<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 29, 1996
--------------
OR
[ ] 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 1-5601
AMERICAN PRECISION INDUSTRIES INC.
--------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 16-1284388
- -------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2777 WALDEN AVENUE, BUFFALO, NEW YORK 14225
- ---------------------------------------------- ----------
(Address of principal executives offices) (Zip Code)
</TABLE>
(716) 684-9700
-----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (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 X No .
----- -----
Number of shares of outstanding stock
on May 3, 1996 7,176,704
This document contains pages 1 through 59 inclusive.
1
<PAGE> 2
AMERICAN PRECISION INDUSTRIES INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
----------------------------------
(Unaudited)
<TABLE>
<CAPTION>
First Quarter Ended
-------------------------
1996 1995
March March
----------- -----------
<S> <C> <C>
Net Sales $21,948,000 $19,222,000
Investment Income 74,000 67,000
----------- -----------
Revenues 22,022,000 19,289,000
----------- -----------
Costs and Expenses
Cost of products sold 14,568,000 12,968,000
Selling and administrative 4,859,000 4,307,000
Research and product development 314,000 303,000
Interest and debt expense 140,000 58,000
----------- -----------
19,881,000 17,636,000
----------- -----------
Earnings Before Income Taxes 2,141,000 1,653,000
Federal and State Income Taxes 742,000 611,000
----------- -----------
Net Earnings $ 1,399,000 $ 1,042,000
=========== ===========
Net Earnings per Share $ 0.20 $ 0.15
=========== ===========
Dividends Declared per Share $ 0.650 $ 0.0625
=========== ===========
Average Shares Outstanding 7,142,000 7,064,000
=========== ===========
</TABLE>
2
<PAGE> 3
AMERICAN PRECISION INDUSTRIES
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- --------------------------
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
March December
----------- ------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 1,363,000 $ 2,486,000
Accounts receivable less allowance for doubtful
accounts of $283,000 and $264,000 14,158,000 12,691,000
Marketable securities 2,021,000 3,493,000
Inventories 12,115,000 10,589,000
Prepaid expenses 921,000 967,000
Deferred income tax benefit 1,394,000 1,389,000
----------- -----------
Total Current Assets 31,972,000 31,615,000
----------- -----------
Investments 6,105,000 6,277,000
Other Assets
Cost in excess of net assets acquired 2,119,000 2,153,000
Prepaid pension cost 2,140,000 2,140,000
Net cash value of life insurance 2,226,000 2,222,000
Other 1,208,000 1,115,000
----------- -----------
Total Other Assets 7,693,000 7,630,000
----------- -----------
Property, Plant and Equipment
Land 211,000 211,000
Building and improvements 6,232,000 6,183,000
Machinery, equipment and furniture 22,492,000 22,265,000
Construction in process 2,173,000 1,450,000
----------- -----------
31,108,000 30,109,000
Less accumulated depreciation 18,345,000 17,840,000
----------- -----------
Net Property, Plant and Equipment 12,763,000 12,269,000
=========== ===========
$58,533,000 $57,791,000
=========== ===========
</TABLE>
3
<PAGE> 4
AMERICAN PRECISION INDUSTRIES
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- --------------------------
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
March December
------------ ------------
<S> <C> <C>
Liabilities and Shareholders' Equity
Current Liabilities
Short-term borrowings $ 770,000 $ 2,602,000
Accounts payable 6,759,000 5,136,000
Accrued compensation and payroll taxes 2,701,000 3,566,000
Other accrued expenses 871,000 757,000
Dividends payable 465,000 463,000
Current portion of long-term obligations 655,000 628,000
Federal and state income taxes 662,000 --
----------- -----------
Total Current Liabilities 12,883,000 13,152,000
----------- -----------
Deferred Income Taxes 1,251,000 1,251,000
Other Noncurrent Liabilities 378,000 413,000
Long-Term Obligations, less current portion 8,476,000 8,628,000
Shareholders' Equity
Common stock, par value
$.66-2/3 per share:
Authorized - 10,000,000 shares
Issued - 7,529,689 and 7,502,000 shares 5,020,000 5,001,000
Additional paid-in capital 9,718,000 9,532,000
Retained earnings 23,630,000 22,629,000
Net unrealized gain on marketable securities
and investments 15,000 23,000
----------- -----------
38,383,000 37,185,000
Less cost of 374,262 treasury shares 2,838,000 2,838,000
----------- -----------
Total Shareholders' Equity 35,545,000 34,347,000
----------- -----------
$58,533,000 $57,791,000
=========== ===========
</TABLE>
4
<PAGE> 5
AMERICAN PRECISION INDUSTRIES
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- ------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
1996 1995
MARCH MARCH
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income $ 1,399,000 $ 1,041,000
Adjustments to reconcile net income to cash and
and cash equivalents provided by operating activities:
Depreciation and amortization 781,000 675,000
Gain on sale of investments and fixed assets 10,000 --
Increase in supplemental benefit program 32,000 34,000
Recognition of pension income under FASB #87 -- (78,000)
Stock compensation programs 298,000 --
Change in various allowance accounts 2,000 (16,000)
(Increase) Decrease in:
Accounts receivable (1,486,000) (757,000)
Inventories (1,459,000) (55,000)
Prepaid expenses 60,000 (90,000)
Deferred income taxes (25,000) --
Other assets, net (130,000) (119,000)
Increase (Decrease) in:
Accounts payable 1,669,000 (462,000)
Accrued expenses (751,000) (143,000)
Federal and state income taxes 662,000 598,000
Other noncurrent liabilities (333,000) (96,000)
----------- -----------
Net cash provided by Operating Activities 729,000 532,000
----------- -----------
Cash Flows from Investing Activities
Purchases of investments and marketable securities (20,000) --
Additions to property, plant and equipment (1,228,000) (731,000)
Proceeds from investments and sale of fixed assets 1,641,000 1,079,000
----------- -----------
Net cash provided by Investing Activities 393,000 348,000
----------- -----------
Cash Flows from Financing Activities
Exercise of stock options 205,000 3,000
Payment of long-term obligations, including current maturities (155,000) (92,000)
Dividends paid (463,000) (441,000)
Short-term borrowings (1,832,000) (1,700,000)
----------- -----------
Net cash (used) by Financing Activities (2,245,000) (2,230,000)
----------- -----------
Net Decrease in Cash and Cash Equivalents (1,123,000) (1,350,000)
Cash and Cash Equivalents at Beginning of Year 2,486,000 2,135,000
----------- -----------
Cash and Cash Equivalents at End of Period $ 1,363,000 $ 785,000
=========== ===========
</TABLE>
5
<PAGE> 6
AMERICAN PRECISION INDUSTRIES
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
First Quarter Ended March 29, 1996
------------------------------------------
Note A Consolidated Financial Statements
- ------ ---------------------------------
The Consolidated Balance Sheet as of March 29, 1996, and the
Consolidated Statement of Earnings, and the Consolidated
Statement of Cash Flows for the periods ended March 29, 1996 and
March 31, 1995 have been prepared by the Company without audit.
In the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the
financial position, results of operations, and changes in cash
flow at March 29,1996 and for all periods presented have been
made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with Generally
Accepted Accounting Principles have been condensed or omitted. It
is suggested these condensed consolidated financial statements be
read in conjunction with the financial statements and the notes
thereto included in the Company's December 29, 1995 Annual Report
to Shareholders.
NOTE B Cash, Cash Equivalents, and Marketable Securities
- ------ -------------------------------------------------
Cash, cash equivalents, and marketable securities includes
$2,175,000 of restricted funds held in an escrow account as part
of the Management Agreement between the Company and Gettys
Corporation. These funds will be applied to the purchase price of
the net assets of Gettys Corporation at the time the Company
acquires those net assets pursuant to the exercise of the put or
call option provision of the Management Agreement.
Note C Inventories
- ------ -----------
It is not practical to determine raw material, work in process,
and finished goods inventories during interim periods.
6
<PAGE> 7
Note D Long-Term Obligations
- ------ ---------------------
<TABLE>
<CAPTION>
March 29, 1996
----------------------------------------
Outstanding Current Long-Term
------------ ---------- ------------
<S> <C> <C> <C>
Industrial Revenue
Bonds $ 7,999,000 $ 475,000 $ 7,524,000
Supplemental Benefit
Program 1,132,000 180,000 952,000
------------ ---------- ------------
$ 9,131,000 $ 655,000 $ 8,476,000
============ ========== ============
</TABLE>
Note E Earnings Per Share
- ------ ------------------
Earnings per share are based on the weighted average number of
shares outstanding.
Note F Subsequent Events
- ------ -----------------
On April 1, 1996 and April 19, 1996, the Company completed the
purchase of certain assets of Ketema, Inc. ("Ketema") and Gettys
Corporation and Gettys Property Corporation ("Gettys"),
respectively. These acquisitions were primarily financed through
a $20,000,000 credit agreement between the Company and Marine
Midland Bank. Both transactions will be accounted for under the
purchase method of accounting.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
REVENUES
Consolidated revenues in the first quarter of 1996 increased 14.2% as compared
with the previous year. Sales within the Heat Transfer segment increased 16.5%
and reflect the strength of the capital goods market evidenced by the 23.0%
increase in orders booked as compared to the prior year. The increase of 19.3%
in sales of the Motion Technologies segment is the result of higher sales of
electromagnetic clutches and brakes to new and existing customers combined with
an increase in market share of products offered by Harowe Servo Controls Inc.
The Electronic Components segment sales decreased 2.0% and is due to a decrease
in the selling price of its axial-leaded products partially offset by increased
volume.
Bookings of customer orders in the first quarter of 1996 were $25,353,000, up
14% over bookings in the same period last year. The Company's consolidated
backlog of firm orders at March 29, 1996 was $33,160,000, up 33% from
$24,909,000 on March 31, 1995.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses, expressed as a percentage of net sales,
declined for the first quarter as compared to the same period in 1995. The
dollar increase is due primarily to increases in sales commissions and
provisions made under the Company's incentive program.
INTEREST AND DEBT EXPENSE
The increase in interest and debt expense is directly related to the industrial
revenue bond financing obtained at the end of 1995 for the construction of the
new Air Technologies facility.
NET EARNINGS
Net earnings increased 34.3% as compared to the prior year primarily due to
increased sales combined with a small decline in costs and expenses as a
percentage of net sales.
8
<PAGE> 9
FINANCIAL POSITION
The Company's liquidity is primarily generated from operations. In addition, the
Company has utilized its $10 million short-term line of credit form time to time
in amounts not exceeding $2,000,000 at any time during the three months ended
March 29, 1996. Comparative information on the Company's liquidity position
follows ($000 omitted):
<TABLE>
<CAPTION>
1996 1995
March March
-------------------- --------------------
<S> <C> <C>
Net working capital $19,089 $18,463
Current ratio 2.5 2.4
Cash, cash equivalents
and marketable securities * $ 1,209 $ 5,230
</TABLE>
<TABLE>
<CAPTION>
For the three months ended
--------------------------------------------
1996 1995
March March
-------------------- --------------------
<S> <C> <C>
Cash flow from operations $ 729 $ 532
Capital expenditures $ 1,228 $ 731
<FN>
* Excluding funds held in escrow for the acquisition of certain assets of Gettys.
</TABLE>
9
<PAGE> 10
AMERICAN PRECISION INDUSTRIES
AND SUBSIDIARIES
Components of Consolidated Statement of Earnings
Expressed as a Percentage of Revenues
------------------------------------------------
<TABLE>
<CAPTION>
First Quarter Ended
--------------------------------
1996 1995
March March
----------- -----------
<S> <C> <C>
Revenues 100.0 100.0
----------- -----------
Costs and Expenses
Cost of products sold 66.2 67.2
Selling and administrative 22.1 22.3
Research and product development 1.4 1.6
Interest and debt expense 0.6 0.3
----------- -----------
90.3 91.4
----------- -----------
Earnings before Income Taxes 9.7 8.6
Federal and State Income Taxes 3.4 3.2
----------- -----------
Net Earnings 6.3 5.4
=========== ===========
Federal and State Income Taxes
as a percentage of Earnings
Before Income Taxes 34.7 37.0
=========== ===========
</TABLE>
10
<PAGE> 11
PART II
-------
OTHER INFORMATION
-----------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2
(i) Asset Purchase Agreement by and between Ketema, Inc. *
and API Ketema Inc. dated as of April 1, 1996.
(ii) Asset Purchase Agreement among Gettys Corporation, **
Gettys Property Corporation and American Precision
Industries Inc., and API Acquisition Corp. dated as of
April 15, 1996.
(iii) Credit Agreement between American Precision Industries
Inc. and Marine Midland Bank dated as of March 29, 1996.
* Incorporated by reference to Exhibit 2 in the Form 8-K filed
April 15, 1996.
** Incorporated by reference to Exhibit 2 in the Form 8-K filed
May 3, 1996.
(b) Reports on Form 8-K
There were no reports on Form 8-K for the three months ended
March 29, 1996. However, a Form 8-K reporting the acquisition of
certain assets of Gettys Corporation and Gettys Property
Corporation by the Company was filed on May 3, 1996 and another
Form 8-K reporting the acquisition of certain assets of Ketema,
Inc. by the Company was filed on April 15, 1996.
