<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 July 4, 1997
------------
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)
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)
(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 August 13, 1997 7,412,325
This document contains pages 1 through 49 inclusive.
<PAGE> 2
AMERICAN PRECISION INDUSTRIES INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
----------------------------------
(Unaudited)
<TABLE>
<CAPTION>
SECOND QUARTER ENDED SIX MONTHS ENDED
--------------------------- ---------------------------
1997 1996 1997 1996
JULY 4 JUNE 28 JULY 4 JUNE 28
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $39,572,000 $31,432,000 $75,415,000 $53,379,000
INVESTMENT INCOME 36,000 110,000 64,000 184,000
----------- ----------- ----------- -----------
REVENUES 39,608,000 31,542,000 75,479,000 53,563,000
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Cost of products sold 27,351,000 21,330,000 51,869,000 35,990,000
Selling and administrative 7,752,000 6,883,000 15,099,000 11,632,000
Research and product development 803,000 449,000 1,506,000 781,000
Interest and debt expense 625,000 382,000 1,083,000 522,000
----------- ----------- ----------- -----------
36,531,000 29,044,000 69,557,000 48,925,000
----------- ----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES 3,077,000 2,498,000 5,922,000 4,638,000
FEDERAL AND STATE INCOME TAXES 1,107,000 924,000 2,067,000 1,666,000
----------- ----------- ----------- -----------
NET EARNINGS $ 1,970,000 $ 1,574,000 $ 3,855,000 $ 2,972,000
=========== =========== =========== ===========
NET EARNINGS PER COMMON SHARE (1) $ 0.27 $ 0.22 $ 0.53 $ 0.42
=========== =========== =========== ===========
NET EARNINGS PER COMMON SHARE -
FULLY DILUTED $ 0.25 $ 0.21 $ 0.50 $ 0.40
=========== =========== =========== ===========
AVERAGE COMMON SHARES OUTSTANDING 7,365,000 7,179,000 7,341,000 7,161,000
=========== =========== =========== ===========
AVERAGE COMMON SHARES OUTSTANDING -
FULLY DILUTED 7,740,000 7,418,000 7,712,000 7,406,000
=========== =========== =========== ===========
</TABLE>
(1) Net earnings per common share outstanding is not materially affected by
common stock equivalents used in the determination of primary earnings per
share.
<PAGE> 3
AMERICAN PRECISION INDUSTRIES
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- --------------------------
(Unaudited)
<TABLE>
<CAPTION>
1997 1997
JULY 4 JANUARY 3
------------ -----------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,827,000 $ 2,412,000
Accounts receivable less allowance for doubtful
accounts of $566,000 and $487,000 24,249,000 17,912,000
Inventories 23,235,000 17,431,000
Prepaid expenses 2,161,000 1,137,000
Deferred income tax benefit 2,094,000 2,094,000
------------ -----------
TOTAL CURRENT ASSETS 53,566,000 40,986,000
INVESTMENTS 649,000 3,279,000
OTHER ASSETS
Cost in excess of net assets acquired 5,882,000 4,472,000
Prepaid pension cost 2,057,000 2,104,000
Net cash value of life insurance 2,733,000 2,655,000
Other 2,213,000 1,310,000
------------ -----------
12,885,000 10,541,000
PROPERTY, PLANT AND EQUIPMENT
Land 742,000 665,000
Buildings and improvements 14,406,000 13,549,000
Machinery, equipment and furniture 42,077,000 32,589,000
Construction in process 2,285,000 1,502,000
------------ -----------
59,510,000 48,305,000
Less accumulated depreciation 23,015,000 21,099,000
------------ -----------
NET PROPERTY, PLANT AND EQUIPMENT 36,495,000 27,206,000
------------ -----------
$103,595,000 $82,012,000
============ ===========
</TABLE>
<PAGE> 4
AMERICAN PRECISION INDUSTRIES
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- --------------------------
(Unaudited)
<TABLE>
<CAPTION>
1997 1997
JULY 4 JANUARY 3
------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Short-term borrowings $ 8,995,000 $ --
Accounts payable 11,296,000 8,511,000
Accrued compensation and payroll taxes 6,851,000 5,167,000
Other accrued expenses 3,043,000 1,341,000
Dividends payable -- 471,000
Current portion of long-term obligations 1,309,000 1,292,000
Federal and state income taxes 6,000 12,000
------------- ------------
TOTAL CURRENT LIABILITIES 31,500,000 16,794,000
DEFERRED INCOME TAXES 1,417,000 1,417,000
OTHER NONCURRENT LIABILITIES 846,000 1,046,000
LONG-TERM OBLIGATIONS, LESS CURRENT PORTION 24,600,000 22,211,000
SHAREHOLDERS' EQUITY
Common stock, par value $.66 2/3 a share:
Authorized - 10,000,000 shares
Issued - 7,769,031 and 7,666,011 shares 5,179,000 5,110,000
Additional paid-in capital 11,832,000 11,065,000
Retained earnings 31,180,000 27,281,000
Equity adjustment from foreign currency translation (47,000) --
Minimum pension liability, net of tax (74,000) (74,000)
------------- ------------
48,070,000 43,382,000
Less cost of 374,262 treasury shares 2,838,000 2,838,000
------------- ------------
TOTAL SHAREHOLDERS' EQUITY 45,232,000 40,544,000
------------- ------------
$ 103,595,000 $ 82,012,000
============= ============
</TABLE>
<PAGE> 5
AMERICAN PRECISION INDUSTRIES
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- ------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------
1997 1996
July 4 June 28
----------- ------------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income $ 3,855,000 $ 2,972,000
Adjustments to reconcile net income to cash and
cash equivalents provided by operating activities:
Depreciation and amortization 2,651,000 1,779,000
Write-off of fixed assets 7,000 --
Gain (Loss) on sale of investments/fixed assets (44,000) (16,000)
Increase in supplemental benefit program 48,000 49,000
Recognition of pension expense under SFAS 87 47,000 --
Stock compensation programs 62,000 322,000
Change in various allowance accounts 13,000 201,000
(Increase) Decrease in:
Accounts receivable (3,834,000) (1,345,000)
Inventories (563,000) (2,675,000)
Prepaid expenses (976,000) (127,000)
Deferred income taxes (33,000) (590,000)
Net cash value of life insurance (78,000) (294,000)
Other assets, net (645,000) 202,000
Increase (Decrease) in:
Accounts payable 895,000 1,959,000
Accrued expenses (1,948,000) 34,000
Federal and state income taxes 26,000 --
Other noncurrent liabilities (262,000) (396,000)
----------- ------------
Net cash (used) provided by Operating Activities (779,000) 2,075,000
----------- ------------
Cash Flows from Investing Activities
Investment in API Schmidt-Bretten, net of cash acquired (5,927,000) --
Investment in Ketema and Gettys, net of cash acquired -- (17,292,000)
Costs related to acquisitions (446,000) --
Purchases of marketable securities (31,000) (60,000)
Additions to property, plant and equipment (4,333,000) (2,872,000)
Proceeds from marketable securities and sale of fixed assets 2,758,000 3,846,000
----------- ------------
Net cash (used) provided by Investing Activities (7,979,000) (16,378,000)
----------- ------------
Cash Flows from Financing Activities
Exercise of stock options 835,000 586,000
Payments of long-term obligations, including current maturities (651,000) (313,000)
Dividends paid (471,000) (928,000)
Increase in long-term borrowings 3,011,000 15,216,000
Increase (decrease) in short-term borrowings 5,506,000 (1,927,000)
----------- ------------
Net cash provided (used) by Financing Activities 8,230,000 12,634,000
----------- ------------
Effect of Exchange Rate Changes (57,000) --
----------- ------------
Net (Decrease) in Cash and Cash Equivalents (585,000) (1,669,000)
Cash and Cash Equivalents at Beginning of Year 2,412,000 2,486,000
----------- ------------
Cash and Cash Equivalents at End of Period $ 1,827,000 $ 817,000
=========== ============
</TABLE>
<PAGE> 6
AMERICAN PRECISION INDUSTRIES
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Second Quarter Ended July 4, 1997
---------------------------------
Note A Consolidated Financial Statements
- ------ ---------------------------------
The Consolidated Balance Sheet as of July 4, 1997, and the
Consolidated Statement of Earnings, and the Consolidated
Statement of Cash Flows for the periods ended July 4, 1997 and
June 28, 1996 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 July 4, 1997 and for all periods presented have been
made. The Consolidated Balance Sheet as of June 28, 1996 includes
the assets, liabilities, and resulting goodwill of API Ketema
Inc. ("Ketema") and API Gettys Inc. ("Gettys") acquired as of
April 1, 1996 and April 29, 1996, respectively. The Consolidated
Balance Sheet as of July 4, 1997 includes the assets,
liabilities, and resulting goodwill of API Schmidt-Bretten GmbH
("Schmidt-Bretten") acquired as of January 31, 1997. The
Consolidated Statements of Earnings and Cash Flows include the
results of Ketema, Gettys, and Schmidt-Bretten since the dates of
acquisition.
