<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 October 3, 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 October 31, 1997 7,427,009
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN PRECISION INDUSTRIES INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
----------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
----------------------------------- -------------------------------------
October 3, 1997 September 27, 1996 October 3, 1997 September 27, 1996
--------------- ------------------ --------------- -------------------
<S> <C> <C> <C> <C>
NET SALES $ 55,014,000 $ 31,599,000 $130,429,000 $ 84,978,000
INVESTMENT INCOME 28,000 59,000 92,000 243,000
------------ ------------ ------------ ------------
REVENUES 55,042,000 31,658,000 130,521,000 85,221,000
------------ ------------ ------------ ------------
COSTS AND EXPENSES
Cost of products sold 38,592,000 20,986,000 90,461,000 56,976,000
Selling and administrative 11,283,000 7,215,000 26,382,000 18,847,000
Research and product development 1,021,000 479,000 2,527,000 1,260,000
Interest and debt expense 898,000 379,000 1,981,000 901,000
Other expense 210,000 -- 210,000 --
------------ ------------ ------------ ------------
52,004,000 29,059,000 121,561,000 77,984,000
------------ ------------ ------------ ------------
EARNINGS BEFORE INCOME TAXES 3,038,000 2,599,000 8,960,000 7,237,000
INCOME TAXES 780,000 863,000 2,847,000 2,529,000
------------ ------------ ------------ ------------
NET EARNINGS $ 2,258,000 $ 1,736,000 $ 6,113,000 $ 4,708,000
============ ============ ============ ============
NET EARNINGS PER COMMON SHARE (1) $ 0.30 $ 0.24 $ 0.83 $ 0.66
============ ============ ============ ============
NET EARNINGS PER COMMON SHARE-
FULLY DILUTED $ 0.24 $ 0.23 $ 0.74 $ 0.64
============ ============ ============ ============
AVERAGE COMMON SHARES OUTSTANDING 7,412,000 7,207,000 7,365,000 7,176,000
============ ============ ============ ============
AVERAGE COMMON SHARES OUTSTANDING-
FULLY DILUTED 9,383,000 7,401,000 8,310,000 7,404,000
============ ============ ============ ============
</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 INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- --------------------------
<TABLE>
<CAPTION>
October 3, 1997
(Unaudited) January 3, 1997
-------------- ----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,884,000 $ 2,412,000
Accounts receivable less allowance for doubtful
accounts of $846,000 and $487,000 36,466,000 17,912,000
Inventories 37,035,000 17,431,000
Prepaid expenses 3,320,000 1,137,000
Deferred income tax benefit-U.S. 2,555,000 2,094,000
------------ ------------
TOTAL CURRENT ASSETS 83,260,000 40,986,000
OTHER ASSETS
Cost in excess of net assets acquired 19,162,000 4,472,000
Investments 1,108,000 3,279,000
Prepaid pension cost 2,051,000 2,104,000
Net cash value of life insurance 2,880,000 2,655,000
Deferred income tax benefit-foreign 1,184,000 --
Other 1,752,000 1,310,000
------------ ------------
28,137,000 13,820,000
PROPERTY, PLANT AND EQUIPMENT
Land 3,432,000 665,000
Buildings and improvements 20,434,000 13,549,000
Machinery, equipment and furniture 51,471,000 32,589,000
Construction in process 3,781,000 1,502,000
------------ ------------
79,118,000 48,305,000
Less accumulated depreciation 24,434,000 21,099,000
------------ ------------
NET PROPERTY, PLANT AND EQUIPMENT 54,684,000 27,206,000
------------ ------------
TOTAL ASSETS $166,081,000 $ 82,012,000
============ ============
</TABLE>
<PAGE> 4
AMERICAN PRECISION INDUSTRIES INC.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
- --------------------------
October 3, 1997
(Unaudited) January 3,1997
---------------- ----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Short-term borrowings $ 14,975,000 $ --
Accounts payable 16,928,000 8,511,000
Accrued compensation and payroll taxes 9,585,000 5,167,000
Other accrued expenses 8,533,000 1,341,000
Dividends payable 471,000
Current portion of longterm obligations 1,298,000 1,292,000
Income taxes 177,000 12,000
------------- -------------
TOTAL CURRENT LIABILITIES 51,496,000 16,794,000
DEFERRED INCOME TAXES U.S. 1,417,000 1,417,000
OTHER NONCURRENT LIABILITIES 1,325,000 1,046,000
LONGTERM OBLIGATIONS, LESS CURRENT PORTION 37,401,000 22,211,000
EXCHANGEABLE NOTE 5,000,000 --
SERIES A CONVERTIBLE PREFERRED STOCK,
par value $50 a share, 20,000 shares issued and outstanding 21,156,000 --
SHAREHOLDERS' EQUITY
Common stock, par value $.66 2/3 a share:
Authorized-10,000,000 shares
Issued-7,797,101 and 7,666,011 shares 5,197,000 5,110,000
Additional paid-in capital 12,582,000 11,065,000
Retained earnings 33,634,000 27,281,000
Equity adjustment from foreign currency translation (215,000) --
Minimum pension liability, net of tax (74,000) (74,000)
------------- -------------
51,124,000 43,382,000
Less cost of 374,262 treasury shares 2,838,000 2,838,000
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 48,286,000 40,544,000
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 166,081,000 $ 82,012,000
============= =============
</TABLE>
<PAGE> 5
AMERICAN PRECISION INDUSTRIES INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- ------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------------
October 3, 1997 September 27, 1996
--------------- ------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income $ 6,113,000 $ 4,708,000
Adjustments to reconcile net income to cash and
cash equivalents provided by operating activities:
Depreciation and amortization 4,624,000 2,944,000
Writeoff of fixed assets 178,000
Gain (Loss) on sale of investments/fixed assets 51,000 (19,000)
Increase in supplemental benefit program 71,000 74,000
Recognition of pension expense under SFAS 87 53,000 --
Stock compensation programs 281,000 166,000
Change in various allowance accounts 72,000 312,000
(Increase) Decrease in:
Accounts receivable (6,819,000) (2,224,000)
Inventories 1,015,000 (2,216,000)
Prepaid expenses (416,000) (585,000)
Deferred income taxes (492,000) (228,000)
Net cash value of life insurance (225,000) (417,000)
Other assets, net (131,000) 12,000
Increase (Decrease) in:
Accounts payable 2,302,000 1,374,000
Accrued expenses (3,764,000) (412,000)
Federal and state income taxes 44,000 --
Other noncurrent liabilities (6,000) (11,000)
------------ ------------
Net cash provided by Operating Activities 2,951,000 3,478,000
------------ ------------
Cash Flows from Investing Activities
Investment in API Schmidt-Bretten, net of cash acquired (6,114,000) --
Investment in API Portescap, net of cash acquired (1,594,000) --
Investment in Ketema and Gettys, net of cash acquired -- (17,292,000)
Purchases of marketable securities (55,000) (94,000)
Additions to property, plant and equipment (6,640,000) (5,529,000)
Proceeds from investments and sale of fixed assets 2,944,000 5,340,000
------------ ------------
Net cash used by Investing Activities (11,459,000) (17,575,000)
------------ ------------
Cash Flows from Financing Activities
Exercise of stock options 1,070,000 658,000
Payments of longterm obligations, including current maturities (978,000) (600,000)
Dividends paid (471,000) (1,397,000)
Increase in longterm borrowings 6,527,000 15,924,000
Increase (decrease) in short-term borrowings 3,832,000 (2,602,000)
------------ ------------
Net cash provided by Financing Activities 9,980,000 11,983,000
------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents 1,472,000 (2,114,000)