11
<PAGE> 12
AMERICAN PRECISION INDUSTRIES
AND SUBSIDIARIES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN PRECISION INDUSTRIES INC.
/s/ John M. Murray
-------------------------------
John M. Murray
Vice President Finance and Treasurer
/s/ Thomas M. Huebsch
-------------------------------
Thomas M. Huebsch
Chief Accounting Officer
May 15, 1996
12
<PAGE> 13
EXHIBIT INDEX
-------------
2 (iii) Credit Agreement between American Precision Industries Inc.
and Marine Midland Bank dated March 29, 1996.
27 Financial Data Schedule
13
<PAGE> 1
Exhibit 2(iii)
________________________________________________________________________________
________________________________________________________________________________
CREDIT AGREEMENT
- BETWEEN -
AMERICAN PRECISION INDUSTRIES INC.
- AND -
MARINE MIDLAND BANK
________________________________________________________________________________
________________________________________________________________________________
DATED: MARCH 29, 1996
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C> <C>
ARTICLE I. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
-----------
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.3 UCC Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE II. The Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
----------
2.1 Revolving Credit . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.2 Term Credit Conversion . . . . . . . . . . . . . . . . . . . . . . . 9
2.3 Interest, Rate Options and Pricing . . . . . . . . . . . . . . . . . 10
2.4 Pricing Grid . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.5 Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.6 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.7 Special Provisions Governing LIBOR Rate Loans - Increased Costs . . . 14
2.8 Required Termination and Repayment of LIBOR Rate Loans . . . . . . . 15
2.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.10 Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.11 Unused Line Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.12 Commitment Reduction . . . . . . . . . . . . . . . . . . . . . . . . 17
2.13 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.14 Charge to Account . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE III. Conditions to the Extension of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . 17
-------------------------------------
3.1 Conditions to Extension of Credit . . . . . . . . . . . . . . . . . . 17
3.2 Conditions to Subsequent Extensions of Credit . . . . . . . . . . . . 18
ARTICLE IV. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
------------------------------
4.1 Good Standing and Authority . . . . . . . . . . . . . . . . . . . . . 18
4.3 Valid and Binding Obligation . . . . . . . . . . . . . . . . . . . . 19
4.4 Good Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.5 No Pending Litigation . . . . . . . . . . . . . . . . . . . . . . . . 19
4.6 No Consent or Filing . . . . . . . . . . . . . . . . . . . . . . . . 20
4.7 No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.8 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 20
4.9 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.10 Federal Regulations . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.11 ERISA Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.12 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.13 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.14 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.15 Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.16 Indebtedness for Borrowed Money . . . . . . . . . . . . . . . . . . . 22
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C>
4.17 Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.18 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE V. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
---------------------
5.1 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.2 Future Financial Statements . . . . . . . . . . . . . . . . . . . . 24
5.3 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.4 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.5 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.6 Corporate Standing . . . . . . . . . . . . . . . . . . . . . . . . 25
5.7 Discharge of Obligations . . . . . . . . . . . . . . . . . . . . . 26
5.8 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.9 Examinations . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.10 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.11 Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.12 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.13 Environmental Compliance . . . . . . . . . . . . . . . . . . . . . 27
5.14 Compliance With Law . . . . . . . . . . . . . . . . . . . . . . . . 27
5.15 Gettys Purchase Agreement . . . . . . . . . . . . . . . . . . . . . 27
5.16 Other Acts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE VI. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
------------------
6.1 Business Operations . . . . . . . . . . . . . . . . . . . . . . . . 28
6.2 Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.3 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.4 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . 28
6.5 Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.6 Pensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.7 Disposal of Hazardous Substances . . . . . . . . . . . . . . . . . 29
6.8 Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.9 Lease Rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.10 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . 29
6.11 Interest Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . 29
6.12 Debt-to-Tangible-Net Worth Ratio . . . . . . . . . . . . . . . . . 29
6.13 Debt Service Coverage Ratio . . . . . . . . . . . . . . . . . . . . 29
6.14 Current Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.15 Working Capital . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE VII. Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
-------
7.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.2 Effects of an Event of Default . . . . . . . . . . . . . . . . . . 33
ARTICLE VIII. Indemnification - Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 33
------------------------------------
8.1 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE IX. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
-------------
9.1 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C> <C>
9.2 Delays and Omissions . . . . . . . . . . . . . . . . . . . . . . . 34
9.3 Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.4 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . 34
9.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.8 Titles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.9 Inconsistent Provisions . . . . . . . . . . . . . . . . . . . . . . 35
9.10 JURY TRIAL WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.11 CONSENT TO JURISDICTION . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
Exhibit A - Revolving Note
Exhibit B - Term Note
Exhibit C - Compliance Certificate
Schedule 2 - Pension Plan(s)
Schedule 4.12 - Subsidiaries
Schedule 4.16 - Indebtedness
Schedule 6.3 - Permitted Encumbrances
(iii)
<PAGE> 5
AGREEMENT, dated March __, 1996 between AMERICAN PRECISION
INDUSTRIES INC., a Delaware corporation ("Company") and MARINE MIDLAND BANK, a
bank organized under the laws of the State of New York ("Bank").
WITNESSETH
ARTICLE I. DEFINITIONS
-----------
1.1 DEFINITIONS. As used in this Agreement, unless
otherwise specified, the following terms shall have the following respective
meanings:
"Advance", or collectively, "Advances" - any amount loaned to
Company pursuant to the provisions of Section 2.1 of this Agreement as a Prime
Rate Loan, LIBOR Rate Loan or Fixed Rate Loan.
"Affiliate" - Any (a) Person who now or hereafter has Control
of or is now or hereafter under common Control with, the Company or any
Subsidiary or over whom or over which the Company or any Subsidiary now or
hereafter has Control, (b) any Person who is now or hereafter related by blood,
by adoption or by marriage to any such Person or now or hereafter resides in
the same home as any Person referred to in clause (a) of this sentence, (c) any
Person who is now or hereafter an officer of the Company or of any Subsidiary
or (d) any Person who is now or hereafter related by blood, by adoption or by
marriage to any Person referred to in clause (c) of this sentence or now or
hereafter resides in the same home as any such Person or over whom or over
which any such Person now or hereafter has Control.
"Bank" - as defined in the preamble of this Agreement.
"Business Day" - (a) For all purposes other than as covered by
clause (b) below, any day excluding Saturday, Sunday and any day on which banks
in Buffalo, New York are authorized by law or other governmental action to
close and (b) with respect to all notices and determinations in connection with
LIBOR, any date which is a Business Day described in clause (a) and which is
also a day for trading by and between banks in U.S. dollar deposits in the
London interbank market.
"Capital Expenditure" - The dollar amount of gross
expenditures (including obligations under capital leases) made for fixed
assets, real property, plant and equipment, and all renewals, improvements and
replacements thereto (but not repairs thereof) incurred for any period.
"Code" - The Internal Revenue Code of 1986, as amended from
time to time.
"Commitment" - "Commitment" as defined in Section 2.1(a) of
this Agreement.
<PAGE> 6
"Commonly Controlled Entity" - An entity, whether or not
incorporated, which is under common control with the Company within the meaning
of Section 414(b) or (c) of the Code.
"Company" - as defined in the preamble of this Agreement.
"Compliance Certificate" - A certificate from the President or
an appropriate financial officer of the Company in the form of Exhibit C
annexed hereto certifying that (i) the Company and its Subsidiaries have
complied with and are in compliance in all material respects with all the
terms, covenants and conditions of this Agreement which are binding upon them;
(ii) there exists no Default nor Event of Default as defined in this Agreement,
or if this is not the case, that one or more specified Defaults or Events of
Default have occurred, together with a description of the action taken or to be
taken by the Company to cure the same; and (iii) the representations and
warranties contained in this Agreement are true in all material respects with
the same effect as though made on the date of the certificate, and (iv) setting
forth the computations, ratios and calculations evidencing compliance with
Article VI of this Agreement.
"Consolidated" or "Company on a Consolidated basis" - The
consolidation of the accounts of the Company and its Subsidiaries in accordance
with GAAP, including principles of consolidation, consistent with those applied
in the preparation of the Consolidated audited financial statements.
"Control" - (i) The power to vote 5% or more of the
outstanding shares of any class of stock of a Person which is a corporation,
(ii) the beneficial ownership of 5% or more of the outstanding shares of any
class of stock of a Person which is a corporation or (iii) the power to direct
or cause the direction of the management and policies of a Person which is not
a corporation, whether by ownership of any stock or other ownership interest,
by agreement or otherwise, in each case by or on behalf of a single Person or
group of Persons acting as a group for the purposes of filing Form 13-D with
the Securities and Exchange Commission.
"Credit" - All extensions of credit set forth in Article II of
this Agreement.
"Current Assets" - All assets treated as current assets in
accordance with GAAP.
"Current Liabilities" - Those liabilities classified as
current in accordance with GAAP with adequate provisions for all accrued
liabilities, including, without limitation, all federal
- 2 -
<PAGE> 7
and state taxes, except those taxes classified as deferred in accordance with
GAAP.
"Disposal" - The intentional or unintentional abandonment,
discharge, deposit, injection, dumping, spilling, leaking, burning, thermal
destruction or placing of any substance so that it or any of its constituents
may enter the Environment.
"Default" - Any event or occurrence which with the giving of
notice or passage of time or both constitutes an Event of Default.
"Earnings before Interest and Taxes" - For any period, the
income of an entity for such period prior to the deduction of any provisions
for income taxes, reserves for deferred income taxes and interest payable on
Indebtedness, determined in accordance with GAAP.
"Environment" - Any water or water vapor; any land including
land surface or subsurface, air, fish, wildlife, biota and all other natural
resources.
"Environmental Laws" - All federal, state and local
environmental, land use, zoning, health, chemical use, safety and sanitation
laws, statutes, ordinances and codes relating to the protection of the
Environment and/or governing the use, storage, treatment, generation,
transportation, processing, handling, production or disposal of Hazardous
Substances and the rules, regulations, policies, guidelines, interpretations,
decisions, orders and directives of federal, state and local governmental
agencies and authorities with respect thereto.
"Environmental Permits" - All permits, licenses, approvals,
authorizations, consents or registrations required by any applicable
Environmental Law in connection with ownership, lease, purchase, transfer,
closure, use and/or operation of any property for the storage, treatment,
generation, transportation, processing, handling, production or disposal of
Hazardous Substances or the sale, transfer or conveyance of any such property.
"ERISA" - The Employee Retirement Income Security Act of 1974,
as amended from time to time.
"Event of Default" - An "Event of Default" as defined in
Section 7.1 of this Agreement.
"Expansion" - The formation by the Company or any Subsidiary
of an entity which is a Subsidiary or an Affiliate.
- 3 -
<PAGE> 8
"Fixed Rate" - A fixed rate of interest determined solely by
the Bank from time to time and offered to the Company for a Fixed Rate Period
for certain Advances and Loans.
"Fixed Rate Interest Determination Date" - A Business Day on
or before the commencement of a Fixed Rate Period on which the Bank makes
available to the Company, and the Company selects, the Fixed Rate to be
applicable to a Fixed Rate Loan.
"Fixed Rate Period" - The overnight, 30-day, 90-day, 1-year,
2-year or 3-year periods selected from time to time by the Company pursuant to
Article 2 hereof during which the Fixed Rate is in effect for a Fixed Rate
Loan, but in no event may a Fixed Rate Period extend beyond the Termination
Date.
"Fixed Rate Loan" - That portion of the Advances and Loans
from time to time unpaid and bearing interest at the Fixed Rate.
"GAAP" - As of the date of any determination, generally
accepted accounting principles as promulgated by the Financial Accounting
Standards Board and/or the American Institute of Certified Public Accountants,
consistently applied and maintained throughout the relevant periods and from
period to period.
"Hazardous Substance" - Means, without limitation, any
flammable explosives, radon, radioactive materials, asbestos, urea formaldehyde
foam insulation, polychlorinated biphenyls, petroleum and petroleum based
products, methane, hazardous materials, hazardous wastes, hazardous or toxic
substances or related materials as defined in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, (42 U.S.C.
Section 9601, ET SEQ.), the Hazardous Materials Transportation Act, as amended
(49 U.S.C. Sections 1801, ET SEQ.), the Resource Conservation and Recovery Act,
as amended (42 U.S.C. Sections 6901, ET SEQ.), the Toxic Substances Control
Act, as amended, (15 U.S.C. Sections 2601, ET SEQ.), Articles 15 and 27 of the
New York State Environmental Conservation Law or any other applicable
Environmental Law and in the regulations promulgated thereunder.
"Indebtedness" - At a particular date, without duplication,
(a) all indebtedness of a Person for borrowed money or for the deferred
purchase price of property, whether short term or long term, (b) the face
amount of all letters of credit issued for the account of such Person and,
without duplication, all drafts drawn thereunder and not repaid by such Person,
and (c) lease obligations of such Person which, in accordance with GAAP, should
be capitalized.
"Intangibles" - As of the date of any determination, the
aggregate of the amounts which are, in accordance with GAAP,
- 4 -
<PAGE> 9
carried on the books of a Person for (a) unamortized debt discount and debt
expenses, (b) any cost of investments in excess of net assets acquired at the
time of acquisition, (c) patents, patent applications, copyrights, trademarks,
trade names, goodwill, experimental or organizational expenses and other like
intangibles and (d) any write-up in the book value of any assets resulting from
a revaluation thereof.