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 January 3, 1997 Annual Report
to Shareholders.
Note B Inventories
- ------ -----------
It is not practical to determine raw material, work in process,
and finished goods inventories during interim periods.
<PAGE> 7
Note C Long-Term Obligations
- ------ ---------------------
<TABLE>
<CAPTION>
July 4, 1997
-------------------------------------------
Outstanding Current Long-Term
----------- ----------- -----------
<S> <C> <C> <C>
Industrial Revenue Bonds $12,847,000 $ 1,120,000 $11,727,000
Supplemental Benefit Program 1,061,000 189,000 872,000
Revolving Credit Debt 12,001,000 -- 12,001,000
----------- ----------- -----------
$25,909,000 $ 1,309,000 $24,600,000
=========== =========== ===========
</TABLE>
Note D Earnings Per Share
- ------ ------------------
Net earnings per common share is based on the weighted average
number of common shares outstanding during the respective
periods. The effect of common stock equivalents, consisting of
stock options, on net earnings per common share is not material.
Net earnings per common share-fully diluted is based on the
weighted average number of common shares and common stock
equivalents outstanding during the respective periods.
During the first quarter of 1997, Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share," was
issued. SFAS No. 128 establishes standards for computing and
presenting earnings per share and applies to entities with
publicly held common stock or potential common stock. SFAS No.
128 replaces the presentation of primary earnings per share
required by Accounting Principles Board Opinion No. 15, "Earnings
Per Share," with a presentation of basic earnings per share. It
also requires dual presentation of basic and diluted earnings per
share on the face of the income statement for all entities with
complex capital structures and requires a reconciliation of the
numerator and denominator in the basic earnings per share
computation to the numerator and denominator in the diluted
earnings per share computation.
Basic earnings per share excludes dilution and is computed by
dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock
or resulted in the issuance of common stock that then shared in
earnings.
<PAGE> 8
SFAS No. 128 is effective for financial statements for periods
ending after December 15, 1997, including interim periods.
Earlier application is not permitted. However, after the
effective date all prior period earnings per share data presented
shall be restated to conform with the provisions of SFAS No. 128.
The Company has considered the potential impact of SFAS No. 128
and has concluded that the effect of adoption will not have a
material effect on earnings per share.
Note E Foreign Currency Translation
- ------ ----------------------------
The financial statements of subsidiaries outside the United
States are measured using the local currency as the functional
currency. Assets, including goodwill, and liabilities are
translated at the rates of exchange at the balance sheet date.
The resultant translation adjustments are included in equity
adjustment from foreign currency translation, a separate
component of shareholders' equity. Income and expense items are
translated at average monthly rates of exchange. Gains and losses
from foreign currency transactions are included in net earnings.
From time to time, the Company becomes exposed to exchange rate
risk when its U.S. and non-U.S. subsidiaries enter into
transactions in currencies other than their functional currency.
The Company enters into foreign exchange contracts, where
possible, to hedge this risk.
<PAGE> 9
Note F Selected Segment Data
- ------ ---------------------
The Company conducts operations in three major industrial
classifications: Heat Transfer Technology, Motion Technologies,
and Electronic Components. Information about the revenues and
operating profit of these segments is set forth below ($000
omitted).
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
-------------------- --------------------
1997 1996 1997 1996
July 4 June 28 July 4 June 28
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Heat Transfer 23,706 17,201 44,875 27,969
Motion 12,124 10,648 23,070 18,516
Electronic Components 3,742 3,583 7,470 6,896
General Corporate 36 110 64 182
------- ------- ------- -------
Revenues 39,608 31,542 75,479 53,563
======= ======= ======= =======
Operating Profit:
Heat Transfer 2,274 2,186 4,359 3,699
Motion 1,535 918 2,723 1,651
Electronic Components 607 650 1,253 1,115
------- ------- ------- -------
4,416 3,754 8,335 6,465
General Corporate expense, net (714) (874) (1,330) (1,305)
Interest and debt expense (625) (382) (1,083) (522)
------- ------- ------- -------
Earnings before income taxes 3,077 2,498 5,922 4,638
======= ======= ======= =======
</TABLE>
Note G Subsequent Event
- ------ ----------------
On July 8, 1997, the Company acquired all the outstanding capital
stock of Portescap, a Swiss manufacturer of micro-motors and
other precision motion control products, in exchange for 20,000
shares of Series A Seven Percent (7%) Cumulative Convertible
Preferred Stock with a liquidation value of $21,156,250, a
$5,000,000 exchangeable promissory note, and cash of
approximately $3,800,000. Following approval of certain proposals
to be presented at a special shareholder meeting later this year,
the Series A stock and the note will be exchanged for 1,236,337
shares of Series B Seven Percent (7%) Cumulative Convertible
Preferred Stock with a liquidation value of $26,156,250. The
Series B stock will be convertible into 1,538,603 shares of the
Company's common stock at $17.00 per share.
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
REVENUES
Consolidated revenues for the second quarter and six months of 1997 increased
25.6% and 40.9%, respectively, as compared to the same periods of the preceding
year.
Sales within the Heat Transfer segment increased 37.8% and 60.4%, respectively,
over the comparable quarter and six months of 1996. The second quarter increase
is totally attributable to the sales of Schmidt-Bretten, which was acquired on
January 31, 1997. The six months increase not only reflects the Schmidt-Bretten
sales but also includes sales of API Ketema Inc., acquired April 1, 1996, for a
full six months, accounting for most of the period to period increase. API
Airtech Inc. also had a significant rise in sales in 1997 over 1996.
The Motion Technologies segment sales increased 13.9% and 24.6%, respectively,
over the comparable quarter and six months of 1996. All of the subsidiaries
comprising this segment had increased sales in the 1997 periods. Also, the 1997
results include sales of API Gettys Inc. for six months while 1996 results
include sales of API Gettys for May and June only, accounting for about
one-third of the sales increase in the six month period of 1997 over the same
period in 1996.
Sales within the Electronic Components segment for the second quarter of 1997
increased 4.4% over the second quarter of 1996 and sales for the six months grew
by 8.3% over the comparable period in 1996. The increases applied to both
axial-leaded and surface mounted products.
Bookings of customer orders in the second quarter and first half of 1997 were
$41.2 million and $81.5 million, respectively, up 35.0% and 45.9% over bookings
in the same periods last year. The Company's consolidated backlog of firm orders
at July 4, 1997 was $47.7 million, up 22.1% from $39.0 million on June 28, 1996.
The backlog at July 4, 1997 includes $4.6 million for Schmidt-Bretten.
COST OF PRODUCTS SOLD
The Company's gross profit percentage was 30.9% in the second quarter and 31.2%
for the six months of 1997, down from 32.1% and 32.6% for the comparable periods
in 1996. While margins improved in both the Motion and Electronic Components
segments, the Heat Transfer segment had a decline in margins due to increases in
direct labor, direct engineering, and manufacturing overhead. A portion of these
cost increases is attributable not only to moving into and starting up
production in the new API Airtech facility at the beginning of the year but also
to a significant increase in orders and shipments during the first half of 1997.
API Basco also saw a decline in margins which accompanied a slight decline in
sales this year following three successive years of sales increases exceeding
16.5%. Efforts were initiated at API
<PAGE> 11
Basco in the second quarter to reduce costs to levels commensurate with current
order and shipment levels.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses, expressed as a percentage of net sales,
declined both for the second quarter and the six months of 1997 as compared with
the comparable periods in 1996. An increase in sales commissions of $664,000
combined with increases of $3,178,000 related to acquired companies account for
more than the total dollar increase in selling and administrative expenses in
the first half of 1997 over the same period last year.
The Company is currently in the process of evaluating its computer software and
databases to ensure that any modifications required to be year 2000 compliant
are made in a timely manner. Management does not expect the financial impact of
such modifications to be material to the Company's financial position or results
of operations in any given year.
INTEREST AND DEBT EXPENSE
The increase in interest and debt expense is principally due to the increase in
average outstanding debt incurred in connection with the acquisitions of Ketema,
Gettys, and Schmidt-Bretten. Interest on bank debt of Schmidt-Bretten also
contributed to the increase.
RESEARCH AND PRODUCT DEVELOPMENT
The increase in research and product development in the second quarter and first
half of 1997 of 78.8% and 92.8%, respectively, reflects the additional activity
of acquired entities as well as the Company's commitment to the continued
improvement of existing products and the design of new products.
NET EARNINGS
Net earnings increased 25.2% in the second quarter of 1997 and 29.7% in the
first half of 1997 as compared to similar periods in 1996, which is primarily
due to the increased level of sales discussed above, offset by higher interest
and debt expense.
<PAGE> 12
FINANCIAL POSITION
On March 29, 1996, the Company concluded a Credit Agreement with Marine Midland
Bank which provides a Revolving Credit facility of $16,000,000. The Revolving
Credit matures on March 29, 1999, at which time the Company may convert the
amount outstanding under the Revolving Credit to a term loan payable over a four
year term. The interest rate on the Revolving Credit as of July 4, 1997, under
the LIBOR Rate Option in the Credit Agreement, was 6.6%.