Cash and Cash Equivalents at Beginning of Year 2,412,000 2,486,000
------------ ------------
Cash and Cash Equivalents at End of Period $ 3,884,000 $ 372,000
============ ============
</TABLE>
<PAGE> 6
AMERICAN PRECISION INDUSTRIES INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Third Quarter Ended October 3, 1997
------------------------------------------
Note A Consolidated Financial Statements
- ------ ---------------------------------
The Consolidated Balance Sheet as of October 3, 1997, and the
Consolidated Statement of Earnings, and the Consolidated
Statement of Cash Flows for the periods ended October 3, 1997
and September 27, 1996 have been prepared by the Company without
audit. In the opinion of management, all adjustments necessary
to present fairly the financial position, results of operations,
and changes in cash flow at October 3, 1997 and for all periods
presented have been made. The Consolidated Balance Sheet as of
January 3, 1997 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 October 3,
1997 includes the assets, liabilities, and resulting goodwill of
Schmidt-Bretten GmbH ("Schmidt-Bretten") and Portescap acquired
as of January 31, 1997 and July 8, 1997, respectively. The
Consolidated Statements of Earnings and Cash Flows include the
results of Ketema, Gettys, Schmidt-Bretten and Portescap 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 LongTerm Obligations
- ------ --------------------
<TABLE>
<CAPTION>
October 3, 1997
------------------------------------------
Outstanding Current Long-Term
----------- ------------- ------------
<S> <C> <C> <C>
Industrial Revenue Bonds $12,566,000 $ 1,110,000 $11,456,000
Supplemental Benefit Program 1,046,000 188,000 858,000
Revolving Credit Debt 16,000,000 -- 16,000,000
Mortgage Debt-Portescap 9,087,000 -- 9,087,000
----------- ----------- -----------
$38,699,000 $ 1,298,000 $37,401,000
=========== =========== ===========
</TABLE>
Portescap and its subsidiaries have $9,087,000 in long-term debt
outstanding with several banks, which is primarily secured by
real estate mortgages. The weighted average interest rate on
these obligations was approximately 6.2% at the end of the third
quarter.
Note D Earnings Per Share
- ------ ------------------
Net earnings per common share are based on the weighted average
number of common shares outstanding during the respective
periods. The effect of common stock equivalents, consisting of
stock options and warrants, 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, increased
by the number of common shares into which the exchangeable note
and Series A Convertible Preferred Stock issued on July 8, 1997
are contingently convertible.
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
<PAGE> 8
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.
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.
The Company utilizes forward foreign currency exchange contracts
to manage exposures resulting from fluctuations in foreign
currency exchange rates on monetary assets and liabilities
denominated in foreign currencies arising from its operations.
Gains and losses on foreign currency transactions are recorded in
income and are not material during the periods presented.
The Company does not engage in foreign currency speculation.
As of January 3, 1997 and October 3, 1997 foreign exchange
contracts outstanding were $-0- and approximately $85,000,
respectively.
<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>
Third Quarter Ended Nine Months Ended
--------------------------------------- ------------------------------------
October 3, 1997 September 27, 1996 October 3, 1997 September 27, 1996
----------------- ------------------- --------------- ------------------
<S> <C> <C> <C> <C>
Revenues:
Heat Transfer $ 24,715 $ 17,751 $ 69,591 $ 45,720
Motion 26,681 10,702 49,750 29,218
Electronic Components 3,618 3,147 11,088 10,043
General Corporate 28 58 92 240
---------------- ------------------- --------------- ----------------
Revenues $ 55,042 $ 31,658 $ 130,521 $ 85,221
================ =================== =============== ================
Operating Profit:
Heat Transfer $ 2,073 $ 2,161 $ 6,432 $ 5,860
Motion 2,662 1,127 5,385 2,778
Electronic Components 704 532 1,957 1,647
================ =================== =============== ================
5,439 3,820 13,774 10,285
General Corporate expense, net (1,503) ( 842) (2,833) (2,147)
Interest and debt expense ( 898) ( 379) (1,981) ( 901)
---------------- ------------------- ---------------- ----------------
Earnings before income taxes $ 3,038 $ 2,599 $ 8,960 $ 7,237
================ =================== =============== ================
</TABLE>
Note G Portescap Acquisition
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 to be held on
November 14, 1997, 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
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
REVENUES
Consolidated revenues for the third quarter and nine months ended October 3,
1997 increased 74% and 53%, respectively, as compared to the same periods of the
preceding fiscal year.
Sales within the Heat Transfer segment increased 39% and 52%, respectively, over
the comparable quarter and nine months of 1996. The third quarter increase
resulted from the addition of Schmidt-Bretten which was acquired on January 31,
1997 and strong sales of air-to-air heat exchangers manufactured by API Airtech,
offset by lower sales of shell and tube heat exchangers. Most of the increase in
the nine-month period is attributable to the sales of Schmidt-Bretten and to the
inclusion of API Ketema for nine months in 1997 versus six months last year from
the date of acquisition on April 1, 1996. API Basco had an 8% decline in sales
for the nine months while API Airtech enjoyed a 28% sales increase from last
year.
The Motion Technologies segment sales increased 149% and 71%, respectively, over
the comparable quarter and nine months of 1996. The third quarter sales growth
was due primarily to the acquisition of Portescap on July 8, 1997. Excluding
Portescap, sales grew by 10% reflecting delays in the introduction of certain
new products. Approximately two-thirds of the increase for the nine-month period
relates to the acquisition of Portescap on July 8, 1997. Also the 1997 results
include sales of API Gettys for nine months while the 1996 results include API
Gettys sales for only five months. The other subsidiaries comprising this
segment had sales increases of 20% and 25% for the quarterly and nine-month
periods, respectively.
Sales within the Electronic Components segment for the third quarter of 1997
increased 15% over the third quarter of 1996 and sales for the nine months grew
by 10% over the comparable period in 1996. The increases applied to both
axial-leaded and surface mounted products.
Bookings of customer orders in the third quarter and first nine months of 1997
were $53.4 million and $135.2 million, respectively, up 64% and 53% over
bookings in the same periods last year. The Company's consolidated backlog of
firm orders at October 3, 1997 was $73.6 million, up 86% from $39.5 million on
September 27, 1996. The backlog at October 3, 1997 includes $4.1 million for
Schmidt-Bretten and $26.2 million for Portescap.
COST OF PRODUCTS SOLD
The Company's gross profit percentage was 29.9% in the third quarter and 30.6%
for the nine months of 1997, down from 33.7% and 33.0% for the comparable
periods in 1996.