"Ketema Purchase Agreement" - The Asset Purchase Agreement by
and between API Ketema Inc. and Ketema, Inc.
"LIBOR Conversion Date" - The first day of a LIBOR Rate Period
with respect to any continued or converted LIBOR Rate Loan.
"LIBOR Increment" - An initial amount equal to sixty-five (65)
basis points which is utilized in determining the LIBOR Rate, and which may be
adjusted in accordance with the Pricing Grid upon the occurrence of a Pricing
Event.
"LIBOR Interest Determination Date" - A Business Day which is
two (2) Business Days prior to the commencement of each LIBOR Rate Period
during which the LIBOR Rate will be applicable.
"LIBOR Rate" - The reserve adjusted rate of interest per annum
determined by the Bank applicable to any selected LIBOR Rate Period equal to
the average rate per annum which the offices of various leading banks located
in London, England offer for deposits in U.S. dollars in the London Interbank
Eurodollar Market at approximately 10:00 a.m. (London time) on a LIBOR Interest
Determination Date in an amount approximately equal to the amount of the
applicable LIBOR Rate Loan; plus the LIBOR Increment.
"LIBOR Rate Loan" - That portion of Advances or Loans from
time to time unpaid and bearing interest at the LIBOR Rate.
"LIBOR Rate Period" - The 30, 60, 90 or 180-day period
selected by the Company pursuant to Section 2.4 of this Agreement on which the
LIBOR Rate is in effect for a LIBOR Rate Loan, but in no event may a LIBOR Rate
Period extend beyond the Termination Date.
"Lien" - Any mortgage, deed of trust, pledge, hypothecation,
assignment, security interest, lien, charge or encumbrance, or preference,
priority or other security agreement or preferential arrangement in respect of
any asset of any kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give,
- 5 -
<PAGE> 10
any financing statement under the Uniform Commercial Code or comparable law of
any jurisdiction).
"Loan" or "Loans" - Individually and collectively, any Advance
under the Revolving Credit or any amount of the Term Credit whether as a Prime
Rate Loan, Fixed Rate Loan or a LIBOR Rate Loan.
"Multiemployer Plan" - A Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Note" or "Notes" - The Revolving Note and/or Term Note, as
appropriate.
"Permitted Encumbrances" - as listed on Schedule 6.3 of this
Agreement.
"Person" - Any individual, corporation, partnership, joint
venture, trust, unincorporated association, government or political subdivision
or other entity, body, organization or group.
"Plan" - Any employee benefits plan which is covered by Title
IV of ERISA and in respect of which the Company or a Commonly Controlled Entity
is an "employer" as defined in Section 3(5) of ERISA, each of which Plans is
listed on Schedule 2 to this Agreement.
"Pricing Event" - As set forth in Section 2.4 of this
Agreement.
"Pricing Grid" - As defined in Section 2.4 of this Agreement.
"Prime Rate" - The rate of interest publicly announced by the
Bank from time to time as its prime rate and is a base rate for calculating
interest on certain loans. The Prime Rate may or may not be the most favorable
rate charged by the Bank to its customers from time to time.
"Prime Rate Loan" - That portion of the Advances or Loans from
time to time unpaid on which interest is calculated based upon the Prime Rate.
"Prime Rate Option" - The Rate Option in which interest is
based upon the Prime Rate.
"Rate Change Date" - The date on which any Loan or Loans are
converted from one Rate Option to another Rate Option, or continued within the
same Rate Option.
- 6 -
<PAGE> 11
"Rate Option" or "Rate Options" - Individually and
collectively, the choice of applicable interest rates, Fixed Rate Periods and
LIBOR Rate Periods offered to the Company pursuant to this Agreement.
"Release" - The same meaning as given to that term in the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended (42 U.S.C. Section 9601, ET SEQ.), and the regulations promulgated
thereunder.
"Reportable Event" - Any event with regard to a Plan described
in Section 4043(b) of ERISA or in regulations issued thereunder except events
for which the requirement of notice has been waived by regulation.
"Revolving Credit" - The "Revolving Credit" as defined in
Section 2.1(a) of this Agreement.
"Revolving Note" - The promissory note of the Company in the
form of Exhibit A evidencing the promise of the Company to repay Advances under
the Revolving Credit.
"Subsidiary" - Any corporation of which at least 50% of the
voting stock is owned by the Company directly or indirectly through one or more
Subsidiaries.
"Tangible Net Worth" - At a particular date, all amounts which
would be included under shareholders' equity on a balance sheet of an entity,
determined in accordance with GAAP, less Intangibles.
"Term Credit" - The "Term Credit" as defined in Section 2.2 of
this Agreement.
"Term Credit Conversion Date" - the date which is the third
anniversary of the date of this Agreement and is a date on which all or part of
the Revolving Credit may be converted to the Term Credit at the option of the
Company.
"Term Note" - The promissory note of the Company in the form
of Exhibit B evidencing the promise of the Company to repay Indebtedness under
the Term Credit.
"Termination Date" - The maturity date of the Credit, which
shall be initially the third anniversary of the date of this Agreement, which
date may be extended by conversion to the Term Credit in accordance with
Section 2.2 hereof, and may be shortened in accordance with Section 7.2 hereof.
"Total Liabilities" - At a particular date, the sum, without
duplication, of (a) all amounts which would be included as liabilities on a
balance sheet of an entity at such date,
- 7 -
<PAGE> 12
determined in accordance with GAAP and (b) any Indebtedness of such entity.
1.2 ACCOUNTING TERMS. All accounting terms not otherwise
defined herein have the meanings assigned to them in accordance with GAAP
consistent with those applied in the preparation of the audited Consolidated
financial statements of the Company and its Subsidiaries referred to in this
Agreement.
1.3 UCC TERMS. Unless otherwise defined in this
Agreement, capitalized words not otherwise defined in this Agreement shall have
the meanings set forth in the New York Uniform Commercial Code as in effect on
the date of this Agreement.
ARTICLE II. THE CREDIT
----------
2.1 REVOLVING CREDIT.
(a) ADVANCES. Subject to the terms and
conditions of this Agreement and relying upon the representations and
warranties set forth in this Agreement, the Bank agrees that it will, from time
to time during the period commencing on the date the conditions specified in
Section 3.1 are satisfied through the Business Day preceding the Term Credit
Conversion Date, make one or more Advances to the Company as requested by the
Company in an aggregate amount at any one time outstanding not to exceed Twenty
Million Dollars ($20,000,000) (which amount shall be called the Bank's
"Commitment"). Subject to Section 2.5 hereof, the Advances may be repaid and
reborrowed in accordance with the provisions hereof; provided, however, no
further Advances shall be made on or after the Termination Date, at which time
the Revolving Credit must be paid in full or qualify for, and the Company must
so elect, a conversion to the Term Credit pursuant to Section 2.2 hereof.
(b) METHOD FOR REVOLVING CREDIT ADVANCES. If and
when the Company wishes the Bank to make an Advance available, the Company
shall notify the Bank not later than 10:00 a.m. (New York time) on the Business
Day on which the Advance is to be funded in the case of a Prime Rate Loan or
Fixed Rate Loan and in the case of a LIBOR Rate Loan not later than two (2)
Business Days prior to the proposed commencement date of a LIBOR Rate Period.
The Company shall specify (i) the aggregate amount of the Advance to be made on
a designated date, which shall be at least $100,000.00 for a Prime Rate Loan or
Fixed Rate Loan and $500,000 for a LIBOR Rate Loan and shall be in whole
multiples of $100,000 for all Loans; (ii) whether the Advance shall be a Prime
Rate Loan, a Fixed Rate Loan or a LIBOR Rate Loan; and (iii) the proposed date
on which the Advance is to be funded, which shall be a Business Day. As early
as practically possible on the date
- 8 -
<PAGE> 13
on which the Advance is to be made and upon fulfillment of the conditions set
forth in Article III of this Agreement, the Bank will make the proceeds of such
Advance available to the Company.
The Bank shall not incur any liability to the Company
in acting upon any notice referred to above or upon any telephonic notice which
the Bank believes in good faith to have been given by a duly authorized officer
or other person authorized to borrow on behalf of the Company or for otherwise
acting in good faith.
(c) THE REVOLVING NOTE. The Advances made by the
Bank shall be evidenced by a note of the Company to the Bank with blanks
appropriately completed in the form of Exhibit A annexed hereto and made a part
hereof ("Revolving Note").
The Revolving Note shall be inscribed by the Bank as
holder of the Note on the schedule on the reverse side thereof or any
continuation thereof ("Schedule") with the date and amount of the outstanding
principal balance of the Advances, the Rate Option applicable to such Advances,
the applicable interest periods, and all payments and prepayments made thereon
and the dates thereof. Any such inscription shall constitute prima facie
evidence of the accuracy of the information so recorded; provided, however, the
failure of the Bank to make any such inscription shall not affect the Company's
obligations under the Note or this Agreement.
2.2 TERM CREDIT CONVERSION.
(a) The Company may, at any time on or before the
Term Credit Conversion Date, deliver a written conversion notice to the Bank
requesting that any amount outstanding under the Revolving Credit be converted
on the Termination Date ("Conversion Notice") to a term loan payable in
forty-seven equal, consecutive, monthly principal installments with one final
installment in an amount equal to the then unpaid principal amount remaining
("Term Credit"). Provided the Company executes and delivers to the Bank a duly
executed Term Note with all blanks appropriately completed, together with an
executed Compliance Certificate from the Company indicating no existing Default
or Event of Default, such request shall be granted by the Bank.
(b) At the time of a conversion pursuant to
Section 2.2 hereof, the Revolving Note shall be replaced by the term note with
blanks appropriately completed in the form of Exhibit B annexed hereto and made
a part hereof ("Term Note").
The Term Note shall be inscribed by the Bank as a holder of
the Term Note on the Schedule on the reverse side thereof or any continuation
thereof ("Term Note Schedule") with
- 9 -
<PAGE> 14
the date of the conversion of Rate Options, the amount of outstanding Loans,
the Rate Options applicable to such Loans, the applicable interest periods, and
all payments and prepayments made thereon and the dates thereof. Any such
inscription shall constitute prima facie evidence of the accuracy of the
information so recorded; provided, however, the failure by the Bank to make any
such inscription shall not affect the Company's obligations under the Term Note
or this Agreement.
2.3 INTEREST, RATE OPTIONS AND PRICING. The interest to
be charged on the Revolving Note and the Term Note shall be determined based on
the Rate Options and interest pricing provisions in effect in accordance with
the terms of this Section and Section 2.4 of this Agreement. The Revolving
Note and the Term Note shall each bear interest on the unpaid principal amounts
from time to time unpaid until maturity (whether by acceleration or otherwise)
at a per annum rate of interest selected by the Company from the Rate Options
set forth below or, in default of a validly selected option, in accordance with
the Prime Rate Option then in effect:
(a) PRIME RATE OPTION. Unless another Rate
Option is validly selected and in effect pursuant to this Agreement or a
Pricing Event has occurred, the Notes shall bear interest under the Prime Rate
Option at the initial Prime Rate Pricing shown on the Pricing Grid set forth in
Section 2.4 of this Agreement. If a Pricing Event has occurred and another
Rate Option is not in effect, then the rate of interest applicable to the Notes
shall be the Prime Rate Option as determined based on the Pricing Grid. The
rate of interest on all Prime Rate Loans shall change simultaneously with each
change in the Prime Rate.
(b) LIBOR RATE OPTION. Subject to the provisions
of Section 2.1(b) hereof, the Company may elect to have an Advance or Loan made
as a LIBOR Rate Loan for a LIBOR Rate Period provided the amount of such LIBOR
Rate Loan is not less than $500,000 and is in whole multiples of $100,000. All
LIBOR Rate Loans shall bear interest at the initial LIBOR Rate set forth on the
Pricing Grid until such time as a Pricing Event occurs.
(c) FIXED RATE OPTION. Subject to the provisions
of Section 2.1(b) hereof, the Company may elect to have an Advance or Loan made
as a Fixed Rate Loan for a Fixed Rate Period provided the amount of such Fixed
Rate Loan is not less than $100,000 and is in whole multiples of $100,000. All
Fixed Rate Loans shall bear interest at the initial Fixed Rate set forth on the
Pricing Grid until such time as a Pricing Event occurs.