To fund the DM 13,000,000 purchase price for Schmidt-Bretten GmbH, the Company's
subsidiary, API Schmidt-Bretten GmbH ("ABG") borrowed DM 10,000,000 ($6,111,000)
from the Company and issued a note payable for DM 3,000,000 ($1,791,000) to the
seller, which is due and payable on December 31, 1997 and bears interest at
5.5%. The Company borrowed the funds for the advance to ABG under its Revolving
Credit facility.
On June 10, 1997 ABG entered into a loan agreement with a German bank under
which ABG borrowed DM 10,000,000 to repay the acquisition loan from the Company.
The Company, in turn, applied these proceeds to reduce the outstanding balance
under the Revolving Credit facility.
ABG's obligations to the German bank and seller aggregating DM 13,000,000 have
been guaranteed by the Company.
In connection with the acquisition of Portescap on July 8, 1997, the Company
borrowed under the Revolving Credit facility in order to pay the $3,800,000 cash
portion of the purchase price, bringing total borrowing under the Revolving
Credit to $15,500,000. The balance of the purchase price was satisfied through
the issuance of Class A convertible preferred stock with a liquidation value of
$21,156,250 and an exchangeable note for $5,000,000.
The Company also has a $5,000,000 short-term line of credit which it utilizes
from time to time to fund current operations, of which approximately $4,088,000
was available at July 4, 1997. Future acquisitions may require the Company to
arrange additional credit facilities with lenders or procure financing through
issuance of debt or equity securities.
<PAGE> 13
Comparative information on the Company's liquidity position follows ($000
omitted):
<TABLE>
<CAPTION>
1997 1996
July 4 June 28
-------- -------
<S> <C> <C>
Net working capital $ 22,066 $22,835
Current ratio 1.7 2.3
Cash, cash equivalents
and marketable securities $ 1,827 $ 1,067
<CAPTION>
For the six months ended
---------------------
1997 1996
July 4 June 28
-------- -------
<S> <C> <C>
Cash flow from operations $ (779) $ 2,075
Capital expenditures $ 4,333 $ 2,872
</TABLE>
Investments reflected in the Company's balance sheet at July 4, 1997 and January
3, 1997 represent the remaining proceeds of a bond financing concluded on
December 22, 1995 for the construction of the new API Airtech Inc. facility.
<PAGE> 14
AMERICAN PRECISION INDUSTRIES
AND SUBSIDIARIES
Components of Consolidated Statement of Earnings
Expressed as a Percentage of Revenues
<TABLE>
<CAPTION>
Second Quarter Ended
--------------------
1997 1996
July 4 June 28
--------------------
Revenues 100.0 100.0
------- -------
<S> <C> <C>
Costs and Expenses
Cost of products sold 69.0 67.6
Selling and administrative 19.6 21.8
Research and product development 2.0 1.4
Interest and debt expense 1.6 1.2
---- ----
92.2 92.0
---- ----
Earnings before Income Taxes 7.8 8.0
Federal and State Income Taxes 2.8 2.9
---- ----
Net Earnings 5.0 5.1
==== ====
Federal and State Income Taxes
as a percentage of Earnings
Before Income Taxes 36.0 37.0
==== ====
</TABLE>
<PAGE> 15
PART II
-------
OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
- ------- -----------------
None
Item 2. Changes in Securities
- ------- ---------------------
On July 2, 1997, the 20,000 shares of preferred stock, $50.00
par value per share, of the Company, were designated 20,000
shares of Series A Seven Percent (7%) Cumulative Convertible
Preferred Stock (the "Series A Stock"). The Series A Stock has
an aggregate liquidation value of $21,156,250 ($1,057.8125 per
share). The holder of the Series A Stock is entitled to
1,244,485 votes and to a class vote, on certain matters.
The Series A Stock is convertible into common shares at a
conversion price of $17.00 per share, subject to adjustment
(1,244,485 common shares of the Company at an initial conversion
price of $17.00 per share). If the Company changes the
outstanding common shares into a greater number of shares or
pays a dividend in common shares on then outstanding common
shares or combines or subdivides its outstanding common shares
into a smaller number of shares or issues or sells common shares
for less than $17.00 per share (plus or minus the previous
adjustments), (except common shares reserved or issued pursuant
to bona fide stock option or benefit plans for directors,
officers and/or employees of the Company), then the conversion
price will be equal to the number of common shares outstanding
immediately prior to the adjusting event times $17.00 per share
(plus or minus all previous adjustments), plus the value of the
consideration received by the Company for the issuance or sale,
requiring adjustments, of common shares for less than $17.00 per
share (plus or minus all previous adjustments), divided by the
number of common shares outstanding after the adjusting event.
The conversion price will also be adjusted if any reorganization
or reclassification of the capital stock of the Company, or any
merger or consolidation of the Company with another corporation
is effected. In such case, the holder of the Series A Stock will
receive upon conversion the number and kind of shares of stock,
securities or assets which the holder would have been entitled
to receive in connection with such adjusting event if such
holder had held common shares issuable upon conversion of the
Series A Stock immediately prior to the time such event became
effective.
The holder of the Series A Stock may elect to convert all or
only a part of the stock. No fractional shares will be issued on
conversion and instead cash payments will be made. The number of
common shares issuable upon
<PAGE> 16
conversion will be determined by adding the per share
liquidation value and seven percent of the per share liquidation
value per annum from and after the date on which dividends on
such shares became cumulative to and including the date of
conversion less the aggregate of the dividends paid during the
same period, computed without interest, and multiplying such sum
by the number of shares of Series A Stock to be converted, then
dividing such figure by the conversion price for a common share.
The Series A Stock is also entitled to receive cumulative cash
dividends at the rate of seven percent of the per share
liquidation value per annum, and no more, accruing and becoming
cumulative on and after January 1, 1999 and payable on the first
days of January, April, July and October, commencing April 1,
1999. Any arrearages will not bear interest. Such dividends will
be payable before any dividends (other than a stock dividend in
shares of the same stock) are paid or set aside for payment to
holders of common shares.
The Series A Stock may be redeemed, upon certain conditions, for
a redemption price equal to the sum of the per share liquidation
value and an amount computed at the annual rate of seven percent
of the per share liquidation value per annum from and after the
date on which dividends on such share became cumulative to and
including the date fixed for such redemption, less the aggregate
of the dividends paid during the same period, but computed
without interest.
The 20,000 shares of Series A Stock were issued to Inter Scan
Holding Ltd. ("Inter Scan"), on July 8, 1997, along with the
issuance of a $5,000,000 exchangeable promissory note and
approximately $3,800,000 in cash, in exchange for which the
Company acquired the outstanding capital stock of Portescap. See
also "Item 5. Other Information" below. The Company relied on
the exemption set forth in Section 4(2) of the Securities Act of
1933, as amended, for sales not involving a public offering in
not registering its securities issued to Inter Scan.
Subject to shareholder approval of certain amendments to the
Certificate of Incorporation of the Company and to the issuance
of twenty percent or more of the voting securities of the
Company, the Series A Stock will be exchanged for 1,000,000
shares of Series B Seven Percent (7%) Cumulative Convertible
Preferred Stock. Upon such exchange or the conversion of the
Series A Stock into common shares, the Company will reclassify
the Series A Stock as authorized preferred stock, the rights,
preferences and designations of which may be determined by the
Board of Directors of the Company.
Item 3. Defaults Upon Senior Securities
- ------- -------------------------------
None
<PAGE> 17
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
At the Annual Meeting of Shareholders held on April 25, 1997, the
following directors were elected for terms expiring at the annual
meeting in the year shown:
<TABLE>
<CAPTION>
Term Votes Votes
Expires For Withheld
------- --- --------
<S> <C> <C> <C>
Class III
Victor A. Rice 2000 6,178,748 183,954
Jerre L. Stead 2000 6,251,889 110,813
Class I
John M. Albertine 1998 6,251,789 110,913
</TABLE>
Douglas J. MacMaster, Jr. continues to serve as a Class I
director for a term expiring at the annual meeting in 1998.
Bernard J. Kennedy, William P. Panny, and Kurt Wiedenhaupt
continue to serve as Class II directors for a term expiring at
the annual meeting in 1999.
Also at the Annual Meeting, the selection of Price Waterhouse
LLP as auditors for the 1997 fiscal year was approved with
6,340,363 votes for, 3,476 votes against, and 18,863 votes
withheld.
Item 5. Other Information
- ------- -----------------
Additional information relating to the acquisition of Portescap
is contained in Form 8-K filed on July 23, 1997.
<PAGE> 18
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
See the index to exhibits immediately preceding the
exhibits filed with this report.
(b) Reports on Form 8-K
The Company filed a Form 8-K on July 23, 1997 reporting
the acquisition of Portescap which occurred on July 8,
1997.
