<PAGE> 1
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 8, 1997
-----------------------------
AMERICAN PRECISION INDUSTRIES INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-5601 16-1284388
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer-
of incorporation) File Number) Identification No.)
2777 Walden Avenue, Buffalo, New York 14225
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (716) 684-9700
----------------------------
Not applicable
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
- --------------------------------------------------------------------------------
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
------------------------------------
On July 8, 1997, American Precision Industries Inc. (the
"Company") acquired 100% of the stock of Portescap, a Swiss
manufacturer of motors, from Inter Scan Holding Ltd. ("Inter
Scan"), a privately held company. After the closing, the Company
transferred all of the shares of Portescap to the Company's
wholly-owned subsidiary, API Motion Inc., which in turn contributed
these shares to its newly formed, wholly-owned subsidiary, API
Portescap Inc. The purchase price paid by the Company consisted of
a cash payment to Inter Scan of 5.5 million Swiss francs ($3.8
million), the issuance to Inter Scan of voting, convertible
preferred stock of the Company, with an initial liquidation value
of approximately $21.2 million, and a $5 million note of the
Company, which will automatically be exchanged for voting,
convertible preferred stock assuming that the Company's
shareholders approve both the authorization and issuance of those
shares of preferred stock and additional shares of Common Stock at
a special meeting to be held later this year. The preferred stock
issued to Inter Scan, including the shares to be issued in exchange
for the $5 million note, are convertible into the Company's common
stock at an initial conversion price of $17.00 per share (1,538,603
common shares). In addition to the consideration paid to Inter
Scan, the Company also purchased from two companies affiliated with
Inter Scan debt owed to them by Portescap in the amount of 1.8
million Swiss francs ($1.2 million).
<PAGE> 3
Prior to this acquisition, there were no relationships
between the Company and Inter Scan or any of their respective
affiliates. Effective at the closing, Holger Hjelm, a controlling
person of Inter Scan, was appointed to the Company's Board of
Directors. The cash portion of the purchase price was funded under
the Company's line of credit with Marine Midland Bank.
Included in this transaction are machinery and
equipment utilized by Portescap in the manufacture of micro-motors
and related components. The Company intends to utilize this
machinery for the same purpose.
The description of the terms of the transaction set forth
above is qualified in its entirety by the provisions of the Amended
and Restated Stock Purchase Agreement dated July 3, 1997 by and
among the Company, API Portescap Inc., Inter Scan, and Portescap,
which is filed as an Exhibit to this Form 8-K.
<PAGE> 4
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
<TABLE>
<CAPTION>
Page in
Document
--------
<S> <C>
(a) Financial Statements of Businesses Acquired F-31 to F-50
-------------------------------------------
- Audited consolidated financial statements of
Portescap for the years ended 31 December
1996 (including US GAAP reconciliation).
(b) Pro Forma Financial Information F-2
- Pro forma Combined Statement of Earnings (Unaudited) F-3 to F-4
Fiscal Year Ended January 3, 1997.
- Pro forma Combined Balance Sheet (Unaudited) as F-5 to F-7
of April 4, 1997.
- Pro forma Combined Statement of Earnings (Unaudited) F-8
Quarter Ended April 4, 1997.
(c) Exhibits
--------
(2) Amended and Restated Stock Purchase Agreement
dated July 3, 1997 by and among American Precision
Industries Inc., API Portescap Inc., Inter Scan
Holding Ltd. and Portescap, together with the
following Exhibits:
Exhibit 1.2(a)(i) -Terms of Convertible Preferred
Stock
Exhibit 1.2(a)(ii) - Form of Exchangeable
Promissory Note
Exhibit 5.1(d)(1) - Shareholder Agreement
Exhibit 5.1(d)(2) - Registration Agreement
(4) Certificate of Designation, Preferences and Rights
of Series A Seven Percent (7%) Cumulative
Convertible Preferred Stock filed with the
Secretary of State of the State of Delaware on
July 2, 1997.
(23) Consent of Independent Accountants dated July 18,
1997
</TABLE>
<PAGE> 5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
American Precision Industries Inc.
----------------------------------
(Registrant)
Date: July 21, 1997 /s/ John M. Murray
----------------------------------
Vice President - Finance
<PAGE> 6
Report of the Independent Auditors
to the Board of Directors of
PORTESCAP SA, LA CHAUX-DE-FONDS
Consolidated Financial Statements
for the years ended 31 December 1996
(including US GAAP reconciliation)
F-31
<PAGE> 7
REPORT OF THE INDEPENDENT AUDITORS TO THE BOARD OF DIRECTORS
We have audited the accompanying consolidated balance sheets of Portescap
SA (the Company) and subsidiaries as of 31 December 1996 and 1995, and the
related consolidated statements of income, cash flows and changes in
shareholder's equity for each of the years in the three-year period ended 31
December 1996. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards promulgated
by the profession in Switzerland and with International Standards on Auditing
issued by the International Federation of Accountants (IFAC), which standards
are substantially equivalent to auditing standards generally accepted in the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
and subsidiaries as of 31 December 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended 31 December 1996, in conformity with International Accounting Standards.
International Accounting Standards vary in certain significant respects
from accounting principles generally accepted in the United States. Application
of accounting principles generally accepted in the United States would have
affected results of operations for the years ended 31 December 1996 and 1995,
and shareholder's equity as of 31 December 1996 and 1995, to the extent
summarized in the section entitled "Summary of Differences Between
International Accounting Standards and United States Generally Accepted
Accounting Principles" to the consolidated financial statements.
KPMG Fides Peat
E. Ittensohn B. DeBlanc
Aarau, 3 June 1997
F-32
<PAGE> 8
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
TCHF TCHF
------ ------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash at banks and on hand.................................................. 3,251 1,540
Debtors.................................................................... 15,411 17,519
Inventories................................................................ 32,464 30,376
------ ------
51,126 49,435
====== ======
FIXED ASSETS
Intangible fixed assets.................................................... 246 280
Financial assets........................................................... 792 821
Tangible fixed assets...................................................... 16,372 17,049
------ ------
17,410 18,150
------ ------
68,536 67,585
====== ======
LIABILITIES
Creditors falling due within one year...................................... 25,226 27,829
Creditors falling due after more than one year............................. 14,964 16,695
Pension and other liabilities.............................................. 222 206
Share capital and reserves................................................. 28,124 22,855
------ ------
68,536 67,585
====== ======
Commitments and contingent liabilities..................................... -- --
</TABLE>
F-33
<PAGE> 9
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
TCHF TCHF TCHF
-------- -------- --------
<S> <C> <C> <C>
NET SALES.................................................. 92,197 85,358 78,638
Cost of sales.............................................. (60,673) (54,323) (52,212)
-------- -------- --------
GROSS PROFIT............................................... 31,524 31,035 26,426
======== ======== ========
Research and development................................... (2,340) (2,018) (2,211)
General and administration................................. (9,990) (11,703) (12,064)
Marketing and sales........................................ (12,287) (11,219) (11,671)
Other operating income..................................... 647 439 363
-------- -------- --------
OPERATING PROFIT........................................... 7,554 6,534 843
Financial income/(charges)................................. (2,039) (2,080) (2,224)
Exchange gains and losses, net............................. (14) 75 12
Taxes...................................................... (1,791) (1,494) (1,461)
-------- -------- --------
NET INCOME................................................. 3,710 3,035 (2,830)
======== ======== ========
</TABLE>
F-34
<PAGE> 10
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
TCHF TCHF TCHF
------ ------ ------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Consolidated net income (loss)................................... 3,710 3,035 (2,830)
Depreciation and other amounts written off -- tangible fixed
assets......................................................... 4,282 2,325 2,911
Depreciation and other amounts written off -- intangible fixed
assets......................................................... 34 35 35
Other items...................................................... 84 (64) 40
Changes in working capital:
Inventories...................................................... (1,379) (4,472) 5,056
Debtors.......................................................... 3,247 (2,220) (3,429)
Short term creditors............................................. (3,451) 3,731 (573)
Change in provisions............................................. 8 1 15
------ ------ ------
Total cash provided from operations.............................. 6,535 2,371 1,225
------ ------ ------
INVESTING ACTIVITIES
Purchases of fixed assets........................................ (3,101) (1,690) (2,326)
Purchases of financial assets.................................... -- (131) (1)
Proceeds from sales of fixed assets.............................. 54 106 140
Proceeds from sales of financial assets.......................... 47 187 186
------ ------ ------
Net effect of investing activities............................... (3,000) (1,528) (2,001)
------ ------ ------
FINANCING ACTIVITIES
Principal repayments on long-term loans.......................... (2,192) (1,507) (229)
Increases in long-term loans..................................... 237 250 1,123
------ ------ ------
Net effect of financing activities............................... (1,955) (1,257) 894
------ ------ ------
CHANGES IN CASH AT BANKS AND ON HAND............................. 1,580 (414) 118
Translation differences on cash at banks and on hand............. 131 (207) (123)
------ ------ ------
TOTAL CHANGES IN CASH AT BANKS AND ON HAND....................... 1,711 (621) (5)
====== ====== ======
</TABLE>
F-35
<PAGE> 11
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
CUMULATIVE
SHARE RETAINED RESTRICTED TRANSLATION
CAPITAL EARNINGS RESERVES ADJUSTMENTS TOTAL
TCHF TCHF TCHF TCHF TCHF
------- -------- ---------- ----------- ------
<S> <C> <C> <C> <C> <C>
Balance at 1 January 1994................ 11,200 12,464 1,081 137 24,882
Net income -- 1994....................... -- (2,830) -- -- (2,830)
Translation differences.................. -- -- -- (745) (745)
Transfers................................ -- (48) 48 -- --
------ ------ ----- ------ ------
Balance at 31 December 1994.............. 11,200 9,586 1,129 (608) 21,307
Net income -- 1995....................... -- 3,035 -- -- 3,035
Translation difference................... -- -- -- (1,487) (1,487)
Transfers................................ -- (19) 19 -- --
------ ------ ----- ------ ------
Balance at 31 December 1995.............. 11,200 12,602 1,148 (2,095) 22,855
Net income -- 1996....................... -- 3,710 3,710
Translation difference................... -- -- -- 1,559 1,559
Transfers................................ -- (19) 19 --
------ ------ ----- ------ ------
Balance at 31 December 1996.............. 11,200 16,293 1,167 (536) 28,124
====== ====== ===== ====== ======
</TABLE>
F-36
<PAGE> 12
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Business
The Group is controlled by Portescap SA, La Chaux-de-Fonds, a company
formed under the Swiss Code of Obligations (CO). Portescap SA, in turn, is a
subsidiary of Interscan Holding Ltd., a privately held company formed under the
Swiss Code of Obligations.
The Group is active in manufacturing and selling of micro-motors and
related components for use in the automation, medical, telecommunications,
aviation, computer periferals and instrumentation industries.
Consolidation policy
The Consolidated Balance Sheet, the Consolidated Income Statement, the
Consolidated Statement of Cash Flows, the Consolidated Statement of Changes in
Shareholder's Equity and the related notes constitute the consolidated financial
statements of the Group. The consolidated financial statements have been drawn
up in accordance with International Accounting Standards (IAS).
The financial data of the group companies in which the voting rights
exceeds 50% (subsidiaries) are included in the consolidated financial statements
in full. All intercompany balances and transactions, including intercompany
profits on inventory, have been eliminated. There were no minority interests for
the years presented in the consolidated financial statements.
All amounts contained within these consolidated financial statements are
stated in thousands of Swiss francs (TCHF) unless otherwise indicated.
Foreign currencies
For the purpose of consolidation, assets, provisions and liabilities of
companies whose financial data are denominated in foreign currencies are
translated at the rates of exchange existing at the balance sheet date; income
and expenses are translated at average rates that approximate the exchange rate
at the date of the transaction.
Transactions (income and expenditure) in foreign currencies are accounted
for at the current rates of exchange applicable upon occurrence.
Unless otherwise stated, exchange differences are credited or charged to
income.
Exchange differences relating to the equity value and intercompany
long-term loans of subsidiaries and associated companies, that are in effect an
extension of the parents' net investment, are credited or debited directly to
reserves. Exchange differences relating to trading intercompany balances are
included in net income.
Exchange gains and losses relating to the purchase or sale of goods are
charged to cost of sales or sales revenues on the basis that these are directly
related to those transactions.
General valuation policy
Unless otherwise indicated, assets and liabilities are stated at their
nominal values based on historical costs.
Assets, provisions and liabilities denominated in foreign currencies are
translated at the rates of exchange existing at the balance sheet date.
Taxation
In computing the tax liability, account is taken of taxes due as well as of
future tax liabilities resulting from profits consolidated through 31 December
1996.
F-37
<PAGE> 13
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
Deferred tax liabilities arising from temporary differences between the
capital and reserves computed in accordance with the accounting principles and
the equity computed in accordance with tax regulations are calculated based on
current tax rates. Deferred tax liabilities, however, are accrued only if they
are estimated to become payable in the foreseeable future.
When such differences are of a permanent nature, no provision is made for
deferred taxes. In this case it is assumed that the amounts in question will
never have to be paid, due to the continuity of the enterprise or for other
reasons.
Relief for the tax carry-back facilities is taken into account in the year
in which the loss is incurred. Relief arising from the tax carry-forward
facility is taken into account as soon as there is a tax profit against which
the tax loss in question may be offset.
No provisions are made for withholding and other non-recoverable taxes
which would arise for transfers of profit from the subsidiaries to the parent
company on the basis that there is no intention to transfer profits in the next
years.
ASSETS
Debtors
Current assets include debtors which by their nature usually fall due
within one year and loans with a contractual term of one year or less. Debtors
are stated net of provision for bad debts.
Inventories
Stocks of raw materials, consumables, semi-finished and finished products
and trade items are stated at the lower of purchase price/manufacturing cost
(determined using the "first-in first-out" inventory pricing method) or market
and net realizable values respectively.
Adjustments are directly debited to the value of inventories.
Manufacturing cost embody all costs including manufacturing overhead, but
excluding research and development, administrative, selling and financial
expenses. In the valuation of inventories, due account is taken of obsolete
goods.
Tangible fixed assets
Land is stated at cost and other tangible fixed assets at cost less
accumulated depreciation.
The Company capitalizes interest incurred on funds used to construct
tangible fixed assets. Interest capitalized during 1994, 1995 and 1996 was
immaterial.
Depreciation is generally computed using the straight-line method on the
basis of the anticipated economic lives of the assets. For machinery and
equipment this is generally 3 to 10 years and for offices and industrial
buildings 25 to 50 years.
Intangible fixed assets
Patents and trade marks are not capitalized as they result mainly from
internal research and development. In 1993, internal engineering expenses
relating to the industrialisation of a new product line have been capitalised
and are being depreciated, straight-line, over 10 years.
LIABILITIES AND PROVISIONS
Creditors
Liabilities and accrued expenses due within one year are classified as
short term.
F-38
<PAGE> 14
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
Pension costs and retirement plans
Most of the subsidiaries operate their own pension schemes, mainly legally
independent from the Group. Generally, they are funded by employees' and
employer's contributions.
The Group adopted the revised IAS 19 for pension plans as of 1 January 1995
and performed actuarial valuations as of this date. The cumulative effect of the
change in accounting principle is disclosed in the notes as a transitional
amount and will be recognised into income over a period not exceeding the
expected remaining working lives of the participating employees.
Provisions
Appropriate provisions are established for warranties based upon estimates
of warranty claims on goods sold through year end.
PROFITS AND LOSSES
Net sales
Net sales correspond to the invoiced amounts for goods delivered and
services rendered to third parties, excluding sales taxes and other similar
charges.
Cost of sales
Cost of sales correspond to manufacturing cost of the products included in
the net sales.
RESEARCH AND DEVELOPMENT ACTIVITIES
Research and development expenses are expensed when incurred. These include
salaries, wages and other related personnel expenses, the cost of materials and
services consumed, the depreciation of equipment and facilities to the extent
they are used for these activities and the overhead and other expenses related
to research and development activities.
F-39
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CASH AT BANKS AND ON HAND
Cash at banks and on hand comprises cash and bank account balances. Of the
total of TCHF 3,251, TCHF 832 were denominated in Swiss francs (1995: TCHF 404).
DEBTORS
Debtors at 31 December 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
TCHF TCHF
------ ------
<S> <C> <C>
Trade receivables.................................................. 12,766 13,665
Other receivables.................................................. 1,612 1,588
Prepaid expenses................................................... 1,033 2,266
------ ------
15,411 17,519
====== ======
</TABLE>
Trade receivables include TCHF 5,632 pledged by Portescap SA, La
Chaux-de-Fonds, under a syndicated loan agreement with Swiss banks.
INVENTORIES
Inventories at 31 December 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
TCHF TCHF
------ ------
<S> <C> <C>
At parent, manufacturing........................................... 25,845 24,718
At Portescap (UK) Ltd, Ringwood, manufacturing..................... 2,446 1,513
At other subsidiaries, selling..................................... 4,173 4,145
------ ------
32,464 30,376
====== ======
</TABLE>
The aforementioned (note 4.2) syndicated loan agreement includes pledges of
a nonidentified amount of work-in-progress owned by Portescap SA, La
Chaux-de-Fonds.
INTANGIBLE FIXED ASSETS
This item represents the remaining unamortized book value of capitalised
internal engineering expenses relating to the industrialisation of a new product
line. Related investments in tangible fixed assets are included under
"industrial equipment". The amount originally capitalized as well as accumulated
depreciation as of 31 December 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
TCHF TCHF
---- ----
<S> <C> <C>
Amount capitalised................................................... 350 350
Accumulated amortization............................................. (104) (70)
---- ---
Net book value....................................................... 246 280
==== ===
</TABLE>
F-40
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
FINANCIAL ASSETS
Movements in financial assets were as follows during 1996:
<TABLE>
<CAPTION>
OTHER OTHER
INVESTMENTS LOANS TOTAL
TCHF TCHF TCHF
----------- ---- ----
<S> <C> <C> <C>
Book value at 1 January 1996............................. 48 773 821
Movements in 1996:
Decrease of long term loans.............................. -- (46) (46)
Effect of changes in rates of exchange................... -- 17 17
-- --- ---
Book value at 31 December 1996........................... 48 744 792
== === ===
</TABLE>
F-41
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
TANGIBLE FIXED ASSETS
The movements in fixed assets from 1 January 1995 through 31 December 1996
are as follows:
<TABLE>
<CAPTION>
OFFICE
LAND EQUIPMENT,
AND INDUSTRIAL COMPUTERS, ASSETS UNDER
BUILDINGS EQUIPMENT FURNITURE CONSTRUCTION TOTAL
TCHF TCHF TCHF TCHF TCHF
--------- ---------- --------- ------------ ------
<S> <C> <C> <C> <C> <C>
1995 ROLLFORWARD
Historical cost at 1 January 1995...... 11,812 30,912 5,525 485 48,734
Purchases............................ 16 385 399 373 1,173
Self constructed assets.............. -- 517 -- -- 517
Acquisition value of items sold...... (148) (132) (445) -- (725)
Translation effect................ (334) (1,256) (203) -- (1,793)
------ ------ ----- ----- ------
Historical cost at 31 December 1995.... 11,346 30,426 5,276 858 47,906
------ ------ ----- ----- ------
ACCUMULATED DEPRECIATION
Accumulated depreciation at 1 January
1995................................. 4,369 21,706 4,514 -- 30,589
Ordinary depreciation current year... 198 1,621 506 -- 2,325
Accumulated depreciation of items
sold............................... (64) (119) (436) -- (619)
Translation effect................ (84) (1,191) (163) -- (1,438)
------ ------ ----- ----- ------
Accumulated depreciation at 31 December
95................................... 4,419 22,017 4,421 -- 30,857
------ ------ ----- ----- ------
Net Book Value at 31 December 1995..... 6,927 8,409 855 858 17,049
====== ====== ===== ===== ======
1996 ROLLFORWARD
Historical cost at 1 January 1996...... 11,346 30,426 5,276 858 47,906
Purchases............................ -- 1,677 507 160 2,344
Self constructed assets.............. -- 755 -- -- 755
Acquisition value of items sold...... -- (112) (606) -- (718)
Translation effect................ 411 340 363 -- 1,114
------ ------ ----- ----- ------
Historical cost at 31 December 1996.... 11,757 33,086 5,540 1,018 51,401
------ ------ ----- ----- ------
ACCUMULATED DEPRECIATION
Accumulated depreciation at 1 January
1996................................. 4,419 22,017 4,421 -- 30,857
Ordinary depreciation current year... 202 3389 466 225 4,282
Accumulated depreciation of items
sold............................... -- (111) (554) -- (665)
Translation effect................ 20 233 302 -- 555
------ ------ ----- ----- ------
Accumulated depreciation at 31 December
96................................... 4,641 25,528 4,635 225 35,029
------ ------ ----- ----- ------
Net Book Value at 31 December 1996..... 7,116 7,558 905 793 16,372
====== ====== ===== ===== ======
</TABLE>
F-42
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
CREDITORS FALLING DUE WITHIN ONE YEAR
Creditors falling due within one year were as follows as of 31 December
1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
TCHF TCHF
------ ------
<S> <C> <C>
Bank loans and overdrafts.......................................... 12,614 12,794
Advances from customers............................................ 94 203
Trade creditors.................................................... 4,747 7,327
Tax liabilities.................................................... 1,753 1,123
Other creditors.................................................... 3,617 2,955
Accrued expenses................................................... 2,401 3,427
------ ------
25,226 27,829
====== ======
</TABLE>
Included in bank loans and overdrafts is an amount of TCHF 750 from a
related party in 1996 and 1995.