(d) RATE CONVERSIONS AND CONTINUATIONS. The
Company may elect to convert any portion of (i) a Prime Rate Loan or a Fixed
Rate Loan to a LIBOR Rate Loan, (ii) a LIBOR Rate Loan to either a Fixed Rate
Loan or a Prime Rate Loan, (iii) a Prime
- 10 -
<PAGE> 15
Rate Loan to a Fixed Rate Loan, and (iv) a Fixed Rate Loan to a Prime Rate
Loan, or to continue any LIBOR Rate Loan, Fixed Rate Loan or Prime Rate Loan as
a new loan of the same type, by giving irrevocable notice of such election to
the Bank by 10:00 a.m. (New York time) at least two (2) Business Days prior to
the requested Rate Change Date and, in the case of any LIBOR Rate Loan or Fixed
Rate Loan, such conversion or continuation shall take place on the last day of
the applicable LIBOR Rate Period or Fixed Rate Period, as appropriate, with
respect to the loan being so converted or continued. Each such request to
convert or continue shall include the Rate Option, the requested Rate Change
Date (which shall be a Business Day), the Rate Option selected, and the amount
to be converted or continued (which shall be in a principal amount of
$500,000.00 or more and in whole multiples of $100,000.00 in the case of
conversion to or continuation as, a LIBOR Rate Loan, and in a principal amount
of $100,000 or more and in whole multiples of $100,000 in the case of a
continuation or conversion as a Prime Rate Loan or Fixed Rate Loan. If no
Default or Event of Default has occurred and is continuing at such time as
evidenced by the Bank's receipt of a properly completed and executed Compliance
Certificate from the Company, such conversion or continuation shall be made on
the requested Rate Change Date, subject to the foregoing limitations in
connection with the conversion or continuation of LIBOR Rate Loans and Fixed
Rate Loans.
The Bank shall not incur any liability to the Company
in acting upon any telephonic notice which the Bank believes to have been given
by a duly authorized officer or other person authorized to and on behalf of the
Company or for otherwise acting in good faith under this Section 2.3(d).
(e) COMPUTATION OF INTEREST. Interest on the
Notes shall be computed on the basis of a 360-day year for the actual number of
days elapsed, which will result in a higher effective annual rate. Interest on
the Revolving Credit shall be payable monthly on the first day of each month,
on the Term Credit Conversion Date and the Termination Date. Interest on the
Term Credit shall be payable quarterly on the first day of each July, October,
January and April hereafter during the term of the Term Credit commencing July
1, 1999 and on the date the Term Credit is paid in full. In the case of LIBOR
Rate Loans, interest shall also be payable on the last day of each applicable
LIBOR Rate Period, if earlier.
(f) DEFAULT RATE. After maturity of the Credit,
whether by acceleration or otherwise, Company shall pay interest at a per annum
rate equal to three percent (3%) plus the Prime Rate. In no event shall the
rate of interest exceed the maximum rate permitted by applicable law. If
Company pays interest in excess of the amount permitted by applicable law, such
excess
- 11 -
<PAGE> 16
shall be applied in reduction of the principal of Advances made pursuant to
this Agreement.
(g) LATE CHARGE. Upon failure to make any
payment of interest or principal on the Notes within ten (10) days of the due
date thereof, Company promises to pay, upon demand by the Bank, a late charge
equal to five percent (5%) of the amount of any such overdue amount of
principal or interest.
The assessment and/or collection of late charges
shall in no way impair the right of the Bank to pursue any other remedies
hereunder.
2.4 PRICING GRID. The applicable initial rates of
interest to be charged for each LIBOR Rate Loan, Fixed Rate Loan or Prime Rate
Loan made hereunder shall be established as of the date of this Agreement and
listed on the Pricing Grid set forth below. The Initial Pricing shall be
subject to adjustment as of October 1, 1996 and each April 1 and October 1
thereafter ("Pricing Date") based on any adverse change in the Company's
leverage, as measured by the Company's Debt-to-Tangible Net Worth Ratio as
determined in accordance with Section 6.12 of this Agreement ("Pricing Event").
The Pricing Grid reflects the changed Rate Options which will replace the
Initial Pricing as of a Pricing Date based on a Pricing Event as follows:
PRICING GRID
------------
A. INITIAL PRICING
Prime Rate Option -- Prime Rate less 25 basis points ("BP")
LIBOR Rate Option -- LIBOR Rate plus LIBOR Increment of 65 BP
Fixed Rate option -- As quoted by Bank
B. AFTER A PRICING EVENT
<TABLE>
<CAPTION>
Prime Rate LIBOR Rate Fixed Rate
Leverage Option Option Option
- -------- ---------- ---------- ----------
<S> <C> <C> <C>
.75 or less Prime Rate LIBOR Rate As quoted by
to 1.0 less 25 BP plus the LIBOR Bank to
Increment of Company
65 BP
.76 to 1.25 Prime Rate LIBOR Rate As quoted by
to 1.0 plus new LIBOR Bank to
Increment of Company
80 BP
1.26 to 2.00 Prime Rate LIBOR Rate As quoted by
to 1.0 plus new LIBOR Bank to
Increment of Company
100 BP
</TABLE>
- 12 -
<PAGE> 17
Upon the Bank receiving notice of the occurrence of a Pricing Event, the Bank
shall notify the Company in writing or by telephone of the changed Rate Options
which become effective as the result of a Pricing Event.
2.5 PREPAYMENT.
(a) PRIME RATE LOANS. The Company shall have the
right to prepay at any time without premium all or any portion of the Prime
Rate Loans, together with interest on the principal so prepaid to the date of
such prepayment. Any partial prepayment of principal shall be in the amount of
$100,000.00 or a whole multiple thereof, and, in the case of the Term Note,
shall be applied upon installments of principal of the Term Note in inverse
order of maturity.
(b) LIBOR RATE LOANS. The Company shall have the
right to prepay without premium all or any portion of the LIBOR Rate Loans on
the expiration day of the applicable LIBOR Rate Period. If any LIBOR Rate Loan
is prepaid at any other time, the Company shall, upon not less than ten (10)
days prior written notice, pay to the Bank an amount equal to (i) the interest
which would have otherwise been payable on the amount prepaid during the
remaining term of the LIBOR Rate Period, less (ii) interest on the amount
prepaid for such term computed at an interest rate equal to the
yield-to-maturity which could be obtained on United States Treasury
obligations, purchased in the market at the time of prepayment, having a
remaining term and coupon rate comparable to the remaining term of the LIBOR
Rate Period, and comparable to the applicable interest rate, as determined by
the Bank in good faith, and certified to the Company, such certificate to be
conclusive, absent manifest error. Any permitted partial prepayment of
principal shall be in the amount of $100,000.00 or a whole multiple thereof,
and in the case of the Term Note shall be applied upon installments of
principal of the Term Note in inverse order of maturity.
(c) FIXED RATE LOANS. The Company shall have the
right to repay without premium all or a portion of any Fixed Rate Loan only on
the expiration day of the applicable Fixed Rate Period. If any Fixed Rate Loan
is prepaid at any other time, the Company shall pay to the Bank on demand such
amount or amounts as the Bank determines in good faith is necessary to
compensate it for any loss and expense sustained or incurred by the Bank with
respect to such prepayment. Any permitted partial repayment of principal shall
be in the amount of $100,000 or a whole multiple thereof, and in the case of
the Term Note shall be applied upon installments of principal of the Term Note
in inverse order of maturity.
2.6 USE OF PROCEEDS. The Company covenants to the Bank
that the proceeds of the initial Advance shall be used to
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<PAGE> 18
acquire the assets of the Heat Transfer Division of Ketema, Inc. pursuant to
the terms of the Ketema Purchase Agreement.
The Company further covenants to the Bank that it
will use the proceeds advanced under this Agreement subsequent to the initial
Advance for general working capital, and to acquire the assets of Gettys
Corporation and Gettys Property Corporation pursuant to the terms of the Gettys
Purchase Agreement.
2.7 SPECIAL PROVISIONS GOVERNING LIBOR RATE LOANS -
INCREASED COSTS.
(a) In the event that on any LIBOR Interest
Determination Date, the Bank shall have reasonably determined (which
determination shall be final, conclusive and binding) that:
(1) by reason of conditions in the
London interbank market or of conditions affecting the position of any Bank
in such market occurring after the date hereof, adequate fair means do not exist
for establishing LIBOR, or
(2) by reason of (i) any applicable law
or governmental rule, regulation, guideline or order (or any written
interpretation thereof and including any new law or governmental rule,
regulation, guideline or order but excluding any of the foregoing relating to
taxes referred to in Section 2.9 of this Agreement) or (ii) other circumstances
affecting the Bank or the London interbank market or the position of the Bank in
such market (such as, but not limited to, official reserve requirements), the
LIBOR Rate does not represent the effective pricing to the Bank for U.S. dollar
deposits of comparable amounts for the relevant period due to such increased
costs then, the Bank shall give a notice by telephone, confirmed in writing, to
the Company of such determination.
(b) Thereafter, the Company shall pay to the Bank
upon written request therefor, such additional amounts as the Bank in its sole
discretion, shall reasonably determine to be required to compensate the Bank
for such increased costs. A certificate as to such additional amounts
submitted to the Company by the Bank shall, absent manifest error, be final,
conclusive and binding upon all parties hereto.
(c) In lieu of paying such additional amounts as
required by this Section, the Company may exercise the following options:
(1) If such determination relates only
to a conversion to a LIBOR Rate Loan then being requested by the Company
pursuant to the terms hereof, the Company may, on such
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<PAGE> 19
LIBOR Interest Determination Date by giving notice by telephone to the Bank,
withdraw such request.
(2) The Company may, by giving notice by
telephone to the Bank, require the Bank to convert the LIBOR Rate Loan then
being requested to a Prime Rate Loan or Fixed Rate Loan, or to convert its
outstanding LIBOR Rate Loan that is so affected into a Prime Rate Loan or Fixed
Rate Loan at the end of the then current LIBOR Rate Period.
2.8 REQUIRED TERMINATION AND REPAYMENT OF LIBOR RATE
LOANS.
(a) In the event the Bank shall have reasonably
determined, at any time (which determination shall be final, conclusive and
binding but shall be made only after consultation with the Company and the
Bank), that the making or continuation of any or all of LIBOR Rate Loans by the
Bank:
(1) has become unlawful by compliance by
such Bank in good faith with any applicable law,
governmental rule, regulation, guideline or order, or
(2) would cause the Bank severe hardship
as a result of a contingency occurring after the date
of this Agreement which materially and adversely
affects the London interbank market (such as, but not
limited to disruptions resulting from political or
economic events);
then, and in either such event, the Bank shall on
such date (and in any event as soon as possible after making such
determination) give telephonic notice to the Company, confirmed in writing, of
such determination, identifying which of the LIBOR Rate Loans are so affected.
(b) The Company shall, upon the termination of
the then current LIBOR Rate Period applicable to each LIBOR Rate Loan so
affected or, if earlier, when required by law, repay each such affected LIBOR
Rate Loan, together with all interest accrued thereon.
(c) In lieu of the repayment required by Section
2.8(b), the Company may exercise the following options:
(1) If the determination by the Bank
relates only to a LIBOR Rate Loan then being converted by the Company pursuant
to the terms hereof, the Company may, on such date by giving notice by
telephone to the Bank, withdraw such request for conversion.
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<PAGE> 20
(2) The Company may, by giving notice in
writing or by telephone to the Bank, require the Bank to convert the LIBOR Rate
Loan then being converted to a Prime Rate Loan or Fixed Rate Loan or to convert
any outstanding LIBOR Rate Loan or LIBOR Rate Loans that are so affected into a
Prime Rate Loan or Fixed Rate Loan at the end of the then current LIBOR Rate
Period (or at such earlier time as repayment is otherwise required to be made
pursuant to Section 2.8(b)). Such notice shall pertain only to the LIBOR Rate
Loan or LIBOR Rate Loans outstanding or to be outstanding during each such
affected LIBOR Rate Period.
2.9 TAXES. If any taxes (other than taxes with respect
to the income of the Bank), or duties of any kind shall be payable, or ruled to
be payable, by or to any taxing authority of or in the United States, or any
foreign country, or any political subdivision of any thereof, in respect of any
of the transactions contemplated by this Agreement (including, but not limited
to, execution, delivery performance, enforcement, or payment of principal or
interest of or under the Note or this Agreement, or the making of a LIBOR Rate
Loan), by reason of any now existing or hereafter enacted statute, rule,
regulation or other determination (excluding any taxes imposed on or measured
by the net income of the Bank), the Company will:
(a) pay on written request therefor all such
taxes or duties, including interest and penalty, if any,
(b) promptly furnish the Bank with evidence of
any such payment, and
(c) indemnify and hold the Bank and any holder or
holders of the Note harmless and indemnified against any liability or
liabilities with respect to or in connection with any such taxes or the payment
thereof or resulting from any delay or omission to pay such taxes; provided,
however, the Company shall not be responsible for any such liability arising
from the late payment of such taxes if such late payment was caused by the
Bank's failure to notify the Company of the Company's obligation to pay such
taxes prior to the due date therefor.
2.10 FACILITY FEE. The Company shall pay to the Bank on
the date hereof as consideration for its execution of this Agreement, a
facility fee of $25,000.
2.11 UNUSED LINE FEE. The Company agrees to pay to the
Bank a fee computed at the rate of 1/8% per annum based on a 360-day year on
the average daily unused amount of the total Commitment made available
hereunder, which fee shall be payable monthly on the first day of each month
after the date hereof until the Revolving Credit is finally and irrevocably
paid in full or converted to the Term Credit.
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<PAGE> 21
2.12 COMMITMENT REDUCTION. The Company may, at any time
by written notice to the Bank state its desire to reduce the Commitment of the
Bank to any amount which is not less than the aggregate then outstanding
principal amount of Advances. Any reductions of the Commitment shall not be
reinstated at any future date and any partial reduction shall be in the amount
of $1,000,000.00 or a whole multiple thereof. Two Business Days after receipt
of such reduction notice, the obligation of the Bank to make Advances hereunder
shall be limited to its Commitment as reduced pursuant to such notice.