<PAGE> 19
AMERICAN PRECISION INDUSTRIES
AND SUBSIDIARIES
* * * * * *
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES
--------------------------------------------------
LITIGATION REFORM ACT OF 1995
-----------------------------
Certain matters discussed in this Report, with exception of historical
information, include forward-looking statements, which are made in
reliance on the "safe harbor" protections provided under the Private
Securities Litigation Reform Act of 1995. Such forward-looking
statements involve certain assumptions, risks and uncertainties that
could cause actual results to differ materially from those included in
or contemplated by the statements. Some important factors that could
cause results to differ from forward-looking statements are the risks
and uncertainties associated with general economic cycles in either
North America or Europe, significant changes in competitive factors,
the timing of various corporate acquisitions and programs, and the
other risks and uncertainties discussed in all documents filed by the
Company with the Securities and Exchange Commission. The Company
expressly disclaims any obligation to update any forward-looking
statements as a result of developments occurring after the date hereof.
* * * * * *
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/ Bruce McH. Kirchner
- ------------------------------
Bruce McH. Kirchner
Chief Financial Officer
/s/ John M. Murray
- ------------------------------
John M. Murray
Vice President-Finance and Treasurer
August 18, 1997
<PAGE> 20
EXHIBIT INDEX
-------------
11 Computation of net income per share
27 Financial Data Schedule
99 Warrant Agreement
<PAGE> 1
EXHIBIT 11
----------
AMERICAN PRECISION INDUSTRIES
COMPUTATION OF NET INCOME PER SHARE
(Shares and dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
----------------------------- --------------------------
1997 1996 1997 1996
July 4 June 28 July 4 June 28
------------ ----------- ---------- ----------
<C> <C> <C> <C> <C>
1. Net income $ 1,970 $ 1,574 $ 3,855 $ 2,972
============ =========== ========== ==========
PRIMARY NET INCOME PER COMMON SHARE:
2. Weighted-average number of
common shares outstanding 7,365 7,179 7,341 7,161
3. Incremental shares:
Dilutive common stock options 341 239 359 237
------------ ----------- ---------- ----------
4. Total 7,706 7,418 7,700 7,398
============ =========== ========== ==========
5. Primary net income per common share
(1 divided by 2) $ 0.27* $ 0.22* $ 0.53 $ 0.42
============ =========== ========== ==========
FULLY DILUTED NET INCOME PER COMMON SHARE:
6. Weighted-average number of
common shares outstanding 7,365 7,179 7,341 7,161
7. Incremental shares:
Dilutive common stock options 371 245 371 245
------------ ----------- ---------- ----------
8. Total 7,736 7,424 7,712 7,406
============ =========== ========== ==========
9. Fully diluted net income per common
share (1 divided by 8) $ 0.25 $ 0.21 $ 0.50 $0.40
============ =========== ========== ==========
<FN>
* Net income per common share outstanding was used in the designated
calculations since the dilutive effect of common stock options was
not material.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000005657
<NAME> AMERICAN PRECISION INDUSTRIES INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-1998
<PERIOD-START> JAN-04-1997
<PERIOD-END> JUL-04-1997
<CASH> 1,827
<SECURITIES> 0
<RECEIVABLES> 24,249
<ALLOWANCES> 566
<INVENTORY> 23,235
<CURRENT-ASSETS> 53,566
<PP&E> 59,510
<DEPRECIATION> 23,015
<TOTAL-ASSETS> 103,595
<CURRENT-LIABILITIES> 31,500
<BONDS> 24,600
0
0
<COMMON> 5,179
<OTHER-SE> 40,053
<TOTAL-LIABILITY-AND-EQUITY> 103,595
<SALES> 75,415
<TOTAL-REVENUES> 75,479
<CGS> 51,869
<TOTAL-COSTS> 53,375
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 62
<INTEREST-EXPENSE> 1,083
<INCOME-PRETAX> 5,922
<INCOME-TAX> 2,067
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,855
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.42
<FN>
In thousands of dollars except per share amounts)
</TABLE>
<PAGE> 1
EXHIBIT 99
Warrant to Purchase
50,000 Shares
WARRANT AGREEMENT
Dated July 8, 1997
To Subscribe for and Purchase Common Stock of
AMERICAN PRECISION INDUSTRIES INC.
------------------------------------
THIS CERTIFIES THAT, for value received, PATRICOF & CO. CAPITAL CORP.
(herein called "Patricof"), or its permitted assigns, is entitled to subscribe
for and purchase from AMERICAN PRECISION INDUSTRIES INC., a Delaware corporation
(herein called the "Company"), at the price of Twelve Dollars and Ninety-Five
Cents ($12.95) per share (subject to adjustments as provided herein) at any time
after the date hereof to and including July 8, 2002, FIFTY THOUSAND (50,000)
fully paid and non-assessable shares of the Company's Common Stock, $.66-2/3 par
value.
This Warrant was originally issued in connection with execution by the
Company and Patricof of a Retainer Agreement dated September 16, 1996 (herein
called the "Retainer Agreement"). As used herein, "this Warrant" and "the
Warrants" shall mean the Warrant originally issued to Patricof pursuant to the
Retainer Agreement and any Warrants that may be issued in substitution or
exchange therefor. All Warrants shall be dated said original issue date.
This Warrant is subject to the following terms and conditions:
1. EXERCISE OF WARRANT.
(a) Exercise. The rights represented by this Warrant may be
exercised by the holder hereof, in whole or in part (but not as to a
fractional share of Common Stock), by written notice of exercise
delivered to the Company and by the surrender of this Warrant (properly
endorsed if required) at the principal business office of the Company
and upon payment to it of the purchase price for such shares. The
Company agrees that the shares so purchased shall be, and shall be
deemed to be, issued to the holder hereof as the record owner of such
shares as of the close of business on the date on which this Warrant
shall have been surrendered and payment made for such shares.
Certificates for the shares of stock so purchased shall be delivered to
the holder hereof within a reasonable time, not exceeding ten (10)
days, after the rights represented by this Warrant shall have been so
exercised, and, unless this Warrant has expired, a new Warrant
representing the number of shares, if any, with respect to which this
Warrant shall not then have been exercised shall also be delivered to
the holder hereof within such time.
(b) Payment of Exercise Price. Payment of the exercise price
for the shares to be issued upon the exercise of this Warrant shall be
made by certified or official bank check; provided, however, the holder
hereof shall also have the right, at its election, in lieu of paying
the exercise price by certified or official bank check, to instruct the
Company in the Form For Exercise of Warrant to retain, in payment of
the exercise price, a number of shares of Common
<PAGE> 2
Stock (the "Payment Shares") equal to the quotient of (i) the aggregate
exercise price of the shares as to which this Warrant is then being
exercised divided by (ii) the "Average Closing Price" as of the date of
exercise and to deduct the number of Payment Shares from the shares to
be delivered to the holder hereof. "Average Closing Price" means, as of
any date, (x) if shares of Common Stock are listed on a national
securities exchange, the average of the closing sales prices therefor
on the largest securities exchange on which such shares are traded on
the last ten trading days before such date, (y) if such shares are
listed on the NASDAQ National Market System but not on any national
securities exchange, the average of the closing sales prices therefor
on the NASDAQ National Market System on the last ten trading days
before such date or (z) if such shares are not listed on either a
national securities exchange or the NASDAQ National Market System, the
average of the sales prices therefor on the last twenty trading days
before such date.
2. VALIDITY OF ISSUANCE AND RESERVATION OF SHARES. The Company
covenants and agrees that all shares which may be issued upon the exercise of
the rights represented by this Warrant will, upon issuance, be duly authorized
and issued, fully paid, nonassessable, and free from all taxes, liens, charges
and pre-emptive rights with respect to the issue thereof, and, without limiting
the generality of the foregoing, the Company covenants and agrees that it will
from time to time take all such action as may be requisite to assure that the
par value per share of the Common Stock is at all times equal to or less than
the then effective purchase price per share of the Common Stock issuable
pursuant to this Warrant. The Company further covenants and agrees that during
the period within which the rights represented by this Warrant may be exercised,
the Company will at all times have authorized, and reserved for the purpose of
issue or transfer upon exercise of the subscription rights evidenced by this
Warrant, a sufficient number of shares of its Common Stock to provide for the
exercise of the rights represented by this Warrant.
3. WARRANT ADJUSTMENTS. The above provisions are, however, subject to
the following:
(a) Adjustment of Shares. The warrant purchase price and the
number of shares purchasable pursuant hereto shall be subject to
adjustment from time to time as hereinafter provided.
(b) Adjustment of Price for Stock Sales. Except as provided in
paragraph (h) below, if and whenever the Company shall issue or sell
any shares of its Common Stock for a consideration per share less than
the warrant purchase price in effect immediately prior to the time of
such issue or sale, and/or the Company shall issue or sell any shares
of its Common Stock for a consideration per share less than the market
price on the date of such issue or sale, then, forthwith upon such
issue or sale, the warrant purchase price shall be reduced to the lower
of the prices (calculated to the nearest cent) determined as follows:
(i) by dividing (1) an amount equal to the sum of
(aa) the number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the then
existing warrant purchase price, and (bb) the consideration,
if any, received by the Company upon such issue or sale, by
(2) the total number of shares of Common Stock outstanding
immediately after such issue or sale; or
(ii) by multiplying the warrant purchase price in
effect immediately prior to the time of such issue or sale by
a fraction, the numerator of which shall be the sum of (1) the
number of shares of Common Stock outstanding immediately prior
to such issue or
- 2 -
<PAGE> 3
sale multiplied by the market price immediately prior to such
issue or sale, plus (2) the consideration received by the
Company upon such issue or sale, and the denominator of which
shall be the product of (3) the total number of shares of
Common Stock outstanding immediately after such issue or sale,
multiplied by (4) the market price immediately prior to such
issue or sale.
