Grant Date. The Option Price is payable to the Company in cash or any other method of payment authorized by the Committee in its discretion, which may include Shares previously owned (valued as the closing price per Share on the exercise date) or Shares otherwise deliverable upon exercise of the Option (valued as the closing price per Share on the exercise date, less the Option Price), in each case in accordance with applicable Rules. Similarly, the Participant must arrange for tax withholding in accordance with applicable Rules, to the satisfaction of the Committee.

 

4.     Shareholder Rights – Holders of Options have no rights as a shareholder of the Company until the Option has been validly exercised and a certificate for Shares underlying such Option has been issued. Except as otherwise provided in the Plan, no adjustments are made for dividends or other rights if the applicable record date occurs before your stock certificate is issued.

 

5.     Vesting – One hundred percent of the Options shall vest on the third anniversary of the Grant Date (the “Vesting Date”), unless forfeited before such Vesting Date.

 

6.     Expiration Date – Each Option’s Expiration Date will be the fourth anniversary of its Grant Date.

 

7.     Forfeiture – Each Option will terminate, expire and be forfeited as provided in Article V of the Plan. (The Committee has sole discretion to determine whether a demotion is a “termination” of employment.)

 

8.     Leaves of Absence – The Committee may in its discretion treat all or any portion of any period during which a Participant is on military or on an approved leave of absence as a period of employment for purposes of the accrual of rights hereunder.

 

9.     No Other Rights – The Options include no other rights beyond those expressly provided in the Plan, these Terms or the Award Agreement. Options are non-assignable and non-transferable except by will or the laws of descent and distribution, unless otherwise approved by the Committee.

 

10.     Definitions – Unless otherwise specified, all capitalized terms herein shall have the meanings assigned to them in the Plan or in the Award Agreement.

 

 

Exhibit 10.17

 

 

Non-Qualified Stock Option

Award Agreement

 

 

Effective as of __[Date]__ (“Grant Date”), the Company hereby grants to _[Employee]_ an option (the “Options”) to purchase up to: [# of Shares] shares of Common Stock (each, a “Share” and collectively, the “Shares”) for $[Price] per Share until [5^th Anniversary of Grant Date] (the “Expiration Date”) on the terms of this Agreement (the “Terms”) and the 2015 Sypris Omnibus Plan (as amended from time to time, the “Plan”) as follows:

 

 

Vesting Dates	# of Options Vesting	Option Prices	Expiration Date
[3rd Anniversary]	[100%]	[FMV at grant]	[5th Anniversary]

 

 

Intending to be legally bound by all the Terms and the Plan, I acknowledge the sole authority of the Committee to interpret the provisions of the foregoing, the forfeiture of my rights upon any termination of my employment under the terms of the foregoing and my continuing status as an “at will” employee (subject to termination without cause or notice). I have received and had an opportunity to review, with the benefit of any legal counsel of my choosing (any such legal counsel to be retained at my own expense), the Plan and the Terms.

 

  

SYPRIS SOLUTIONS, INC.	PARTICIPANT
By:	Signature:
Name:	Name:
Title:

 

 

Exhibit 10.17

 

Five-Year Stock Option Terms of Awards

of the 2015 Sypris Omnibus Plan (“Plan”)

 

 

1.     Awards – All Options granted hereunder will be non-qualified Options subject to, and governed by, the terms of the Plan, the Terms and a valid, executed Award Agreement.

 

2.     Options – Each Option is the right to purchase one Share at the Option Price, from its Vesting Date until its Expiration Date or forfeiture (subject to adjustments per the Plan). Options must be exercised with 48 hours advance written notice, unless waived by the Company.

 

3.     Option Price – “Option Price” means the closing price per Share on the Grant Date. The Option Price is payable to the Company in cash or any other method of payment authorized by the Committee in its discretion, which may include Shares previously owned (valued as the closing price per Share on the exercise date) or Shares otherwise deliverable upon exercise of the Option (valued as the closing price per Share on the exercise date, less the Option Price), in each case in accordance with applicable Rules. Similarly, the Participant must arrange for tax withholding in accordance with applicable Rules, to the satisfaction of the Committee.

 

4.     Shareholder Rights – Holders of Options have no rights as a shareholder of the Company until the Option has been validly exercised and a certificate for Shares underlying such Option has been issued. Except as otherwise provided in the Plan, no adjustments are made for dividends or other rights if the applicable record date occurs before your stock certificate is issued.

 

5.     Vesting – One hundred percent of the Options shall vest on the third anniversary of the Grant Date (the “Vesting Date”), unless forfeited before such Vesting Date.

 

6.     Expiration Date – Each Option’s Expiration Date will be the fifth anniversary of its Grant Date.

 

7.     Forfeiture – Each Option will terminate, expire and be forfeited as provided in Article V of the Plan. (The Committee has sole discretion to determine whether a demotion is a “termination” of employment.)