Bank loans and overdrafts bear interest at rates ranging from 5.75% to
10.0%.
CREDITORS FALLING DUE AFTER MORE THAN ONE YEAR
Creditors falling due after more than one year were as follows as of 31
December 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
TCHF TCHF
------ ------
<S> <C> <C>
Loans from credit institutions
Mortgage loans................................................... 11,439 11,959
Other long-term loans............................................ 2,175 3,548
Others............................................................. 1,350 1,188
------ ------
14,964 16,695
====== ======
</TABLE>
The principal amounts owed to credit institutions are denominated in Swiss
Francs. Included within other long-term loans is TCHF 1,000 from related
parties.
Land and buildings have been pledged as security for long-term mortgage
loans which are charged interest at amounts ranging from 5.25% to 6.75%. A
breakdown of the book value of mortgage loans by subsidiary follows:
<TABLE>
<CAPTION>
1996 1995
COMPANY NAME MATURITY TCHF TCHF
-------------------------------------------- ------------------------ ------ ------
<S> <C> <C> <C>
Portescap SA, Switzerland................... unlimited, callable 3-6 10,349 10,967
Portescap (UK) Ltd.......................... months through 2008 938 835
Portescap Deutschland GmbH.................. through 1999 152 157
------ ------
11,439 11,959
====== ======
</TABLE>
The other long-term loans are charged interest ranging from 2.0% to 8.0%
per annum and have maturity dates through 2008.
F-43
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
PENSION AND OTHER LIABILITIES
Pension and other liabilities were as follows during 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
TCHF TCHF
---- ----
<S> <C> <C>
Pension liabilities.................................................. 222 194
Other................................................................ -- 12
--- ---
222 206
=== ===
</TABLE>
The Group sponsors pension plans according to the national regulations of
the countries in which it operates. Certain plans provide defined benefits on
retirement. For these plans, the benefits are primarily based on years of
service and the employee's compensation for certain periods during the last
years of employment.
As of 1 January 1995 the Group has adopted the revised IAS 19 on Retirement
Benefits Costs. As of this date, actuarial valuations were performed for all
defined benefits plans using the "Projected unit credit" Method. The cumulative
effect of this change in accounting policy resulted in a net excess of projected
benefits obligations over plan assets. This transitional amount of TCHF 2,032
has not been recorded as a liability in the Group's accounts but will be
recognized over a period not exceeding the expected remaining working lives of
the participating employees (estimated at 14 years).
Within the Group, the Swiss pension plan is the most significant defined
benefit plan. This plan is an independent legal fund which is controlled by the
Board of Plan Trustees.
This Board is, in turn, represented by 50% employee representatives and 50%
employer representatives (i.e. parity). Only this Board has the capacity to
institute changes to the plan.
A policy has been established whereby actuarial valuations will be
performed on a three-year basis and rollforwards will be conducted as at 31
December each year during the intervening period.
The assumptions used in the actuarial valuations are according to the
underlying national economic conditions of the respective countries as follows:
<TABLE>
<S> <C>
- Discount rate........................................................... 4.5%
- Expected long-term rates of return on plan assets....................... 5.0%
- Annual cost-of-living increases in pensions............................. 1.5%
- Rates of increases in compensation levels............................... 2.5-3.5%
</TABLE>
Pension costs are funded on an ongoing basis within national regulatory
limitations. By the end of 1995 the Swiss plan, which is the only material
defined benefit plan within the Group, had a positive funding status (i.e. Fair
Value of Plan Assets in excess of the Projected Benefit Obligation). The funded
status of the major defined benefit plans was as follows as of 31 December 1996
and 1995:
<TABLE>
<CAPTION>
1996 1995
TCHF TCHF
------- -------
<S> <C> <C>
Projected benefits obligation............................................ (64,936) (62,953)
Plan assets at fair value................................................ 70,330 63,390
------- -------
Plan assets in excess of projected benefit obligation.................... 5,394 437
Unrecognized net gain from past experience different from that assumed... (6,563) (2,086)
Unrecognized net obligation at 1 January 1995 being recognized over 14
years.................................................................. 1,742 1,887
------- -------
Prepaid pension cost..................................................... 573 237
======= =======
</TABLE>
F-44
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
For the years 1996 and 1995, the actual company contributions exceeded the
net periodic pension costs after deducting employee contributions. These excess
amounts totalling TCHF 573 and TCHF 237, respectively have been established as
prepaid assets and then fully provided for in the same balance sheet position.
These amounts are provided for since any such excess funds are only allowed by
law to be used for the benefits of the plan participants.
Net periodic pension cost and company pension expense for the Group's
significant defined benefit plans consists of the following for the years ended
31 December 1996 and 1995. No comparative figures are available for 1994 as IAS
19 was adopted as of 1 January 1995:
<TABLE>
<CAPTION>
1996 1995
TCHF TCHF
------ ------
<S> <C> <C>
Service costs...................................................... 2,923 2,776
Interest cost on PBO............................................... 2,750 2,653
Actual return on plan assets....................................... (3,077) (2,846)
Net amortization and deferral...................................... 145 145
------ ------
Net periodic pension cost.......................................... 2,741 2,728
====== ======
</TABLE>
In Switzerland, the pension plan calls for both the employees and the
employer to make contributions to the pension plan. In order to arrive at the
pension expense recorded in the income statement, it is necessary to deduct
these employee contributions which amounted to TCHF 1,230 and TCHF 1,186 for the
years 1996 and 1995, respectively.
Total costs recognized in conjunction with plans classified as defined
contributions plans amounted to TCHF 229 and TCHF 218 during 1996 and 1995,
respectively.
SHARE CAPITAL AND RESERVES
The outstanding share capital as of 31 December 1996 and 1995 amounted to:
<TABLE>
<CAPTION>
1996 1995
TCHF TCHF
------ ------
<S> <C> <C>
The share capital is structured as follows:
11,000 shares with a nominal value of CHF 500.................... 5,500 5,500
57,000 shares with a nominal value of CHF 100.................... 5,700 5,700
------ ------
Nominal value of share capital..................................... 11,200 11,200
====== ======
</TABLE>
The voting right is based on the number of shares.
The consolidated statement of changes in shareholder's equity reflects the
movements in the other components of shareholder's equity.
CONTINGENT LIABILITIES
Several years ago, an investigation was started in the United States by the
Environmental Protection Agency (EPA) relating to the alleged release of
contaminating substances by Transicoil, a former subsidiary of Portescap.
Transicoil is now owned by Eagle Picher, which is in bankruptcy. An
investigation of the site, performed by independent consultants at the request
of the EPA, revealed the presence of contamination.
Portescap U.S. Inc. has been designated by the EPA as a potentially
responsible party (PRP) at this site. Applicable federal law in the United
States imposes joint and several liability on each PRP for the cleanup of this
site leaving the Company with the uncertainty that it may be responsible for the
remediation cost attributable to other PRPs who are unable to pay their share of
the remediation costs. The Company is
F-45
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
participating with other PRPs at all such sites, and anticipates that its share
of the cleanup costs as determined pursuant to remedial agreements entered into
in the normal course of negotiations with the EPA or other governmental
authorities will be minimal.
The Group estimates its absolute maximum share of the total cost of
remediation of the site at USD 250,000, however, that the chances of paying this
amount are extremely remote. For this reason, no accrual has been established in
these consolidated financial statements. Management of Portescap has not
provided for the potential claim in the financials for the years ended 31
December 1996 and 1995 because the likelihood of an unfavorable outcome was not
then known.
In addition, no accrual has been made under the joint and several liability
concept since the Company believes that the probability that it will have to pay
material costs above its share is remote due to the fact that the other PRPs
have substantial assets available to satisfy their potential obligation.
In addition, the Group assumes contingent liabilities emanating from the
ordinary conduct of its business, such as liabilities from the discount of
bills, liabilities from product warranty as well as liabilities resulting from
rental and lease agreements.
AMOUNTS COMMITTED FOR FUTURE EXPENDITURE
The Group's total commitment under non-cancellable operating leases are as
follows as of 31 December 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
TCHF TCHF
---- ----
<S> <C> <C>
Operating leases which expire:
Within one year.................................................... 354 431
Within two to five years........................................... 340 461
In more than five years............................................ 8 8
--- ---
702 900
=== ===
</TABLE>
NET SALES
Net sales consist principally of products manufactured by Portescap. The
geographical break down of net sales is as follows for the years ended 31
December 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
TCHF TCHF TCHF
------ ------ ------
<S> <C> <C> <C>
Switzerland.............................................. 11,530 10,974 9,368
Germany.................................................. 20,098 20,324 18,350
France................................................... 8,184 8,112 7,807
United Kingdom........................................... 13,080 10,955 10,713
Sweden................................................... 1,935 1,832 1,617
Other EU countries....................................... 11,084 8,996 6,713
Other non EU european countries.......................... 852 1,036 2,481
United States of America, Canada, Mexico................. 17,798 14,926 15,053
Other America............................................ 7 40 116
Japan.................................................... 6,035 6,692 5,641
Other countries.......................................... 1,594 1,471 779
------ ------ ------
92,197 85,358 78,638
====== ====== ======
</TABLE>
OTHER OPERATING INCOME
Other operating income is derived essentially from shipping and insurance
invoiced to customers.
F-46
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
FINANCIAL INCOME AND CHARGES
Financial income and charges amounted to the following for the years ended
31 December 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
TCHF TCHF TCHF
------ ------ ------
<S> <C> <C> <C>
Financial income......................................... 55 104 67
Discounts obtained....................................... 21 26 9
Interest charges......................................... (1,746) (1,794) (1,966)
Discounts granted to customers........................... (354) (342) (319)
Other financial charges.................................. (15) (74) (15)
------ ------ ------
(2,039) (2,080) (2,224)
====== ====== ======
</TABLE>
EXCHANGE GAINS AND LOSSES
Exchange gains and losses included in income for the years ended 31
December 1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
TCHF TCHF TCHF
---- ---- ----
<S> <C> <C> <C>
Exchange gains.............................................. 27 77 32
Exchange losses............................................. (41) (2) (20)
--
--- ---
(14) 75 12
=== == ===
</TABLE>
TAXES
The detail of income tax expense is as follows for the years ended 31
December 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
TCHF TCHF TCHF
----- ----- -----
<S> <C> <C> <C>
Capital taxes............................................... 181 119 140
Taxes on current profits.................................... 1,541 1,357 1,225
Non-recoverable withholding taxes and other................. 69 18 96
----- ----- -----
1,791 1,494 1,461
===== ===== =====
</TABLE>
Accumulated tax loss carry-forwards from own and acquired units have
developed as follows:
<TABLE>
<CAPTION>
TAX LOSS ESTIMATED
CARRY-FORWARDS TAX SAVINGS
TCHF TCHF
-------------- -----------
<S> <C> <C>
31 December 1994............................................ 9,236 2,492
used in 1995................................................ (3,801) (1,057)
------- --------
31 December 1995............................................ 5,435 1,435
used in 1996................................................ (2,023) (475)
------- --------
31 December 1996............................................ 3,412 960
======= ========
</TABLE>
These tax losses have not been recognized as a debit to deferred tax as
their recovery is not assured beyond a reasonable doubt. These loss
carry-forwards are expiring through 2001.
The overall anticipated income tax rate for the Portescap Group is 34%. The
effective income tax rate for 1996 and 1995 amounted to 28% and 30%,
respectively. The main reason for the difference between the anticipated rate
and the effective rates has to do with the ability of the Group to utilize tax
loss carryforwards
F-47
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
during 1996 and 1995 as well as the inclusion of certain items of revenue and
expense in the accounting income that do not coincide with the period in which
they are included in taxable income. The income tax expense in 1994 relates
mainly to taxable income realised in the foreign subsidiaries.
F-48
<PAGE> 24
LIST OF SUBSIDIARIES OF PORTESCAP SA, LA CHAUX-DE-FONDS, AT 31 DECEMBER 1996
<TABLE>
<S> <C> <C>
Name of subsidiary Location % held
Portescap International SA La Chaux-de-Fonds, Switzerland 100
Portescap (UK) Ltd. Ringwood, UK 100
G.J. Harris Ltd. (dormant) Ringwood, UK 100
Portescap U.S. Inc. Hauppauge, USA 100
Portescap Deutschland GmbH Pforzheim, Germany 100
Portescap France S.A. Creteil, France 100
Portescap Japan Ltd. Tokyo, Japan 100
Portescap Scandinavia AB Stockholm, Sweden 100
Portescap Polska Sp.zo.o. Warszawa, Poland 100
</TABLE>
SUMMARY OF DIFFERENCES BETWEEN INTERNATIONAL ACCOUNTING STANDARDS AND UNITED
STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
DESCRIPTION OF DIFFERENCES
A description of the accounting principles that differ in certain
significant respects from United States generally accepted accounting principles
("US GAAP") follows:
Taxation
The Group identifies and considers all temporary differences between the
financial and tax bases of assets and liabilities in its calculations of
deferred taxes. However, under the present IAS 12, deferred tax assets and
liabilities are only established for those differences which are expected to
reverse in the foreseeable future (typically defined as three years). Deferred
tax assets are established for deductible temporary differences or on tax loss
carryforwards for which there is a reasonable expectation of realization. US
GAAP requires deferred tax assets and liabilities be established on a
comprehensive basis on substantially all such temporary differences based upon
tax rates expected to be in effect when the temporary differences reverse. A
valuation allowance is established for any deferred tax asset for which
realization is not likely.
Goodwill
The purchase of the Group in 1990 by an outside investor resulted in an
excess of cost over the net assets of the Group on the acquisition date. Under
IAS 22, such excess is not required to be reported on the financial statements
of the acquired entity, and until 1995, would be written off directly by the
parent company to equity. Reporting guidelines of the Securities and Exchange
Commission require that on stand-alone financial statements of an acquired
entity such excess be capitalized and presented as excess fair market value of
assets acquired and the remainder as goodwill and that both be appropriately
depreciated and amortized, respectively. The goodwill is amortized using the
straight-line method over a period of 20 years and the necessity for write-downs
due to a permanent impairment in value is also considered. The excess fair
market value is depreciated on a straight-line basis over 40 years in line with
the Group's depreciation policy.
Intangible Assets
In 1993, the Group capitalized certain manufacturing development costs
associated with the commercialization of a new product line. Under US GAAP,
these costs would qualify as research and development costs for which
capitalization is not permitted. Accordingly, the applicable end of year balance
and related amortization are reversed.
Retirement Benefit Plans
As mentioned in note 9 to these financial statements, the Company adopted
IAS 19 in accounting for its retirement benefit plans beginning 1 January 1995.
In addition, the project unit credit method required by FAS 87 was also used in
calculating the pension liability. The transition amount as of the adoption date
is
F-49
<PAGE> 25
SUMMARY OF DIFFERENCES BETWEEN INTERNATIONAL ACCOUNTING STANDARDS AND UNITED
STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES -- CONTINUED
being amortized over the expected future service periods of the employees from 1
January 1995. US GAAP would have required that FAS 87 be adopted as of 1 January
1989. An adjustment is, therefore, required to reflect the amortization of the
transition liability as if FAS 87 had been applied from 1 January 1989.
Numerical reconciliation
Application of US GAAP would have the following effect on shareholder's
equity and net income as of and for the years ended 31 December 1996 and 1995:
Effect on net income
<TABLE>
<CAPTION>
1996 1995
TCHF TCHF
----- -----
<S> <C> <C>
Net income under IAS as reported..................................... 3,710 3,035
Increase (decrease) for:
Deferred taxes....................................................... (835) (920)
Purchase accounting -- pushdown Goodwill............................. (758) (759)
Excess of fair market value of fixed assets........................ (521) (521)
Capitalization of intangible assets.................................. 34 35
Retirement Benefit Plans............................................. 336 238
Tax effect of U.S. GAAP adjustments.................................. 45 74
----- -----
Net income in accordance with U.S. GAAP.............................. 2,011 1,182
===== =====
</TABLE>
Effect on shareholder's equity
<TABLE>
<CAPTION>
1996 1995
TCHF TCHF
------ ------
<S> <C> <C>
Shareholder's equity as reported in IAS accounts................... 28,124 22,855
Increase (decrease) for:
Deferred taxes..................................................... 1,331 2,166
Purchase accounting -- pushdown Goodwill........................... 10,622 11,380
Excess of fair market value of fixed assets...................... 8,827 9,348
Capitalization of intangible assets................................ (246) (280)
Retirement Benefit Plans........................................... (296) (632)
Tax effect of U.S. GAAP adjustments................................ (2,486) (2,531)
------ ------
45,876 42,306
====== ======
</TABLE>
F-50
<PAGE> 26
PRO FORMA FINANCIAL STATEMENTS
On July 8, 1997, American Precision Industries Inc. ("API" or the
"Company") completed its acquisition of Portescap, a manufacturer of motors and
other precision motion control products, from Inter Scan Holding Ltd. ("Inter
Scan"), a Swiss holding company. The purchase price paid by API consisted of a
cash payment to Inter Scan of 5.5 million Swiss francs ($3.8 million), the
issuance to Inter Scan of preferred stock of API, with an initial liquidation
value of approximately $21.2 million, and a $5 million note of API, which will
automatically be exchanged for API preferred stock following API shareholders'
approval of those shares of preferred stock at a special meeting which must be
held prior to May 1, 1998. The preferred stock issued to Inter Scan, including
the shares to be issued in exchange for the $5 million note, are convertible
into API common stock at $17.00 per share (1,538,602 shares). In addition to the
consideration paid to Inter Scan, API also purchased from two companies
affiliated with Inter Scan debt owed to them by Portescap in the amount of 1.8
million Swiss francs ($1.2 million).
The following unaudited pro forma financial statements give effect to the
acquisition by API of all of the shares of Portescap held by Inter Scan in a
transaction accounted for as a purchase. The unaudited pro forma combined
balance sheet is based upon the individual balance sheets of API as of April 4,
1997 and Portescap as of March 31, 1997 and has been prepared to reflect the
acquisition of Portescap as of April 4, 1997. The unaudited pro forma combined
statements of earnings are based upon the individual statements of income of API
and Portescap and combine the results of operations of API and Portescap for the
periods ended April 4, 1997 and January 3, 1997 as if the acquisition had
occurred at the beginning of those periods, respectively.
The Company has made a preliminary determination and allocation of the
purchase price. Such amounts will be finalized upon additional analysis and
asset valuation determinations to be made by the Company with assistance from an
outside appraisal firm. The final changes will be recorded in fiscal 1997, and
are not expected to have a material impact on the pro forma combined balance
sheet or pro forma combined statements of earnings presented herein.
The financial statements of Portescap have been converted from Swiss francs
(CHF) to U.S. dollars using the average exchange rate for the relevant period
for the Pro Forma Combined Statements of Earnings and the exchange rate on April
4, 1997 for the Pro Forma Combined Balance Sheet.
The pro forma amounts do not purport to be indicative of the results that
actually would have been obtained had the transaction identified above actually
taken place at the beginning of each of the periods, nor are they intended to be
a projection of future results.