No adjustment of the warrant purchase price, however, shall be made in
an amount less than $.01 per share, but any such lesser adjustment
shall be carried forward and shall be made at the time and together
with the next subsequent adjustment which together with any adjustments
so carried forward shall amount to $.01 per share or more.
(c) Further Provisions with respect to Stock Sales. For the
purposes of paragraph (b), the following provisions (i) to (vii),
inclusive, shall also be applicable:
(i) In case at any time the Company shall grant
(whether directly or by assumption in a merger or otherwise)
any rights to subscribe for or to purchase, or any options for
the purchase of, Common Stock or any stock or securities
convertible into or exchangeable for Common Stock (such
convertible or exchangeable stock or securities being herein
called "Convertible Securities") whether or not such rights or
options or the right to convert or exchange any such
Convertible Securities are immediately exercisable, and the
price per share at which Common Stock is issuable upon the
exercise of such rights or options or upon conversion or
exchange of such Convertible Securities (determined by
dividing (aa) the total amount if any, received or receivable
by the Company as consideration for the granting of such
rights or options, plus the minimum aggregate amount of
additional consideration payable to the Company upon the
exercise of such rights or options, plus, in the case of such
rights or options which relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any,
payable upon the issue or sale of such Convertible Securities
and upon the conversion or exchange thereof, by (bb) the total
maximum number of shares of Common Stock issuable upon the
exercise of such rights or options or upon the conversion or
exchange of all such Convertible Securities issuable upon the
exercise of such rights or options) shall be less than the
warrant purchase price in effect immediately prior to the time
of the granting of such rights or options (or less than the
market price determined as of the date of granting such rights
or options, as the case may be), then the total maximum number
of shares of Common Stock issuable upon the exercise of rights
or options or upon conversion or exchange of the total maximum
amount of such Convertible Securities issuable upon the
exercise of such rights or options shall (as of the date of
granting of such rights or options) be deemed to have been
issued for such price per share. Except as provided in
paragraph (f) below, no further adjustments of the warrant
purchase price shall be made upon the actual issue of such
Common Stock or of such Convertible Securities upon exercise
of such rights or options or upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible
Securities.
(ii) In case the Company shall issue (whether
directly or by assumption in a merger or otherwise) or sell
any Convertible Securities, whether or not the rights to
exchange or convert thereunder are immediately exercisable,
and the price per share for which Common Stock is issuable
upon such conversion or exchange (determined by dividing (aa)
the total amount received or receivable by the Company as
consideration
- 3 -
<PAGE> 4
for the issue or sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any,
payable to the Company upon the conversion or exchange
thereof, by (bb) the total maximum number of shares of Common
Stock issuable upon the conversion or exchange of all such
Convertible Securities) shall be less than the warrant
purchase price in effect immediately prior to the time of such
issue or sale (or less than the market price, determined as of
the date of such issue or sale of such Convertible Securities,
as the case may be), then the total maximum number of shares
of Common Stock issuable upon conversion or exchange of all
such Convertible Securities shall (as of the date of the issue
or sale of such Convertible Securities) be deemed to be
outstanding and to have been issued for such price per share,
provided that (x) except as provided in paragraph (f) below,
no further adjustments of the warrant purchase price shall be
made upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities, and (y)
if any such issue or sale of such Convertible Securities is
made upon exercise of any rights to subscribe for or to
purchase or any option to purchase any such Convertible
Securities for which adjustments of the warrant purchase price
have been or are to be made pursuant to other provisions of
this paragraph (c), no further adjustment of the warrant
purchase price shall be made by reason of such issue or sale.
(iii) In case the Company shall declare a dividend or
make any other distribution upon any stock of the Company
payable in Common Stock or Convertible Securities, any Common
Stock or Convertible Securities, as the case may be, issuable
in payment of such dividend or distribution shall be deemed to
have been issued or sold without consideration.
(iv) In case any shares of Common Stock or
Convertible Securities or any rights or options to purchase
any such Common Stock or Convertible Securities shall be
issued or sold for cash, the consideration received therefor
shall be deemed to be the amount received by the Company
therefor, without deduction therefrom of any expenses incurred
or any underwriting commissions or concessions paid or allowed
by the Company in connection therewith. In case any shares of
Common Stock or Convertible Securities or any rights or
options to purchase any such Common Stock or Convertible
Securities shall be issued or sold for a consideration other
than cash, the amount of the consideration other than cash
received by the Company shall be deemed to be the fair market
value of such consideration as determined by the Board of
Directors of the Company, without deduction of any expenses
incurred or any underwriting commissions or concessions paid
or allowed by the Company in connection therewith. In case any
shares of Common Stock or Convertible Securities or any rights
or options to purchase such Common Stock or Convertible
Securities shall be issued in connection with any merger or
consolidation in which the Company is the surviving
corporation, the amount of consideration therefor shall be
deemed to be the fair market value as determined by the Board
of Directors of the Company of such portion of the assets and
business of the non-surviving corporation or corporations as
such Board shall determine to be attributable to such Common
Stock, Convertible Securities, rights or options, as the case
may be. In the event of any consolidation or merger of the
Company in which the Company is not the surviving corporation
or in the event of any sale of all or substantially all of the
assets of the Company for stock or other securities of any
corporation, the Company shall be deemed to have issued a
number of shares of its Common Stock for stock or securities
of the other corporation computed on the basis of the actual
exchange ratio on which the
- 4 -
<PAGE> 5
transaction was predicated and for a consideration equal to
the fair market value on the date of such transaction of such
stock or securities of the other corporation, and if any such
calculation results in adjustment of the warrant purchase
price, the determination of the number of shares of Common
Stock issuable upon exercise of this Warrant immediately prior
to such merger, conversion or sale, for purposes of paragraph
3(h) shall be made after giving effect to such adjustment of
the warrant purchase price.
(v) In case the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them
(aa) to receive a dividend or other distribution payable in
Common Stock or in Convertible Securities, or (bb) to
subscribe for or purchase Common Stock or Convertible
Securities, then such record date shall be deemed to be the
date of the issue or sale of the shares of Common Stock deemed
to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date
of the granting of such right of subscription or purchase, as
the case may be.
(vi) The number of shares of Common Stock outstanding
at any given time shall not include shares owned or held by or
for the account of the Company, and the disposition of any
such shares shall be considered an issue or sale of Common
Stock for the purposes of this paragraph (3).
(vii) "Market price" shall mean the average of the
high and low prices of the Common Stock sales on all exchanges
on which the Common Stock may at the time be admitted to
trading, or, if there shall have been no sales on any such
exchange on any such day, the average of the bid and asked
prices at the end of such day, or, if the Common Stock shall
not be so admitted to trading, the average of the bid and
asked prices at the end of the day in the over-the-counter
market, in each case averaged over a period of 20 consecutive
business days prior to the date as of which "market price" is
being determined. If at any time the Common Stock is not
admitted to trading on any exchange or quoted in the
over-the-counter market, the "market price" shall be deemed to
be the fair market value thereof determined in good faith by
the Board of Directors of the Company as of a date which is
within 15 days of the date as of which the determination is to
be made.
(d) Adjustment of Price for Corporate Distributions. In case
the Company shall declare a dividend upon the Common Stock payable
otherwise than out of consolidated earnings or consolidated earned
surplus, determined in accordance with generally accepted accounting
principles, including the making of appropriate deductions for minority
interests, if any, in subsidiaries (except in Common Stock or
Convertible Securities, but including other securities), the warrant
purchase price in effect immediately prior to the declaration of such
dividend shall be reduced by an amount equal, in the case of a dividend
in cash, to the amount thereof payable per share of the Common Stock
or, in the case of any other dividend, to the fair market value thereof
per share of the Common Stock as determined by the Board of Directors
of the Company. For the purposes of the foregoing, a dividend other
than in cash shall be considered payable out of earnings or surplus
(other than revaluation or paid-in-surplus) only to the extent that
such earnings or surplus are charged an amount equal to the fair market
value of such dividend as determined by the Board of Directors of the
Company. Such reductions shall take effect as of the date on which a
record is taken for the purpose of such dividend, or, if a record is
not taken,
- 5 -
<PAGE> 6
the date as of which the holders of Common Stock of record entitled to
such dividend are to be determined.
(e) Adjustment of Price for Subdivisions and Combinations of
Shares. In case the Company shall at any time subdivide its outstanding
shares of Common Stock into a greater number of shares, the warrant
purchase price in effect immediately prior to such subdivision shall be
proportionately reduced, and conversely, in case the outstanding shares
of Common Stock of the Company shall be combined into a smaller number
of shares, the warrant purchase price in effect immediately prior to
such combination shall be proportionately increased.