The decline in the gross profit percentage results from margin reductions in the
Heat Transfer segment of 6.6% and 4.7% in the third quarter and nine months,
respectively, due to third quarter inventory adjustments totaling $416,000,
lower margins realized at Schmidt-
<PAGE> 11
Bretten as compared to domestic subsidiaries, and lower margins at API Airtech
due to a significant increase in production levels combined with start-up costs
in a new facility. The Motion Technology and Electronic Components segments had
improved margins in the nine month period of 1997 as compared to the same period
of 1996 of 1.0% and 1.3%, respectively, although margins in Motion declined by
1.5% in the third quarter of 1997 compared to the prior year's quarter due to a
$400,000 inventory adjustment in one subsidiary.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses, expressed as a percentage of net sales,
declined both for the third quarter and the nine months of 1997 as compared with
the comparable periods in 1996. The majority of the dollar increase in selling
and administrative expenses in the first nine months of 1997 is attributable to
such expenses in Schmidt-Bretten and Portescap.
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
Interest and debt expense increased by $519,000 and $1,080,000 in the third
quarter and nine months of 1997, respectively, compared to the same periods in
1996. These increases are largely due to the increase in average outstanding
debt incurred in connection with the acquisitions of Ketema, Gettys,
Schmidt-Bretten, and Portescap. Interest on existing bank debt of
Schmidt-Bretten and Portescap since their respective dates of acquisition also
contributed approximately $403,000 to the third quarter increase and $499,000 to
the nine-month increase.
RESEARCH AND PRODUCT DEVELOPMENT
The increase in research and product development in the third quarter and first
nine months of 1997 of 113% and 101%, 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.
OTHER EXPENSE
The Company reached an agreement in September 1997 with the United States
Government relating to government sub-contract work performed by API's former
Rapidsyn Division. The cost of the settlement, including legal and other
out-of-pocket expenses, totaled $331,000. The contracts at issue relate to the
period from August 1987 through September 1995. API is no longer involved in
such government sub-contract work and closed the Rapidsyn Division in California
in early 1995. Offsetting the cost of this settlement was a gain of $121,000
from the sale of a nonoperating investment.
<PAGE> 12
INCOME TAXES
The reduction in the Company's effective tax rate in the third quarter and nine
months of 1997 as compared to those periods in 1996 is largely attributable to
foreign income earned in comparatively lower tax rate jurisdictions. Because it
is the Company's intention to indefinitely reinvest those earnings in the
operations of such foreign entities, no provision has been made for United
States income taxes applicable to the undistributed earnings of foreign
subsidiaries.
Also contributing to the reduced effective tax rate was an increase in 1997 in
the tax benefit derived from the Company's Foreign Sales Corporation.
NET EARNINGS
Net earnings increased 30% in both the third quarter and the first nine months
of 1997 as compared to similar periods in 1996, which is primarily due to the
increased level of sales and a lower effective tax rate, offset by reduced
margins and higher interest and debt expense, each of which is discussed above.
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 which was
increased to $20,000,000 by an amendment effective November 3, 1997. 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 October
3, 1997, under the LIBOR Rate Option in the Credit Agreement, was 6.5%.
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 20,000 shares of Series A Seven Percent (7%) Cumulative
Convertible Preferred Stock with a liquidation value of $21,156,250 and a
$5,000,000 exchangeable promissory note. Following approval of certain proposals
to be presented at a special shareholder meeting to be held on November 14,
1997, 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. Portescap
and certain of its subsidiaries have long-term
<PAGE> 13
debt aggregating $9,087,000 with several banks secured in some cases by real
estate mortgages.
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 $500,000
was available at October 3, 1997. Schmidt-Bretten and Portescap also maintain
short-term lines of credit aggregating approximately $11,100,000 to finance
their respective day-to-day operations. At the end of the third quarter,
approximately $8,100,000 was available under these lines of credit. Future
acquisitions may require the Company to arrange additional credit facilities
with lenders or procure financing through issuance of debt or equity securities.
<TABLE>
<CAPTION>
October 3, 1997 September, 27 1996
-------------------- --------------------
<S> <C> <C>
Net working capital $31,764 $23,919
Current ratio 1.62 2.46
Cash, cash equivalents
and marketable securities $ 3,884 $ 622
<CAPTION>
For the nine months ended
--------------------------------------------
October 3, 1997 September 27, 1996
-------------------- --------------------
<S> <C> <C>
Cash flow from operations $ 2,951 $ 3,478
Capital expenditures $ 6,640 $ 5,529
</TABLE>
Investments reflected in the Company's balance sheet at October 3, 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 INC.
AND SUBSIDIARIES
Components of Consolidated Statement of Earnings
Expressed as a Percentage of Revenues
------------------------------------------------
<TABLE>
<CAPTION>
Third Quarter Ended
----------------------------
1997 1996
October 3 September 27
---------- ------------
Revenues 100.0 100.0
----- -----
Costs and Expenses
<S> <C> <C>
Cost of products sold 70.1 66.3
Selling and administrative 20.5 22.8
Research and product development 1.9 1.5
Interest and debt expense 1.6 1.2
Other expense 0.4 --
----- -----
94.5 91.8
----- -----
Earnings before Income Taxes 5.5 8.2
Income Taxes 1.4 2.7
----- -----
Net Earnings 4.1 5.5
===== =====
Income Taxes as a percentage
of Earnings Before Income Taxes 25.7 33.2
==== ====
</TABLE>
<PAGE> 15
PART II
-------
OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
- ------- ------------------
None
Item 2. Changes in Securities
- ------- ---------------------
On July 8, 1997, 20,000 shares of Series A Seven Percent (7%)
Cumulative Convertible Preferred Stock (the "Series A Stock")
with an aggregate liquidation value of $21,156,250 were issued
in connection with the acquisition of Portescap. The holder of
the Series A Stock is entitled to 1,244,485 votes and to a class
vote, on certain matters. Details of the terms of the Series A
Stock were included under this Item in the Company's Quarterly
Report on Form 10Q for the quarter ended July 4, 1997.
Item 3. Defaults Upon Senior Securities
- ------- -------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ----------------------------------------------------
None
Item 5. Other Information
- ------- -----------------
As reported in a Form 8-K dated October 28, 1997, the registrant
has changed its fiscal year-end from one that ends on the Friday
closest to December 31 to the calendar year ending on December
31, effective December 31, 1997.
<PAGE> 16
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 dated July 23, 1997
reporting under Item 2 the acquisition of Portescap,
which occurred on July 8, 1997. The following financial
statements were included in the Form 8-K under Item 7:
- Audited consolidated financial statements of
Portescap for the years ended 31 December 1996
(including U.S. GAAP reconciliation)
- Proforma Combined Statement of Earnings (unaudited)
fiscal year ended January 3, 1997
- Proforma Combined Balance Sheet (unaudited) as of
April 4, 1997
- Proforma Combined Statement of Earnings (unaudited)
quarter ended April 4, 1997
<PAGE> 17
AMERICAN PRECISION INDUSTRIES INC.