Portescap's customer orders began to decline in early 1996, and backlog
diminished throughout 1996, resulting in a 12% reduction in sales in the first
quarter of 1997 as compared to the first quarter of 1996. Further, some of the
products shipped from the inventory of Portescap's foreign subsidiaries were not
replenished, lowering inventory levels in the subsidiaries over the quarter by
9%. As a result, the level of production in Switzerland was reduced without a
commensurate reduction in manufacturing costs and overhead. The decline in
orders and sales and the reduced production level were the primary causes of the
net loss incurred by Portescap in the first quarter of 1997.
This adverse trend in orders and backlog was reversed in January 1997, and
backlog has improved in each of the months of February through June 1997.
API assumed responsibility for the day-to-day management of Portescap's
operations on April 11, 1997. During the second quarter, a long-range strategy
for Portescap was developed, the organizational structure was streamlined, and
cost reduction opportunities were identified, which management of API believes
will improve the outlook for Portescap for the third and fourth quarters of
1997.
F-2
<PAGE> 27
AMERICAN PRECISION INDUSTRIES INC.
PRO FORMA COMBINED STATEMENT OF EARNINGS (UNAUDITED)
FISCAL YEAR ENDED JANUARY 3, 1997
<TABLE>
<CAPTION>
PRO FORMA (NOTE 3)
----------------------------------------------------------------
US GAAP ACQUISITION AS
ADJUSTMENTS ADJUSTMENTS AS ADJUSTED
API PORTESCAP (NOTE 1) (NOTE 2) COMBINED ADJUSTED COMBINED
-------- --------- ----------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NET SALES........................... $116,783 $75,281 $ -- $ -- $192,064 $ -- $192,064
INVESTMENT INCOME................... 327 327 327
-------- ------- ------- ------- -------- ------ --------
REVENUES............................ 117,110 75,281 192,391 192,391
-------- ------- ------- ------- -------- ------ --------
COSTS AND EXPENSES:
Cost of products sold............. 77,652 49,733 (275) (1,133)(a) 126,343 126,343
366 (d)
Selling and administrative........ 26,410 18,260 427 (317)(b) 44,488 44,488
135 (d)
(427)(c)
Research and product
development..................... 1,759 1,918 (28) 3,649 3,649
Goodwill amortization............. 621 462 (e) 462 462
(621)(c)
Other income...................... (580) (580) (580)
Exchange gains and losses......... 11 11 11
Interest and debt expense......... 1,295 1,431 426 (f) 3,152 3,152
-------- ------- ------- ------- -------- ------ --------
107,116 70,773 745 (1,109) 177,525 177,525
-------- ------- ------- ------- -------- ------ --------
EARNINGS BEFORE INCOME TAXES........ 9,994 4,508 (745) 1,109 14,866 14,866
INCOME TAXES........................ 3,469 1,468 (37) 555 (g) 6,139 6,139
684
-------- ------- ------- ------- -------- ------ --------
NET EARNINGS........................ $ 6,525 $ 3,040 $(1,392) $ 554 $ 8,727 $ 8,727
======== ======= ======= ======= ======== ====== ========
NET EARNINGS PER COMMON SHARE....... $ 0.91 $ 1.00
======== ========
NET EARNINGS PER COMMON SHARE --
FULLY DILUTED..................... $ 0.86 $ 0.95
======== ========
AVERAGE COMMON SHARES OUTSTANDING... 7,190 1,539 (h) 8,729
======== ====== ========
AVERAGE COMMON SHARES OUTSTANDING --
FULLY DILUTED..................... 7,605 1,589 (h) 9,194
======== ====== ========
</TABLE>
NOTE 1
The pro forma combined statement of earnings (unaudited) has been prepared to
include adjustments to conform to U.S. Generally Accepted Accounting Principles.
For the details relating to these adjustments, reference should be made to the
"Summary of Differences between International Accounting Standards and United
States Generally Accepted Accounting Principles" contained in Note 6 to the
Portescap Consolidated Financial Statements for the years ended 31 December 1996
included elsewhere herein.
NOTE 2
The pro forma combined statement of earnings (unaudited) has been prepared to
reflect the acquisition of Portescap by API. Pro forma adjustments are made to:
(a) Reflect as a prior period adjustment additional depreciation expense which
pertains to years prior to 1996.
(b) Eliminate certain discretionary management fees paid to Inter Scan which do
not relate to any specific services provided and therefore do not reflect
cost or expense which will be incurred by API or Portescap after the
acquisition.
(c) Eliminate the push-down goodwill and depreciation which resulted from the
acquisition of Portescap by Inter Scan in 1990. In evaluating the fair value
of the Portescap assets, no value was assigned to the goodwill which
resulted from the previous acquisition.
F-3
<PAGE> 28
(d) Adjust depreciation based on estimated fair value of assets over estimated
lives.
(e) Amortize goodwill over 30 years.
(f) Reflect interest expense on funds borrowed for the cash portion of the
purchase price. The rate of interest on the debt is variable and a
one-eighth of one percent change in the interest rate would have an $8,000
impact on interest expense per annum on a pre-tax basis.
(g) Reflect income taxes on acquisition adjustments.
(h) Reflect the total number of API common shares to be issued to Inter Scan in
connection with the acquisition, as follows:
(A) Shares issued upon conversion of the preferred stock issued to Inter
Scan at the closing of the transaction; plus
(B) Following API shareholder approval of the increase in authorized common
and preferred stock, shares issued to Inter Scan after the exchange of
the note for preferred stock and upon conversion of that preferred stock.
The pro forma shares outstanding for the fully diluted calculation include
warrants to acquire 50,000 shares of API common stock issued to API's investment
banker in connection with the Portescap acquisition.
NOTE 3
On January 31, 1997, API Schmidt-Bretten GmbH, a wholly-owned subsidiary of API,
acquired all of the shares of Schmidt-Bretten GmbH in a transaction accounted
for as a purchase. The unaudited pro forma combined statement of earnings for
the year ended January 3, 1997 does not give effect to the acquisition of
Schmidt-Bretten GmbH since the acquisition does not meet the "significant
subsidiary" criteria test pursuant to Article 11 of Regulation S-X.
F-4
<PAGE> 29
AMERICAN PRECISION INDUSTRIES INC.
PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
APRIL 4, 1997
<TABLE>
<CAPTION>
PRO FORMA
--------------------------------------------------------------------------------------------------
AS
U S GAAP ACQUISITION AS AS FURTHER
ADJUSTMENTS ADJUSTMENTS AS ADJUSTED FURTHER ADJUSTED
API PORTESCAP (NOTE 1) (NOTE 2) COMBINED ADJUSTED COMBINED ADJUSTED COMBINED
-------- --------- ----------- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash
equivalents..... $ 1,329 $ 2,507 $ -- $ -- $ 3,836 $ 3,836 $ 3,836
Accounts
receivable,
net............. 22,302 11,358 33,660 33,660 33,660
Marketable
securities...... -- -- --
Inventories...... 22,685 20,577 (4,489)(a) 38,773 38,773 38,773
Prepaid
expenses........ 1,476 1,476 1,476 1,476
Deferred income
tax benefit..... 2,094 2,094 2,094 2,094
-------- ------- -------- ------- -------- -------- --------
TOTAL CURRENT
ASSETS....... 49,886 34,442 -- (4,489) 79,839 79,839 79,839
-------- ------- -------- ------- -------- -------- --------
INVESTMENTS....... 3,021 3,021 3,021 3,021
OTHER ASSETS,
NET.............. 11,991 657 (163) 12,485 12,485 12,485
DEFERRED TAXES.... 916 2,497 (b) 3,413 3,413 3,413
GOODWILL
(PORTESCAP)...... 7,204 (7,204)(c) 13,982 13,982 13,982
13,982 (d)
PROPERTY, PLANT
AND EQUIPMENT
Land............. 665 552 1,585 (e) 2,802 2,802 2,802
Buildings and 14,157 4,445 6,006 (6,006)(f) 20,183 20,183 20,183
improvements.... 1,581 (e)
Machinery,
equipment and
furniture....... 40,108 5,528 2,914 (e) 48,550 48,550 48,550
Construction in
process......... 3,191 745 3,936 3,936 3,936
-------- ------- -------- ------- -------- -------- --------
58,121 11,270 6,006 74 75,471 75,471 75,471
Less accumulated
depreciation.... 22,034 22,034 22,034 22,034
-------- ------- -------- ------- -------- -------- --------
NET PROPERTY,
PLANT AND
EQUIPMENT........ 36,087 11,270 6,006 74 53,437 53,437 53,437
-------- ------- -------- ------- -------- -------- --------
$100,985 $46,369 $ 13,963 $ 4,860 $166,177 $166,177 $166,177
======== ======= ======== ======= ======== ======== ========
</TABLE>
F-5
<PAGE> 30
AMERICAN PRECISION INDUSTRIES INC.
PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
APRIL 4, 1997 (CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA
--------------------------------------------------------------------------------------------------
AS
U S GAAP ACQUISITION AS AS FURTHER
ADJUSTMENTS ADJUSTMENTS AS ADJUSTED FURTHER ADJUSTED
API PORTESCAP (NOTE 1) (NOTE 2) COMBINED ADJUSTED COMBINED ADJUSTED COMBINED
-------- ------- -------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT
LIABILITIES
Short-term
borrowings...... $ 2,960 $ 9,331 $ -- $ -- $12,291 $12,291 $12,291
Accounts
payable......... 11,273 2,659 13,932 13,932 13,932
Accrued
compensation and
payroll taxes... 6,043 42 (g) 6,085 6,085 6,085
Other accrued
expenses........ 4,978 6,062 1,018 (g) 12,058 12,058 12,058
Dividends
payable......... -- -- --
Current portion
of long-term
obligations..... 1,296 1,296 1,296 1,296
Federal and state
income taxes.... 746 746 746 746
-------- ------- -------- ------- -------- -------- --------
TOTAL CURRENT
LIABILITIES... 27,296 18,052 -- 1,060 46,408 46,408 46,408
-------- ------- -------- ------- -------- -------- --------
LONG-TERM
OBLIGATIONS, less
current
portion.......... 28,908 10,356 5,848 (i) 45,112 45,112 45,112
DEFERRED INCOME
TAXES............ 1,417 1,802 (1,802)(h) 4,153 4,153 4,153
2,736 (b)
OTHER NONCURRENT
LIABILITIES...... 679 231 204 1,114 1,114 1,114
EXCHANGEABLE
NOTE............. 5,000 (j) 5,000 (5,000) (i) -- --
SERIES A
CONVERTIBLE
PREFERRED
STOCK............ 21,156 (j) 21,156 (21,156) (i) -- --
SHAREHOLDERS'
EQUITY
Series B
convertible
preferred
stock........... 26,156 (i) 26,156 (26,156) (m) --
Common Stock par
value $.66 2/3
per share:
Authorized -
10,000,000
shares
Issued - 7,697,454
shares......... 5,131 7,735 (7,735)(k) 5,131 5,131 1,026 (m) 6,157
Additional
paid-in-capital.. 11,270 28,548 (27,999)(k) 11,819 11,819 25,130 (m) 36,949
Retained
earnings........ 29,210 9,762 (16,591) 6,829 (k) 29,210 29,210 29,210
Equity adjustment
from foreign
currency
translation..... (14) 233 (233)(k) (14) (14) (14)
Minimum pension
liability, net
of tax.......... (74) (74) (74) (74)
-------- ------- -------- ------- -------- -------- -------- -------- --------
45,523 17,730 11,957 (29,138) 46,072 -- 72,238 -- 72,228
Less cost of
374,262 treasury
shares.......... 2,838 2,838 2,838 2,838
-------- ------- -------- ------- -------- -------- -------- -------- --------
TOTAL
SHAREHOLDERS'
EQUITY....... 42,685 17,730 11,957 (29,138) 43,234 -- 69,390 -- 69,390
-------- ------- -------- ------- -------- -------- -------- -------- --------
$100,985 $46,369 $ 13,963 $ 4,860 $166,177 $ -- $166,177 $ -- $166,177
======== ======= ======== ======= ======== ======== ======== ======== ========
</TABLE>
F-6
<PAGE> 31
- ---------------
NOTE 1
The pro forma combined balance sheet (unaudited) has been prepared to include
adjustments to conform to U.S. Generally Accepted Accounting Principles.
NOTE 2
The pro forma combined balance sheet (unaudited) has been prepared to reflect
the acquisition of Portescap by API. Pro forma adjustments are made to:
(a) Adjust inventory to reflect fair value based on API's product design
review and planned product redesign, in particular related to the DC Motor
line. The planned redesign effort is expected to place Portescap in a more
competitive position in terms of product price and superior performance.
(b) Provide for the deferred taxes associated with certain opening balance
sheet assets and liabilities.
(c) Eliminate the push-down goodwill which resulted from the acquisition of
Portescap by Inter Scan in 1990. In evaluating the fair value of the
Portescap assets, no value was assigned to the goodwill which resulted from
the previous acquisition.
(d) Reflect the excess of acquisition cost over the fair value of net assets
acquired (goodwill) as a result of the acquisition of Portescap by API.
(e) Adjust property, plant and equipment to reflect estimated fair market
values.
(f) Eliminate the remaining unamortized step-up in value of buildings which
resulted from the acquisition of Portescap by Inter Scan in 1990. See
also Note 2(c) above.
(g) Establish certain opening balance sheet liabilities in accordance with
pronouncement 95-3 of the Emerging Issues Task Force of the FASB,
primarily comprised of severance benefits arising from a restructuring
plan.
(h) Eliminate the remaining deferred taxes associated with the adjustment in
(f) above. See also Note 2(c) above.
(i) Reflect the debt incurred to cover the cash portion of the purchase price.
(j) Reflect the issuance of 20,000 shares of Series A convertible preferred
stock and an exchangeable promissory note upon the closing of the Portescap
acquisition.
(k) Eliminate the equity accounts of Portescap as a result of the
consolidation with API.
(l) Reflect the exchange of the Series A convertible preferred stock and the
note for 1,236,337 shares of Series B convertible preferred stock
following the approval of the proposals presented at the Special Meeting
of Shareholders.
(m) Reflect the conversion by Inter Scan of 1,236,337 shares of the Series B
convertible preferred stock into 1,538,603 shares of common stock.
F-7
<PAGE> 32
AMERICAN PRECISION INDUSTRIES INC.
PRO FORMA COMBINED STATEMENT OF EARNINGS (UNAUDITED)
QUARTER ENDED APRIL 4, 1997
<TABLE>
<CAPTION>
PRO FORMA
--------------------------------------------------------------
U S GAAP ACQUISITION AS
ADJUSTMENTS ADJUSTMENTS AS ADJUSTED
API PORTESCAP (NOTE 1) (NOTE 2) COMBINED ADJUSTED COMBINED
------- --------- ----------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales.................................. $35,843 $14,891 $ -- $ -- $50,734 $50,734
Investment Income.......................... 28 28 28
------ ------- ----- ---- ------- ------
Revenues................................... 35,871 14,891 50,762 50,762
------ ------- ----- ---- ------- ------
Costs and Expenses:
Cost of products sold.................... 24,518 11,347 89 (a) 35,954 35,954
Selling and administrative............... 7,347 4,883 215 (222)(b) 12,221 12,221
24 (a)
(26)(c)
Research and product development......... 703 436 1,139 1,139
Goodwill amortization.................... 117 (d) 117 117
Other income............................. (40) (40) (40)
Exchange gains and losses................ (95) (95) (95)
Interest and debt expense................ 458 375 96 (e) 929 929
------ ------- ----- ---- ------- ------
33,026 16,906 215 78 50,225 50,225
------ ------- ----- ---- ------- ------
Earnings before Income Taxes............... 2,845 (2,015) (215) (78) 537 537
Income Taxes............................... 960 295 90 (27)(f) 1,283 1,283
(35)(f)
------ ------- ----- ---- ------- ------
Net Earnings............................... $ 1,885 $(2,310) $ (305) $ (16) $ (746) $ (746)
====== ======= ===== ==== ======= ======
Net Earnings per Common Share.............. $ 0.26 $ (0.08)
====== ======
Net Earnings per Common Share -- Fully
Diluted.................................. $ 0.25 $ (0.08)
====== ======
Average Common Shares Outstanding.......... 7,316 1,539 (g) 8,855
====== ===== ======
Average Common Shares Outstanding -- Fully
Diluted.................................. 7,692 1,589 (g) 9,281
====== ===== ======
</TABLE>
- ---------------
NOTE 1
The pro forma combined statement of earnings (unaudited) has been prepared to
include adjustments to conform to U.S. Generally Accepted Accounting Principles.
NOTE 2
The pro forma combined statement of earnings (unaudited) has been prepared to
reflect the acquisition of Portescap by API. Pro forma adjustments are made to:
(a) Adjust depreciation based on estimated fair value of assets over estimated
lives.
(b) Eliminate amortization of goodwill on step-up in value of assets which
resulted from the acquisition of Portescap by Inter Scan. In evaluating the
fair value of the Portescap assets, no value was assigned to the goodwill
which resulted from the previous acquisition.
(c) Eliminate certain discretionary management fees paid to Inter Scan which do
not relate to any specific services provided and therefore do not reflect
cost or expense which will be incurred by API or Portescap after the
acquisition.
(d) Amortize goodwill over 30 years.
(e) Reflect interest expense on funds borrowed for the cash portion of the
purchase price. The rate of interest on the debt is variable and a
one-eighth of one percent change in the interest rate would have a $7,000
impact on interest expense per annum on a pre-tax basis.
(f) Reflect income taxes on acquisition adjustments.
(g) Reflect the total number of API common shares to be issued to Inter Scan in
connection with the acquisition, as follows:
(A) Shares issued upon conversion of the preferred stock issued to Inter Scan
at the closing of the transaction; plus
(B) Following API shareholder approval of the increase in authorized common
and preferred stock, shares issued to Inter Scan after the exchange of
the note for preferred stock and upon conversion of that preferred stock.
The pro forma shares outstanding for the fully diluted calculation include
warrants to acquire 50,000 shares of API common stock issued to API's
investment banker in connection with the Portescap acquisition.
F-8
<PAGE> 1
APPENDIX A
AMENDED AND RESTATED
STOCK PURCHASE AGREEMENT
BY AND AMONG
INTER SCAN HOLDING LTD.,
PORTESCAP
AND
API PORTESCAP INC.,
AMERICAN PRECISION INDUSTRIES INC.