(f) Readjustments. Upon the happening of any of the following
events, namely, if the purchase price provided for in any rights or
options referred to in clause (i) of paragraph (c), the additional
consideration, if any, payable upon the conversion or exchange of
Convertible Securities referred to in clause (i) or (ii) of paragraph
(c), or the rate at which any Convertible Securities referred to in
clause (i) or clause (ii) of paragraph (c) are convertible into or
exchangeable for Common Stock shall change (other than under or by
reason of provisions designed to protect against dilution), the warrant
purchase price in effect at the time of such event shall forthwith be
readjusted to the warrant purchase price which would have been in
effect at such time had such rights, options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold; and on the expiration of any such
option or right or the termination of any such right to convert or
exchange such Convertible Securities, the warrant purchase price then
in effect hereunder shall forthwith be increased to the warrant
purchase price which would have been in effect at the time of such
expiration or termination had such right, option or Convertible
Securities, to the extent outstanding immediately prior to such
expiration or termination, never been issued, and the Common Stock
issuable thereunder shall no longer be deemed to be outstanding. If the
purchase price provided for in any such right or option referred to in
clause (i) of paragraph (c) or the rate at which any Convertible
Securities referred to in clause (i) or clause (ii) of paragraph (c)
are convertible into or exchangeable for Common Stock, shall decrease
at any time under or by reason of provisions with respect thereto
designed to protect against dilution, then in case of the delivery of
Common Stock upon the exercise of any such right or option or upon
conversion or exchange of any such Convertible Securities, the warrant
purchase price then in effect hereunder shall forthwith be decreased to
such lower price, if any, as would have been obtained had such right,
option or Convertible Securities never been issued as to such Common
Stock and had adjustments been made upon the issuance of the shares of
Common Stock delivered as aforesaid.
(g) Adjustment of Number of Shares Purchasable. Except as
provided in paragraph (h) below, upon each adjustment of the warrant
purchase price (or upon the happening of any event described herein
which would have required an adjustment in the warrant purchase price
but for the fact that the consideration paid or payable to the Company
by reason of such event is not less than the warrant purchase price in
effect immediately prior thereto or the market price of the shares of
Common Stock issued or issuable by reason thereof), the holder of this
Warrant shall thereafter be entitled to purchase, at the warrant
purchase price resulting from such adjustment (or, if there has not
been any adjustment in such price, at the then existing warrant
purchase price), the number of shares (calculated to the nearest share)
determined as follows:
(i) In all cases other than adjustments in the
warrant purchase price arising under paragraph (d):
- 6 -
<PAGE> 7
(1) by dividing (aa) the number of shares of
Common Stock purchasable pursuant to this Warrant
immediately prior thereto by (bb) the total number of
shares of Common Stock outstanding immediately prior
thereto; and
(2) multiplying the result by the total
number of shares of Common Stock outstanding
immediately thereafter.
(ii) In the case of an adjustment in the warrant
purchase price arising under paragraph (d):
(1) by multiplying the warrant purchase
price in effect immediately prior to such adjustment
by the number of shares purchasable pursuant to this
Warrant immediately prior to such adjustment; and
(2) dividing the product thereof by the
warrant purchase price resulting from such
adjustment.
For purposes of the foregoing computation, the total number of shares
of Common Stock outstanding at any time shall be deemed to include the
total number of shares of Common Stock issuable upon (x) the exercise
of all then outstanding rights to subscribe for or to purchase, and
options for the purchase of, Common Stock or Convertible Securities,
and (y) the conversion or exchange of such Convertible Securities and
all other outstanding Convertible Securities, but shall not be deemed
to include any shares of Common Stock issuable upon the exercise of any
unexercised portion of this Warrant.
(h) Exclusions. Anything herein to the contrary
notwithstanding, the Company shall not be required to make any
adjustment of the warrant purchase price in connection with any shares
of Common Stock reserved for issuance upon the exercise of stock
options granted to the Directors, officers and employees of the Company
which have been granted or are available for grant pursuant to stock
option plans in effect on the date hereof or at the time of the
holder's exercise of this Warrant.
(i) Reorganizations. If any capital reorganization or
reclassification of the capital stock of the Company, or consolidation
or merger of the Company with another corporation, or the sale of all
or substantially all of its assets or outstanding capital stock to
another corporation shall be effected in such a way that holders of
Common Stock shall be entitled to receive stock, securities or assets
with respect to or in exchange for Common Stock, then, as a condition
of such reorganization, reclassification, consolidation, merger or
sale, lawful and adequate provision shall be made whereby the holder
hereof shall thereafter have the right to purchase and receive upon the
basis and upon the terms and conditions specified in this Warrant and
in lieu of the shares of the Common Stock of the Company immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby, such shares of stock, securities or assets as may
be issued or payable with respect to or in exchange for a number of
outstanding shares of such Common Stock equal to the number of shares
of such stock immediately theretofore purchasable and receivable upon
the exercise of the rights represented hereby had such reorganization,
reclassification, consolidation, merger or sale not taken place, and in
any such case appropriate provisions shall be made with respect to the
rights and interests of the holder of this Warrant to the end that the
provisions hereof (including, without limitation, provisions fore
adjustments of the warrant purchase price and of the number of shares
purchasable upon the
- 7 -
<PAGE> 8
exercise of this Warrant) shall thereafter be applicable, as nearly as
may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof.
(j) Notice of Adjustments. Upon any adjustment of the warrant
purchase price or the number of shares purchasable pursuant hereto,
then and in each such case the Company shall give written notice
thereof to the registered holder of this Warrant, which notice shall
state the warrant purchase price resulting from such adjustment and the
increase or decrease, if any, in the number of shares purchasable upon
the exercise of this Warrant, setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is
based.
4. COMMON STOCK. As used herein, the term "Common Stock" shall mean and
include the Company's presently authorized shares of capital stock and shall
also include any capital stock of any class of the Company hereafter authorized
which shall not be limited to a fixed sum or percentage of par value in respect
of the rights of the holders thereof to participate in dividends or in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company; provided that the shares purchasable
pursuant to this Warrant shall include shares designated as Common Stock of the
Company on the date of original issue of this Warrant or, in the case of any
reclassification of the outstanding shares thereof, the stock, securities or
assets provided for in paragraph 3(i) above.
5. NO RIGHTS AS STOCKHOLDER. This Warrant shall not entitle the holder
hereof to any voting rights or other rights as a stockholder of the Company.
6. NOTICE OF PROPOSED TRANSFERS. The holder of this Warrant, by
acceptance hereof, agrees to give written notice to the Company before
transferring this Warrant or transferring any Common Stock issuable or issued
upon the exercise hereof, of such holder's intention to do so, describing
briefly the manner of any such proposed transfer. Promptly after such written
notice is received by the Company, copies thereof shall be presented to counsel
for the Company and to counsel for such holder. If in the opinion of each such
counsel the proposed transfer may be effected without registration or
qualification (under any Federal or State law) of this Warrant or the shares of
Common Stock issuable or issued on the exercise hereof, the Company, as promptly
as practicable, shall notify such holder of such opinion, whereupon such holder
shall be entitled to effect such transfer in accordance with the terms of the
notice delivered by such holder to the Company, provided that an appropriate
legend may be endorsed on this Warrant or the certificates for such shares
respecting restrictions upon transfer thereof necessary or advisable in the
opinion of counsel for the Company to prevent transfers which would be in
violation of Section 5 of the Securities Act of 1933, as amended (herein called
the "1933 Act").
7. INVESTMENT REPRESENTATION; RESALE LIMITATIONS; REGISTRATION RIGHTS.
(a) Investment Representation. The holder of this Warrant, by
acceptance hereof, represents and warrants that this Warrant and shares
of Common Stock purchased by the holder pursuant to the exercise of
this Warrant, are and will be acquired by the holder for investment and
not with a view to, or for sale in connection with, any distribution
thereof, nor with any present intention, of selling, transferring or
disposing of the same.
(b) Resale Limitations. The shares of Common Stock which may
be purchased hereunder may not be offered for sale, sold or otherwise
transferred, unless:
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<PAGE> 9
(i) A registration statement with respect to such
securities shall be effective under the 1933 Act, together
with proof satisfactory to counsel for the Company that the
holder of this Warrant shall have complied with applicable
state securities laws, or
(ii) The Company shall have received an opinion of
counsel satisfactory to the Company that no violation of the
1933 Act, or such other applicable law, will be involved in
such transfer, or
(iii) The Company shall receive a "no action" letter
from the Securities and Exchange Commission (herein called the
"SEC") and the equivalent ruling or letter pursuant to
applicable state law in form satisfactory to the Company
covering such transfer,
and the Company may withhold transfer, registration and delivery of
such securities until one of the three conditions set forth in this
paragraph 7(b) shall have been met.
(c) Legend. All certificates representing the shares of Common
Stock issued upon the exercise of this Warrant shall contain an
appropriate legend indicating the fact that the shares have not been
registered under the 1933 Act and the conditions affecting the
transferability of such shares. A similar notation will be placed in
the Company's stock transfer ledger.