 

8.     Leaves of Absence – The Committee may in its discretion treat all or any portion of any period during which a Participant is on military or on an approved leave of absence as a period of employment for purposes of the accrual of rights hereunder.

 

9.     No Other Rights – The Options include no other rights beyond those expressly provided in the Plan, these Terms or the Award Agreement. Options are non-assignable and non-transferable except by will or the laws of descent and distribution, unless otherwise approved by the Committee.

 

10.     Definitions – Unless otherwise specified, all capitalized terms herein shall have the meanings assigned to them in the Plan or in the Award Agreement.

 

 

EXHIBIT 21

 

SYPRIS SOLUTIONS, INC.

SUBSIDIARIES OF THE COMPANY

 

The Company’s subsidiaries as of December 31, 2015 are as follows:

 

(1)	Sypris Electronics, LLC, a Delaware limited liability company.

 

(2)	Sypris Data Systems, Inc., a Delaware corporation.

 

(3)	Sypris Technologies, Inc., a Delaware corporation.

 

(4)	Sypris Technologies Marion, LLC, a Delaware limited liability company.

 

(5)	Sypris Technologies Kenton, Inc., a Delaware corporation.

 

(6)	Sypris Technologies Mexican Holdings, LLC, a Delaware limited liability company.

 

(7)	Sypris Technologies Mexico, S. de R.L. de C.V., a Mexican limited liability company.

 

(8)	Sypris Technologies Toluca, S.A. de C.V., a Mexican corporation.

 

(9)	Sypris Europe ApS, a Danish private limited liability company.

 

(10)	Sypris Technologies (UK) Ltd., a UK private limited company.

 

(11)	Sypris Technologies Northern, Inc., a Delaware corporation.

 

(12)	Sypris Technologies Southern, Inc., a Delaware corporation.

 

(13)	Sypris Technologies International, Inc., a Delaware corporation.

 

 

 

 

EXHIBIT 23.1

 

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We consent to the incorporation by reference in the following Registration Statements of Sypris Solutions, Inc.:

 

(1) Registration Statement (Forms S-8 Nos. 333-07195, 33-94544, 333-07199, 333-52589, 333-62781, 333-52593, 333-77883, 333-87882 and 333-87880) pertaining to the Sypris Solutions, Inc. 1994 Stock Option Plan for Key Employees and the Sypris Solutions, Inc. Independent Directors’ Stock Option Plan,

(2) Registration Statement (Form S-8 No. 333-114982) pertaining to the Sypris Solutions, Inc. 2004 Equity Plan,

(3) Registration Statement (Form S-8 No. 333-166951) pertaining to the Sypris Solutions, Inc. 2010 Sypris Omnibus Plan; and

(4) Registration Statement (Form S-8 No. 333-204299) pertaining to the Sypris Solutions, Inc. 2015 Sypris Omnibus Plan;

 

 

of our report dated March 30, 2016 relating to the consolidated financial statement, appearing in this Annual Report on Form 10-K.

 

/s/Crowe Horwath LLP

 

Louisville, Kentucky

March 30, 2016

Exhibit 31.1

 

 

CERTIFICATION PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT OF 2002

 

 

 

I, Jeffrey T. Gill, certify that:

 

1.	I have reviewed this annual report on Form 10-K of Sypris Solutions, Inc.;

 

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

 

Date:          March 30, 2016	By:	/s/ Jeffrey T. Gill
		Jeffrey T. Gill
		President & Chief Executive Officer

 

Exhibit 31.2

 

 

CERTIFICATION PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT OF 2002

 

 

 

I, Anthony C. Allen, certify that:

 

1.	I have reviewed this annual report on Form 10-K of Sypris Solutions, Inc.;

 

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

 

Date:          March 30, 2016	By:	/s/ Anthony C. Allen
		Anthony C. Allen
		Vice President & Chief Financial Officer

 

Exhibit 32

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

 

In connection with the Annual Report of Sypris Solutions, Inc. (the Company) on Form 10-K for the period ending December 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the Report), each of the undersigned hereby certifies, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, in his capacity as an officer of Sypris Solutions, Inc., that to his knowledge:

 

(1)     The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and

 

(2)     The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date:          March 30, 2016	By:	/s/ Jeffrey T. Gill
		Jeffrey T. Gill
		President & Chief Executive Officer

 

Date:          March 30, 2016	By:	/s/ Anthony C. Allen
		Anthony C. Allen
		Vice President & Chief Financial Officer

 

 

 

 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Sypris Solutions, Inc. and will be retained by Sypris Solutions, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

 

The foregoing certification is being furnished to the Securities and Exchange Commission as an exhibit to the Form 10-K and shall not be considered filed as part of the Form 10-K.