2.13 PAYMENTS. All payments of interest, principal, fees
and other expenses by the Company under this Agreement shall be made in
immediately available funds not later than 12:00 p.m. on the due date at the
Bank's office, unless such amount is paid by the Bank's debiting a deposit
account of the Company.
2.14 CHARGE TO ACCOUNT. On the date that any principal of
or interest on the Notes, or any fees or charges payable under this Agreement,
are due, the Company authorizes the Bank to debit the deposit account of the
Company maintained with the Bank, Account No. 750-00509-2, on such due date in
an amount equal to such unpaid principal, interest, fees or charges, as
applicable.
ARTICLE III. CONDITIONS TO THE EXTENSION OF CREDIT
-------------------------------------
3.1 CONDITIONS TO EXTENSION OF CREDIT. The Bank's
agreement to extend the Credit shall be effective only upon fulfillment of the
following conditions at the date of the execution of this Agreement:
(a) CORPORATE ACTION. The Company shall have
taken all necessary and appropriate corporate action and the Board of Directors
of the Company shall have adopted resolutions authorizing the Credit, the
execution and delivery of this Agreement, the Note, and the taking of all
action required of the Company by this Agreement; and the Company shall have
furnished to the Bank copies certified as of the date of the execution of this
Agreement of such corporate resolutions and such other corporate documents as
the Bank shall reasonably request.
(b) CORPORATE DOCUMENTS. There shall have been
furnished to the Bank a general certificate from the Secretary of the Company
including: (i) certificates of the Company's good standing duly issued of
recent date by the Secretary of State of Delaware and the Secretary of State of
New York; (ii) a Franchise Tax Report duly issued of recent date by the
Secretary of State of New York indicating that the Company does not owe
franchise taxes and that no franchise tax reports are due; (iii) copies of the
certificate of incorporation and by-laws of the Company, certified by its
Secretary as of the date of the execution of
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<PAGE> 22
this Agreement; (iv) an incumbency certificate specifying the officers of the
Company, together with their specimen signatures; and (v) such other
certifications and exhibits as the Bank may reasonably request.
(c) REVOLVING NOTE. The Company shall have
executed and delivered to the Bank the Revolving Note, appropriately completed,
evidencing the Company's obligation to repay the Revolving Credit.
(d) OPINION. Independent counsel for the Company
and its Subsidiaries, Jaeckle, Fleischmann & Mugel, shall have furnished to the
Bank, its favorable opinion, in form and content satisfactory to the Bank and
its counsel, dated the date of the execution of this Agreement, as to the
matters referred to in Sections 4.1, 4.2, 4.3, 4.5, 4.6 and 4.7 of this
Agreement.
(e) CERTIFICATES. The Company shall have caused
to be delivered to the Bank a Compliance Certificate appropriately completed
and insurance certificates, binders or policies evidencing compliance with
Section 5.6 of this Agreement.
(f) OTHER MATTERS. All matters incidental to the
execution and delivery of this Agreement and the Note and all action required
on the part of the Company by this Agreement, shall be satisfactory to the Bank
and its counsel.
3.2 CONDITIONS TO SUBSEQUENT EXTENSIONS OF CREDIT.
Subsequent to the satisfaction of the conditions set forth in Section 3.1, each
request to the Bank for an Advance shall constitute confirmation by the Company
of all the matters set forth in the form of the Compliance Certificate as of
the date of the Advance in the same manner as if a written Compliance
Certificate had been delivered, and the statements made shall be true on the
date of such extension of credit. No Advance shall be made if such
certification is not made or if the Bank believes that a Default or an Event of
Default exists.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES
------------------------------
The Company makes the following representations and
warranties, which shall be deemed to be continuing representations and
warranties so long as any indebtedness of the Company to the Bank arising
hereunder including indebtedness for fees and expenses, shall remain unpaid or
the Commitment shall remain in effect:
4.1 GOOD STANDING AND AUTHORITY. The Company and each of
the Subsidiaries, other than API Ketema Inc. is a corporation, duly organized,
validly existing, and in good standing under the
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<PAGE> 23
laws of the state and country of their incorporation; has powers and authority
to transact the business in which it is engaged; is duly licensed or qualified
and in good standing in each jurisdiction in which the conduct of such business
requires such licensing or such qualification, which singly or in the aggregate
is material to the operations of the Company on a Consolidated basis; and has
all necessary power and authority to enter, as appropriate, this Agreement and
to execute, deliver and perform this Agreement, the Notes and any other
document executed in connection with this Agreement, all of which have been
duly authorized by all proper and necessary corporate and shareholder action.
4.2 API KETEMA INC. API Ketema Inc. is a corporation,
duly organized, validly existing, and in good standing under the laws of the
State of Texas; has power and authority to enter into the Ketema Purchase
Agreement and to transact the business in which it is engaged, and is duly
licensed or qualified and in good standing in each jurisdiction in which the
conduct of such business requires such licensing or such qualification.
4.3 VALID AND BINDING OBLIGATION. This Agreement, the
Revolving Note and any other document executed in connection herewith have been
duly executed and delivered by the Company and constitutes the legal, valid and
binding obligations of the Company and each Subsidiary, as the case may be
enforceable against the Company, in accordance with their respective terms.
The Term Note when executed and delivered will constitute the legal, valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms.
4.4 GOOD TITLE. The Company and each of its Subsidiaries
has good and marketable title or a valid leasehold interest to all of its
assets, none of which is subject to any Lien except Permitted Encumbrances or
in favor of the Bank.
4.5 NO PENDING LITIGATION. There are not any actions,
suits, proceedings (whether or not purportedly on behalf of the Company or any
Subsidiary) or investigations pending or, to the knowledge of the Company,
threatened against the Company or any Subsidiary or any basis therefor, which,
if adversely determined, would, in any case or in the aggregate, materially
adversely affect the property, assets, financial condition or business of the
Company on a Consolidated basis or materially impair the right or ability of
the Company or any Subsidiary to carry on its operations substantially as now
conducted or anticipated to be conducted in the future, or which question the
validity of this Agreement, the Notes or other documents required by this
Agreement, or any action taken or to be taken pursuant to any of the foregoing.
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<PAGE> 24
4.6 NO CONSENT OR FILING. No consent, license, approval
or authorization of, or registration, declaration or filing with, any court,
governmental body or authority or other Person is required on the part of the
Company or any Subsidiary in connection with the valid execution, delivery or
performance of this Agreement, the Notes or other documents required by this
Agreement or in connection with any of the transactions contemplated thereby.
4.7 NO VIOLATIONS. Neither the Company nor any
Subsidiary is in violation of any term of its certificate of incorporation or
by-laws or operating agreement, or of any material provision of any mortgage,
borrowing agreement or other instrument or agreement pertaining to Indebtedness
for borrowed money. Neither the Company nor any Subsidiary is in violation in
any material respect of any term of any other indenture, instrument, or
agreement to which it is a party or by which it may be bound, resulting, or
which might reasonably be expected to result, in a material and adverse effect
upon its business or assets. Neither the Company nor any Subsidiary is in
violation of any order, writ, judgment, injunction or decree of any court of
competent jurisdiction or of any statute, rule or regulation of any competent
governmental authority. The execution and delivery of this Agreement, the
Notes and other documents required by this Agreement and the performance of all
of the same is and will be in compliance with the foregoing and will not result
in any violation or result in the creation of any Lien upon any properties or
assets except in favor of the Bank. There exists no fact or circumstance not
disclosed in this Agreement, in the documents furnished in connection herewith,
the Company's filings under the Securities Exchange Act of 1934, or in the
financial projections furnished to the Bank which materially adversely affects
or in the future (so far as the Company can now foresee) may materially
adversely affect the condition, business or operations of the Company on a
Consolidated basis, except those facts and circumstances which generally affect
all Persons engaged in the Company's lines of business.
4.8 FINANCIAL STATEMENTS. The Company has made available
to the Bank audited financial statements of the Company on a Consolidated basis
showing the Company's financial condition as of December 29, 1995 and its cash
flows for the fiscal year then ended, prepared by Price Waterhouse, LLP, which
statements represent fairly the results of the Company's operations and
transactions as of the dates and for the period referred to. All financial
statements have been prepared in accordance with GAAP consistently applied
throughout the intervals involved. Since the date of the last such financial
statements to the date of execution hereof, there have not been any material
adverse changes in the financial condition of the Company from that disclosed
in such financial statements. No material portion of the property or assets
shown in the financial statements
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<PAGE> 25
delivered to the Bank has been materially adversely affected as the result of
any fire, explosion, accident, flood, drought, storm, earthquake, condemnation,
requisition, statutory or regulatory change, act of God, or act of public enemy
or other casualty, whether or not insured.
4.9 TAX RETURNS. The Company has duly filed all federal
and other tax returns required to be filed for itself and all Subsidiaries, and
has duly paid, or caused its Subsidiaries to pay, all taxes required by such
returns. The Company has not received any assessment by the Internal Revenue
Service or other taxing authority for additional unpaid taxes which has not
been satisfied.
4.10 FEDERAL REGULATIONS. Neither the Company nor any
Subsidiary is engaged principally, or as one of its important activities, in
the business of extending or arranging for the extension of credit for the
purpose of purchasing or carrying "margin stock" (as defined in Regulations G
and U issued by the Board of Governors of the Federal Reserve System).
Likewise, neither the Company nor any Subsidiary intends to carry or purchase
any such "margin stock" with the proceeds of any Loan or to purchase or carry
(or refinance any borrowing the proceeds of which were used to purchase or
carry) any such "margin stock". Neither the Company nor any Subsidiary is an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, or a "holding company," or a "subsidiary company" of a "holding
company" or of a "subsidiary company" of a "holding company," within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
4.11 ERISA MATTERS. No Plan has been terminated or
partially terminated or is insolvent or in reorganization, nor have any
proceedings been instituted to terminate or reorganize any Plan; neither the
Company nor any Subsidiary has withdrawn from any Plan in a complete or partial
withdrawal, nor has a condition occurred which if continued would result in a
complete or partial withdrawal; neither the Company nor any Subsidiary has
incurred any withdrawal liability, including contingent withdrawal liability,
to any Plan pursuant to Title IV of ERISA; neither the Company nor any
Subsidiary has incurred any liability to the Pension Benefit Guaranty
Corporation other than for required insurance premiums which have been paid
when due; no Reportable Event has occurred and is continuing; and no Plan or
other "employee pension benefit plan" as defined in Section 3(2) of ERISA to
which the Company or any Subsidiary is a party has an "accumulated funding
deficiency" (whether or not waived) as defined in Section 302 of ERISA or in
Section 412 of the Code. Each Plan and each other "employee benefit plan" as
defined in Section 3(3) of ERISA to which the Company or any Subsidiary is a
party is in substantial compliance with ERISA, and no such plan, nor any
administrator, trustee or fiduciary thereof, to the best
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<PAGE> 26
knowledge of the Company, has engaged in a prohibited transaction described in
Section 406 of ERISA or in Section 4975 of the Code.
4.12 SUBSIDIARIES. The Company has no Subsidiaries except
as listed in Schedule 4.12 of this Agreement.
4.13 COMPLIANCE. The present conduct of the business and
operations of the Company and each Subsidiary and the present ownership and use
of each asset of the Company and each Subsidiary are in compliance in all
material respects with each applicable statute, regulation and other law
(including, but not limited to, the Environmental Protection Act, the
Occupational Health and Safety Act, the Comprehensive Environmental Response,
Compensation and Liability Act and the Resource Conservation and Recovery Act),
except where non- compliance would not result in a material adverse effect,
singly or in the aggregate to the Company on a Consolidated basis, upon its
business or assets. Each authorization, approval, permit, consent, franchise
and license from, each registration and filing with, each declaration, report
and notice to, and each other act by or relating to, any Person necessary for
the present or anticipated conduct of the business or operations of, or for the
present or anticipated ownership or use of any asset, material singly or in the
aggregate to the Company on a Consolidated basis has been duly obtained, made,
given or done, and is in full force and effect.
4.14 FISCAL YEAR. The fiscal year of the Company ends on
the Friday closest to December 31 each year.
4.15 DEFAULT. There does not exist any Default or Event
of Default.
4.16 INDEBTEDNESS FOR BORROWED MONEY. The Company and
each of its Subsidiaries have no Indebtedness arising from the borrowing of any
money, except for Indebtedness committed or outstanding on the date of this
Agreement pursuant to any lease, loan or credit facility fully and accurately
described in Schedule 4.16 to this Agreement.
4.17 SECURITIES. Each outstanding share of stock,
debenture, bond, note and other security of the Company and each Subsidiary has
been validly issued in full compliance with each statute, regulation and other
law, and, if a share of stock, is fully paid and nonassessable.
4.18 ENVIRONMENTAL MATTERS. Except for situations which
are not unlawful under the Environmental Laws and have no material impact:
(a) No above ground or underground storage tanks
containing Hazardous Substances are or have been located on any
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<PAGE> 27
property owned, leased or operated by the Company or any Subsidiary, except for
tanks which have been registered and are being maintained in accordance with
all Environmental Laws.