(d) Registration Rights. In the event that the Company files a
registration statement with the SEC in connection with a proposed sale
of Common Stock to the public, the holder of shares of Common Stock
issued upon the exercise of this Warrant shall have the one-time right
during the two-year period after the first issuance of this Warrant to
include any shares issued upon the exercise of this Warrant in that
registration statement, as more fully set forth in the Registration
Agreement granting such right, the form of which is attached hereto as
Exhibit A. The Company shall notify the holder of this Warrant in
writing of its intent to file such a registration statement as soon as
practicable after the Company decides to file such registration
statement.
8. NOTICES. Any notice or other thing required or desired to be served,
given or delivered hereunder shall be in writing, and shall be deemed to have
been validly served, given or delivered upon deposit in the United States
registered or certified mail with proper postage prepaid and addressed to the
party to be notified as follows:
(a) If to the Company at:
American Precision Industries Inc.
2777 Walden Avenue
Buffalo, New York 14225
Attention: President
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<PAGE> 10
(b) If to the holder of this Warrant at:
Patricof & Co. Capital Corp.
445 Park Avenue
New York, New York 10022
Attention: President
or to such other address as either party may hereafter designate for
itself by written notice to the other party in the manner herein
prescribed.
9. GENERAL. This Warrant shall be construed in accordance with the laws
of the State of Delaware. Whenever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under the
applicable law, but, if any provision of this Warrant shall be held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Warrant. The paragraph headings herein are for convenience only and shall not
affect the interpretation of any of the provisions hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed at
Buffalo, New York by its duly authorized officers under its corporate seal, and
this Warrant to be dated July 8, 1997.
AMERICAN PRECISION INDUSTRIES INC.
By /s/ Kurt Wiedenhaupt
---------------------------------------
Kurt Wiedenhaupt, Chairman,
President and Chief Executive Officer
(CORPORATE SEAL)
ATTEST:
/s/ James J. Tanous
- -------------------------------
James J. Tanous, Secretary
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<PAGE> 11
FORM
FOR
EXERCISE OF WARRANT
The undersigned hereby elects to purchase _________ shares of Common
Stock, $.66-2/3 par value, of AMERICAN PRECISION INDUSTRIES INC. (the "Company")
in accordance with the WARRANT AGREEMENT dated July 8, 1997. The undersigned
hereby delivers the following to the Company in full payment for the shares
purchased hereby:
Exercise Price ($______ per share) x ______ shares purchased =
Aggregate Exercise Price $
Paid by: [ ] certified or official bank check payable
to "American Precision Industries Inc."
OR
[ ] By the retention by the Company of ______ shares
per paragraph 1(b) of the WARRANT AGREEMENT.
(Aggregate Exercise Price / Average Closing Price =
Payment Shares)
(Total shares purchased - Payment Shares = Shares to
be issued to undersigned)
Please register these shares as follows:
Name of record owner:
--------------------------------------------------
Address:
---------------------------------------------------------------
---------------------------------------------------------------
Social Security No.:
---------------------------------------------------
Please mail shares to [above address] or
----------------------------------------
- --------------------------------------------------------------------------------
Dated:
---------------------
----------------------------------------
Signature of Warrant Holder
<PAGE> 12
EXHIBIT A
REGISTRATION AGREEMENT
----------------------
This AGREEMENT, made as of the 8th day of July 1997, is by and
between AMERICAN PRECISION INDUSTRIES INC., a Delaware corporation, having an
office at 2777 Walden Avenue, Buffalo, New York 14225 (herein called the
"Company"), and PATRICOF & CO. CAPITAL CORP., having an office at 445 Park
Avenue, New York, New York 10022 (herein called "Shareholder").
W I T N E S S E T H :
---------------------
WHEREAS, the Company and Shareholder are parties to a Warrant
Agreement dated July 8, 1997 (herein called the "Warrant Agreement") to which
this Registration Agreement is Exhibit A; and
WHEREAS, pursuant to the Warrant Agreement the Company has
granted to Shareholder the right to purchase an aggregate of 50,000 shares of
the Company's Common Stock, $.66-2/3 par value per share (herein called the
"Shares"); and
WHEREAS, the Warrant Agreement provides that Shareholder shall
have a one-time right during the two (2) year period after the first issuance of
any Shares pursuant to Shareholder's exercise of its right to purchase Shares
under the Warrant Agreement to require the Company to register the Shares issued
upon Shareholder's exercise of such rights with the Securities and Exchange
Commission (herein called the "SEC") under the Securities Act of 1933, as
amended (herein called the
<PAGE> 13
"1933 Act") upon the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing, and the
terms, conditions, agreements and covenants hereinafter set forth, the parties
to this Agreement agree as follows:
1. If during the two (2) year period after the first issuance
of any Shares pursuant to Shareholder's exercise of its right to purchase Shares
under the Warrant Agreement the Company proposes to register under the 1933 Act
any securities of the Company for sale by the Company to the public pursuant to
a registration statement on Forms S-1, S-2 or S-3 (herein called a "Registration
Statement"), the Company agrees:
A. That it will give written notice to Shareholder of
such proposal;
B. Shareholder shall have a one-time right to include
any or all of its Shares in the Registration Statement;
C. That, if Shareholder requests inclusion of any of
the Shares in such proposed registration within twenty (20) days after the
Company gives Shareholder such notice, the Company will include those Shares in
such Registration Statement; PROVIDED, HOWEVER, if the proposed registration is
underwritten and the managing underwriter advises the Company in writing that
the number of Shares sought to be included in such offering cannot be sold, the
Company will include in the offering only the
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<PAGE> 14
number of Shares which the underwriter believes can be sold, allocated pro rata
among the Company, Shareholder and any other holder of the Company's securities
possessing registration rights who has elected to include such securities in the
proposed registration;
D. The Company shall not be required to include any
of the Shares in any Registration Statement provided for in this paragraph 1
unless Shareholder agrees, if so required by the Company, to offer and sell
Shareholder's Shares which Shareholder desires to sell to or through an
underwriter selected by the Company and, to the extent possible, under
substantially the same terms (except as to expenses other than underwriting
discounts) as those under which the other securities included in such
Registration Statement are to be offered and sold, and to comply with any
arrangements with respect to the offer and sale of the securities to be
registered thereunder to which the holders thereof will be reasonably required
to agree as a condition to the inclusion of such securities in such Registration
Statement; and
E. The Company shall not be required under this
paragraph 1 to include Shareholder's shares in the Registration Statement or
prospectus to be used in any state which (i) refuses to permit the Shares to be
offered or (ii) imposes additional requirements upon the Company in order for
the Shares to be included in the Registration Statement and prospectus, if such
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<PAGE> 15
requirements would unreasonably inhibit or delay the offering by the Company.
2. The Shareholder and the Company will cooperate with each
other in the preparation and filing of any such Registration Statement or, as
the case may be, in their efforts to establish that the proposed transaction is
exempt from the registration provisions of the 1933 Act, including any efforts
of the Company or Shareholder to obtain a "no action" or interpretive letter
from the SEC.
3. Subject to the provisions of paragraph 4 hereof, the
Company will pay the following costs and expenses incidental to the performance
of its obligations under this Agreement:
A. The fees and expenses of the Company's counsel,
the fees and expenses of the Company's accountants and all other costs and
expenses incident to the preparation, printing and filing under the 1933 Act of
any such Registration Statement, each prospectus and all amendments and
supplements thereto;
B. The costs incurred in connection with the
registration or qualification of the Shares under the laws of various
jurisdictions, including fees and disbursements of Company's counsel;
C. The costs of furnishing to Shareholder or its
designees, such number of copies of any such Registration State-
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<PAGE> 16
ment, each preliminary prospectus, the final prospectus and each amendment
thereof and supplement thereto as Shareholder shall reasonably request; and
D. Notwithstanding anything in the foregoing
provisions of this paragraph 3, the Company shall not be required to pay any
expenses of any underwriter, any commissions and/or discounts to any underwriter
or any expenses with respect to the sale of Shares, such as, but not limited to,
transfer taxes incident to transfer of the Shares to any underwriter or
underwriters.
4. Notwithstanding anything in the foregoing provisions of
this Agreement, the Company will bear the costs set out in paragraph 3 hereof
only in connection with the registration of all or part of the Shares under
paragraph 1 hereof in connection with a public offering pursuant to which the
Company offers securities for sale. In the event of a registration pursuant to
paragraph 1 hereof, each holder of the Shares included in the Registration
Statement will pay its own direct out-of-pocket costs incurred in connection
with the Registration Statement (e.g. each such holder's own attorney's and
accountant's fees, travel expenses, expert's fees, etc., if any).