DATED JULY 3, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
RECITALS ............................................................................... 1
AMENDMENT AND RESTATEMENT OF INITIAL AGREEMENT ......................................... 1
TERMS OF THIS AGREEMENT ................................................................ 1
ARTICLE I. Purchase and Sale of the Shares ............................................ 1
1.1 Purchase Price................................................................ 1
1.2 Payment of the Purchase Price................................................. 1
(a) Delivery of Preferred Stock, Exchangeable Promissory Note and Cash...... 1
(b) Exchange Rate for Calculation of Shares of Preferred Stock and Principal
Amount of Note........................................................ 2
ARTICLE II. Representations and Warranties ............................................ 2
2.1 Representations and Warranties of Inter Scan.................................. 2
(a) Corporate Standing and Authority; Binding Agreement..................... 2
(b) Capitalization of the Company........................................... 2
(c) Title to Stock.......................................................... 3
(d) Directors and Officers.................................................. 3
(e) Absence of Conflicting Agreements or Required Consents.................. 3
(f) Financial Statements.................................................... 3
(g) Securities Law Compliance............................................... 3
(h) Lack of Knowledge of Misrepresentations................................. 4
(i) Truth of Representations................................................ 4
2.2 Representations and Warranties of the Company................................. 4
(a) Subsidiaries' Corporate Standing and Authority; Binding Agreement....... 4
(b) Title to Subsidiaries' Stock............................................ 4
(c) Corporate Records....................................................... 4
(d) Liabilities............................................................. 4
(e) Taxes................................................................... 4
(f) Inventories............................................................. 5
(g) Non-Infringement of Patents, Trademarks and Other Intellectual
Property.............................................................. 5
(h) Operations and Use of Properties........................................ 5
(i) Licenses................................................................ 6
(j) Insurance............................................................... 6
(k) Environmental Matters................................................... 6
(l) Receivables............................................................. 7
(m) Employees and Labor Laws................................................ 7
(n) Product Labeling and Product Liability.................................. 7
(o) Validity and Existence of Agreements.................................... 7
(p) Employee Benefit Plans.................................................. 8
(q) Company Employee Benefit Plans.......................................... 8
(r) Related Entities........................................................ 10
(s) Multiemployer Plans..................................................... 11
(t) Capitalized Leases...................................................... 11
(u) Guaranties.............................................................. 11
(v) Litigation.............................................................. 11
(w) Management Personnel.................................................... 11
(x) Absence of Changes...................................................... 11
(y) Delivery of Exhibits.................................................... 12
(z) No Side Agreements...................................................... 12
(aa) Customers............................................................... 12
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
(bb) Suppliers............................................................... 12
(cc) Title to Assets......................................................... 12
(dd) Machinery and Equipment................................................. 12
(ee) Truth of Representations................................................ 12
2.3 Representations and Warranties of API Portescap............................... 12
(a) Corporate Standing and Authority........................................ 12
(b) Capitalization of API................................................... 13
(c) Directors and Officers.................................................. 13
(d) Absence of Conflicting Agreements or Required Consents.................. 13
(e) Financial Statements.................................................... 13
(f) API Subsidiaries' Corporate Standing and Authority; Binding Agreement... 13
(g) Title to API Subsidiaries' Stock........................................ 14
(h) Corporate Records....................................................... 14
(i) Liabilities............................................................. 14
(j) Taxes................................................................... 14
(k) Inventories............................................................. 14
(l) Non-Infringement of Patents, Trademarks and Other Intellectual
Property.............................................................. 14
(m) Operations and Use of Properties........................................ 15
(n) Licenses................................................................ 15
(o) Insurance............................................................... 15
(p) Environmental Matters................................................... 15
(q) Receivables............................................................. 16
(r) Employees and Labor Laws................................................ 16
(s) Product Labeling and Product Liability.................................. 16
(t) Validity and Existence of Agreements.................................... 16
(u) Employee Benefit Plans.................................................. 17
(v) Related Entities........................................................ 19
(w) Multiemployer Plans..................................................... 20
(x) Capitalized Leases...................................................... 20
(y) Guaranties.............................................................. 20
(z) Litigation.............................................................. 20
(aa) Management Personnel.................................................... 20
(bb) Absence of Changes...................................................... 20
(cc) Delivery of Exhibits.................................................... 21
(dd) No Side Agreements...................................................... 21
(ee) Customers............................................................... 21
(ff) Suppliers............................................................... 21
(gg) Title to Assets......................................................... 21
(hh) Machinery and Equipment................................................. 21
(ii) Truth of Representations................................................ 21
(jj) Securities Law Compliance............................................... 21
ARTICLE III. Certain Covenants of Inter Scan, the Company and Subsidiaries ............ 22
3.1 Negative Covenants of Inter Scan, the Company and Subsidiaries................ 22
3.2 Affirmative Covenants of Inter Scan, the Company and Subsidiaries............. 23
ARTICLE IV. Covenants of API .......................................................... 23
4.1 Affirmative Covenants of API.................................................. 23
4.2 Additional Covenants of API................................................... 24
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
ARTICLE V. Closing..................................................................... 24
5.1 Conditions to Inter Scan's Obligation to Close................................ 24
(a) Representations, Warranties and Covenants............................... 24
(b) No Litigation........................................................... 25
(c) Purchase Price and Payment of Debt to Affiliates........................ 25
(d) Shareholder and Registration Agreements................................. 25
(e) Appointment of Inter Scan's Representative to API's Board............... 25
5.2 Conditions to API Portescap's Obligation to Close............................. 25
(a) Representations, Warranties and Covenants............................... 25
(b) No Litigation........................................................... 25
(c) Conveyances............................................................. 25
(d) Resignations and Releases............................................... 25
(e) Shareholder and Registration Agreements................................. 25
5.3 Time and Place................................................................ 25
5.4 Best Efforts to Satisfy Conditions............................................ 26
5.5 Waiver of Conditions.......................................................... 26
5.6 Termination of Agreement...................................................... 26
5.7 Procedure Upon Termination.................................................... 26
ARTICLE VI. Actions after the Closing.................................................. 27
6.1 Further Assurances............................................................ 27
6.2 HSR Act....................................................................... 27
ARTICLE VII. Non-Competition Agreements................................................ 27
7.1 Non-Competition............................................................... 27
ARTICLE VIII. Taxes.................................................................... 28
8.1 Liability for Taxes........................................................... 28
(a) Taxable Periods Ending on or before the Closing Date.................... 28
(b) Taxable Periods Commencing on or after the Closing Date................. 28
(c) Definition of "Taxes.".................................................. 28
8.2 Refunds or Credits............................................................ 28
8.3 Contests...................................................................... 29
8.4 Mutual Cooperation............................................................ 30
8.5 Covenants and Agreements...................................................... 30
(a) Company's Obligation to File Returns.................................... 30
(b) API's Obligation to File Returns........................................ 30
8.6 Tax Sharing Agreement......................................................... 30
ARTICLE IX. Indemnification............................................................ 30
9.1 Expiration of Representations and Warranties.................................. 30
9.2 Indemnification by Inter Scan................................................. 31
9.3 Indemnification by API Portescap.............................................. 31
9.4 Claims........................................................................ 31
9.5 Limitations on Indemnification................................................ 31
ARTICLE X. Management of the Company and Subsidiaries.................................. 32
10.1 Appointment of API as Manager................................................. 32
10.2 Major Decisions............................................................... 33
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE XI. Miscellaneous.............................................................. 33
11.1 Expenses...................................................................... 33
11.2 Execution in Counterparts..................................................... 33
11.3 Notices....................................................................... 34
11.4 Severability.................................................................. 34
11.5 Titles and Headings........................................................... 34
11.6 Successors and Assigns; No Third Party Beneficiaries.......................... 34
11.7 Incorporation of Exhibits..................................................... 35
11.8 Brokers and Finders........................................................... 35
11.9 Entire Agreement; Waivers and Amendments...................................... 35
11.10 Announcements................................................................. 35
11.11 Construction.................................................................. 35
11.12 Governing Law................................................................. 35
11.13 References.................................................................... 35
Signatures.............................................................................. 36
API Agreement, Guaranty and Representations and Warranties.............................. 36
</TABLE>
iv
<PAGE> 6
AMENDED AND RESTATED
STOCK PURCHASE AGREEMENT
This AMENDED AND RESTATED STOCK PURCHASE AGREEMENT (this "Agreement") dated
July 3, 1997, is by and among INTER SCAN HOLDING LTD., a Swiss corporation
("Inter Scan"), PORTESCAP, a Swiss corporation (the "Company"), AMERICAN
PRECISION INDUSTRIES INC., a Delaware corporation ("API") and API PORTESCAP
INC., a New York corporation ("API Portescap").
RECITALS:
A. Inter Scan is the owner of all of the issued and outstanding capital
stock of the Company;
B. API Portescap is a wholly owned subsidiary of API;
C. Inter Scan desires to sell to API Portescap, and API Portescap desires
to purchase all of the issued and outstanding capital stock of the Company from
Inter Scan;
D. Inter Scan, the Company, API and API Portescap have entered into a Stock
Purchase Agreement dated as of April 11, 1997 (the "Initial Agreement") which
provides for Inter Scan's sale of all of the issued and outstanding capital
stock of the Company to API Portescap; and
E. Inter Scan, the Company, API and API Portescap desire to amend the
Initial Agreement in certain respects and to restate the Initial Agreement, as
so amended.
NOW, THEREFORE, in consideration of the premises and mutual terms,
conditions and covenants set forth herein and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, Inter
Scan, API Portescap, API and the Company hereby agree as follows:
AMENDMENT AND RESTATEMENT
OF INITIAL AGREEMENT
Inter Scan, the Company, API and API Portescap hereby amend and restate, as
amended, the Initial Agreement in its entirety. The Initial Agreement, as so
amended and restated, is hereinafter referred to as this "Agreement." This
Agreement, with the Exhibits referred to herein and attached hereto, hereby
replaces and supersedes the Initial Agreement, with the Exhibits referred to
therein and attached thereto, in its entirety. The Initial Agreement and all
Exhibits thereto, as replaced and superseded by this Agreement, is hereby
rendered null and void and of no force and effect, and no party to this
Agreement shall have any rights or obligations under the Initial Agreement.
TERMS OF THIS AGREEMENT
ARTICLE I.
PURCHASE AND SALE OF THE SHARES
1.1 Purchase Price. On the terms and subject to the conditions set forth
in this Agreement, on the Closing Date (as hereinafter defined), Inter Scan
shall sell, and API Portescap shall purchase all of the Shares (as defined
below) free and clear of all liens, claims and encumbrances. As consideration
for the Shares, API Portescap shall pay Inter Scan a total consideration of
Forty-three million (43,000,000) Swiss francs ("CHF") (the "Purchase Price"),
payable in accordance with Section 1.2 below.
1.2 Payment of the Purchase Price.
(a) Delivery of Preferred Stock, Exchangeable Promissory Note and
Cash. The Purchase Price shall be payable to Inter Scan as follows:
(i) API or API Portescap shall deliver to Inter Scan on the Closing
Date 20,000 shares of API's Series A seven percent (7%) cumulative
convertible preferred stock which shall have (A) an
<PAGE> 7
aggregate liquidation value of $21,156,250 (U.S. dollars) (calculated in
accordance with Section 1.2(b) below), and (B) the other rights and
privileges as described on Exhibit 1.2(a)(i) hereto (the "Series A
Preferred Stock"), including the right and obligation as set forth in
this Agreement to exchange the Series A Preferred Stock for API's Series
B seven percent (7%) cumulative convertible preferred stock (the "Series
B Preferred Stock") which shall contain the rights and privileges
described in Exhibit 1.2(a)(i) hereto;
(ii) API or API Portescap shall deliver to Inter Scan on the
Closing Date an exchangeable promissory note in the principal amount of
$5,000,000 (U.S. dollars) which will be exchangeable for shares of API's
Series B Preferred Stock, if and when such Series B Preferred Stock is
authorized by API's shareholders, and which shall be in the form of
Exhibit 1.2(a)(ii) hereto (the "Note"); and
(iii) API or API Portescap shall pay Inter Scan on the Closing Date
in Swiss francs the amount of 5,500,000 CHF in immediately available
funds by wire transfer to an account which shall be designated by Inter
Scan not less than two business days prior to the Closing Date.
(b) Exchange Rate for Calculation of Shares of Preferred Stock and
Principal Amount of Note. The number of shares and liquidation value of
Preferred Stock to be delivered pursuant to Section 1.2(a)(i) above and the
principal amount of the Note to be delivered pursuant to Section 1.2(a)(ii)
above has been calculated based upon an agreed to currency exchange rate of
a Swiss franc equal to $.6975 U.S. dollar.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of Inter Scan. Inter Scan represents
and warrants to API Portescap that:
(a) Corporate Standing and Authority; Binding Agreement. Each of
Inter Scan and the Company is a corporation duly organized and validly
existing under the laws of Switzerland and has full corporate power to own
all of its properties and assets and to conduct its business as it is now
being conducted. The execution of this Agreement and consummation of the
transactions contemplated herein will not violate any provision of the
Company's or Inter Scan's Articles of Incorporation or By-laws, and the
Company and Inter Scan have obtained all necessary authorization and
approval from their respective Boards of Directors and shareholders (if
required) for the execution of this Agreement and the consummation of the
transactions contemplated hereby. This Agreement is a legal, valid and
binding agreement of the Company and Inter Scan enforceable against each of
them in accordance with its terms, subject to the laws of bankruptcy,
insolvency and moratorium and other laws or equitable principles generally
affecting creditors' rights. Complete and correct copies of the Articles of
Incorporation and By-Laws of the Company and Inter Scan have been made
available to API.
(b) Capitalization of the Company. The capitalization of the Company
consists of 57,000 registered shares and 11,000 bearer shares (the "Common
Stock"); and Inter Scan owns all of the shares of the Common Stock (the
shares of Common Stock owned by Inter Scan are referred to as the
"Shares"), which are the only issued and outstanding securities of the
Company and all of which are duly authorized, validly issued and
outstanding, fully paid and non-assessable. The Company has no other class
of stock authorized or outstanding and has not issued any profit sharing
certificates. No shares of Common Stock and no profit sharing certificates
of the Company have been reserved for any purpose. There are no outstanding
securities of the Company that are convertible into shares of Common Stock.
Except for API Portescap's rights hereunder, there are no options,
warrants, calls, commitments, rights or understandings of any character to
purchase or otherwise acquire from the Company or Inter Scan any shares of
Common Stock, or any convertible security or other security issued or to be
issued by the Company. Except as disclosed in Exhibit 2.1(b) hereto, the
Company has no direct or indirect equity interest in and has not made
advances to any corporation, association, partnership, joint venture or
other entity (each such entity listed on Exhibit 2.1(b) hereinafter
referred to as a "Subsidiary" and such
2
<PAGE> 8
entities referred to collectively as "Subsidiaries"). Except for qualifying
shares held by directors, no party, other than the Company and the
Subsidiaries, has or is entitled to obtain any direct or indirect equity
interest in any of the Subsidiaries.
(c) Title to Stock. Inter Scan has good and marketable title to all
of the Shares, free and clear of all liens, claims and encumbrances. Upon
consummation of the transactions contemplated hereby, API Portescap will
acquire good and marketable title to the Shares, free and clear of all
liens, claims and encumbrances.
(d) Directors and Officers. Attached hereto as Exhibit 2.1(d) is a
list of all directors and officers of the Company and each Subsidiary.
(e) Absence of Conflicting Agreements or Required Consents. The
execution, delivery and performance of this Agreement by the Company and
Inter Scan do not and will not: (i) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to the Company, any
Subsidiary or Inter Scan or by which any of them is bound or affected, (ii)
result in any breach of or constitute a default under any note, bond,
mortgage, indenture, lease, license, franchise or other instrument or
obligation to which the Company, any Subsidiary or Inter Scan is a party,
or (iii) require any consent, approval, authorization or permit of, or
filing with or notification to, any governmental or regulatory authority,
domestic or foreign, or any person or entity not a party to this Agreement
(except for such filings as may be required under the Securities Exchange
Act of 1934 and applicable requirements if any, arising under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
rules and regulations promulgated thereunder, collectively the "HSR Act",
in connection with any conversion of the Preferred Stock into shares of API
common stock).
(f) Financial Statements. The Company and Inter Scan have furnished
API with: (i) the Company's and each Subsidiary's income tax returns for
the years ended December 31, 1993, 1994 and 1995; (ii) the Company's
consolidated financial statements as at December 31, 1993, 1994, 1995 and
1996, and for the years then ended audited by KPMG Fides Peat (the "Year
End Financial Statements"); and (iii) interim balance sheets and statements
of profit and loss and supporting schedules of expenses for the twelve
month period ended December 31, 1996 and for each elapsed calendar month
since December 31, 1996 through the Closing (except that the Company has
provided an interim financial statement for the 2 month period of January
and February of 1997, rather than a separate statement for each such month)
prepared by the Company and each Subsidiary from its books and records (the
"Interim Financial Statements") (the Interim Financial Statements and the
Year End Financial Statements are collectively referred to as the
"Financial Statements"). The Financial Statements have been or will be, as
the case may be, prepared in accordance with International Accounting
Standards (the "Accounting Principles") consistently applied throughout the
periods indicated. The Financial Statements fairly present or will fairly
present, as the case may be, the results of the operations of the Company
and each Subsidiary and the Company's and each Subsidiary's financial
position for the periods indicated except, with respect to the Interim
Financial Statements, for non-material changes resulting from normal,
non-material year-end adjustments.
(g) Securities Law Compliance. Inter Scan acknowledges that the
Series A and Series B Preferred Stock, the Note and the API common stock
issuable upon the conversion of the Series A and Series B Preferred Stock,
has not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), or under any state or foreign securities laws. Inter
Scan is acquiring the Series A and Series B Preferred Stock, the Note and
the API common stock issuable upon the conversion of the Series A and
Series B Preferred Stock, solely for investment, with no present intention
to distribute any of such securities to any person. Inter Scan will not
sell or otherwise dispose of any of the Series A and Series B Preferred
Stock, the Note and the API common stock issuable upon the conversion of
the Series A and Series B Preferred Stock, except in compliance with the
registration requirements or exemption provisions under the Securities Act
and the rules and regulations promulgated thereunder and any other
applicable securities laws.
3
<PAGE> 9
(h) Lack of Knowledge of Misrepresentations. Inter Scan is not aware
of any untrue statement of a material fact in the representations and
warranties set forth in Section 2.2 below; and it is not aware of any
omission to state any material fact necessary to make the statements
contained in Section 2.2 not misleading.
(i) Truth of Representations. On the date of this Agreement and on
the date of the Closing, no representation or warranty of Inter Scan in
this Agreement, nor any written statement or certificate executed by Inter
Scan and furnished or to be furnished to API Portescap or API pursuant to
this Agreement or in connection with the transactions contemplated hereby,
contains or will contain any untrue statement of a material fact or omits
or will omit to state a material fact necessary to make the statements
contained therein not misleading.
2.2 Representations and Warranties of the Company. The Company represents
and warrants (except that, with respect to the Subsidiaries, such
representations and warranties are given to the best of its knowledge) to API
Portescap that:
(a) Subsidiaries' Corporate Standing and Authority; Binding
Agreement. Each of the Subsidiaries is a corporation duly organized and
validly existing under the laws of the jurisdiction identified on Exhibit
2.2(a) hereto, has full corporate power to own all of its properties and
assets and to conduct its business as it is now being conducted. The
execution of this Agreement and the consummation of the transactions
contemplated herein will not violate any provision of any Subsidiary's
Articles of Incorporation or By-Laws. Complete and correct copies of the
Articles of Incorporation and By-Laws of each Subsidiary have been made
available to API.
(b) Title to Subsidiaries' Stock. The Company has good and marketable
title to all outstanding shares of the capital stock of Portescap
International SA, and Portescap International SA has good and marketable
title to all of the outstanding shares of the capital stock of the other
Subsidiaries, free and clear of all liens, claims and encumbrances.
(c) Corporate Records. The Company's and each Subsidiary's corporate
record books are complete, accurate and up to date with all necessary
signatures and set forth all meetings and actions taken by its shareholders
and directors. The Company's and each Subsidiary's stock transfer books and
stock ledgers are each complete, accurate and up to date with all necessary
signatures and set forth all stock and securities issued, transferred or
surrendered, together with evidence of any required stock transfer tax
information in conformity with all applicable requirements. The Company and
each Subsidiary makes and keeps accurate books and records reflecting its
assets and maintains internal accounting controls that provide reasonable
assurance that (i) transactions are executed with management's
authorization, (ii) transactions are recorded as necessary to permit
preparation of the Company's and each Subsidiary's financial statements and
to maintain accountability for its assets, (iii) access to its assets is
permitted only in accordance with management's authorization, and (iv) the
recorded accountability of its assets other than property, plant or
equipment is compared with existing assets at reasonable intervals.
(d) Liabilities. There are no liabilities or obligations of the
Company or any Subsidiary of any kind, whether accrued, absolute,
contingent or otherwise, except (i) as indicated in the Financial
Statements, (ii) as disclosed on Exhibit 2.2(d) hereto, (iii) those
incurred as the result of API's management of the Company pursuant to
Article X below or (iv) liabilities or obligations arising since the date
of the most recent Financial Statement which (A) were incurred in the
ordinary and usual course of the Company's or Subsidiary's business, (B)
individually and in the aggregate do not exceed CHF 100,000 and CHF
200,000, respectively and (C) are in types and amounts consistent with the
Company's or Subsidiary's past practices and experience.
(e) Taxes. The Company and each Subsidiary has filed all tax returns
and reports which are required by law to be filed and has paid or set up an
adequate reserve for the payment of all Taxes (as defined in Section 8.1(c)
below) required to be paid in respect of the periods covered by those
returns and reports and Taxes which have or may become due pursuant to
those returns and reports, and all assessments made and all other accrued
Taxes whether or not the returns, reports or payments are yet
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<PAGE> 10
due. Exhibit 2.2(e) sets forth the most recent years during the past five
years for which income, sales and use, value added, employment and any
other material tax returns of the Company and Subsidiaries have been
examined by any taxing authority. All filed tax returns and reports of the
Company and each Subsidiary are correct and true in all material respects
and, except as disclosed in Exhibit 2.2(e), there is no outstanding claimed
deficiency with respect to any tax period, no formal or informal notice of
a proposed deficiency, no notification of any pending audit of tax returns
and reports and no waiver or extension granted to the Company or any
Subsidiary with respect to any period of limitations affecting assessment
of any Taxes.