(b) No property owned, leased or operated by the
Company or any Subsidiary is or has been used for the storage, treatment,
generation, transportation, processing, handling, production or disposal of any
Hazardous Substance, except for the storage, treatment, generation,
transportation, processing or handling of Hazardous Substances in compliance
with all applicable Environmental Laws.
(c) No Release of a Hazardous Substance, which would
be in violation of any law, has occurred or is threatened on, at, from or near
any property owned, leased or operated by the Company or any Subsidiary.
(d) Neither the Company nor any Subsidiary is
subject to any existing, pending or, to the knowledge of the Company,
threatened suit, claim, notice of violation or request for information under
any of the Environmental Laws except as disclosed in the Company's December 29,
1995 audited financial statements.
(e) The Company and each Subsidiary are in
compliance with all Environmental Laws to the effect that any violation would
not have a material adverse effect upon the business or operations of the
Company on a Consolidated basis.
(f) All Environmental Permits have been obtained
and are in full force and effect.
(g) There are no agreements, consent orders,
decrees, judgments, license or permit conditions or other orders or directives
of any federal, state or local court, governmental agency or authority relating
to the past, present or future ownership, use, operation, sale, transfer or
conveyance of any property owned, leased or operated by the Company or any
Subsidiary which require any change in condition or any work, repairs,
construction, containment, clean up, investigation, study, removal or other
remedial action or capital expenditures.
4.19 KETEMA PURCHASE. The Company will deliver or cause
to be delivered to the Bank within five (5) days of the closing of the Ketema
Purchase Agreement, a true, correct and complete copy of the Ketema Purchase
Agreement; and such other documents executed and delivered in connection
therewith, which the Bank may reasonably request, to evidence the closing of
the transactions contemplated in the Ketema Purchase Agreement.
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<PAGE> 28
ARTICLE V. AFFIRMATIVE COVENANTS
---------------------
During the term of this Agreement, and so long thereafter as
any indebtedness of the Company to the Bank arising hereunder, including any
indebtedness for fees and expenses, shall remain unpaid, the Company will:
5.1 PAYMENTS. Duly and punctually pay or cause to be
paid the principal of and interest on all indebtedness and all fees incurred by
it pursuant to this Agreement in the manner set forth in this Agreement.
5.2 FUTURE FINANCIAL STATEMENTS. Furnish to the Bank (a)
within one hundred twenty (120) days after, and as at the close of, each fiscal
year of the Company, a Consolidated balance sheet and Consolidated statements
of income, retained earnings and changes in financial position (or cash flow
statement, as applicable) for the Company and all Subsidiaries, each examined
and reported upon by Price Waterhouse LLP or another independent certified
public accounting firm reasonably satisfactory to Company and the Bank, and
prepared in accordance with GAAP, which report shall not contain any
qualification or disclaimer of opinion by reason of audit limitations imposed
by the Company, together with a Compliance Certificate certified by an
appropriate financial officer of the Company; (b) within forty-five (45) days
after and as at the close of each of its first three fiscal quarters of each
year, a Consolidated balance sheet and related Consolidated statement of income
and retained earnings and changes in financial position of the Company and all
Subsidiaries for the previous fiscal quarter and from the beginning of the
fiscal year to the end of such fiscal quarter, prepared by the Company in
accordance with GAAP, and certified by an appropriate financial officer of the
Company, together with a Compliance Certificate; (c) promptly, after
preparation, copies of all such proxy statements, financial statements and
reports which the Company sends to its stockholders, and copies of all regular,
periodic and special reports, as well as all registration statements, which the
Company files with the Securities and Exchange Commission, including, but not
limited to, Forms 10-K and 10-Q; (d) upon request of the Bank, a copy of each
Form 5500 Series Annual Report and PBGC Form I filed with the Pension Benefit
Guaranty Corporation, with respect to each Plan; (e) with respect to each Plan,
upon request of the Bank, and in any event, within thirty (30) days after the
Company knows or has reason to know that any Reportable Event has occurred,
that any Plan whose assets are not sufficient for benefit liabilities within
the meaning of Section 4041(d) of ERISA is or may be terminated, reorganized,
partitioned or declared insolvent under Title IV of ERISA or that the Company
will or may incur any liability to or on account of a Plan under Section 4062,
4063, 4064 or 4202 of ERISA, the statement of the principal financial officer
of the Company, setting forth the details thereof and the
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<PAGE> 29
action which the Company proposes to take with respect thereto; and (f) such
other information respecting the business or the condition or operations,
financial or otherwise, of the Company as the Bank may from time to time
reasonably request.
5.3 NOTICE. Promptly notify the Bank in writing of (a)
any pending or future audits in excess of $500,000 of the Company's federal
income tax returns by the Internal Revenue Service as soon as Company has
knowledge thereof, and the results of each such audit after its completion; (b)
any default by the Company in the performance of, or any modifications of, any
of the terms or conditions contained in any material agreement, mortgage,
indenture or instrument to which the Company is a party or which is binding
upon the Company and of any default by the Company in the payment of any of its
indebtedness for borrowed money. The Company shall not, however, be required
to so notify the Bank of modifications of terms or provisions of those
documents or agreements pertaining to its transactions in the ordinary course
of business (not concerning its indebtedness for borrowed money) which do not
materially and adversely affect the business or assets of the Company.
5.4 TAXES. Promptly pay and discharge, and cause each of
its Subsidiaries to pay and discharge, all of the Company's or such
Subsidiary's taxes, assessments and other governmental charges (including any
charged or assessed on the issuance of the Notes) prior to the date on which
penalties are attached thereto, establish adequate reserves for the payment of
taxes and assessments and make all required withholding and other tax deposits;
provided, however, that nothing herein contained shall be interpreted to
require the payment of any tax, assessment or charge so long as its validity or
amount is being contested in good faith and by appropriate proceedings
diligently conducted, and that while any tax, assessment or charge is being
contested, enforcement of such contested item is effectively stayed.
5.5 BOOKS AND RECORDS. Maintain true and complete
records and books in accordance with GAAP.
5.6 CORPORATE STANDING. Maintain, and cause each
Subsidiary to maintain, its corporate, partnership or limited liability company
existence in good standing; remain or become, and cause each Subsidiary to
remain or become, duly licensed or qualified and in good standing in each
jurisdiction in which the conduct of its business requires such qualification
or licensing; and preserve and maintain, and cause each Subsidiary to preserve
and maintain, all of its rights, privileges and franchises necessary in the
normal course of its business; provided, however, nothing in this Section 5.6
shall prohibit the Company from merging any Subsidiary into the Company or into
another Subsidiary, or from liquidating any Subsidiary or Subsidiaries with an
individual or aggregate value of $200,000 or less.
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<PAGE> 30
5.7 DISCHARGE OF OBLIGATIONS. Cause to be paid and
discharged all obligations when due and all lawful taxes, assessments and
governmental charges or levies imposed upon the Company or any Subsidiary, or
upon any property, real, personal or mixed, belonging to the Company or any
Subsidiary, or upon any part thereof, before the same shall become in default,
as well as all lawful claims for labor, materials and supplies which, if
unpaid, might become a lien or charge upon the property or any part of it
unless such obligations, taxes, assessments, charges, levies or claims are
being contested in good faith by the Company by appropriate legal proceedings
diligently conducted.
5.8 INSURANCE. (a) Keep, and cause each Subsidiary to
keep, all its property so insurable insured at all times with responsible
insurance carriers reasonably satisfactory to the Bank against fire, theft and
other risks in coverage, form and amount reasonably satisfactory to the Bank;
(b) keep, and cause each Subsidiary to keep, adequately insured at all times in
reasonable amounts with responsible insurance carriers against liability on
account of damage to persons or property and under all applicable worker's
compensation laws; (c) promptly deliver to the Bank certificates of insurance
or any of those insurance policies required to be carried pursuant hereto; and
(d) cause each such insurance policy to contain a thirty (30) day notice of
cancellation or material change in coverage provision satisfactory to the Bank.
5.9 EXAMINATIONS. Permit the Bank or its agents at all
reasonable times to visit and inspect any and all properties of the Company or
any Subsidiary and to examine and make extracts from or copies of any of the
Company's or its Subsidiary's books, ledgers, reports, correspondence and other
records, and discuss their affairs, finances and accounts with officers of the
Company.
5.10 LITIGATION. Promptly notify the Bank in writing as
soon as the Company has knowledge thereof, of the institution or filing of any
litigation, action, suit, claim, counterclaim, or administrative proceeding
against, or investigation of, the Company or any Subsidiary to which the
Company or any Subsidiary is a party by or before any regulatory body or
governmental agency (a) the outcome of which is expected to involve more than
$500,000.00 above the amount fully covered by insurance, singularly or
cumulatively, or (b) which questions the validity of this Agreement, any of the
Notes, or any action taken or to be taken pursuant to any of the foregoing; and
furnish or cause to be furnished to the Bank such information regarding the
same as the Bank may request.
5.11 JUDGMENTS. Promptly notify the Bank in writing as
soon as the Company has knowledge thereof, of any judgment, order or award of
any court, agency or other governmental agency or any
- 26 -
<PAGE> 31
arbitrator, (a) the outcome of which may materially and adversely affect the
finances or operations of the Company or any Subsidiary or the Company's
ability to fulfill its obligations hereunder or which involves more than
$500,000.00 singularly or cumulatively above the amount fully covered by
insurance, or (b) renders invalid this Agreement, any of the Notes or any
action taken or to be taken pursuant to any of the foregoing, and furnish or
cause to be furnished to the Bank such information regarding the same as the
Bank may request.
5.12 NOTICE. Promptly notify the Bank in writing with
full details of any Default or Event of Default.
5.13 ENVIRONMENTAL COMPLIANCE.
(a) Comply in all material respects with all
Environmental Laws.
(b) Not cause or permit any change to be made in
the present or intended use of any property owned, leased or operated by the
Company or any Subsidiary which would (i) involve the storage, treatment,
generation, transportation, processing, handling, production or disposal of any
Hazardous Substance to the extent such storage, treatment, generation,
transportation, processing, handling, production or disposal is or results in a
violation of any Environmental Law or the use of any such property as a
landfill or other waste disposal site, (ii) violate any applicable
Environmental Laws, (iii) constitute non-compliance in any material respect
with any Environmental Permit or (iv) increase in any material respect the risk
of a Release.
(c) Promptly notify the Bank in the event of the
Disposal of any Hazardous Substance at any property owned, leased or operated
by the Company, or in the event of any Release, or threatened Release, of any
Hazardous Substance, from any such property.
(d) Deliver promptly to the Bank (i) copies of
any documents received from the United States Environmental Protection Agency
or any state, county or municipal environmental or health agency concerning the
Company's operations; and (ii) copies of any documents submitted by the Company
to the United States Environmental Protection Agency or any state, county or
municipal environmental or health agency concerning its operations.
5.14 COMPLIANCE WITH LAW. Comply in all material respects
with all applicable laws and governmental rules and regulations.
5.15 GETTYS PURCHASE AGREEMENT. Promptly deliver or cause
to be delivered to the Bank when executed a true, correct
- 27 -
<PAGE> 32
and complete copy of the asset purchase agreement between Gettys Corporation
and Gettys Property Corporation and the Company, and all such other documents,
executed and delivered in connection therewith which the Bank reasonably
requests to evidence the closing of the transactions contemplated in such
agreement.
5.16 OTHER ACTS. Execute and deliver, or cause to be
executed and delivered, to the Bank all further documents and perform all other
acts and things which the Bank reasonably deems necessary or appropriate to
protect the Bank's rights and interests under this Agreement.
ARTICLE VI. NEGATIVE COVENANTS
------------------
During the term of this Agreement and so long thereafter as
any of the Indebtedness of the Company to the Bank arising hereunder, including
any indebtedness for fees and expenses, shall remain unpaid, neither the
Company nor any of its Subsidiaries shall, without the prior written consent of
the Bank:
6.1 BUSINESS OPERATIONS. Make or permit to be made any
change in the character of its business or operations which could have a
material adverse effect on the Company.
6.2 GUARANTIES. Guarantee, endorse or otherwise be or
become liable or contingently liable in connection with the obligations or
indebtedness of any other Person (excluding any Subsidiary), directly or
indirectly, whether by agreement to purchase the indebtedness of any other
Person or agreement for the furnishing of funds to any other Person through the
purchase of goods, supplies or services (or by way of stock purchase, capital
contribution, advance or loan) for the purpose of paying or discharging the
indebtedness of any other Person, or otherwise except (i) as an endorser of
instruments for the payment of money deposited to its bank account for
collection in the ordinary course of business; and (ii) guaranties of
obligations not to exceed $2,000,000 in the aggregate at any time.
6.3 LIENS. Create, incur, assume or suffer to exist any
Lien upon any of its property, assets, income or profits, whether now owned or
hereafter acquired, or pledge or encumber any assets, except (i) purchase money
security interests in office equipment leased or purchased in the ordinary
course of the Company's business, (ii) Liens in favor of the Bank, or (iii)
Permitted Encumbrances listed on Schedule 6.3 hereto.