5. The Company will:
A. Exonerate, indemnify and hold harmless
Shareholder, its directors, officers who have signed any Registration Statement
and any underwriter (as defined in the
- 5 -
<PAGE> 17
1933 Act) for Shareholder in connection with any Registration Statement filed
pursuant to this Agreement (but, in the case of any underwriter or a controlling
person of an underwriter, only if such underwriter indemnifies the persons
indemnified in paragraph 6 hereof in the manner set forth in that paragraph) and
each person, if any, who controls Shareholder or its underwriter within the
meaning of the 1933 Act, against any losses, claims, damages or liabilities,
joint or several, to which Shareholder, or any such director, officer, or
underwriter or any such controlling person may become subject, whether under the
1933 Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof):
(1) Are caused by any untrue statement or
alleged untrue statement of any material fact contained, on the effective date
thereof, in any Registration Statement under which any of the Shares were,
pursuant to any of the provisions of this Agreement, registered under the 1933
Act, any prospectus contained therein, or any amendment thereof or supplement
thereto; or
(2) Arise out of, or are based upon, any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading; and
B. Reimburse Shareholder, each such director, officer
and underwriter, and each such controlling person, for
- 6 -
<PAGE> 18
any legal or other expenses reasonably incurred by Shareholder, and each such
director, and officer or by such underwriter, or by such controlling person, in
connection with investigating or defending any such loss, claim, damage,
liability or action arising under subparagraph A. of this paragraph 5.
Provided, however, that the Company will not
be liable in any such case to the extent that any such loss, claim, damage,
expense or liability arises out of, or is based upon, an untrue statement or
alleged untrue statement or omission or alleged omission so made as a result of
written information furnished by Shareholder, or any such director, or officer
or such underwriter or controlling person specifically for use in preparation of
such Registration Statement or prospectus contained therein or amendment thereof
or supplement thereto.
6. Shareholder will:
A. Exonerate, indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed any
Registration Statement, and each person, if any, who controls the Company within
the meaning of the 1933 Act, against any losses, claims, damages or liabilities,
joint or several, to which the Company or any such director, officer or
controlling person may become subject, whether under the 1933 Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof):
- 7 -
<PAGE> 19
(1) Are caused by any untrue statement or
alleged untrue statement of any material fact contained, on the effective date
thereof, in any Registration Statement under which any of the Shares were,
pursuant to any of the provisions of this Agreement, registered under the 1933
Act, any prospectus contained therein, or any amendment thereof or supplement
thereto; or
(2) Arise out of, or are based upon, any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements contained therein not
misleading, limited in each case, under the foregoing clauses (1) and (2) and
only to the extent, that such untrue statement, or alleged untrue statement, or
omission, or alleged omission, was so made in reliance upon, and as a result of,
written information furnished by Shareholder specifically for use in the
preparation of such Registration Statement or prospectus contained therein or
amendment thereof or supplement thereto; and
B. Reimburse the Company, each such director, officer
or controlling person for any legal or other expenses reasonably incurred by any
of them in connection with investigating or defending any such loss, claim,
damage, liability or action arising under subparagraph A. of this paragraph 6.
7. Within sixty (60) days after receipt by a party to be
indemnified (herein called the "indemnified party") pursuant
- 8 -
<PAGE> 20
to the provisions of paragraph 5 or 6 hereof of notice of the assertion of any
claim or the commencement of any action or proceeding, such indemnified party
will, if a claim thereof is to be made against the indemnifying party pursuant
to the provisions of paragraph 5 hereof or, as the case may be, of paragraph 6
hereof, notify the indemnifying party of the assertion or commencement thereof.
The failure so to notify the indemnifying party will relieve it from any
liability which it has to any indemnified party under such provisions, but the
failure so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under such
provisions. In the event that any such claim is asserted or action or proceeding
is brought against any indemnified party, and it duly notifies the indemnifying
party of the commencement thereof, the indemnifying party will be entitled to
participate in, and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense of such claim,
action or proceeding with counsel reasonably satisfactory to such indemnified
party, provided that in the case of a claim in the form of an administrative or
disciplinary action or an action only for injunctive relief with no claim for
monetary damages, the indemnified party may elect to retain its own counsel or
appoint co-counsel. After notice from the indemnifying party to such indemnified
party of its election so to assume the defense of such claim, action or
proceeding, the indemnifying party will not be liable to such indemnified party
for any legal or other expenses incurred by such indemnified
- 9 -
<PAGE> 21
party after the election so to assume the defense of such claim, action or
proceeding, other than reasonable costs of investigation. The indemnified party
shall cooperate with the indemnifying party in the defense of any claim, action
or proceeding the defense of which has been assumed by the indemnifying party.
Failure of the indemnified party to reasonably cooperate with the indemnifying
party shall relieve the indemnifying party of any obligations under paragraph 5
or 6 hereof, as the case may be, and under this paragraph 7.
8. In the event that Shareholder acquires any additional
Shares issued by the Company (or any successor to all or a substantial part of
the business or assets of the Company) by reason of any stock split of the
Shares, or the payment of any stock dividend on the Shares, or if any of the
Shares are exchanged for or converted into any other equity securities, then, in
any such event, such additional Shares or other equity securities shall, for the
purposes of all of the foregoing provisions of this Agreement, be deemed to be,
and shall be treated as though they were, shares forming part of the Shares. As
used in this Agreement the term "equity securities" shall include any shares of
common stock or preferred stock, any securities convertible into common stock or
preferred stock, or any option, warrant or agreement which grants the right to
the holders thereof to purchase common stock or preferred stock.
9. A. The Company agrees that, in any case where:
- 10 -
<PAGE> 22
(1) it has notified Shareholder in writing
that, in connection with a proposed public disposition of any of the Shares, in
reliance on a "no action" letter or in the opinion of counsel reasonably
satisfactory to the Company (which counsel may be counsel to Shareholder), no
registration under the 1933 Act is required with respect to such disposition and
the Shares may be transferred free of any restrictive legend; or
(2) the Company has received from
Shareholder a "no action" letter or an opinion of counsel reasonably
satisfactory to the Company (which counsel may be counsel to Shareholder) to the
effect that all restrictive legends may be removed from certificates evidencing
Shares owned by Shareholder; or
(3) Registration Statement has been declared
effective in relation to any of the Shares;
then, in any such case, Shareholder shall be entitled, at no cost to it, to have
certificates or other appropriate instruments issued to it evidencing the Shares
referred to in subparagraphs (1), (2) or (3) of this paragraph 9, without any
restrictive legend whatsoever upon surrender to the Company of the certificates
or other appropriate instruments evidencing such Shares which may bear such a
legend.
B. Shareholder agrees that in the event of a stop
order being issued in respect of a Registration Statement relating to the
Shares, or in the event of a withdrawal of any
- 11 -
<PAGE> 23
such Registration Statement, it will, without prejudice to its rights under this
paragraph 9, surrender to the Company those certificates or other appropriate
instruments evidencing such Shares (if any) bearing no legend which it has
received in exchange for certificates or other appropriate instruments
evidencing such Shares bearing a legend and will accept in exchange therefor,
certificates or other appropriate instruments evidencing such Shares bearing
such a legend.
10. All of the terms and provisions of this Agreement shall
bind and inure to the benefit of the parties to this Agreement and their
successors and assigns.
11. Any notice, statement, demand, consent or request to be
given or furnished to a party to this Agreement shall be deemed to have been
sufficiently given or furnished by being sent by registered or certified mail,
postage prepaid, to be following addresses:
Company: American Precision Industries Inc.
2777 Walden Avenue
Buffalo, New York 14225
Attention: President
Shareholder: Patricof & Co. Capital Corp.
455 Park Avenue
New York, New York 10022
Attention: President
12. This instrument, and the documents referred to herein,
including the Warrant Agreement, contain the entire
- 12 -
<PAGE> 24
agreement between the Company and Shareholder with respect to the transactions
contemplated herein. Neither party shall be bound by, or shall be deemed to have
made, any representations and/or warranties, except those contained herein or in
such documents to which such party hereto is also a party.
13. If any provision of this Agreement is held by a court of
competent jurisdiction for any reason to be unenforce- able, the remainder of
this Agreement shall, nevertheless, remain in full force and effect in such
jurisdiction.
14. This Agreement or any provisions hereof cannot be changed,
terminated or waived orally, but only by an agreement in writing signed by the
party against whom enforcement of any waiver, change, modification or discharge
is sought.
15. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of Delaware. The Company and
Shareholder shall attempt to resolve between them any dispute which arises under
this Agreement. If they cannot agree within ten (10) days after either party
submits a demand for arbitration to the other party, then the issue shall be
submitted to arbitration with each party having the right to appoint one (1)
arbitrator and those two (2) arbitrators mutually selecting a third arbitrator.
The rules of the American Arbitration Association for the arbitration of
commercial disputes shall apply and the decision of 2 of the 3 arbitrators shall
be final. The arbitration shall take place in New York,
- 13 -
<PAGE> 25
New York. The arbitrators shall apply Delaware law, but shall not be allowed to
award punitive damages.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed the day and year first above written.
AMERICAN PRECISION INDUSTRIES INC.
By
---------------------------------
Kurt Wiedenhaupt,
Chairman, President and
Chief Executive Officer
PATRICOF & CO. CAPITAL CORP.
By
---------------------------------
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