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
November 12, 1997
<PAGE> 18
EXHIBIT INDEX
-------------
10(i) Amendment No. 2 to Credit Agreement dated March 29, 1996, as
Amended between American Precision Industries Inc. and Marine
Midland Bank.
10(ii) Executive Employment Agreement effective as of July 1, 1997
between Kurt Wiedenhaupt and American Precision Industries Inc.
11 Computation of net income per share
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10(i)
AMENDMENT NO. 2
TO
CREDIT AGREEMENT
DATED MARCH 29, 1996, AS AMENDED
AMERICAN PRECISION INDUSTRIES INC. ("Company") and
MARINE MIDLAND BANK ("Bank") are parties to a Credit Agreement
dated March 29, 1996 as amended August 27, 1996 ("Credit
Agreement").
RECITALS:
- ---------
1. Company is implementing a corporate reorganization whereby
new subsidiaries have been, or are being, created to conduct various aspects of
the Company's business in integrated business units.
2. In order to provide adequate working capital and other
funding of the Company's subsidiaries, the Company has requested that the Bank
increase the Commitment under the Credit Agreement from the present $16,000,000
to $20,000,000 in the aggregate.
3. Bank is willing to so increase the Commitment on the
conditions and terms hereinafter set forth.
4. Capitalized terms not otherwise defined herein have the
meanings defined in the Credit Agreement.
NOW, THEREFORE, for a good and valuable consideration the
receipt of which is hereby acknowledged, the parties agree as follows:
A. CONDITIONS. The Amendments set forth below shall
become effective on the date when the Bank receives all of the
following documents in form and content satisfactory to the
Company and the Bank ("Effective Date"):
1. The Replacement Revolving Note (as defined in B.2 below)
dated the Effective Date and executed by the Company and with all blanks
appropriately completed.
2. A favorable counsel opinion from Jaeckle Fleischmann &
Mugel LLP in form and content satisfactory to Bank and its counsel, dated as of
the Effective Date, as to, among other things, the due authorization, execution
and delivery of (i) this Agreement and the Replacement Revolving Note by the
Company, and (ii) the Guaranties by the Guarantors; the good standing and
authority to transact their business of the Company and the Guarantors; that
there are no violations of the Company's organization documents, other material
agreements, or any law or
<PAGE> 2
- 2 -
court decree, and no material litigation or any litigation questioning the
validity of the Credit Agreement, this Agreement, the Revolving Note or the
Replacement Revolving Note; that no consent, filing, license, authorization,
registration or filing is required with any court or governmental authority in
connection with the execution and performance of this Agreement, the Guaranties
or the Replacement Revolving Note; and such other matters as the Bank or its
counsel may reasonably request.
3. Within thirty (30) days of the date of Amendment No. 2 to
Credit Agreement dated March 29, 1996, as amended the following:
A. Guaranties in form and substance
satisfactory to the Bank from each of the following
entities of the indebtedness of the Company to Bank
and of any indebtedness of any of their subsidiaries
to Bank in the respective amounts set forth below
for each such entity:
<TABLE>
<CAPTION>
Guarantor Amount
--------- ------
<S> <C>
API Heat Transfer Inc. $17,180,000
API Motion Inc. $ 6,600,000
API Electronic Components Inc. $ 3,885,000
</TABLE>
B. Guaranties from each of the following
entities of the indebtedness of the Company to Bank
in the amounts set forth below for each such entity:
<TABLE>
<CAPTION>
Guarantor Amount
--------- ------
<S> <C>
API Basco Inc. $4,850,000
API Airtech Inc. $ 750,000
API Ketema Inc. $5,250,000
API Controls Inc. $1,100,000
API Deltran Inc. $1,000,000
API Gettys Inc. $2,200,000
API Harowe Inc. $2,300,000
API Delevan Inc. $1,050,000
API SMD Inc. $1,500,000
</TABLE>
<PAGE> 3
- 3 -
B. AMENDMENTS
----------
From and after the Effective Date, the Credit Agreement is
amended as follows:
1. The existing definition of "Note" or "Notes" set forth in
Section 1.1 of the Credit Agreement is hereby deleted and the following is
substituted in its place:
"'Note' or 'Notes' - the Revolving Note and/or
Term Note, as appropriate, and, from after the
Effective Date of Amendment No. 2 to this
Agreement, the Replacement Revolving Note."
2. The following definition is added to Section 1.1 of the
Credit Agreement between the existing definitions of "Release" and "Reportable
Event":
"'Replacement Revolving Note' - the promissory
note of the Company in the form of Exhibit A-1 to
Amendment No. 2 to Credit Agreement dated
March 29, 1996, as amended."
3. The existing definition of "Revolving Credit" set forth in
Section 1.1 of the Credit Agreement is hereby deleted and the following is
substituted in its place:
"'Revolving Credit' - the aggregate sum made
available to the Company up to the amount of the
Commitment pursuant to the provisions of Section
2.1(a) of this Agreement."
4. Section 2.1(a) of the Credit Agreement is hereby amended
to delete the sum "Sixteen Million Dollars ($16,000,000)" from the ninth line
thereof, and substitute the following as the amount of the "Commitment":
"Twenty Million Dollars ($20,000,000)".
5. The following new Section 2.1(d) is added to the Credit
Agreement:
"(d) REPLACEMENT REVOLVING NOTE. From and after
the Effective Date of Amendment No. 2 to Credit
Agreement dated March 29, 1996, as amended, the
Advances made by the Bank under this Agreement
shall be evidenced by the Replacement Revolving
Note with all blanks appropriately completed, and
executed by the Company and delivered to the Bank.
<PAGE> 4
- 4 -
The Replacement Revolving Note shall be inscribed by
the Bank as holder thereof 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 Replacement
Revolving Note or this Agreement."
6. Sections 2.2 and 2.3 of the Credit Agreement are
amended as follows:
"All existing references to 'Revolving Note' are
changed to read 'Replacement Revolving Note'."
7. Section 6.3 of the Agreement is hereby revised to add the
following new items (iv) and (v) to the list of excepted Liens consented to by
the Bank:
"(iv) existing Liens in trade receivables of
Schmidt-Bretten GmbH granted to Sparkane Bruchsal-
Bretten Bank to secure a line of credit for DM
3,000,000; and
(v) existing Liens on property of Portescap SA
pledged as security for long-term mortgage loans
amounting to CH 11,439,000."
8. The following is added to Section 6.12 of the Agreement:
"For purposes of computing the Company's Debt-to-
Tangible Net Worth Ratio, the Company's existing
20,000 Series A Shares of convertible preferred
shares issued to Inter Scan Holding Ltd. ("Inter
Scan"), and the $5,000,000 Exchangeable Promissory
Note dated July 8, 1997 issued by the Company to
Inter Scan shall not be deemed Liabilities and will
be deemed a part of Net Worth until the earlier of
April 30, 1998 or the date on which the Company's
Board of Directors and shareholders approve of an
amendment to the Company's certificate of
incorporation authorizing the Series B Seven Percent
Cumulative Convertible Preferred Stock, $21.15625
face value and
<PAGE> 5
- 5 -
liquidation value per share and such amendment is
duly filed with the Secretary of State of
Delaware."