6.4 COMPLIANCE WITH LAW. Violate any law or regulation,
order, writ, injunction or decree of any court or governmental instrumentality
or breach in any material respect
- 28 -
<PAGE> 33
any material agreement to which Company or any Subsidiary is subject.
6.5 MERGERS. Merge or consolidate with or into any other
firm, corporation or limited liability company unless the Company is the
surviving entity after giving effect to such merger or consolidation; provided,
however, nothing herein shall prevent the merger of a Subsidiary into another
Subsidiary or into the Company.
6.6 PENSIONS. Terminate any Plan so as to result in any
material liability of the Company to the Pension Benefit Guaranty Corporation
or permit to exist any occurrence of any Reportable Event or other event or
condition, which presents a material risk of such termination by the Pension
Benefit Guaranty Corporation.
6.7 DISPOSAL OF HAZARDOUS SUBSTANCES. Cause or permit
the Disposal of Hazardous Substances in violation of any Environmental Law at
any property owned, leased or operated by the Company or any of its
Subsidiaries.
6.8 SALE OF ASSETS. Convey, sell, transfer, lease or
sell and lease back all or more than five percent (5%) of its property, assets,
or business to any other Person, except for sales of inventory in the ordinary
course of business.
6.9 LEASE RENTALS. Pay rentals under any operating or
true leases which are not capitalized on the Company's books in excess of
$1,000,000 in the aggregate during any fiscal year.
6.10 CAPITAL EXPENDITURES. For any one fiscal year, make
or incur aggregate Capital Expenditures in excess of seven and one-half percent
(7-1/2%) of the Company's net sales as shown on the Company's audited financial
statements for such fiscal year; provided, however, for fiscal 1996 capital
expenditures for the Company's new Air Technologies Division made under the
existing industrial revenue bond financing shall be excluded from the
limitations of this Section.
6.11 INTEREST COVERAGE RATIO. Permit as of the end of any
period of four consecutive fiscal quarters of the Company, the ratio of
Earnings before Interest and Taxes of the Company to interest payable on Total
Liabilities to be less than 1.5 to 1.0.
6.12 DEBT-TO-TANGIBLE-NET WORTH RATIO. Permit at any time
the ratio of Total Liabilities of the Company, on a Consolidated basis, to
Tangible Net Worth of the Company, on a Consolidated basis, to be greater than
the 2.0 to 1.0.
6.13 DEBT SERVICE COVERAGE RATIO. Permit, as of the end
of any fiscal year of the Company, on a Consolidated basis,
- 29 -
<PAGE> 34
the ratio of (a) net income of the Company after taxes plus depreciation and
amortization, to (b) current maturities of the Company's long term
Indebtedness, to be less than 1.5 to 1.0.
6.14 CURRENT RATIO. Permit at any time the ratio of
Current Assets of the Company on a Consolidated basis to Current Liabilities of
the Company, on a Consolidated basis to be less than 1.5 to 1.0.
6.15 WORKING CAPITAL. Permit the Company's net working
capital, on a Consolidated basis, to be less than $7,000,000, at any time, such
net working capital to be computed in accordance with GAAP.
ARTICLE VII. DEFAULT
-------
7.1 EVENTS OF DEFAULT. The occurrence of any one or more
of the following events shall constitute an event of default (individually,
"EVENT OF DEFAULT," or, collectively, "EVENTS OF DEFAULT"):
(a) NONPAYMENT. Nonpayment within three (3) days
after the same becomes due whether by acceleration or otherwise of principal
of, or interest on, the Notes, or of any fee or premium provided for hereunder.
(b) NEGATIVE COVENANTS. Default in the
observance of any of the covenants or agreements of the Company contained in
Article VI of this Agreement.
(c) OTHER COVENANTS. Default in the observance
of any of the covenants or agreements of the Company contained in this
Agreement, other than those specified in Section 5.1, Article VI or Section
7.1(b) hereof, which is not remedied within thirty (30) days after notice
thereof by the Bank to the Company.
(d) VOLUNTARY INSOLVENCY PROCEEDINGS. If the
Company or any Subsidiary (i) shall file a petition or request for liquidation,
reorganization, arrangement, adjudication as a bankrupt, relief as a debtor or
other relief under the bankruptcy, insolvency or similar laws of the United
States of America or any state or territory thereof or any foreign
jurisdiction, now or hereafter in effect; (ii) shall make a general assignment
for the benefit of creditors; (iii) shall consent to the appointment of a
receiver or trustee for the Company or any Subsidiary or any of the Company's
or any Subsidiary's assets, including, without limitation, the appointment of
or taking possession by a "custodian" as defined in the federal Bankruptcy
Code; (iv) shall make any, or send notice of any intended, bulk sale; or (v)
shall execute a consent to any other type of insolvency proceeding (under the
federal
- 30 -
<PAGE> 35
Bankruptcy Code or otherwise) or any formal or informal proceeding for the
dissolution or liquidation of, or settlement of claims against or winding up of
affairs of, the Company or any Subsidiary.
(e) INVOLUNTARY INSOLVENCY PROCEEDINGS. The
appointment of a receiver, trustee, custodian or officer performing similar
functions for the Company or any Subsidiary or any of the Company's or any
Subsidiary's assets, including, without limitation, the appointment of or
taking possession by a "custodian" as defined in the federal Bankruptcy Code;
or the filing against the Company or any Subsidiary of a request or petition
for liquidation, reorganization, arrangement, adjudication as a bankrupt or
other relief under the bankruptcy, insolvency or similar laws of the United
States of America or any state or territory thereof or any foreign
jurisdiction, now or hereafter in effect; or the institution against the
Company or any Subsidiary of any other type of insolvency proceeding (under the
federal Bankruptcy Code or otherwise) or of any formal or informal proceeding
for the dissolution or liquidation of, settlement of claims against or winding
up of affairs of the Company or any Subsidiary, and the failure to have such
appointment vacated or such filing, petition or proceeding dismissed within
ninety (90) days after such appointment, filing or institution.
(f) REPRESENTATIONS. If any certificate,
statement, representation, warranty or financial statement furnished by or on
behalf of the Company or any Subsidiary pursuant to or in connection with this
Agreement (including, without limitation, representations and warranties
contained herein) or as an inducement to the Bank to enter into this Agreement
or any other lending agreement with the Company or its Subsidiaries shall prove
to have been false in any material respect at the time as of which the facts
therein set forth were represented, or to have omitted any substantial
contingent or unliquidated liability or claim against the Company or any
Subsidiary required to be stated therein, or if on the date of the execution of
this Agreement there shall have been any materially adverse change in any of
the facts disclosed by any such statement or certificate, which change shall
not have been disclosed by the Company to the Bank at or prior to the time of
such execution.
(g) OTHER INDEBTEDNESS AND AGREEMENTS.
Nonpayment by the Company or any Subsidiary of any Indebtedness (other than as
evidenced by the Notes) owing by the Company or any Subsidiary when due (or, if
permitted by the terms of the applicable document, within any applicable grace
period), whether such Indebtedness shall become due by scheduled maturity, by
required prepayment, by acceleration, by demand or otherwise, or failure to
perform any term, covenant or agreement on its part to
- 31 -
<PAGE> 36
be performed under any agreement or instrument (other than this Agreement)
evidencing or securing or relating to any Indebtedness owing by the Company or
any Subsidiary when required to be performed if the effect of such failure is
to accelerate or to permit the holder to accelerate the maturity of any
Indebtedness in excess of $500,000 individually and in the aggregate.
(h) JUDGMENTS. If any judgment or judgments in
excess of $500,000.00 in the aggregate (other than any judgment or portion
thereof for which it is fully insured) against the Company or any of its
Subsidiaries remains unpaid, unstayed on appeal, undischarged, unbonded or
undismissed for a period of thirty (30) days after entry thereof.
(i) PENSION DEFAULT. The existence or happening
of any of the following events and conditions, provided that the event or
condition, together with all other events or conditions in clauses i. through
vi. below, if any, would subject the Company or any of its Subsidiaries to any
tax, penalty or other liabilities under ERISA in the aggregate material in
relation to the business, operations, property or financial or other condition
of the Company and its Subsidiaries taken as a whole:
i. the Company or any of its
Subsidiaries (or any officer or director thereof) shall engage in any
"prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of
the Code) involving any Plan,
ii. any "accumulated funding deficiency"
(as defined in Section 302 of ERISA), shall exist with respect to any Plan,
iii. with respect to any Multiemployer
Plan, the Company or any Commonly Controlled Entity fails to make a
contribution required to be made thereto, or withdraws therefrom,
iv. a Reportable Event shall occur with
respect to, or proceedings shall commence to have a trustee appointed, or a
trustee shall be appointed, to administer or to terminate, any Plan which is
not a Multiemployer Plan, which Reportable Event or institution of proceedings
is, in the reasonable opinion of the Bank, likely to result in the termination
of such Plan for purposes of Title IV of ERISA and, in the case of a Reportable
Event, the continuance of such Reportable Event unremedied for ten (10) days
after notice of such Reportable Event pursuant to Section 4043(a), (b), (d) or
(e) of ERISA is given or the continuance of such proceedings for ten (10) days
after commencement thereof, as the case may be,
v. any Plan shall terminate for
purposes of Title IV of ERISA, or
- 32 -
<PAGE> 37
vi. any tax, penalty or other
liabilities under ERISA imposed upon the Company or any of its Subsidiaries as
a result of the acquisition by the Company or any of its Subsidiaries of part
or all of the business operations of Ketema, Inc., Gettys Corporation and
Gettys Property Corporation.
7.2 EFFECTS OF AN EVENT OF DEFAULT.
(a) Upon the happening of one or more Events of
Default (except a default under either Section 7.1(d) or 7.1(e) hereof), the
Bank may declare any obligations it may have hereunder to be canceled and the
principal of the Notes then outstanding to be immediately due and payable,
together with all interest thereon and fees and expenses accruing under this
Agreement. Upon any acceleration of the principal of the Notes, the Note then
outstanding shall become immediately due and payable without presentation,
demand or further notice of any kind to the Company, and any obligations the
Bank may have to make Advances and Loans shall be immediately canceled.
(b) Upon the happening of one or more Events of
Default under Section 7.1(d) or 7.1(e) hereof, the Bank's obligations hereunder
shall be canceled immediately, automatically and without notice, and the Note
then outstanding shall become immediately due and payable without presentation,
demand or notice of any kind to the Company.
ARTICLE VIII. INDEMNIFICATION - COSTS AND EXPENSES
------------------------------------
8.1 INDEMNIFICATION. The Company agrees to indemnify,
defend, and hold harmless the Bank from and against any and all liabilities,
claims, damages, penalties, expenditures, losses, or charges, including, but
not limited to, all costs of investigation, monitoring, legal representation,
remedial response, removal, restoration or permit acquisition, which may now or
in the future be undertaken, suffered, paid, awarded, assessed, or otherwise
incurred by the Bank or any other Person as a result of the presence of,
Release of or threatened Release of Hazardous Substances on, in, under or near
any property owned or operated by the Company or any Subsidiary. The liability
of the Company under the covenants of this Section and Article II are not
limited by any exculpatory provisions in this Agreement and shall survive
repayment of the Notes, or any transfer or termination of this Agreement
regardless of the means of such transfer or termination.
8.2 EXPENSES. The Company shall reimburse the Bank
promptly upon request of the Bank for all of its reasonable counsel fees
incurred in connection with this Agreement and with any indebtedness subject
hereto and for any taxes (other than taxes measured by the Bank's net income),
filing fees, recording
- 33 -
<PAGE> 38
fees and appraisal fees which the Bank may be required to pay in connection
with the execution and delivery of this Agreement, the Notes and the other
documents executed and delivered in connection therewith. The Company shall
further reimburse the Bank upon demand of the Bank for any expenses, including,
without limitation, counsel fees and out-of-pocket expenses incident to the
enforcement of any provision of this Agreement, the Notes, or any other
document executed in connection with this Agreement.
ARTICLE IX. MISCELLANEOUS
-------------
9.1 AMENDMENTS AND WAIVERS. No modification,
rescission, waiver, release or amendment of any provision of this Agreement
shall be made except by a written agreement subscribed by duly authorized
officers of the Company and the Bank.
9.2 DELAYS AND OMISSIONS. No course of dealing and no
delay or omission by the Bank in exercising any right or remedy hereunder or
with respect to any Indebtedness of the Company to the Bank shall operate as a
waiver thereof or of any other right or remedy, and no single or partial
exercise thereof shall preclude any other or further exercise thereof or the
exercise of any other right or remedy. All rights and remedies of the Bank
hereunder are cumulative.
9.3 ASSIGNMENTS. The Company shall not assign or
otherwise transfer any of the rights pursuant to this Agreement without the
prior written consent of the Bank, and any such assignment or other transfer
without such prior written consent shall be void. No consent by the Bank to
any such assignment or other transfer shall release the Company from any
indebtedness, liability or obligation of the Company pursuant to this
Agreement.
9.4 SUCCESSORS AND ASSIGNS. Company, Subsidiary, and
Bank as such terms are used herein shall include the legal representatives,
successors and assigns of those parties.