(f) Inventories. The Company's and each Subsidiary's inventory: (i)
complies with all applicable laws and regulations (including all applicable
laws and regulations of Switzerland, the United States and each of the
states of the United States into which any such inventory may be shipped);
(ii) complies, to the extent U.S. law applies, with all legal requirements
applicable to any Hazardous Substance (as hereinafter defined) or any
substance which was the subject of a pre-manufacturing notice filed with
the United States Environmental Protection Agency under the Toxic Substance
Control Act, as amended, 15 U.S.C. Sections 2601 et seq., and (iii) does
not consist of any damaged or items which the Company considers obsolete
(except to the extent that a reserve therefor is included in such party's
regularly prepared financial statements). For purposes of this Agreement,
"Hazardous Substance" shall have the meaning set forth in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended,
42 U.S.C. Sections 9601 et seq., and the regulations adopted pursuant
thereto, and shall also include asbestos containing materials, urea
formaldehyde foam, petroleum, petroleum products (except cleaning supplies
used in the ordinary course of business) and any substance classified as
"hazardous" or otherwise regulated for purposes of protecting health or the
environment under applicable law, regulation or notice. The inventories
reflected in the Financial Statements have been or will be acquired in the
ordinary course of business of the Company or Subsidiary, as applicable, in
accordance with its normal inventory practices and are or will be stated in
accordance with the Accounting Principles consistently applied. None of the
Company's or any Subsidiary's inventory is stored or warehoused anywhere
other than at the locations identified in Exhibit 2.2(f) hereto.
(g) Non-Infringement of Patents, Trademarks and Other Intellectual
Property. Exhibit 2.2(g) contains a complete and correct list of all of
the patents, copyrights, trademarks, trade names, service marks and domain
names owned or used by the Company and Subsidiaries (such items, along with
any trade secrets, industrial designs and technical know how owned or used
by the Company and Subsidiaries, shall hereinafter be referred to
collectively as the "Intellectual Property"). Exhibit 2.2(g) also contains
a list of the Company's and Subsidiaries' applications and registrations in
any governmental office or registry with respect to any Intellectual
Property. Except as disclosed in Exhibit 2.2(g), the Intellectual Property
is owned by the Company and is free and clear of any license, sublicense,
lien, charge or encumbrance. The Intellectual Property owned by the Company
and Subsidiaries immediately following the Closing, will constitute all
intellectual property rights necessary to conduct the Company's and
Subsidiaries' business as it is currently conducted. None of the
Intellectual Property has a material defect or been misappropriated from
any third party. The Company and each Subsidiary is not infringing upon or
otherwise violating any intellectual property rights of any third party,
and the Company's and each Subsidiary's continued use of any and all of the
Intellectual Property after the Closing in a manner consistent with the
Company's and Subsidiaries' past practices shall not result in any such
infringement or violation. The Company and each Subsidiary is not in
default under any license or sublicense agreement with a third party. Each
of the Subsidiaries and the Company does not know of (1) any claim by a
third party that the use of the Intellectual Property infringes or violates
the intellectual property rights of said third party, (2) any infringement
or violation by a third party of the Company's or any Subsidiary's rights
in the Intellectual Property or any default by a third party under a
license or sublicense agreement with the Company or any Subsidiary or (3)
any claim for cancellation on the basis of non-use of any Intellectual
Property.
(h) Operations and Use of Properties. The Company's and each
Subsidiary's operations, business and properties, including leased
properties, are in conformity in all material respects with all applicable
5
<PAGE> 11
laws, ordinances, regulations or orders (including without limitation
zoning, land use and building codes and motor vehicle registration,
permitting, inspection and operation). The Company's and each Subsidiary's
assets are reasonably sufficient for the conduct of the Company's and such
Subsidiary's business as it currently is conducted. The Company and
Subsidiaries do not own or lease, directly or indirectly, any real property
other than the real property listed on Exhibit 2.2(h). With respect to such
real property, there are no (i) buildings of historic interest included
therein, (ii) public restrictions on the disposition thereof, (iii)
obligations regarding the construction, maintenance or adoption of any
highway or conduit or stipulated by public law or (iv) options or rights of
pre-emption.
(i) Licenses. The Company and each Subsidiary has all material
licenses, permits, approvals and other governmental authorizations
necessary to own all of its properties and assets and carry on its business
as now being conducted (collectively, the "Licenses"). Except as disclosed
on Exhibit 2.2(i), each License is valid and in full force and effect. The
continuation, validity and effectiveness of each License will in no way be
affected by the consummation of the transactions contemplated by this
Agreement. The Company and each Subsidiary has not breached any material
provision of, is not in default under the material terms of, and has not
engaged in any activity that would cause revocation or suspension of, any
material License and no action or proceeding looking to or contemplating
the revocation or suspension of any such License is pending or, to the
Company's or Subsidiaries' knowledge, threatened.
(j) Insurance. The Company and each Subsidiary is covered by valid
and currently effective insurance policies issued in favor of the Company
or such Subsidiary in amounts which are, in the Company's best judgment
after advice from its insurance advisers, appropriate to its situation and
operations. The Company and each Subsidiary has been insured for products
liability continuously since January 1, 1987, or, with respect to each
Subsidiary, the date of formation or acquisition of such Subsidiary, if
later.
(k) Environmental Matters. The Company and each Subsidiary has been,
and currently is, in full compliance in all material respects with all
applicable laws and regulations relating to Hazardous Substances, Hazardous
Waste (as hereinafter defined), air quality and groundwater pollution
(collectively, "Environmental Laws") (i) at all property or facilities
owned or leased by the Company and Subsidiaries (collectively, the
"Company's Facilities") and (ii) in connection with all operations of the
Company and Subsidiaries regardless of whether conducted at the Company's
Facilities. Except as disclosed on Exhibit 2.2(k), there has not been any
disposal, release or threatened release of any Hazardous Substance or
Hazardous Waste at any of the Company's Facilities that was not in
compliance with applicable Environmental Laws. To its knowledge, no
asbestos, urea-formaldehyde foam or other forms of urea formaldehyde have
been installed or are included in the furnishing or construction of any
building or other improvement at the Company's Facilities that violates any
applicable Environmental Law. Each of the Company and Subsidiaries has made
no disposal of any Hazardous Waste or Hazardous Substance at any site
currently listed pursuant to 42 U.S.C. sec.9605(a)(8)(B) (or pursuant to
any similar law or regulation identifying hazardous sites) or, to the best
knowledge of the Company and Subsidiaries, any site currently being
investigated for such listing pursuant to any such law or regulation.
Except as disclosed on Exhibit 2.2(k) hereto, there are no pending or
threatened claims with respect to Hazardous Substances or Hazardous Waste
relating to any of the Company's Facilities or relating to any operations
of the Company or Subsidiaries regardless of whether conducted at the
Company's Facilities, and neither the Company nor any Subsidiary knows of
any basis for a claim being made against the Company or Subsidiaries with
respect to any Hazardous Substance or Hazardous Waste or under any law or
regulation for the protection of the environment. For purposes of this
Agreement, "Hazardous Waste" shall have the meaning set forth in the
Resource Conservation and Recovery Act as amended, 42 U.S.C. sec.sec.9601
et seq., and the regulations adopted pursuant thereto and shall also
include polychlorinated biphenals ("PCBs") and any natural or artificial
substance (whether in solid or liquid form or in the form of a gas or vapor
and whether alone or in combination with any other substances) capable of
causing harm to man or any other living organism supported by the
environment, or damaging the environment or
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<PAGE> 12
public health or welfare, including but not limited to any controlled,
special, hazardous, toxic or dangerous waste.
(l) Receivables. All accounts receivable, notes receivable and other
receivables reflected in the Financial Statements (the "Accounts
Receivable") of the Company and Subsidiaries have been properly recorded on
the Company's and Subsidiaries' books and arose in connection with the sale
of goods and services in the ordinary course of business. The reserve
established in the Company's fiscal year 1996 audited consolidated balance
sheet for doubtful Accounts Receivable was determined in accordance with
the Accounting Principles consistently applied.
(m) Employees and Labor Laws. In the last five years there have been
no strikes, lockouts or other material labor disputes or demands for
recognition of a union as collective bargaining agent for all or any part
of the Company's or Subsidiaries' employees, and each of the Company and
Subsidiaries is not a party to any collective bargaining or other labor
agreement except for those described in Exhibit 2.2(m). Except as disclosed
in Exhibit 2.2(m), each of the Company and Subsidiaries has no written
agreements of employment and no oral agreements or understandings with any
employee as to any specific period of employment. The Company and each
Subsidiary is in compliance in all material respects with all applicable
laws and regulations relating to the employment of labor, including
provisions relating to wages, fringe benefits, hours, working conditions,
occupational safety and health, safety of the premises, collective
bargaining, payment of social security and unemployment taxes, civil rights
and discrimination in hiring, retention, promotion, pay and other
conditions of employment; and the Company and each Subsidiary is not liable
for arrears on wages or any tax or penalties for failure to comply with
those laws or regulations. There are no oral agreements or understandings
with employees except as to current salary or wage rates and no other oral
agreements or understandings which will affect the Company's or any
Subsidiary's employment practices or operations.
(n) Product Labeling and Product Liability. The Company and each
Subsidiary is in compliance in all material respects with all applicable
laws and regulations relating to product labeling, product safety and
public health and safety. The Company and each Subsidiary has not received
any notice of any claim that any product now or heretofore offered for sale
or sold by it or distributed by it in connection with product sales is
injurious to the health and safety of any person or is not in conformity
with its specifications or not suitable for any purpose or application for
which it is offered for sale, sold or distributed.
(o) Validity and Existence of Agreements. Exhibit 2.2(o) sets forth
and briefly describes all the following with respect to the Company and
each Subsidiary (collectively referred to as the "Contracts"):
(1) Each written agreement, contract, arrangement, commitment,
understanding or obligation to which any of the Company or Subsidiaries
is a party or by which it or its properties is or may be bound
(including without limitation quotations by the Company or any
Subsidiary to current or potential customers which purport to be binding
on the Company or any Subsidiary for a certain time period) which (A)
was entered into in the ordinary course of business and (i) involves the
payment of consideration or delivery of goods or services by the Company
or any Subsidiary with a value in excess of CHF 500,000 or (ii) has a
remaining term of more than one year which cannot be terminated by the
Company or any Subsidiary without penalty upon one year's (or less)
notice and involves the payment of consideration or delivery of goods or
services by the Company or any Subsidiary with a value in excess of CHF
200,000 or (B) was entered into out of the ordinary course of business
and involves the payment of consideration or delivery of goods or
services by the Company or any Subsidiary with a value in excess of CHF
25,000;
(2) Each instrument (i) evidencing any liability of the Company or
any Subsidiary for borrowed money or for the obligations of any third
party, (ii) defining the terms on which any other debt of the Company or
any Subsidiary has been or may be issued or incurred; or (iii)
evidencing any liability of any third party for the obligations of the
Company or any Subsidiary.
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<PAGE> 13
(3) All agreements, contracts, arrangements, commitments,
understandings or obligations, oral or written, limiting in any respect
the freedom of the Company or any Subsidiary or any of its key employees
to compete in any line of business or with any person or to do business
with any particular customers or class of customers or to carry on
business in any geographic area;
(4) All agreements, contracts, arrangements, commitments,
understandings, or obligations, oral or written, relating to the Company
or any Subsidiary, its business, operations, prospects, properties,
assets or condition (financial or otherwise) in which Inter Scan has any
interest, direct or indirect, including a description of any
transactions between the Company or any Subsidiary and Inter Scan or any
entity in which Inter Scan has any interest; and
(5) All agreements, contracts, arrangements, commitments,
understandings or obligations, oral or written, between the Company or
any Subsidiary and Inter Scan not covered in (4) above.
The Company has delivered or made available to API a true and
complete copy of each written Contract, which copies accurately reflect
the understanding of the Company with respect to the Contracts. The
Company has delivered or made available to API a fair and accurate
summary of each oral Contract listed on Exhibit 2.2(o). Each of the
Contracts listed on Exhibit 2.2(o) is a valid and binding obligation of
the parties thereto in accordance with its respective terms (except with
respect to quotations by the Company or any Subsidiary which have not
been accepted by the recipient thereof), and the Company or the
applicable Subsidiary has performed and complied in all material
respects with all the provisions of, and no party is in default or would
be in default with the lapse of time or notice under the terms of, any
of the Contracts. The execution of this Agreement and the consummation
of the transactions contemplated hereby will not violate any provision
of any of the Contracts and will not result in or create a right of
termination, cancellation or adverse modification of any of the
Contracts.
(p) Employee Benefit Plans. Exhibit 2.2(p) lists all employee pension
benefit plans, all employee welfare benefit plans, all fringe benefit
plans, and all executive compensation, retirement, supplemental retirement,
deferred compensation, incentive, bonus, severance, compensation associated
with change in control, perquisite, health care, death benefit, medical,
disability, life insurance, vacation pay, sick pay or other plans,
programs, and arrangements, whether or not government-mandated, to which
the Company or any Subsidiary is or has been a party, with respect to which
the Company or any Subsidiary has an obligation, that have been or are
maintained, contributed to, or sponsored by the Company or any Subsidiary
for the benefit of any current or former employee, officer, or director or
that relate to the Company or any Subsidiary, and are in effect or in
connection with which any obligation remains on the date of this Agreement
or that by their present terms will become effective after the date of this
Agreement (such plans, programs, and arrangements to be referred to
collectively as "Company Employee Benefit Plans").
(q) Company Employee Benefit Plans.
(1) The Company has delivered or made available to API a complete
and accurate copy of each Company Employee Benefit Plan document
(including all amendments) and a complete and accurate copy of all
documents relating to such Company Employee Benefit Plan, including, if
applicable: (A) each trust agreement, insurance or annuity contract,
investment management agreement, custodial agreement, and other
agreement relating to the funding of the Company Employee Benefit Plan,
and all amendments to them; (B) the most recent summary plan description
and any subsequent summary of material modifications or other material
disclosure information furnished to participants; (C) the three most
recently prepared or filed annual returns or reports, including all
applicable schedules; (D) if the Company Employee Benefit Plan is
intended to qualify under or satisfy requirements of the tax law of the
relevant jurisdiction, the most recent determination letter or other
notice of qualification or approval issued by the relevant government
authority, the application submitted for it, any correspondence with the
relevant government authority in connection with the determination
letter or other notice of qualification or approval, and any pending
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<PAGE> 14
application for a determination letter or other notice of qualification
or approval; (E) the three most recent financial statements; and (F) the
three most recent actuarial valuation reports.
(2) Each Company Employee Benefit Plan is now and always has been
operated in all material respects in accordance with its terms and the
requirements of all applicable laws. For the purposes of Section 2.2(q),
(r), and (s), the term "law" includes, without limitation, those
particular laws to which the following provisions of Section 2.2(q),
(r), and (s) refer, laws relating to, regulating, or mandating the
provision of social welfare, pension, or other benefits for employees,
all provisions of the relevant tax law applicable to secure intended tax
consequences, securities law, and all regulations and authoritative
court and administrative rulings under such laws. All persons who
participate in the operation of the Company Employee Benefit Plans and
all Company Employee Benefit Plan fiduciaries have always acted in all
material respects in accordance with the provisions of all applicable
law of the relevant jurisdiction. The Company and the Subsidiaries have
performed all obligations required to be performed by them under, are
not in any material respect in default under or in violation of, and
have no knowledge of any material default or violation by any party to,
any Company Employee Benefit Plan. No legal action, suit, claim, or
governmental proceeding or investigation is pending or, to the knowledge
of the Company or any Subsidiary threatened or imminent with respect to
any Company Employee Benefit Plan (other than claims for benefits in the
ordinary course) and, to the knowledge of the Company or any Subsidiary
no fact or event exists that could give rise to any such action, suit,
claim, or governmental proceeding or investigation which is meritorious.
(3) The administrator of each Company Employee Benefit Plan has
complied with all applicable laws of the relevant jurisdiction regarding
reporting to the relevant government authority and disclosure to
participants and beneficiaries. Each summary plan description, summary
of material modifications, and other material disclosure information
furnished to participants and beneficiaries with respect to each Company
Employee Benefit Plan describes the plan accurately and comprehensively
in accordance with any applicable requirements of the law of the
relevant jurisdiction, and each annual report or return prepared or
filed with respect to each such plan, including all schedules and
attachments, is correct and accurate as of the date of filing.
(4) With respect to any Company Employee Benefit Plan that provides
pension or retirement or other post-employment compensation ("Pension
Plan") and that is intended to qualify under or satisfy applicable
requirements of the tax law of the relevant jurisdiction (in the case of
any plan covering U.S. employees, section 401(a) of the Internal Revenue
Code of 1986, as amended (the "Code")), each such Pension Plan qualifies
under or satisfies the applicable requirements of the tax law of the
relevant jurisdiction, and any trust through which such Pension Plan is
funded is exempt, to the extent intended, from tax; if a determination
letter or other notice of qualification or approval would be available
from a government authority to indicate that such a plan does qualify
under or satisfies the applicable requirements of the tax law of the
relevant jurisdiction, the Pension Plan as amended through the date of
this Agreement has obtained such a letter or other notice. Nothing has
occurred that could adversely affect the qualified or satisfactory or
approved status of such Pension Plan or trust under the tax law of the
relevant jurisdiction.
(5) No person has acted or failed to act in connection with any
Company Employee Benefit Plan in a manner that would subject the Company
or any Subsidiary to direct or indirect liability, by indemnity or
otherwise, for a breach of any fiduciary duty.
(6) Neither the Company nor any Subsidiary has incurred liability
for any excise tax arising under section 4971, 4972, 4980, or 4980B of
the Code, and no fact or event exists that could give rise to any such
liability.
(7) Neither the Company nor any Subsidiary has incurred liability
under Title IV of the Employee Retirement Income Security Act of 1974,
as amended, ("ERISA") (other than liability for premiums to the Pension
Benefit Guaranty Corporation ("PBGC") arising in the ordinary course),
and, to the knowledge of the Company and each Subsidiary, no fact or
event exists that
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<PAGE> 15
could give rise to such liability. No complete or partial termination
has occurred within the past five years with respect to any Pension Plan
subject to Title IV of ERISA or that is intended to be qualified under
section 401(a) of the Code. No reportable event (within the meaning of
section 4043 of ERISA) or event described in section 4063(a) of ERISA
has occurred or is expected to occur with respect to any Pension Plan
subject to Title IV of ERISA. No proceeding has been instituted by the
PBGC to terminate any Pension Plan, nor has any notice of intent to
terminate any Pension Plan been filed with the PBGC. All premiums due
the PBGC have been paid in full on a timely basis.
(8) No Pension Plan subject to section 302 of ERISA or section 412
of the Code has had an accumulated funding deficiency (within the
meaning of section 302 of ERISA or section 412 of the Code), whether or
not waived. No asset of the Company or any Subsidiary is the subject of
a lien arising under section 302(f) of ERISA or section 412(n) of the
Code. Neither the Company nor any Subsidiary has been required to post
security under section 307 of ERISA or section 401(a)(29) of the Code,
and no fact or event exists that could give rise to such a lien or
requirement to post any such security.
(9) All contributions, insurance premiums, and payments required to
be made with respect to each Company Employee Benefit Plan, whether by
the terms of the plan, applicable law of the relevant jurisdiction, or
agreement with employees, have been made by their due dates. Each
Company Employee Benefit Plan has assets sufficient to satisfy any
applicable laws of the relevant jurisdiction regarding the level of
funding required in relation to the plan's obligation to pay benefits.
(10) As to each Pension Plan subject to U.S. law that is a defined
benefit plan (as defined in section 3(35) of ERISA) and that is subject
to section 302 of ERISA or section 412 of the Code, and as to each other
Pension Plan for which the applicable law of the relevant jurisdiction
requires an actuarial valuation, the most recent actuarial valuation
report accurately reflects the value of the plan assets and liabilities
as of the date of such valuation based on the funding method and
actuarial assumptions specified in the report, all employee census data
furnished to the plan's actuary in connection with such valuation and
prior valuations has been accurate and complete in all material
respects, and nothing has occurred since the date of such valuation that
would have a materially adverse effect on the funding condition of the
Pension Plan.
(11) Except as disclosed on Exhibit 2.2(q), no Company Employee
Benefit Plan, and no other commitment or agreement, provides for the
payment of separation, severance, or similar benefits to any person
solely as a result of any transaction contemplated by this Agreement or
as a result of a "change in control", however defined, and the
consummation of the transaction contemplated by this Agreement will not
accelerate the time of payment or vesting of, or increase the amount of,
any compensation or benefit due to any current or former employee.