9. Section 6.9 of the Agreement is replaced in its entirety
by the following:
"6.9 LEASE RENTALS. Pay rentals under any
operating or true leases which are not capitalized
on the Company's books in excess of $2,000,000 in
the aggregate during any fiscal year."
C. REPRESENTATIONS AND WARRANTIES
------------------------------
1. The Company hereby represents and warrants to the Bank
that the representations and warranties of the Company made pursuant to the
Credit Agreement are true in all material respects on and as of the date hereof
as if made on and as of said date.
2. No Event of Default exists under the Credit Agreement, and
no event or condition has occurred which, but for the requirements of notice or
lapse of time or both, would constitute an Event of Default under the Credit
Agreement.
3. The making and performance by the Company of this
Amendment have been duly authorized by all required corporate and shareholder
action.
4. The delivery by the Company on the Effective Date of the
Replacement Revolving Note and the Guaranties shall constitute a further
representation and warranty by the Company that the representations and
warranties contained herein are true in all material respects on and as of the
Effective Date.
D. REAFFIRMATION
-------------
The Credit Agreement, except as specifically modified by this
Amendment, shall remain in full force and effect and the Company hereby
reaffirms the granting and effectiveness of the Credit Agreement as modified by
this Amendment and all prior amendments and all other documents executed and
delivered to the Bank in connection with the Credit Agreement.
E. OTHER PROVISIONS
----------------
1. This Amendment may be executed in any number of
counterparts and by the parties hereto 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 Amendment.
<PAGE> 6
- 6 -
2. This Amendment shall be governed by and construed under
the internal laws of the State of New York, as the same may from time to time
be in effect, without regard to principles of conflicts of laws.
IN WITNESS WHEREOF, this Amendment has been duly executed as
of this 6th day of October, 1997.
AMERICAN PRECISION INDUSTRIES INC.
By ______________________________
(Title)
MARINE MIDLAND BANK
By _____________________________
Cary J. Haller
Vice President
<PAGE> 7
- 7 -
STATE OF NEW YORK )
) SS.:
COUNTY OF ERIE )
On this 6th day of October, 1997, , before me personally came , to me
known, who, being by me duly sworn, did depose and say that (s)he resides at
____________________________________________________________________________ ,
that (s)he is of AMERICAN PRECISION INDUSTRIES INC., the corporation described
in and which executed the foregoing instrument; and that (s)he signed h___ name
thereto by order of the Board of Directors of said corporation.
______________________________________
Notary Public
STATE OF NEW YORK )
) SS.:
COUNTY OF ERIE )
On this 6th day of October, 1997, before me personally came Cary J.
Haller, to me known, who, being by me duly sworn, did depose and say that he
resides at 1145 Youngs Road, Williamsville, New York; that he is a Vice
President of MARINE MIDLAND BANK, a bank organized under the laws of the State
of New York described in and which executed the foregoing instrument; and that
he signed his name thereto by order of the Board of Directors of said bank.
______________________________________
Notary Public
<PAGE> 1
EXHIBIT 10 (ii)
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
This AGREEMENT, effective as of July 1, 1997, is by and
between KURT WIEDENHAUPT (the "Executive") and AMERICAN PRECISION INDUSTRIES
INC (the "Company").
1. EMPLOYMENT.
-----------
The Company agrees to continue the Executive in
the Company's employ, and the Executive agrees to remain in the employ of the
Company, for the period and on the other terms and conditions set forth below.
2. PERIOD OF EMPLOYMENT.
---------------------
The period of employment under this Agreement
shall commence on July 1, 1997 and continue until the close of business on June
30, 2003 (the "Period of Employment").
<PAGE> 2
3. POSITIONS AND RESPONSIBILITIES;
PLACE OF PERFORMANCE.
-------------------------------
(a) During the Period of Employment, the
Executive agrees to serve the Company and the Company agrees to employ the
Executive as its President and Chief Executive Officer, as such positions are
defined in the Company's By-Laws as they may be amended from time to time. The
Executive also agrees to serve during all or part of the Period of Employment,
as requested by the Company, as a Director of the Company and as an officer and
director of any of the Company's subsidiaries or affiliates, without any
compensation therefor other than that specified in this Agreement. During the
Period of Employment, the Executive shall devote all of his normal work week,
attention, skill and efforts to the faithful performance of his duties
hereunder.
(b) In connection with his employment hereunder,
the Executive shall be based at the principal office of the
Company in Buffalo, New York.
(c) The Executive shall be subject to the terms,
conditions and benefits set out in the Company's Handbook for Salaried
Employees and its policies relating to its employees, as amended from time to
time, which are not inconsistent with the terms and conditions of this
Agreement.
(d) In the event the Company's Board of
Directors determines that it is in the Company's best interest that the
Executive become a citizen of the United States, the Executive shall use his
best efforts to apply for and obtain United
- 2 -
<PAGE> 3
States citizenship.
4. REGULAR COMPENSATION.
---------------------
(a) For the performance of his duties under this
Agreement during the Period of Employment the Company shall pay the Executive a
fixed annual salary of $300,000 ("Initial Annual Salary").
(b) The Executive's Initial Annual Salary shall
be reviewed annually by the Compensation Committee of the Board of Directors of
the Company, subject to approval by the Company's Board of Directors, but shall
not be reduced without his written consent below the Initial Annual Salary
during the Period of Employment.
(c) The Executive's salary shall be payable in
accordance with the Company's customary practice for its other executives.
Notwithstanding the foregoing, the Executive shall be entitled to defer the
receipt of his salary and/or bonus pursuant to procedures adopted or plans
maintained by the Company.
5. PARTICIPATION IN ECONOMIC VALUE ADDED BONUS PLAN.
-------------------------------------------------
The Executive shall continue to participate in the
Company's Economic Value Added Bonus Plan, as the same may be in effect from
time to time.
- 3 -
<PAGE> 4
6. PARTICIPATION IN SUPPLEMENTAL BENEFIT PLAN.
-------------------------------------------
The Executive shall continue to participate in the
Company's Executive Supplemental Death Benefit and Retirement Plan, as the same
may be in effect from time to time (the "Supplemental Plan").
7. ADDITIONAL BENEFITS.
--------------------
(a) In addition to the benefits provided in
paragraphs 5 and 6 above, the Executive shall be eligible to participate in and
receive benefits under any incentive compensation plan or arrangement, any
defined benefit retirement plan, defined contribution retirement plan,
supplemental retirement plan, health and dental plan, disability plan, survivor
income plan, and other employee benefit or compensation plan or arrangement
(collectively, "Benefit Plans"), made available by the Company or a subsidiary
or affiliate to all of its senior executives from time to time, subject to and
on a basis consistent with the terms, conditions and overall administration of
such Benefit Plans.
(b) The Executive shall be entitled to four (4)
weeks of paid vacation during each calendar year during the Period of
Employment, plus all paid holidays given by the Company to its other senior
executives.