9.5 NOTICES. All notices, requests and demands to or
upon the respective parties hereto to be effective shall be in writing, unless
otherwise expressly provided herein, and shall be deemed to have been given or
made when delivered by hand or by Facsimile (with a copy by regular mail),
three (3) Business Days after being delivered to a courier for overnight
delivery or five (5) Business Days after being deposited in the first class
United
- 34 -
<PAGE> 39
States mail, addressed as follows, or to such other address as may be hereafter
notified by the respective parties hereto:
To the Company: American Precision Industries Inc.
2777 Walden Avenue
Cheektowaga, New York 14225-4719
Attn: John M. Murray
Facsimile No. 716-684-2155
With a copy (which Jaeckle, Fleischmann & Mugel
shall not constitute Fleet Bank Building
notice) to: Twelve Fountain Plaza
Buffalo, New York 14202-2292
Facsimile No. 716-856-0452
To the Bank: Marine Midland Bank
Regional Commercial Banking
Department
One Marine Midland Center
Buffalo, New York 14203
Attn: Manager
Facsimile No. 716-855-0384
With a copy (which Phillips, Lytle, Hitchcock, Blaine
shall not constitute & Huber
notice) to: 3400 Marine Midland Center
Buffalo, New York 14203
Attn: Raymond H. Seitz, Esq.
Facsimile No. 716-852-6100
9.6 GOVERNING LAW. This Agreement, the transactions
described herein and the obligations of the parties hereto shall be construed
under, and governed by, the laws of the State of New York, without regard to
principles of conflict of laws.
9.7 COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by the Bank and the Company on separate
counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
Agreement.
9.8 TITLES. Titles to the sections of this Agreement
are solely for the convenience of the parties, and are not an aid in the
interpretation of this Agreement or any part thereof.
9.9 INCONSISTENT PROVISIONS. The terms of this
Agreement and any related agreements, instruments or other documents shall be
cumulative except to the extent that they are specifically inconsistent with
each other, in which case the terms of this Agreement shall prevail.
- 35 -
<PAGE> 40
9.10 JURY TRIAL WAIVER. EACH OF THE PARTIES HERETO
WAIVES ANY RIGHT TO TRIAL BY JURY WHICH IT MAY HAVE IN ANY ACTION OR
PROCEEDING, IN LAW OR EQUITY, IN CONNECTION WITH THIS AGREEMENT OR THE
TRANSACTIONS RELATED HERETO.
9.11 CONSENT TO JURISDICTION. THE COMPANY AND THE BANK
AGREE THAT ANY ACTION OR PROCEEDING TO ENFORCE OR ARISING OUT OF THIS AGREEMENT
MAY BE COMMENCED IN THE SUPREME COURT OF NEW YORK IN ERIE COUNTY, OR IN THE
DISTRICT COURT OF THE UNITED STATES IN THE WESTERN DISTRICT OF NEW YORK, AND
THE COMPANY AND THE BANK WAIVE PERSONAL SERVICE OF PROCESS AND AGREE THAT A
SUMMONS AND COMPLAINT COMMENCING AN ACTION OR PROCEEDING IN ANY SUCH COURT
SHALL BE PROPERLY SERVED AND SHALL CONFER PERSONAL JURISDICTION IF SERVED BY
REGISTERED OR CERTIFIED MAIL TO THE COMPANY OR THE BANK, AS APPROPRIATE, OR AS
OTHERWISE PROVIDED BY THE LAWS OF THE STATE OF NEW YORK OR THE UNITED STATES.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their duly authorized officers, all on the 29th day
of March, 1996.
(SEAL) AMERICAN PRECISION INDUSTRIES INC.
By /s/ John M. Murray, V.P.-Finance
------------------------------------
(Title)
(SEAL) MARINE MIDLAND BANK
By /s/ Cary J. Haller
------------------------------------
Cary J. Haller
Vice President
SSSor/cw
- 36 -
<PAGE> 41
EXHIBIT A
---------
REVOLVING NOTE
--------------
$20,000,000.00 Buffalo, New York
March 29, 1996
FOR VALUE RECEIVED, AMERICAN PRECISION INDUSTRIES INC., a Delaware
corporation (Company), promises to pay to the order of MARINE MIDLAND BANK
(Bank) at its office at One Marine Midland Center, Buffalo, New York 14203, or,
at holder's option, at such other place as may be designated from time to time
by the holder, in lawful money of the United States of America, on or before
March 29, 1999 (Termination Date), the lesser of the principal sum of TWENTY
MILLION DOLLARS ($20,000,000.00) or the aggregate unpaid principal amount of
all Advances made by Bank pursuant to Section 2.1 of the Credit Agreement
between Company and Bank of even date herewith, as the same may from time to
time be amended, supplemented or otherwise modified (Agreement), together with
interest on the unpaid principal amount hereof at the rates and on the terms
set forth in Sections 2.3 and 2.4 of the Agreement. Within the limits of the
Revolving Credit, Company may borrow, repay and reborrow. All capitalized
terms used, but not defined in this Note, shall have the meanings specified in
the Agreement.
Interest shall be payable monthly on the first day of each
month, on the Termination Date, and in the case of LIBOR Rate Loans, on the
last day of each applicable LIBOR Rate Period, if earlier.
Bank is authorized to inscribe the date of the making of each Advance,
the amount of each Advance, its character as a Prime Rate Loan, a LIBOR Rate
Loan or a Fixed Rate Loan, the date on which each LIBOR Rate Period and each
Fixed Rate Period shall begin and end, each payment or prepayment of principal,
and the aggregate unpaid principal balance of this Note, on the schedule on the
reverse side hereof and constituting a part hereof, or on any continuation
thereof, which shall be attached hereto and made a part hereof (Schedule).
Each entry set forth on the Schedule shall be prima facie evidence
of the facts so set forth. No failure by Bank to make, and no error by Bank in
making, any inscription on the Schedule shall affect Company's obligation to
repay the full principal amount advanced by Bank to or for the account of
Company, or Company's obligation to pay interest thereon at the agreed upon
rate.
If this Note becomes due and payable on a day other than a Business
Day, the maturity hereof shall be extended to the next succeeding Business Day,
and Company will pay interest at the aforesaid rate until the date of actual
receipt of payment by the holder of this Note.
<PAGE> 42
- 2 -
No failure by the holder hereof to exercise, and no delay in
exercising, any right or power hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise by the holder of any right or power
hereunder preclude any other or further exercise thereof or the exercise of any
other right of power. The rights and remedies of the holder as herein
specified are cumulative and not exclusive of any other rights or remedies
which the holder may otherwise have.
No modification, rescission, waiver, release or amendment of any
provision of this Note shall be made except by a written agreement subscribed
by duly authorized officers of Company and the holder hereof.
This Note evidences a borrowing under and is entitled to the benefits
of the Agreement, to which reference is hereby made with respect to prepayment,
conversion rights and rights of acceleration of the principal hereof on the
occurrence of certain events.
Company hereby waives diligence, presentment, protest and demand, and
also notice of protest, demand, dishonor and nonpayment of this Note.
Company agrees to pay on demand by the Bank all costs and expenses
incurred by the holder in preserving holder's rights, enforcing this Note or in
collecting the indebtedness evidenced hereby, including, without limitation, if
the holder retains counsel for any such purpose, actual attorneys' fees and
expenses.
This Note shall be construed under, and governed by the internal laws
of the State of New York without regard to principles of conflicts of law.
(SEAL) AMERICAN PRECISION INDUSTRIES INC.
By_____________________________
(Title)
SSSor/be
<PAGE> 43
SCHEDULE
ADVANCES AND REPAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
=============================================================================================================================
LIBOR
BASIS OF INTEREST
INTEREST RATE PERIOD
RATE (PRIME OR FIXED AMOUNT OF
AMOUNT OF RATE, LIBOR INTEREST PRINCIPAL OUTSTANDING NOTATION
LOAN RATE OR RATE PERIOD PAID OR PRINCIPAL MADE BY
DATE FIXED RATE) DATES REPAID BALANCE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
=============================================================================================================================
</TABLE>
<PAGE> 44
EXHIBIT B
---------
TERM NOTE
---------
$_____________ Buffalo, New York
March __, 1999
FOR VALUE RECEIVED, AMERICAN PRECISION INDUSTRIES INC., a
Delaware corporation (Company), promises to pay to the order of MARINE MIDLAND
BANK (Bank) at its office at One Marine Midland Center, Buffalo, New York 14203,
or, at holder's option, at such other place as may be designated from time to
time by the holder, in lawful money of the United States of America, on or
before [April 1, 2003], the principal sum of __________________ DOLLARS
($_____________) payable in forty-eight (48) monthly installments as follows:
forty-seven (47) equal monthly installments of principal of $__________ each,
commencing [May 1, 1999], and payable on the first day of each month thereafter
to and including [March 1, 2003], followed by one (1) final installment on
[April __, 2003] in an amount equal to the then unpaid principal of and interest
on this Note, together with interest on the unpaid principal amount hereof at
the rates and on the terms set forth in Sections 2.3 and 2.4 of the Credit
Agreement between Company and Bank of even date herewith, as the same may from
time to time be amended, supplemented or otherwise modified (Agreement). All
capitalized terms used, but not defined in this Note, shall have the meanings
specified in the Agreement.
Interest shall be payable quarterly on the first day of each
July, October, January and April and on the date the principal balance of this
Note is paid in full. In the case of LIBOR Rate Loans, interest shall also be
payable on the last day of each applicable LIBOR Rate Period, if earlier.
Bank is authorized to inscribe the Loan hereunder outstanding, its
character as a Prime Rate Loan, a LIBOR Rate Loan or a Fixed Rate Loan, the
date on which each LIBOR Rate Period and each Fixed Rate Period shall begin and
end, each payment or prepayment of principal, and the aggregate unpaid
principal balance of this Note, on the schedule on the reverse side hereof and
constituting a part hereof, or on any continuation thereof, which shall be
attached hereto and made a part hereof (Schedule).
Each entry set forth on the Schedule shall be prima facie evidence
of the facts so set forth. No failure by Bank to make, and no error by Bank in
making, any inscription on the Schedule shall affect Company's obligation to
repay the full principal amount advanced by Bank to or for the account of
Company, or Company's obligation to pay interest thereon at the agreed upon
rate.
<PAGE> 45
- 2 -
If any payment on this Note becomes due and payable on a day other
than a Business Day, the maturity hereof shall be extended to the next
succeeding Business Day, and Company will pay interest at the aforesaid rate
until the date of actual receipt of payment by the holder of this Note.
No failure by the holder hereof to exercise, and no delay in
exercising, any right or power hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise by the holder of any right or power
hereunder preclude any other or further exercise thereof or the exercise of any
other right of power. The rights and remedies of the holder as herein
specified are cumulative and not exclusive of any other rights or remedies
which the holder may otherwise have.
No modification, rescission, waiver, release or amendment of any
provision of this Note shall be made except by a written agreement subscribed
by duly authorized officers of Company and the holder hereof.
This Note evidences a borrowing under and is entitled to the benefits
of the Agreement, to which reference is hereby made with respect to prepayment
and rights of acceleration of the principal hereof on the occurrence of certain
events.
Company hereby waives diligence, presentment, protest and demand, and
also notice of protest, demand, dishonor and nonpayment of this Note.
Company agrees to pay on demand by the Bank all costs and expenses
incurred by the holder in preserving holder's rights, enforcing this Note or in
collecting the indebtedness evidenced hereby, including, without limitation, if
the holder retains counsel for any such purpose, actual attorneys' fees and
expenses.
This Note shall be construed under, and governed by the internal laws
of the State of New York without regard to principles of conflicts of law.
(SEAL) AMERICAN PRECISION INDUSTRIES INC.
By_____________________________
(Title)
<PAGE> 46
SCHEDULE
LOANS AND REPAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
=============================================================================================================================
LIBOR
BASIS OF INTEREST
INTEREST RATE PERIOD
RATE (PRIME OR FIXED AMOUNT OF
RATE, LIBOR INTEREST PRINCIPAL OUTSTANDING
AMOUNT OF RATE OR RATE PERIOD PAID OR PRINCIPAL NOTATION
DATE LOAN FIXED RATE) DATES REPAID BALANCE MADE BY
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
=============================================================================================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000005657
<NAME> AMERICAN PRECISION INDUSTRIES, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1997
<PERIOD-END> MAR-29-1996
<CASH> 1,363,000
<SECURITIES> 2,026,000
<RECEIVABLES> 14,158,000
<ALLOWANCES> 283,000
<INVENTORY> 12,115,000
<CURRENT-ASSETS> 31,972,000
<PP&E> 31,108,000
<DEPRECIATION> 18,345,000
<TOTAL-ASSETS> 58,533,000
<CURRENT-LIABILITIES> 12,883,000
<BONDS> 0
<COMMON> 5,020,000
0
0
<OTHER-SE> 30,525,000
<TOTAL-LIABILITY-AND-EQUITY> 58,533,000
<SALES> 21,948,000
<TOTAL-REVENUES> 22,022,000
<CGS> 14,568,000
<TOTAL-COSTS> 19,881,000
<OTHER-EXPENSES> 5,173,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 140,000
<INCOME-PRETAX> 2,141,000
<INCOME-TAX> 742,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,399,000
<EPS-PRIMARY> $.20
<EPS-DILUTED> 0
</TABLE>