(12) Except as indicated in the Financial Statements, neither the
Company nor any Subsidiary has any liability with respect to any
officer, director or employee or former officer, director or employee
for post-employment benefits, other than those associated with the
Pension Plans, and other than as required by section 4980B of the Code
and Part 6 of Title I of ERISA or by applicable law of the relevant
jurisdiction.
(13) There has been no representation made to or communication with
any employee that is not in accordance with the existing terms and
limitations of the Company Employee Benefit Plans. Neither the Company
nor any Subsidiary has made any commitment to modify any, or create any
other, Company Employee Benefit Plan.
(r) Related Entities. To the best of the Company's knowledge, neither
the Company nor any Subsidiary is or could become subject to any obligation
or liability with respect to a Related Entity Benefit Plan (as defined
below), whether under Title IV of ERISA, section 4980B of the Code, the
provisions of any applicable law of any relevant jurisdiction, or the terms
of any Related Entity Benefit Plan. "Related Entity Benefit Plan" means any
employee pension benefit plan, employee welfare benefit
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<PAGE> 16
plan, fringe benefit plan, or executive compensation, retirement,
supplemental retirement, deferred compensation, incentive, bonus,
severance, compensation associated with change in control, perquisite,
health care, death benefit, medical, disability, life insurance, vacation
pay, sick pay or other plan, program, or arrangement, whether or not
government-mandated, to which a Related Entity (as defined in the next
sentence) is or has been a party, with respect to which a Related Entity
has an obligation, or that has been or is maintained, contributed to, or
sponsored by a Related Entity for the benefit of any current or former
employee, officer, or director, that relates to a Related Entity and is in
effect or in connection with which any obligation remains on the date of
this Agreement or that by its present terms will become effective after the
date of this Agreement. For the purposes of Section 2.2(r) and (s),
"Related Entity" means (i) a current or former member of a controlled group
including the Company or any Subsidiary (within the meaning of section
414(b) or (c) of the Code), (ii) a current or former member of an
affiliated service group including the Company or any Subsidiary (within
the meaning of section 414(m) or (o) of the Code), or (iii) any other
entity that is or was related, directly or indirectly, by common ownership
or control, with the Company or any Subsidiary, provided, however, that the
term "Related Entity" does not include the Company or the Subsidiaries.
(s) Multiemployer Plans. Neither the Company, nor any Subsidiary nor
any Related Entity has ever had any obligation to contribute to any
multiemployer plan within the meaning of section 4001(a)(3) of ERISA that
is subject to Title IV of ERISA with respect to any of its employees. Each
of the Company and Subsidiaries is not and could not become subject to any
withdrawal liability within the meaning of section 4201 of ERISA with
respect to any multiemployer plan. Neither the Company, nor any Subsidiary,
nor any Related Entity has ever been a substantial employer within the
meaning of section 4001(a)(2) of ERISA with respect to any single-employer
plan within the meaning of section 4001(a)(15) of ERISA that is subject to
Title IV of ERISA.
(t) Capitalized Leases. Except as disclosed on Exhibit 2.2(t), the
Company and Subsidiaries have no capitalized leases.
(u) Guaranties. The Company and Subsidiaries are not a party to any
guaranty, repurchase agreements or other credit accommodations which
accommodate the credit of another person.
(v) Litigation. Except as disclosed in Exhibit 2.2(v), there are no
(i) claims, suits, actions, citations, administrative or arbitration or
other proceedings or governmental investigations pending or, to the best
knowledge of the Company and Subsidiaries, threatened against the Company
or Subsidiaries or to which any of the Company or Subsidiaries is a party
or relating to any of the properties, businesses or business practices of
the Company or Subsidiaries or the transactions contemplated by this
Agreement (including but not limited to proceedings and investigations
related to Environmental Laws, civil rights, discrimination in employment
and occupational safety and health) or (ii) judgments, orders, writs,
injunctions or decrees of any court or administrative agency involving any
of the Company or Subsidiaries or affecting its assets or business.
(w) Management Personnel. To the best of the Company's and
Subsidiaries' knowledge, none of the management personnel of the Company
and Subsidiaries has been convicted of a criminal act (other than a traffic
violation) during the ten-year period immediately preceding the date of
this Agreement.
(x) Absence of Changes. Except for a decline in sales and profits as
reflected in the Company's interim financial statements dated March 18,
1997 and covering the time period from January 1, 1997 through February 28,
1997, since December 31, 1996, there has not been (i) any material adverse
change in the financial condition, assets, liabilities, business or
properties of the Company or Subsidiaries, (ii) any damage to, destruction
of or loss of property, whether or not covered by insurance, materially
adversely affecting the property or business of the Company or
Subsidiaries, (iii) any material changes in compensation or bonus payments
or arrangements for any employees of the Company or Subsidiaries, (iv) any
sale or transfer of any assets of the Company or Subsidiaries other than in
the ordinary course of its business and consistent with past practice, (v)
any cancellation or compromise of any debts or claims owed to the Company
or Subsidiaries other than in the ordinary course of its business and
consistent with past practice, (vi) any transaction not in the ordinary
course of the Company's or Subsidiaries business
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and consistent with past practice, or (vii) any amendment or termination of
any contract or agreement which materially adversely affects the assets or
business of the Company or Subsidiaries.
(y) Delivery of Exhibits. All exhibits referred to in Section 2.1 and
this Section 2.2 were prepared and delivered pursuant to the Initial
Agreement and shall be deemed to have been prepared and delivered pursuant
to this Agreement.
(z) No Side Agreements. Except for this Agreement and the items
listed in the exhibits hereto, the Company and Subsidiaries are not a party
to any agreement calling for any action by the Company or Subsidiaries
outside of the ordinary course of business; no agreement or understanding
exists calling for any payment or consideration from a customer or supplier
of the Company or Subsidiaries to an officer, director or shareholder of
the Company or Subsidiaries respecting any transaction between the Company
or Subsidiaries and such supplier or customer; and, except as disclosed in
Exhibit 2.2(o), no affiliate of the Company or Subsidiaries , directly or
through any business concern affiliated with such affiliate, transacts any
business with the Company or Subsidiaries except for employment disclosed
pursuant to Section 2.2(m) hereof.
(aa) Customers. Except as set forth in Exhibit 2.2(aa) hereto, no
single customer or group of affiliated customers has accounted for more
than ten percent of the Company's consolidated gross sales during any of
the Company's last two fiscal years.
(bb) Suppliers. No single supplier or group of affiliated suppliers
has supplied the Company or any Subsidiary with products which would
account for more than ten percent of the Company's consolidated gross
purchases during any of the Company's last two fiscal years.
(cc) Title to Assets. Except as disclosed on Exhibit 2.2(cc), there
are no liens, claims, security interests, mortgages, easements,
restrictions, charges or encumbrances affecting any of the Company's or
Subsidiaries' assets or the Company's Facilities owned by the Company or a
Subsidiary and, at the Closing, each of the Company and Subsidiaries will
have good and marketable title to or a valid leasehold interest in its
assets and the Company's Facilities.
(dd) Machinery and Equipment. All of the Company's and Subsidiaries'
machinery and equipment is in good operating condition and repair, ordinary
wear and tear excepted. The machinery and equipment owned by the Company
and each Subsidiary at the Closing will be sufficient for the conduct of
the Company's and such Subsidiary's business as now conducted and will
constitute all machinery and equipment used by the Company and such
Subsidiary in its business as of December 31, 1996, except for items which
have been replaced with newer items of equal or greater value.
(ee) Truth of Representations. On the date of this Agreement and on
the date of the Closing, no representation or warranty of the Company in
this Agreement, nor any written statement or certificate executed by the
Company and furnished or to be furnished to API Portescap or API pursuant
to this Agreement or in connection with the transactions contemplated
hereby, contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the
statements contained therein not misleading.
2.3 Representations and Warranties of API Portescap. API Portescap
represents and warrants (except that, with respect to the API Subsidiaries, such
representations and warranties are given to the best of its knowledge) to Inter
Scan that:
(a) Corporate Standing and Authority. Each of API and API Portescap
is a corporation duly organized and validly existing under the laws of
Delaware and New York State, respectively, and has full corporate power and
authority to carry on its current business operations and consummate the
transactions contemplated by this Agreement. The execution of this
Agreement and consummation of the transactions contemplated herein will not
violate any provision of API Portescap's or API's Certificate of
Incorporation or By-Laws. This Agreement is a legal, valid and binding
agreement of API Portescap and API enforceable against API Portescap and
API in accordance with its terms, subject to the laws of bankruptcy,
insolvency and moratorium and other laws or equitable principles generally
affecting
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creditors' rights. Each of API Portescap and API has obtained all necessary
authorization and approval by its Board of Directors for the execution of
this Agreement and the consummation of the transactions contemplated
hereby, subject to the approval of API's shareholders referred to in
Section 4.2(a) below. Complete and correct copies of the Certificates of
Incorporation and By-Laws of API and API Portescap have been made available
to Inter Scan.
(b) Capitalization of API. The capitalization of API is set forth on
Exhibit 2.3(b) hereto. Except as disclosed on Exhibit 2.3(b), (i) API has
no other class of stock authorized or outstanding, (ii) no shares of API's
capital stock have been reserved for any purpose, (iii) there are no
outstanding securities of API that are convertible into shares of API's
capital stock and (iv) there are no options, warrants, calls, commitments,
rights or understandings of any character to purchase or otherwise acquire
from API any shares of API's capital stock, or any convertible security or
other security issued or to be issued by API. Except as disclosed in
Exhibit 2.3(b) hereto and except for equity interests having a fair market
value of $5,000 or less, API has no equity interest in and has made no
advances to any corporation, association, partnership, joint venture or
other entity (each entity listed on Exhibit 2.3(b), with respect to which
API owns or controls 51% or more of the equity, hereinafter referred to as
an "API Subsidiary", and such entities referred to collectively as "API
Subsidiaries"). The shares of Series A and Series B Preferred Stock, upon
their issuance to Inter Scan in accordance with the terms hereof, and any
shares of API's common stock issued upon the conversion of any such
Preferred Stock in accordance with the terms thereof, shall be duly
authorized, validly issued and outstanding, fully paid and non-assessable.
(c) Directors and Officers. Attached hereto as Exhibit 2.3(c) is a
list of all directors and officers of API and each API Subsidiary.
(d) Absence of Conflicting Agreements or Required Consents. The
execution, delivery and performance of this Agreement by API Portescap and
API do not and will not: (i) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to API Portescap, any API
Subsidiary or API or by which any of them is bound or affected, (ii) result
in any breach of or constitute a default under any note, bond, mortgage,
indenture, lease, license, franchise or other instrument or obligation to
which API Portescap, any API Subsidiary or API is a party (except that
certain waivers will be required in connection with certain commercial loan
indebtedness owing by API which waivers will be obtained prior to Closing),
or (iii) require any consent, approval, authorization or permit of, or
filing with or notification to, any governmental or regulatory authority,
domestic or foreign, or any person or entity not a party to this Agreement
(except for such filings as may be required under the Securities Exchange
Act of 1934 and applicable requirements if any, arising under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
rules and regulations promulgated thereunder, collectively the "HSR Act",
in connection with any conversion of the Preferred Stock into shares of API
common stock).
(e) Financial Statements. API has furnished or will furnish Inter
Scan with: (i) API's income tax returns for the fiscal years ended December
31, 1993, December 30, 1994 and December 29, 1995; (ii) API's consolidated
financial statements as at December 31, 1993, December 30, 1994, December
29, 1995 and January 3, 1997 and for the years then ended audited by Price
Waterhouse LLP (collectively referred to as the "API Financial
Statements"). The API Financial Statements have been prepared in accordance
with U.S. generally accepted accounting principles consistently applied
throughout the periods indicated. The API Financial Statements fairly
present the consolidated results of the operations of API and the API
Subsidiaries and the consolidated financial position of such entities for
the periods indicated.
(f) API Subsidiaries' Corporate Standing and Authority; Binding
Agreement. Each of the API Subsidiaries is a corporation duly organized
and validly existing under the laws of the jurisdiction identified on
Exhibit 2.3(f) hereto, has full corporate power to own all of its
properties and assets and to conduct its business as it is now being
conducted. The execution of this Agreement and consummation of the
transactions contemplated herein will not violate any provision of any API
Subsidiary's Certificate of Incorporation or By-Laws. Complete and correct
copies of the Certificate of Incorporation and ByLaws of each API
Subsidiary have been made available to Inter Scan.
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(g) Title to API Subsidiaries' Stock. API has good and marketable
title (either directly or through a wholly owned subsidiary) to all
outstanding shares of the capital stock of the API Subsidiaries referenced
on Exhibit 2.3(b).
(h) Corporate Records. API's and each API Subsidiary's corporate
record books are complete, accurate and up to date with all necessary
signatures and set forth all meetings and actions taken by its shareholders
and directors. API's and each API Subsidiary's stock transfer books and
stock ledgers are each complete, accurate and up to date with all necessary
signatures and set forth all stock and securities issued, transferred or
surrendered, together with evidence of any required stock transfer tax
information in conformity with all applicable requirements. API and each
API Subsidiary makes and keeps accurate books and records reflecting its
assets and maintains internal accounting controls that provide reasonable
assurance that (i) transactions are executed with management's
authorization, (ii) transactions are recorded as necessary to permit
preparation of API's and each API Subsidiary's financial statements and to
maintain accountability for its assets, (iii) access to its assets is
permitted only in accordance with management's authorization, and (iv) the
recorded accountability of its assets other than property, plant or
equipment is compared with existing assets at reasonable intervals.
(i) Liabilities. There are no liabilities or obligations of API or
any API Subsidiary of any kind, whether accrued, absolute, contingent or
otherwise, except (i) as indicated in the API Financial Statements and (ii)
liabilities or obligations arising since the date of the most recent
Financial Statement which (A) were incurred in the ordinary and usual
course of API's or API Subsidiary's business and (B) are in types and
amounts consistent with API's or API Subsidiary's past practices and
experience.
(j) Taxes. API and each API Subsidiary has filed all tax returns and
reports which are required by law to be filed and has paid or set up an
adequate reserve for the payment of all Taxes (as defined in Section 8.1(c)
below) required to be paid in respect of the periods covered by those
returns and reports and Taxes which have or may become due pursuant to
those returns and reports, and all assessments made and all other accrued
Taxes whether or not the returns, reports or payments are yet due. Exhibit
2.3(j) sets forth the most recent years during the past five years for
which income, sales and use, value added, employment and any other material
tax returns of API and API Subsidiaries have been examined by any taxing
authority. All filed tax returns and reports of API and each API Subsidiary
are correct and true in all material respects and, except as disclosed in
Exhibit 2.3(j), there is no outstanding claimed deficiency with respect to
any tax period, no formal or informal notice of a proposed deficiency, no
notification of any pending audit of tax returns and reports and no waiver
or extension granted to API or any API Subsidiary with respect to any
period of limitations affecting assessment of any Taxes.
(k) Inventories. API's and each API Subsidiary's inventory: (i)
complies with all applicable laws and regulations (including all applicable
laws and regulations of the United States and each of the states of the
United States into which any such inventory may be shipped); (ii) complies
with all legal requirements applicable to any Hazardous Substance or any
substance which was the subject of a pre-manufacturing notice filed with
the United States Environmental Protection Agency under the Toxic Substance
Control Act, as amended, 15 U.S.C. Sections 2601 et seq., and (iii) does
not consist of any damaged or obsolete items which API considers obsolete
(except to the extent that a reserve therefor is included in such party's
regularly prepared financial statements). The inventories reflected in such
financial statements have been or will be acquired in the ordinary course
of business of API or an API Subsidiary, as applicable, in accordance with
its normal inventory practices and are or will be stated in accordance with
U.S. generally accepted accounting principles consistently applied.
(l) Non-Infringement of Patents, Trademarks and Other Intellectual
Property. Exhibit 2.3(l) contains a complete and correct list of all of
the patents, copyrights, trademarks, trade names, service marks and domain
names owned or used by API and the API Subsidiaries (such items, along with
any trade secrets, industrial designs and technical know-how owned or used
by API and the API Subsidiaries, is hereinafter referred to collectively as
the "API Intellectual Property"). Exhibit 2.3(l) also contains a list of
API's and the API Subsidiaries' applications and registrations in any
governmental office or registry with respect to any API Intellectual
Property. Except as disclosed in Exhibit 2.3(l), the API
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<PAGE> 20
Intellectual Property is owned by API and is free and clear of any license,
sublicense, lien, charge or encumbrance. The API Intellectual Property
owned by API and the API Subsidiaries immediately following the Closing,
will constitute all intellectual property rights necessary to conduct API's
and the API Subsidiaries' business as it is currently conducted. None of
the API Intellectual Property has a material defect or been misappropriated
from any third party. API and each API Subsidiary is not infringing upon or
otherwise violating any intellectual property rights of any third party,
and API's and each API Subsidiary's continued use of any and all of the API
Intellectual Property after the Closing in a manner consistent with API's
and each API Subsidiary's past practices shall not result in any such
infringement or violation. API and each API Subsidiary is not in default
under any license or sublicense agreement with a third party. Each of API
and the API Subsidiaries does not know of (1) any claim by a third party
that the use of the API Intellectual Property infringes or violates the
intellectual property rights of said third party, (2) any infringement or
violation by a third party of API's and each API Subsidiary's rights in the
API Intellectual Property or any default by a third party under a license
or sublicense agreement with API or (3) any claim for cancellation on the
basis of non-use of any API Intellectual Property.
(m) Operations and Use of Properties. API's and each API Subsidiary's
operations, business and properties, including leased properties, are in
conformity in all material respects with all applicable laws, ordinances,
regulations or orders (including without limitation zoning, land use and
building codes and motor vehicle registration, permitting, inspection and
operation). API's and each API Subsidiary's assets are reasonably
sufficient for the conduct of API's and such API Subsidiary's business as
it currently is conducted. API and the API Subsidiaries do not own or
lease, directly or indirectly, any real property other than the real
property listed on Exhibit 2.3(m). With respect to such real property,
there are no (i) buildings of historic interest included therein, (ii)
public restrictions on the disposition thereof, (iii) obligations regarding
the construction, maintenance or adoption of any highway or conduit or
stipulated by public law or (iv) options or rights of pre-emption.
(n) Licenses. API and each API Subsidiary has all material licenses,
permits, approvals and other governmental authorizations necessary to own
all of its properties and assets and carry on its business as now being
conducted (collectively, the "API Licenses"). Except as disclosed on
Exhibit 2.3(n), each API License is valid and in full force and effect. The
continuation, validity and effectiveness of each API License will in no way
be affected by the consummation of the transactions contemplated by this
Agreement. API and each API Subsidiary has not breached any material
provision of, is not in default under the material terms of, and has not
engaged in any activity that would cause revocation or suspension of, any
material API License and no action or proceeding looking to or
contemplating the revocation or suspension of any such API License is
pending or, to API's or API Subsidiaries' knowledge, threatened.
(o) Insurance. API and each API Subsidiary is covered by valid and
currently effective insurance policies issued in favor of the API or such
API Subsidiary in amounts which are, in the API's best judgment after
advice from its insurance advisers, appropriate to its situation and
operations. API and each API Subsidiary has been insured for products
liability continuously since January 1, 1987, or, with respect to each API
Subsidiary, the date of formation or acquisition of such API Subsidiary, if
later.
(p) Environmental Matters. API and each API Subsidiary has been, and
currently is, in full compliance in all material respects with all
applicable Environmental Laws (i) at all property or facilities owned or
leased by API and the API Subsidiaries (collectively, "API's Facilities")
and (ii) in connection with all operations of API and the API Subsidiaries
regardless of whether conducted at API's Facilities. There has not been any
disposal, release or threatened release of any Hazardous Substance or
Hazardous Waste at any of the API's Facilities that was not in compliance
with Environmental Laws. To its knowledge, no asbestos, urea-formaldehyde
foam or other forms of urea formaldehyde have been installed or are
included in the furnishing or construction of any building or other
improvement at API's Facilities that violates applicable Environmental
Laws. Each of API and the API Subsidiaries has made no disposal of any
Hazardous Waste or Hazardous Substance at any site currently listed
pursuant to 42 U.S.C. sec.9605(a)(8)(B) (or pursuant to any similar law or
regulation identifying hazardous sites) or, to
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<PAGE> 21
the best knowledge of the API Subsidiaries, any site currently being
investigated for such listing pursuant to any such law or regulation. There
are no pending or threatened claims with respect to Hazardous Substances or
Hazardous Waste relating to any of the API's Facilities or relating to any
operations of API or the API Subsidiaries regardless of whether conducted
at the API's Facilities, and no API Subsidiary knows of any basis for a
claim being made against API or the API Subsidiaries with respect to any
Hazardous Substance or Hazardous Waste or under any law or regulation for
the protection of the environment.