(c) The Company shall reimburse the Executive
for the periodic dues and assessments paid by the Executive in connection
with his membership in a country club and city club in the Buffalo, New York
area, which clubs are approved by
- 4 -
<PAGE> 5
the Compensation Committee of the Board of Directors of the Company as suitable
for Company-related entertaining and other functions.
(d) The Company shall provide the Executive with
an automobile approved by the Compensation Committee of the Board of Directors
of the Company as suitable to his executive position.
(e) The Company shall provide the Executive with
disability insurance policies which shall cover 60% of his annual compensation
(subject to maximum disability benefit payments imposed by the insurers) until
he reaches age 65 in the event that he is totally disabled for more than 180
days. The Executive shall pay the premium applicable to the disability coverage
offered by the Company to its other employees, and the Company shall pay the
premium applicable to the disability coverage in excess of that coverage.
(f) The Company shall promptly pay (or reimburse
the Executive for) all reasonable expenses incurred by him in the performance
of his duties hereunder, including business travel and entertainment expenses.
The Executive shall furnish to the Company such receipts and records as the
Company may require to verify the foregoing expenses.
- 5 -
<PAGE> 6
8. TERMINATION PRIOR TO A CHANGE IN CONTROL;
SEVERANCE AND DEATH BENEFITS.
---------------------------------------
(a) Subject to the terms and conditions set
forth in this paragraph 8, the Company or the Executive may terminate the
employment of the Executive prior to a "change in control," as that term is
defined in the Change in Control Agreement between the Company and the
Executive dated as of July 1, 1996 (the "Change in Control Agreement"), and
thereby end the Period of Employment, by giving at least thirty (30) days'
written notice to the other, unless a different notice period is otherwise
specifically provided for in this paragraph 8. The date of termination of
employment shall not be more than forty-five (45) days after the date of
notice. Terminations of employment, other than termination caused by the
Executive's death, after a "change in control" shall be governed by the Change
in Control Agreement.
(b) If the employment of the Executive is
terminated by the Company for any reason other than (i) for "cause" or (ii) as
a result of the death of the Executive, or (iii) as a result of the total
"disability" of the Executive, then the Executive shall be entitled to the
following benefits:
A. All unpaid salary for the balance of the
Period of Employment, subject to a maximum amount equal to
three (3) times his "Annual Compensation" (as defined below)
and a minimum amount equal to one (1) times his "Annual
Compensation", PLUS credit for any vacation earned but not
taken, PLUS the amount of any bonus which has been
- 6 -
<PAGE> 7
earned but not paid under any existing bonus plan
(notwithstanding any provisions of any such plan to the
contrary), PLUS all benefits in which he is vested as of the
date of termination under all Benefit Plans including the
Supplemental Plan (notwithstanding any provisions of any such
plans to the contrary), PLUS reimbursement for expenses not
previously reimbursed through the date of termination. For
purposes of this subparagraph A, "Annual Compensation" shall
be an amount equal to the aggregate of the Executive's annual
base salary from the Company and its subsidiaries as set by
the Board of Directors and in effect immediately prior to the
date of termination of employment plus the highest bonus
accrued by the Company for the Executive in any of the
Company's three fiscal years preceding the date of
termination of employment. Except as set forth below, all of
these payments will be paid on the dates that they would
otherwise have been paid if the Executive's employment with
the Company had not been terminated. At the Company's sole
option, any amounts due under this subparagraph A may be paid
in a lump sum rather than over a period of time, discounted
at the prime rate of interest published at that time in the
WALL STREET JOURNAL and computed over the time periods that
the payments would otherwise be paid if the Executive's
employment with the Company was not terminated.
B. The Company shall maintain at its cost,
for the balance of the Period of Employment but not beyond
the time that the
- 7 -
<PAGE> 8
Executive secures other full- time employment, any group
health insurance and group term life insurance coverage which
was in effect with respect to the Executive and his family on
the date of termination of the Executive's employment
hereunder, to the extent that such group coverage is
available following the termination of the Executive's
employment. If such group coverage is not available, the
Company shall reimburse the Executive for the reasonable cost
he incurs in obtaining coverage which is substantially
similar to the coverage provided by or through the Company
immediately prior to the Executive's termination.
(c) Upon the total "disability" of the Executive
for a continuous period of 180 days, the Company may terminate the employment
of the Executive, the term of employment shall end immediately, and the Company
shall pay him his salary through the end of the month in which such termination
occurs plus credit for any vacation earned but not taken and the amount of any
bonus for the past year which has not been paid under any existing bonus plan
together with reimbursement for expenses not previously reimbursed and the
Company shall have no further obligations to the Executive under this
Agreement. "Disability," as used herein, shall mean the physical or mental
incapacity of the Executive which prevents him from substantially performing
his duties as President and Chief Executive Officer of the Company for a period
of at least 180 days and the incapacity is expected to be permanent and
continuous through the Executive's 65th birthday.
(d) Upon the death of the Executive, the Period
of Employment
- 8 -
<PAGE> 9
shall end immediately.
(e) If the employment of the Executive is
terminated by the Company for "cause," the Executive's salary (at the rate most
recently determined) together with reimbursement for expenses not previously
reimbursed shall be paid through the date of termination of employment, and the
Company shall have no further obligation to the Executive under this Agreement.
(f) If the employment of the Executive is
terminated by the Executive for "good reason" the Executive shall be entitled
to the same benefits he would receive under subparagraphs 8(b)A and B above, as
if his employment had been terminated by the Company under paragraph 8(b)
above; provided, however, the Executive shall have the option to have any
amounts due under subparagraph 8(A) paid in a lump sum rather than over a
period of time, discounted at the prime rate of interest published at that time
in the WALL STREET JOURNAL and computed over the time periods that the payments
would otherwise be paid if the Executive's employment was not terminated by him
for "good reason."
(g) "Cause" means (i) the continued failure by
the Executive to perform his material responsibilities and duties hereunder
(other than any such failure resulting from the Executive's incapacity due to
physical or mental illness), (ii) the engaging by the Executive in willful or
reckless conduct which is demonstrably injurious to the Company monetarily or
otherwise, (iii) the conviction of the Executive of a felony, or (iv) the
commission or omission of any act by the Executive that is materially inimical
- 9 -
<PAGE> 10
to the best interests of the Company and that constitutes on the part of the
Executive common law fraud or malfeasance, misfeasance or nonfeasance of duty;
provided, however, that "cause" shall not include the Executive's lack of
professional qualifications. For purposes of this subparagraph 8(g), an act, or
failure to act, on the Executive's part shall be considered "willful" or
"reckless" only if done, or omitted to be done, by him not in good faith and
without reasonable belief that his action or omission was in the best interest
of the Company. The Executive's employment shall not be deemed to have been
terminated for "cause" unless the Company shall have given or delivered to the
Executive (A) reasonable notice setting forth the reasons for the Company's
intention to terminate the Executive's employment for "cause," (B) a reasonable
opportunity, at any time during the thirty-day period after the Executive's
receipt of such notice, for the Executive, together with his counsel, to be
heard before the Board of Directors of the Company, and (C) a Notice of
Termination (as defined below) stating that, in the good faith opinion of not
less than a majority of the entire membership of the Board, the Executive was
guilty of the conduct set forth in clauses (i), (ii), (iii) or (iv) of the
first sentence of this subparagraph 8(g).