(q) Receivables. All accounts receivable, notes receivable and other
receivables reflected in the API Financial Statements (the "API Accounts
Receivable") of API and the API Subsidiaries have been properly recorded on
API's and the API Subsidiaries' books and arose in connection with the sale
of goods and services in the ordinary course of business. The reserve which
will be established in the audited consolidated balance sheet of API for
fiscal year 1996 for doubtful API Accounts Receivable will be determined in
accordance with U.S. generally accepted accounting principles consistently
applied.
(r) Employees and Labor Laws. In last five years, there have been no
strikes, lockouts or other material labor disputes or demands for
recognition of a union as collective bargaining agent for all or any part
of API's or the API Subsidiaries' employees, and each of API and the API
Subsidiaries is not a party to any collective bargaining or other labor
agreement except for those described in Exhibit 2.3(r). Except as disclosed
in Exhibit 2.3(r), each of API and the API Subsidiaries has no written
agreements of employment and no oral agreements or understandings with any
employee as to any specific period of employment. API and each API
Subsidiary is in compliance in all material respects with all applicable
laws and regulations relating to the employment of labor, including
provisions relating to wages, fringe benefits, hours, working conditions,
occupational safety and health, safety of the premises, collective
bargaining, payment of social security and unemployment taxes, civil rights
and discrimination in hiring, retention, promotion, pay and other
conditions of employment; and API and each API Subsidiary is not liable for
arrears on wages or any tax or penalties for failure to comply with those
laws or regulations. There are no oral agreements or understandings with
employees except as to current salary or wage rates and no other oral
agreements or understandings which will affect API's or any API
Subsidiary's employment practices or operations.
(s) Product Labeling and Product Liability. API and each API
Subsidiary is in compliance in all material respects with all applicable
laws and regulations relating to product labeling, product safety and
public health and safety. Except as disclosed in Exhibit 2.3(s), API and
each API Subsidiary has not received any notice of any claim that any
product now or heretofore offered for sale or sold by it or distributed by
it in connection with product sales is injurious to the health and safety
of any person or is not in conformity with its specifications or not
suitable for any purpose or application for which it is offered for sale,
sold or distributed.
(t) Validity and Existence of Agreements. Exhibit 2.3(t) sets forth
and briefly describes all the following with respect to API and each API
Subsidiary (collectively referred to as the "API Contracts"):
(1) Each written agreement, contract, arrangement, commitment,
understanding or obligation to which any of API or the API Subsidiaries
is a party or by which it or its properties is or may be bound
(including without limitation quotations by API or API Subsidiary to
current or potential customers which purport to be binding on API or any
API Subsidiary for a certain time period) which (A) was entered into in
the ordinary course of business and (i) involves the payment of
consideration or delivery of goods or services by API or any API
Subsidiary with a value in excess of $1,000,000 or (ii) has a remaining
term of more than one year which cannot be terminated by API or any API
Subsidiary without penalty upon one year's (or less) notice and involves
the payment of consideration or delivery of goods or services by API or
any API Subsidiary with a value in excess of $400,000 or (B) was entered
into out of the ordinary course of business and involves the payment of
consideration or delivery of goods or services by API or any API
Subsidiary with a value in excess of $50,000;
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(2) Each instrument (i) evidencing any liability of API or any API
Subsidiary for borrowed money or for the obligations of any third party,
(ii) defining the terms on which any other debt of API or any API
Subsidiary has been or may be issued or incurred; or (iii) evidencing
any liability of any third party for the obligations of API or any API
Subsidiary.
(3) All agreements, contracts, arrangements, commitments,
understandings or obligations, oral or written, limiting in any respect
the freedom of API or any API Subsidiary or any of its key employees to
compete in any line of business or with any person or to do business
with any particular customers or class of customers or to carry on
business in any geographic area;
(4) All agreements, contracts, arrangements, commitments,
understandings, or obligations, oral or written, relating to API or any
API Subsidiary, its business, operations, prospects, properties, assets
or condition (financial or otherwise) in which API has any interest,
direct or indirect, including a description of any transactions between
any API Subsidiary and API or any entity in which API has any interest;
and
(5) All agreements, contracts, arrangements, commitments,
understandings or obligations, oral or written, between API or any API
Subsidiary and not covered in (4) above.
API has delivered or made available to Inter Scan a true and
complete copy of each written API Contract, which copies accurately
reflect the understanding of API with respect to the API Contracts. API
has delivered or made available to Inter Scan a fair and accurate
summary of each oral API Contract listed on Exhibit 2.3(t). Each of the
API Contracts listed on Exhibit 2.3(t) is a valid and binding obligation
of the parties thereto in accordance with its respective terms (except
with respect to quotations by API or any API Subsidiary which have not
been accepted by the recipient thereof), and API or the applicable API
Subsidiary has performed and complied in all material respects with all
the provisions of, and no party is in default or would be in default
with the lapse of time or notice under the terms of, any of the API
Contracts. The execution of this Agreement and the consummation of the
transactions contemplated hereby will not violate any provision of any
of the API Contracts and will not result in or create a right of
termination, cancellation or adverse modification of any of the API
Contracts.
(u) Employee Benefit Plans.
(1) Exhibit 2.3(u) lists all employee pension benefit plans, all
employee welfare benefit plans , all fringe benefit plans, and all
executive compensation, retirement, supplemental retirement, deferred
compensation, incentive, bonus, severance, compensation associated with
change in control, perquisite, health care, death benefit, medical,
disability, life insurance, vacation pay, sick pay or other plans,
programs, and arrangements, whether or not government-mandated, to which
API or any API Subsidiary is or has been a party, with respect to which
API or any API Subsidiary has an obligation, that have been or are
maintained, contributed to, or sponsored by API or any API Subsidiary
for the benefit of any current or former employee, officer, or director
or that relate to API or any API Subsidiary, and are in effect or in
connection with which any obligation remains on the date of this
Agreement or that by their present terms will become effective after the
date of this Agreement (such plans, programs, and arrangements to be
referred to collectively as "API Employee Benefit Plans").
(2) API has delivered or made available to Inter Scan a complete
and accurate copy of each API Employee Benefit Plan document (including
all amendments) and a complete and accurate copy of all documents
relating to such API Employee Benefit Plan, including, if applicable:
(A) each trust agreement, insurance or annuity contract, investment
management agreement, custodial agreement, and other agreement relating
to the funding of the API Employee Benefit Plan, and all amendments to
them; (B) the most recent summary plan description and any subsequent
summary of material modifications or other material disclosure
information furnished to participants; (C) the three most recently
prepared or filed annual returns or reports, including all applicable
schedules; (D) if the API Employee Benefit Plan is intended to qualify
under or satisfy
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<PAGE> 23
requirements of the tax law of the relevant jurisdiction, the most
recent determination letter or other notice of qualification or approval
issued by the relevant government authority, the application submitted
for it, any correspondence with the relevant government authority in
connection with the determination letter or other notice of
qualification or approval, and any pending application for a
determination letter or other notice of qualification or approval; (E)
the three most recent financial statements; and (F) the three most
recent actuarial valuation reports.
(3) Each API Employee Benefit Plan is now and always has been
operated in all material respects in accordance with its terms and the
requirements of all applicable laws. For the purposes of Section 2.3(u),
(v), and (w), the term "law" includes, without limitation, those
particular laws to which the following provisions of Section 2.3(u),
(v), and (w) refer, laws relating to, regulating, or mandating the
provision of social welfare, pension, or other benefits for employees,
all provisions of the relevant tax law applicable to secure intended tax
consequences, securities law, and all regulations and authoritative
court and administrative rulings under such laws. All persons who
participate in the operation of the API Employee Benefit Plans and all
API Employee Benefit Plan fiduciaries have always acted in all material
respects in accordance with the provisions of all applicable law of the
relevant jurisdiction. API and the API Subsidiaries have performed all
obligations required to be performed by them under, are not in any
material respect in default under or in violation of, and have no
knowledge of any material default or violation by any party to, any API
Employee Benefit Plan. No legal action, suit, claim, or governmental
proceeding or investigation is pending or, to the knowledge of API or
any API Subsidiary, threatened or imminent with respect to any API
Employee Benefit Plan (other than claims for benefits in the ordinary
course) and, to the knowledge of API or any API Subsidiary, no fact or
event exists that could give rise to any such action, suit, claim, or
governmental proceeding or investigation which is meritorious.
(4) The administrator of each API Employee Benefit Plan has
complied with all applicable laws of the relevant jurisdiction regarding
reporting to the relevant government authority and disclosure to
participants and beneficiaries. Each summary plan description, summary
of material modifications, and other material disclosure information
furnished to participants and beneficiaries with respect to each API
Employee Benefit Plan describes the plan accurately and comprehensively
in accordance with any applicable requirements of the law of the
relevant jurisdiction, and each annual report or return prepared or
filed with respect to each such plan, including all schedules and
attachments, is correct and accurate as of the date of filing.
(5) With respect to any API Employee Benefit Plan that provides
pension or retirement or other post-employment compensation ("Pension
Plan") and that is intended to qualify under or satisfy applicable
requirements of the tax law of the relevant jurisdiction (in the case of
any plan covering U.S. employees, section 401(a) of the Internal Revenue
Code of 1986, as amended (the "Code")), each such Pension Plan qualifies
under or satisfies the applicable requirements of the tax law of the
relevant jurisdiction, and any trust through which such Pension Plan is
funded is exempt, to the extent intended, from tax; if a determination
letter or other notice of qualification or approval would be available
from a government authority to indicate that such a plan does qualify
under or satisfies the applicable requirements of the tax law of the
relevant jurisdiction, the Pension Plan as amended through the date of
this Agreement has obtained such a letter or other notice. Nothing has
occurred that could adversely affect the qualified or satisfactory or
approved status of such Pension Plan or trust under the tax law of the
relevant jurisdiction.
(6) No person has acted or failed to act in connection with any API
Employee Benefit Plan in a manner that would subject API or any API
Subsidiary to direct or indirect liability, by indemnity or otherwise,
for a breach of any fiduciary duty.
(7) Neither API nor any API Subsidiary has incurred liability for
any excise tax arising under section 4971, 4972, 4980, or 4980B of the
Code, and no fact or event exists that could give rise to any such
liability.
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(8) Neither API nor any API Subsidiary has incurred liability under
Title IV of the Employee Retirement Income Security Act of 1974, as
amended, ("ERISA") (other than liability for premiums to the Pension
Benefit Guaranty Corporation ("PBGC") arising in the ordinary course),
and, to the knowledge of API and each API Subsidiary, no fact or event
exists that could give rise to such liability. No complete or partial
termination has occurred within the past five years with respect to any
Pension Plan subject to Title IV of ERISA or that is intended to be
qualified under section 401(a) of the Code. No reportable event (within
the meaning of section 4043 of ERISA) or event described in section
4063(a) of ERISA has occurred or is expected to occur with respect to
any Pension Plan subject to Title IV of ERISA. No proceeding has been
instituted by the PBGC to terminate any Pension Plan, nor has any notice
of intent to terminate any Pension Plan been filed with the PBGC. All
premiums due the PBGC have been paid in full on a timely basis.
(9) No Pension Plan subject to section 302 of ERISA or section 412
of the Code has had an accumulated funding deficiency (within the
meaning of section 302 of ERISA or section 412 of the Code), whether or
not waived. No asset of API or any API Subsidiary is the subject of a
lien arising under section 302(f) of ERISA or section 412(n) of the
Code. Neither API nor any API Subsidiary has been required to post
security under section 307 of ERISA or section 401(a)(29) of the Code,
and no fact or event exists that could give rise to such a lien or
requirement to post any such security.
(10) All contributions, insurance premiums, and payments required
to be made with respect to each API Employee Benefit Plan, whether by
the terms of the plan, applicable law of the relevant jurisdiction, or
agreement with employees, have been made by their due dates. Each API
Employee Benefit Plan has assets sufficient to satisfy any applicable
laws of the relevant jurisdiction regarding the level of funding
required in relation to the plan's obligation to pay benefits.
(11) As to each Pension Plan subject to U.S. law that is a defined
benefit plan (as defined in section 3(35) of ERISA) and that is subject
to section 302 of ERISA or section 412 of the Code, and as to each other
Pension Plan for which the applicable law of the relevant jurisdiction
requires an actuarial valuation, the most recent actuarial valuation
report accurately reflects the value of the plan assets and liabilities
as of the date of such valuation based on the funding method and
actuarial assumptions specified in the report, all employee census data
furnished to the plan's actuary in connection with such valuation and
prior valuations has been accurate and complete in all material
respects, and nothing has occurred since the date of such valuation that
would have a materially adverse effect on the funding condition of the
Pension Plan.
(12) Except as disclosed on Exhibit 2.3(u), no API Employee Benefit
Plan, and no other commitment or agreement, provides for the payment of
separation, severance, or similar benefits to any person solely as a
result of any transaction contemplated by this Agreement or as a result
of a "change in control", however defined, and the consummation of the
transaction contemplated by this Agreement will not accelerate the time
of payment or vesting of, or increase the amount of, any compensation or
benefit due to any current or former employee.
(13) Except as indicated in the API financial statements or Exhibit
2.3(u), neither API nor any API Subsidiary has any liability with
respect to any employee, officer, director or former officer, director
or employee for post-employment benefits, other than those associated
with the Pension Plans, and other than as required by section 4980B of
the Code and Part 6 of Title I of ERISA or by applicable law of the
relevant jurisdiction.
(14) There has been no representation made to or communication with
any employee that is not in accordance with the existing terms and
limitations of the API Employee Benefit Plans. Neither API nor any API
Subsidiary has made any commitment to modify any, or create any other,
API Employee Benefit Plan.
(v) Related Entities. To the best of API Portescap's knowledge,
neither API nor any API Subsidiary is or could become subject to any
obligation or liability with respect to an API Related Entity Benefit Plan
(as defined below), whether under Title IV of ERISA, section 4980B of the
Code, the
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provisions of any applicable law of any relevant jurisdiction, or the terms
of any API Related Entity Benefit Plan. "API Related Entity Benefit Plan"
means any employee pension benefit plan, employee welfare benefit plan,
fringe benefit plan, or executive compensation, retirement, supplemental
retirement, deferred compensation, incentive, bonus, severance,
compensation associated with change in control, perquisite, health care,
death benefit, medical, disability, life insurance, vacation pay, sick pay
or other plan, program, or arrangement, whether or not government-mandated,
to which an API Related Entity (as defined in the next sentence) is or has
been a party, with respect to which an API Related Entity has an
obligation, or that has been or is maintained, contributed to, or sponsored
by an API Related Entity for the benefit of any current or former employee,
officer, or director, that relates to an API Related Entity and is in
effect or in connection with which any obligation remains on the date of
this Agreement or that by its present terms will become effective after the
date of this Agreement. For the purposes of Section 2.3(v) and (w), an "API
Related Entity" means (i) a current or former member of a controlled group
including API or any API Subsidiary (within the meaning of section 414(b)
or (c) of the Code), (ii) a current or former member of an affiliated
service group including API or any API Subsidiary (within the meaning of
section 414(m) or (o) of the Code), or (iii) any other entity that is or
was related, directly or indirectly, by common ownership or control, with
API or any API Subsidiary, provided, however, that the term an "API Related
Entity" does not include API or the API Subsidiaries.
(w) Multiemployer Plans. Except as disclosed on Exhibit 2.3(w), (i)
neither API, nor any API Subsidiary, nor any API Related Entity has ever
had any obligation to contribute to any multiemployer plan within the
meaning of section 4001(a)(3) of ERISA that is subject to Title IV of ERISA
with respect to any of its employees, (ii) each of API and the API
Subsidiaries is not and could not become subject to any withdrawal
liability within the meaning of section 4201 of ERISA with respect to any
multiemployer plan and (iii) neither API, nor any API Subsidiary, nor any
API Related Entity has ever been a substantial employer within the meaning
of section 4001(a)(2) of ERISA with respect to any single-employer plan
within the meaning of section 4001(a)(15) of ERISA that is subject to Title
IV of ERISA.
(x) Capitalized Leases. Except as disclosed on Exhibit 2.3(x), API
and the API Subsidiaries have no capital leases.
(y) Guaranties. Except as disclosed in Exhibit 2.3(y), API and the
API Subsidiaries are not a party to any guaranty, repurchase agreements or
other credit accommodations which accommodate the credit of another person.
(z) Litigation. Except as disclosed in Exhibit 2.3(z), there are no
(i) claims, suits, actions, citations, administrative or arbitration or
other proceedings or governmental investigations pending or, to the best
knowledge of API or the API Subsidiaries threatened against API or API
Subsidiaries or to which any of API or API Subsidiaries is a party or
relating to any of the properties, businesses or business practices of API
or API Subsidiaries or the transactions contemplated by this Agreement
(including but not limited to proceedings and investigations related to
Environmental Laws, civil rights, discrimination in employment and
occupational safety and health) or (ii) judgments, orders, writs,
injunctions or decrees of any court or administrative agency involving any
of API or API Subsidiaries or affecting its assets or business.
(aa) Management Personnel. To the best of API's and the API
Subsidiaries' knowledge, none of the management personnel of API and the
API Subsidiaries has been convicted of a criminal act (other than a traffic
violation) during the ten-year period immediately preceding the date of
this Agreement.
(bb) Absence of Changes. Since January 3, 1997, there has not been
(i) any material adverse change in the financial condition, assets,
liabilities, business or properties of API or the API Subsidiaries, (ii)
any damage to, destruction of or loss of property, whether or not covered
by insurance, materially adversely affecting the property or business of
API or the API Subsidiaries, (iii) any material changes in compensation or
bonus payments or arrangements for any employees of API or the API
Subsidiaries, (iv) any sale or transfer of any assets of API or the API
Subsidiaries other than in the ordinary course of its business and
consistent with past practice, (v) any cancellation or compromise of any
debts or claims
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owed to API or the API Subsidiaries other than in the ordinary course of
its business and consistent with past practice, (vi) any transaction not in
the ordinary course of API's or the API Subsidiaries' business and
consistent with past practice, or (vii) any amendment or termination of any
contract or agreement which materially adversely affects the assets or
business of API or the API Subsidiaries.
(cc) Delivery of Exhibits. All exhibits referred to in this Section
2.3 were prepared and delivered pursuant to the Initial Agreement and shall
be deemed to have been prepared and delivered pursuant to this Agreement.
(dd) No Side Agreements. Except for this Agreement and the items
listed in the exhibits hereto, API and the API Subsidiaries are not a party
to any agreement calling for any action by API or the API Subsidiaries
outside of the ordinary course of business; no agreement or understanding
exists calling for any payment or consideration from a customer or supplier
of API or the API Subsidiaries to an officer, director or shareholder of
API or the API Subsidiaries respecting any transaction between API or the
API Subsidiaries and such supplier or customer; and, except as disclosed in
Exhibit 2.3(t), no affiliate of API or the API Subsidiaries, directly or
through any business concern affiliated with such affiliate, transacts any
business with API or the API Subsidiaries except for employment disclosed
pursuant to Section 2.3(r) hereof.
(ee) Customers. Except as set forth on Exhibit 2.3(ee) hereto, no
single customer or group of affiliated customers has accounted for more
than ten percent of API's consolidated gross sales during any of API's last
two fiscal years.
(ff) Suppliers. No single supplier or group of affiliated suppliers
has supplied API with products which would account for more than ten
percent of API's consolidated gross purchases during any of API's or such
API Subsidiary's last two fiscal years.
(gg) Title to Assets. Except as disclosed on Exhibit 2.3(gg), there
are no liens, claims, security interests, mortgages, easements,
restrictions, charges or encumbrances affecting any of API or the API
Subsidiaries' assets or the API's Facilities owned by API or an API
Subsidiary and, at the Closing, each of API and the API Subsidiaries will
have good and marketable title to or a valid leasehold interest in its
assets and the API's Facilities.
(hh) Machinery and Equipment. All of API's and the API Subsidiaries'
machinery and equipment is in good operating condition and repair, ordinary
wear and tear excepted. The machinery and equipment owned by API and each
API Subsidiary at the Closing will be sufficient for the conduct of API's
and such API Subsidiary's business as now conducted and will constitute all
machinery and equipment used by API and such API Subsidiary in its business
as of December 31, 1996, except for items which have been replaced with
newer items of equal or greater value.