(h) "Good reason" shall mean any of the
following (i) any assignment to the Executive without his express written
consent of any material duties, functions, authority or responsibilities with
respect to the Company other than those contemplated by, or any material
limitation or expansion without the Executive's express written consent of the
material duties, functions, authority or responsibilities of the Executive with
respect to the Company in any respect not contemplated by,
- 10 -
<PAGE> 11
paragraph 3(a) hereof, any such assignment, limitation or expansion being
deemed a continuing breach of this Agreement, (ii) a reduction in the
Executive's annual salary or any other material failure by the Company to
comply with paragraph 4 hereof or (iii) failure by the Company to obtain the
assumption of, and the agreement to perform, this Agreement by any successor or
assign as contemplated in paragraph 15 hereof, and such assignment, limitation
or expansion described in the foregoing clause (i), reduction described in the
foregoing clause (ii) or failure described in the foregoing clauses (ii) or
(iii), as the case may be, is not cured within thirty (30) days after receipt
by the Company of written notice from the Executive describing such event, (iv)
any removal of the Executive from, or any failure to re-designate or re-elect
the Executive to the positions of President and Chief Executive Officer of the
Company, except in connection with termination of the Executive's employment
hereunder pursuant to paragraph 8(e) hereof, or (v) recurring interference with
the material functions, duties, authority or responsibilities of the Executive
with respect to the Company, or engaging in activities which are materially
disruptive to the management or employees of the Company or its subsidiaries or
unrequested participation or attempts to participate in daily operational
matters by any individual member of the Board or by any person acting under the
authority of a member of the Board of the Company, if such interference,
activities or participation is or are not discontinued within thirty (30) days
after receipt by the Company of written notice from the Executive describing
such conduct with particularity, and such continued interference, activity or
participation shall be deemed a continuing breach of this Agreement; provided
that in any event set forth
- 11 -
<PAGE> 12
in this subparagraph 8(h), the Executive shall have elected to terminate his
employment under this Agreement upon not less than thirty (30) days' advance
written notice to the Company, given, except in the case of a continuing
breach, within three calendar months after (A) failure to be so elected or
re-elected, or such removal, or (B) expiration of the thirty-day cure period
with respect to such event. An election by the Executive to terminate his
employment given under the provisions of this subparagraph 8(h) shall not be
deemed a voluntary termination of employment by the Executive for the purpose
of this Agreement or any plan or practice of the Company.
(i) Any termination by the Company for "cause"
shall be communicated by Notice of Termination to the Executive, and any
termination by the Executive for "good reason" shall be communicated by Notice
of Termination to the Company; in each instance the Notice of Termination shall
be given in accordance with paragraph 12 of this Agreement. For purposes of
this Agreement, a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision of this Agreement relied upon,
(ii) sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated and (iii) specifies the termination date (which date
shall, except as otherwise expressly provided herein, be not more than fifteen
(15) days after the giving of such notice). In the event of a termination by
the Company for "cause," the Notice of Termination shall not be effective
unless delivered in accordance with requirements set forth in the last sentence
of subparagraph 8(g).
- 12 -
<PAGE> 13
9. DISCLOSURE OF INFORMATION.
--------------------------
(a) The Executive will not at any time use or
disclose to any third party any confidential information or trade secrets
relating to the business of the Company, including business methods and
techniques, patents, copyrights, trade secrets, manufacturing know-how,
research data, marketing and sales information, customer lists, vendor lists,
investment strategies, compensation plans, pricing data, and any other
information concerning the business of the Company, its manner of operation,
its plans, or other information not disclosed to the general public or known in
the industries in which the Company is engaged (hereinafter collectively
referred to as "Confidential Information"), except for disclosure necessary for
the Executive to perform his duties hereunder and carry on the work of the
Company, or disclosure required by any law, rule, regulation or court order, or
disclosure which the Executive reasonably believes would subject him or the
Company to liability if not made. This covenant will survive the termination of
this Agreement.
(b) The Executive agrees to deliver promptly to
the Company on termination of his employment with the Company for any reason or
at any time the Company may so request all memoranda, notes, records, reports,
manuals, financial reports and documents relating to Confidential Information
and the Company's business which he may then possess or have under his control.
10. COVENANT NOT TO COMPETE.
------------------------
(a) The Executive will not, directly or
indirectly, own,
- 13 -
<PAGE> 14
manage, operate, control, or participate in the ownership, management,
operation, or control of, or be connected as an officer, employee, partner,
director, consultant, or otherwise with, or have any financial interest in, or
aid or assist anyone else in the conduct of, any business that is in
substantial competition with any business conducted by the Company or any of
its subsidiaries or affiliates during the period of the Executive's employment
with the Company or within sixty (60) days thereafter. Ownership of one percent
(1%) or less of the voting stock of any publicly held corporation shall not
constitute a violation of this paragraph.
(b) The Executive's covenant set forth in
paragraph 10(a) shall apply (i) during the Period of Employment, (ii) for a
period of one (1) year after the end of the Period of Employment or the
termination of the Executive's employment if the Executive terminates his
employment other than for "good reason," or the Company terminates his
employment for "cause," or (iii) for a period of six (6) months after the
termination of the Executive's employment by the Company for other than
"cause."
11. ENTIRE AGREEMENT.
The terms and provisions of this Agreement constitute the
entire agreement between the parties and supersede any previous oral or written
communications, representations, or agreements with respect to the subject
matter hereof.
- 14 -
<PAGE> 15
12. NOTICE.
-------
Any notices given hereunder shall be in writing and shall be
given by personal delivery or by certified or registered mail, return receipt
requested, addressed to:
If to the Company:
American Precision Industries Inc.
2777 Walden Avenue
Buffalo, New York 14225
Attention: Chairman of the Compensation
Committee of the Board of Directors
If to the Executive:
Mr. Kurt Wiedenhaupt
280 Carnoustie Road
East Aurora, New York 14052
- 15 -
<PAGE> 16
13. EXECUTIVE ASSIGNMENT.
---------------------
No interest of the Executive or his spouse or any
other beneficiary under this Agreement, or any right to receive any payments or
distributions hereunder, shall be subject in any manner to sale, transfer,
assignment, pledge, attachment, garnishment, or other alienation or encumbrance
of any kind, nor may such interest or right to receive a payment or
distribution be taken, voluntarily or involuntarily, for the satisfaction of
the obligations or debts of, or other claims against, the Executive or his
spouse or other beneficiary, including claims for alimony, support, separate
maintenance, and claims in bankruptcy proceedings.
14. WAIVER.
-------
No waiver by any party at any time of any breach
by another party of, or compliance with, any condition or provision of this
Agreement to be performed by the other party shall be deemed a waiver of any
other provisions or conditions at the same time or at any prior or subsequent
time.
- 16 -
<PAGE> 17
15. BINDING ON SUCCESSOR.
The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company and any "parent"
of the Company or any successor and without regard to the form of transaction
utilized to acquire the business or assets of the Company, to assume expressly
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession or
parentage had taken place. As used in this Agreement, "parent" means any entity
which directly or indirectly through one or more other entities owns or
controls more than 50% of the voting stock or common stock of the Company. As
used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid (and any
"parent" of the Company or any successor) which is required by this paragraph
to assume and agree to perform this Agreement or which otherwise assumes and
agrees to perform this Agreement.
16. APPLICABLE LAW.
---------------
This Agreement shall be construed and interpreted
in accordance with the internal substantive laws of the State of Delaware
without taking into account its laws on the conflict of law.
- 17 -
<PAGE> 18
17. ARBITRATION.
-----------
The Company and the Executive shall attempt to resolve
between them any dispute which arises hereunder. 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 Buffalo,
New York. The arbitrators shall apply Delaware law.
18. NO PAYMENTS WHILE IN DEFAULT.
-----------------------------
The Company shall not be required to make any
payments to the Executive otherwise required under this Agreement if prior to
or at the time such payment is due the Executive is in breach of his
obligations under paragraphs 9 or 10 of this Agreement.
19. DEFINITION OF AFFILIATE.
-----------------------
An "affiliate" of, or person "affiliated" with a specified
person, as used in this Agreement, shall mean a person that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, the person specified.
- 18 -
<PAGE> 19
20. AMENDMENT.
----------
This Agreement shall be amended only by a written document
signed by each party hereto.
- 19 -
<PAGE> 20
21. REDUCTION OF PARACHUTE PAYMENTS AND
EXCESSIVE EMPLOYEE REMUNERATION.
--------------------------------
(a) In the event that a determination is made by
the independent firm of public accountants regularly employed by the Company
that (i) the Executive would, except for this paragraph 21, be subject to the
excise tax provisions of Section 4999 of the Internal Revenue Code of 1986 (the
"Code"), or any successor sections thereof, as a result of a "parachute
payment" (as defined in Section 280G(b)(2)(A) of the Code) made by the Company
to the Executive pursuant to this Agreement or any other agreement, plan or
arrangement, or (2) a federal income tax deduction would not be allowed to the
Company for all or a part of such payments by reason of Section 280G(a) of the
Code (or any successor provision), the payments to which the Executive would
otherwise be entitled hereunder shall be reduced, eliminated, or postponed in
such amounts as are required to reduce the aggregate "present value" (as
defined in Section 280G(d)(4) of the Code) of such payments to one dollar less
than an amount equal to three times the Executive's "base amount" (as defined
in Sections 280G(b)(3)(A) and 280G(d)(1) and (2) of the Code), to the end that
the Executive is not subject to tax pursuant to such Section 4999 and no
deduction is disallowed by reason of such Section 280G(a). To achieve such
reduction in aggregate present value, the Executive shall determine which item
or items payable hereunder shall be reduced, eliminated, or postponed, the
amount of each such reduction, elimination, or postponement, and the period of
each postponement. The Company shall direct its independent public accountants
to review the payments made to the Executive and shall provide to the Executive
such information as is reasonably necessary for the Executive to make the
determinations contemplated in this
- 20 -
<PAGE> 21
paragraph.
(b) In the event that a determination is made by
the independent firm of public accountants regularly employed by the Company
that the Company would not be allowed to deduct remuneration payable to the
Executive as a result of the limits imposed by Section 162(m) of the Code, or
any successor sections thereof, the payments to which the Executive would
otherwise be entitled hereunder shall be reduced, eliminated, or postponed in
such amounts as are required to avoid the limits imposed by Section 162(m). The
procedures set forth in subparagraph 21(a) to accomplish such reduction,
elimination or postponement shall apply to this subparagraph 21(b).
22. INCONSISTENT PROVISIONS.
------------------------
In the event that there is any inconsistency or conflict
between the terms, provisions or conditions of this Agreement and the Change in
Control Agreement, the terms, provisions or conditions in the Change in Control
Agreement shall control.
IN WITNESS WHEREOF, the parties have executed this Executive
Employment Agreement on the dates set opposite their signatures below.
THE EXECUTIVE:
Dated: April 25, 1997 ______________________________
KURT WIEDENHAUPT
- 21 -
<PAGE> 22
AMERICAN PRECISION INDUSTRIES INC.
Dated: April 25, 1997 By_________________________________
DOUGLAS J. MacMASTER
Chairman of the
Compensation Committee
of the Board of Directors
Dated: April 25, 1997 By_________________________________
JOHN M. MURRAY
Vice President -
Finance and Treasurer
- 22 -
<PAGE> 1
EXHIBIT 11
----------
AMERICAN PRECISION INDUSTRIES INC.
COMPUTATION OF NET INCOME PER SHARE
(Shares and dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
-------------------------- --------------------------
October 3, September 27, October 3, September 27,
1997 1996 1997 1996
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
1.Net income $2,258 $1,736 $6,113 $4,708
====== ====== ====== ======
PRIMARY NET INCOME PER COMMON SHARE:
2.Weighted-average number of
common shares outstanding 7,412 7,207 7,365 7,176
3.Incremental shares -
Dilutive common stock options
and warrants 410 194 376 222
------ ------ ------ ------
4.Total 7,822 7,401 7,741 7,398
====== ====== ====== ======
5.Primary net income per common share
(1 divided by 2) $ 0.30* $ 0.24* $ 0.83 $ 0.66
====== ====== ====== ======
FULLY DILUTED NET INCOME PER COMMON SHARE:
6.Weighted-average number of 7,412 7,207 7,365 7,176
common shares outstanding
7.Incremental shares:
Dilutive common stock options
and warrants 432 194 432 228
8.Common equivalent shares from
assumed conversion of exchangeable
note and Series A Preferred stock 1,539 -- 513 --
------ ------ ------ ------
9.Total 9,383 7,401 8,310 7,404
====== ====== ====== ======
10.Fully diluted net income per common
share (1 divided by 9) $ 0.24 $ 0.23 $ 0.74 $ 0.64
====== ====== ====== ======
</TABLE>
* Net income per common share outstanding was used in the designated
calculations since the dilutive effect of common stock options was
not material.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000005657
<NAME> AMERICAN PRECISION INDUSTRIES INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-04-1997
<PERIOD-END> OCT-03-1997
<CASH> 3,884
<SECURITIES> 0
<RECEIVABLES> 36,466
<ALLOWANCES> 846
<INVENTORY> 37,035
<CURRENT-ASSETS> 83,260
<PP&E> 79,118
<DEPRECIATION> 24,434
<TOTAL-ASSETS> 166,081
<CURRENT-LIABILITIES> 51,496
<BONDS> 42,401
<COMMON> 5,197
21,156
0
<OTHER-SE> 43,089
<TOTAL-LIABILITY-AND-EQUITY> 166,081
<SALES> 130,429
<TOTAL-REVENUES> 130,521
<CGS> 90,461
<TOTAL-COSTS> 90,461
<OTHER-EXPENSES> 2,527
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,981
<INCOME-PRETAX> 8,960
<INCOME-TAX> 2,847
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,113
<EPS-PRIMARY> 0.83
<EPS-DILUTED> 0.74
</TABLE>