(ii) Truth of Representations. On the date of this Agreement and on
the date of the Closing, no representation or warranty of API Portescap in
this Agreement, nor any written statement or certificate executed by API
Portescap and furnished or to be furnished to Inter Scan pursuant to this
Agreement or in connection with the transactions contemplated hereby
contains or will contain any untrue statement of a material fact or omits
or will omit to state a material fact necessary to make the statements
contained therein not misleading.
(jj) Securities Law Compliance. API Portescap acknowledges that none
of the Shares have been registered under the Securities Act or under any
state or foreign securities laws. API Portescap is purchasing the Shares
solely for investment, with no present intention to distribute any of the
Shares to any person. API Portescap will not sell or otherwise dispose of
any of the Shares except in compliance with the registration requirements
or exemption provisions under the Securities Act and the rules and
regulations promulgated thereunder and any other applicable securities
laws.
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ARTICLE III.
CERTAIN COVENANTS OF INTER SCAN, THE COMPANY AND SUBSIDIARIES
3.1 Negative Covenants of Inter Scan, the Company and
Subsidiaries. Between the date hereof and the date of the Closing, the Company
and Subsidiaries will not, and Inter Scan will take all action legally permitted
to assure that the Company and Subsidiaries will not, do any of the following
without API Portescap's prior written consent:
(a) Make any change in the compensation, bonuses, or benefits payable
to any employee of the Company or any Subsidiary except non-material
changes in the compensation of non-supervisory employees;
(b) Pay or discharge any claim, lien, encumbrance or liability
(whether absolute, accrued, contingent or otherwise and whether or not due
or to become due) other than in the ordinary course of business;
(c) Enter into any contract or commitment other than in the ordinary
course of business;
(d) Enter into any collective bargaining agreement or create, enter
into or amend any Employee Benefit Plan (unless required to do so by any
applicable law governing labor management relations or Employee Benefit
Plans);
(e) Create, assume or incur any encumbrance on any of the Company's or
any Subsidiary's assets other than in the ordinary course of business;
(f) Sell, assign, lease, exchange or otherwise transfer or dispose of
any of the Company's or any Subsidiary's assets other than in the ordinary
course of business;
(g) Merge or consolidate with or into any other entity or enter into
any agreements relating thereto;
(h) Accelerate the collection of accounts receivable or decelerate the
payment of accounts payable;
(i) Issue any capital stock or profit sharing certificates of the
Company or any Subsidiary of any class, any options, warrants, calls,
commitments or rights of any character to purchase capital stock or profit
sharing certificates of the Company or any Subsidiary, or any securities
convertible into shares of capital stock of the Company or any Subsidiary
or into options, warrants, calls, commitments or rights of any character to
purchase capital stock or profit sharing certificates of the Company or any
Subsidiary;
(j) Declare or pay any dividends in cash or in kind upon any capital
stock of the Company or any Subsidiary, return any capital to the
shareholders of the Company or any Subsidiary in the form of cash or
property other than cash, or pay or make any distribution of cash or
property other than cash to the shareholders of the Company or any
Subsidiary;
(k) Guarantee or otherwise accommodate the obligation of any person
except as results from the endorsement of negotiable instruments in the
ordinary course of business;
(l) Enter into any agreement or commitment to (i) purchase goods or
services in any single transaction having a purchase price exceeding CHF
100,000, (ii) make any capital expenditure in excess of CHF 100,000 or
other than in the normal and usual course of the Company's or any
Subsidiary's business or (iii) incur any material obligation or liability
other than in the normal and usual course of the Company's or any
Subsidiary's business;
(m) Amend the Articles of Incorporation, By-Laws or other corporate
documents of the Company or any Subsidiary;
(n) Incur or guarantee any obligation or liability for borrowed money
except for borrowings under existing credit facilities in the ordinary
course of business consistent with past practice;
(o) Cancel any debts owed to it or waive any material claim or right
of substantial value, except for compromises of trade debt in the ordinary
course of business;
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(p) Make any changes in its accounting methods, principles or
practices except as required by changes in the Accounting Principles;
(q) Pay, discharge or satisfy any claim, liability or obligation,
other than liabilities or obligations reflected or reserved against in the
Company's or any Subsidiary's accounts or incurred in the ordinary course
of business or consistent with past practice;
(r) Enter into or renew any lease for real property; or
(s) Take any action or agree, in writing or otherwise, to take any of
the foregoing actions or any action which would make any representation or
warranty in Sections 2.1 or 2.2 hereof untrue or incorrect.
3.2 Affirmative Covenants of Inter Scan, the Company and
Subsidiaries. Between the date hereof and the date of the Closing, except as
otherwise consented to or approved by API Portescap in writing, the Company and
Subsidiaries will, and Inter Scan will take such steps as are permitted by law
to cause the Company and Subsidiaries to:
(a) Make available to API and its counsel, accountants and other
representatives for examination all corporate and financial books and
records of the Company and Subsidiaries, the Company's Facilities, the
Company's and Subsidiaries' customers and all other matters reasonably
considered by API to be relevant to the business and affairs of the Company
and Subsidiaries (such examinations to take place during normal business
hours in a manner so as not to interfere with the Company's and
Subsidiaries' normal business operations);
(b) Operate the business of the Company and Subsidiaries substantially
as currently operated and only in the usual and ordinary course, and
consistent with that operation Inter Scan, the Company and Subsidiaries
will use their best efforts to preserve intact the Company's and
Subsidiaries' present business organization and goodwill of the Company's
and Subsidiaries' employees, customers, suppliers and others having
business relations with the Company, Subsidiaries and the Intellectual
Property;
(c) Maintain the Company's and Subsidiaries' books of account, records
and files substantially in the same manner as they are maintained as of the
date of this Agreement;
(d) Maintain the Company's and Subsidiaries' assets in customary
repair, order and condition, normal wear and tear excepted, replace all
items of machinery and equipment at time intervals consistent with past
practice and repair or replace, consistent with past practice, any of the
Company's and Subsidiaries' assets that may be damaged or destroyed;
(e) Maintain in force existing policies of insurance or substitute
policies providing reasonably comparable insurance coverage in amounts not
less than those in effect on the date of this Agreement;
(f) Pay obligations under all contracts, agreements, leases,
commitments, understandings, franchises, licenses or similar arrangements
as and when they become due; and
(g) Take all required corporate action to effectuate the transactions
contemplated by this Agreement.
ARTICLE IV.
COVENANTS OF API
4.1 Affirmative Covenants of API. Between the date hereof and the date of
the Closing, API will:
(a) Make available to Inter Scan and its counsel, accountants and
other representatives for examination all corporate and financial books and
records of API and the API Subsidiaries, API's and the API Subsidiaries'
facilities, API's and the API Subsidiaries' customers, and all other
matters reasonably considered by Inter Scan to be relevant to the business
and affairs of API and the API Subsidiaries (such examinations to take
place during normal business hours in a manner so as not to interfere with
API's and the API Subsidiaries' normal business operations);
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(b) Take all required action to authorize and issue the Series A
Preferred Stock as provided for in Exhibit 1.2(a)(i) and the Note as
provided for in Exhibit 1.2(a)(ii), the payment of the 5,500,000 CHF cash
portion of the Purchase Price, and the reservation for issuance of all
required shares of API's common stock issuable upon the conversion of
Series A Preferred Stock which shares of common stock shall be deemed to be
fully paid and nonassessable upon such conversion; and
(c) Exclude as a "triggering event" under any so called "take-over
defenses" or "shareholders' rights" plans which may be implemented by API
prior to the Closing Date, the acquisition or ownership by Inter Scan of
the Preferred Stock or the exercise by Inter Scan of its right to convert
the Preferred Stock into shares of API common stock or its ownership of
such shares of common stock; and, in the event of the occurrence of a
"triggering event", API will treat Inter Scan like its other shareholders
(other than any person, shareholder or group whose acquisition of API
securities is deemed to be a "triggering event") with respect to the
Preferred Stock and the shares of API common stock issuable upon the
conversion thereof.
4.2 Additional Covenants of API. If a Closing occurs under Article V, API
will:
(a) Use its best efforts to accomplish each of the following by April
30, 1998, (i) have its Board of Directors and shareholders adopt an
amendment to its certificate of incorporation authorizing 1,250,000 shares
of Series B Preferred Stock and increasing the common stock of API by at
least 1,000,000 shares, (ii) have that amendment duly filed with the
Secretary of State of the State of Delaware, (iii) have its shareholders
approve the issuance of all shares of common stock issuable upon the
conversion of all shares of Series B Preferred Stock issued to Inter Scan
pursuant to this Agreement, and (iv) have its shareholders elect the
nominee of Inter Scan, who shall be acceptable to API's Board of Directors,
to API's nine-person Board of Directors for a term expiring at the annual
meeting of shareholders in 2000.
(b) Make such payments, conversions, redemptions and exchanges as are
provided for in Exhibit 1.2(a)(i), Exhibit 1.2(a)(ii)and Exhibit 5.1(d)(1)
without delay and without asserting any claim, defense, counterclaim, set
off or the like which API or any of its affiliates may have against Inter
Scan to such payments, conversions, redemptions and exchanges;
(c) Ensure that any API common stock issued upon the conversion of the
Series A and Series B Preferred Stock will be duly authorized, validly
issued and outstanding, fully paid and non-assessable; and
(d) Exclude as a "triggering event" under any so called "take-over
defenses" or "shareholders' rights" plans which may be implemented by API
on or after the Closing Date, the acquisition or ownership by Inter Scan of
the Series A and Series B Preferred Stock or the exercise by Inter Scan of
its right to convert the Series A and Series B Preferred Stock into shares
of API common stock or its ownership of such shares of common stock; and,
in the event of the occurrence of a "triggering event", API will treat
Inter Scan like its other shareholders (other than any person, shareholder
or group whose acquisition of API securities is deemed to be a "triggering
event") with respect to the Series A and Series B Preferred Stock and the
shares of API common stock issuable upon the conversion thereof.
ARTICLE V.
CLOSING
5.1 Conditions to Inter Scan's Obligation to Close. The obligations of
Inter Scan to Close shall be subject to satisfaction of the following
conditions:
(a) Representations, Warranties and Covenants. The representations
and warranties of API Portescap set forth in Section 2.3 hereof shall be
true and correct as of the date of this Agreement and as of the Closing as
though those representations and warranties have been made at and as of
that time (except that such representations and warranties may be untrue or
incorrect to the extent that such untruths and inaccuracies do not have a
material adverse effect on (i) the financial condition, assets,
liabilities, or business of API and the API Subsidiaries taken as a whole
or (ii) the ability of API to issue the Series A Preferred Stock, the Note
and the cash payment of 5,500,000 CHF to Inter Scan in
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accordance with the terms hereof), and the covenants contained in Section
4.1 shall have been performed in all material respects.
(b) No Litigation. There shall not have been instituted or threatened
on or before the Closing any action or proceeding to restrict or prohibit
the transactions contemplated by this Agreement.
(c) Purchase Price and Payment of Debt to Affiliates. The
considerations required to be paid at the Closing pursuant to Section 1.2
shall have been paid; and at API Portescap's option either (i) the Company
shall repay indebtedness owing by it to Societe Privee de Gerance S.A. and
to STC Scandinavian Trading Company Interfinans AB which indebtedness shall
not exceed 1,750,000 CHF in principal plus interest accrued and unpaid
through the Closing Date (the "Debt to Affiliates") or (ii) API Portescap
or an affiliate thereof shall purchase the Debt to Affiliates from such
creditors for a purchase price equal to the outstanding principal and
interest owing thereunder.
(d) Shareholder and Registration Agreements. API shall have executed
and delivered to Inter Scan a Shareholder Agreement (the "Shareholder
Agreement") and Registration Agreement (the "Registration Agreement") in
the forms annexed hereto as Exhibit 5.1(d)(1) and (2) respectively.
(e) Appointment of Inter Scan's Representative to API's
Board. Effective at the Closing, the Board of Directors of API shall
appoint to the nine-person Board of Directors of API a nominee selected by
Inter Scan, who shall be acceptable to API's Board of Directors, in
accordance with Paragraph 2(a) of the Shareholder Agreement. The nominee
shall also be appointed to the Nominating Committee of API's Board of
Directors.
5.2 Conditions to API Portescap's Obligation to Close. The obligations of
API Portescap to Close shall be subject to satisfaction of the following
conditions:
(a) Representations, Warranties and Covenants. The representations
and warranties of Inter Scan and the Company set forth in Sections 2.1 and
2.2 hereof shall be true and correct as of the date of this Agreement and
as of the Closing as though those representations and warranties had been
made at and as of that time (except that such representations and
warranties may be untrue or incorrect to the extent that such untruths and
inaccuracies do not have a material adverse effect on (i) the financial
condition, assets, liabilities or business of the Company and Subsidiaries
taken as a whole or (ii) the ability of Inter Scan to transfer the Shares
to API Portescap in accordance with the terms hereof), and the covenants
contained in Sections 3.1 and 3.2 hereof shall have been performed in all
material respects.
(b) No Litigation. There shall not have been instituted or threatened
any action or proceeding to restrict or prohibit the transactions
contemplated by this Agreement.
(c) Conveyances. Inter Scan shall have delivered to API Portescap the
stock certificates for the Shares and instruments reasonably satisfactory
in form and substance to API Portescap and its counsel conveying good title
to all of the Shares, free and clear of all liens, encumbrances and
security interests.
(d) Resignations and Releases. API Portescap shall have received from
each current officer and director of the Company and Subsidiaries listed on
Exhibit 5.2(d) a letter by which he or she shall resign his or her
positions with the Company or Subsidiaries, as applicable, and Inter Scan
shall use its best efforts to obtain and, to the extent obtained, shall
deliver to API Portescap at Closing a letter from each such party which
grants the Company and Subsidiaries a general release. In addition, each
such officer and director shall assign to the Company or applicable
Subsidiary any shares of the capital stock of such entity held by such
party.
(e) Shareholder and Registration Agreements. Inter Scan shall have
executed and delivered to API the Registration Agreement and the
Shareholder Agreement.
5.3 Time and Place. The closing hereunder (the "Closing") shall, unless
the parties agree to another date or time, take place at 9:00 a.m. on July 8,
1997, (the "Closing Date") at a place to be agreed upon by the parties.
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5.4 Best Efforts to Satisfy Conditions. Each party shall use its best
efforts to secure promptly the satisfaction of the conditions to Closing.
5.5 Waiver of Conditions. Inter Scan and API Portescap may, at their
respective options, waive any conditions to their respective obligations to
Closing.
5.6 Termination of Agreement. This Agreement may be terminated at any time
prior to the Closing:
(a) by written agreement of all of the parties hereto;
(b) by API Portescap, if there has been (A) a material violation or
breach by Inter Scan or the Company of any of their respective agreements
or covenants contained in this Agreement or (B) a violation or breach by
Inter Scan or the Company of any of their respective representations or
warranties contained in this Agreement which violation or breach has a
material adverse effect on (i) the financial condition, assets, liabilities
or business of the Company and Subsidiaries taken as a whole or (ii) the
ability of Inter Scan to transfer the Shares to API Portescap in accordance
with the terms hereof, and (C) any such violation or breach described in
clauses (A) and (B) above has not been waived by API Portescap in writing;
or if there has been any event or occurrence which has rendered the
satisfaction of a condition to the obligations of API Portescap impossible
and the failure to satisfy such condition has a material adverse effect on
(A) (i) the financial condition, assets, liabilities or business of the
Company and Subsidiaries taken as a whole or (ii) the ability of Inter Scan
to transfer the Shares to API Portescap in accordance with the terms hereof
and (B) has not been waived by API Portescap in writing;
(c) by Inter Scan, if there has been (A) a material violation or
breach by API Portescap or API of any of its agreements or covenants
contained in this Agreement or (B) a violation or breach by API Portescap
or API of any of its representations or warranties which violation or
breach has a material adverse effect on (i) the financial condition,
assets, liabilities or business of API and the API Subsidiaries taken as a
whole or (ii) the ability of API to issue the Series A Preferred Stock and
the Note or to make the cash payment of 5,500,000 CHF to Inter Scan in
accordance with the terms hereof, and (C) any such violation or breach
described in clauses (A) and (B) above has not been waived by Inter Scan in
writing; or if there has been any event or occurrence which has rendered
the satisfaction of a condition to the obligations of Inter Scan impossible
and the failure to satisfy such condition has a material adverse effect on
(A) (i) the financial condition, assets, liabilities or business of API and
the API Subsidiaries taken as a whole or (ii) the ability of API to issue
the Series A Preferred Stock and the Note or to make the cash payment of
5,500,000 CHF to Inter Scan in accordance with the terms hereof and (B) has
not been waived by Inter Scan in writing; and
(d) by any party hereto if the Closing shall not have occurred on or
before July 31, 1997.
5.7 Procedure Upon Termination. In the event of termination by API
Portescap or by Inter Scan pursuant to Section 5.6 hereof, written notice
thereof shall forthwith be given to the other parties and the transactions
contemplated by this Agreement shall be terminated without further action by the
parties hereto. If the transactions contemplated by this Agreement are
terminated as provided herein:
(a) Each party, if requested, will redeliver all documents, work
papers and other material of any other party relating to the transactions
contemplated hereby, whether so obtained before or after the execution
hereof, to the party furnishing the same;
(b) All confidential information received by any party hereto with
respect to the business of any other party shall not be used or disclosed
to another person to the detriment of any other party; and
(c) No party hereto and none of their respective directors, officers,
stockholders, affiliates or controlling persons shall have any liability or
further obligation to any other party to this Agreement, except that each
party hereto shall remain liable for any claims arising as a result of any
breach of covenant by such party under this Agreement which occurs prior to
the date of termination of this Agreement.
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ARTICLE VI.
ACTIONS AFTER THE CLOSING
The parties covenant to take the following actions after the Closing Date:
6.1 Further Assurances. Each party shall cooperate with the other, and
execute and deliver, or cause to be executed and delivered, all such other
instruments, including, without limitation, instruments of conveyance,
assignment and transfer, and take all such other actions as may reasonably be
requested by the other party hereto from time to time, consistent with the terms
of this Agreement, in order to effectuate the provisions and purposes of this
Agreement.
6.2 HSR Act. Inter Scan agrees to make required filings, if any, arising
under the HSR Act in connection with any conversion of the Preferred Stock into
shares of API common stock. Inter Scan shall also be responsible for payment of
any fees payable in connection with any such filings. API agrees to cooperate
with Inter Scan as reasonably requested by Inter Scan in connection with any
such filings.
ARTICLE VII.
NON-COMPETITION AGREEMENTS
7.1 Non-Competition.
(a) The parties recognize that the value of the business being
purchased by API Portescap is dependent upon the particular method in which
each of the Company and Subsidiaries, has conducted the business and the
contacts of each of the Company and Subsidiaries with its customers and
that API Portescap is entering into this transaction with a view toward
that value. Accordingly, Inter Scan hereby agrees that, for a period of
three years and six months following Closing, it, and its Affiliates (as
defined below) shall not directly or indirectly:
(1) Have any interest (financial or otherwise) in, or accept
employment from, or serve in any capacity (such as owner, investor,
principal, agent, consultant, partner or otherwise) with, any person or
entity (other than API Portescap) which is engaged in the business of
selling or distributing anywhere in the world any of the types of
products or services that were manufactured or distributed by the
Company or any Subsidiary at any time during the one year period prior
to the Closing Date (collectively, the "Products"), or
(2) Sell Products to or solicit purchases of Products by customers
who were customers of the Company or any Subsidiary at the time of the
Closing or during the five-year period prior thereto.
The provisions of this Section 7.1(a) shall not be deemed to prohibit
or restrict (i) Inter Scan or any of its Affiliates from passive ownership,
in the aggregate beneficially or of record, of less than 5% of any class of
outstanding securities of any company the securities of which are listed on
a national securities exchange or are publicly traded on the Nasdaq
National Market or (ii) Mr. Holger Hjelm from maintaining his existing
investment in Feintechnik Bertsch GmbH & Co.
(b) Inter Scan acknowledges that the identity of the customers of the
Company and Subsidiaries, the engineering drawings and know-how of the
Company and Subsidiaries and the pricing policies, sales and marketing
strategies, employee training practices and other operating practices of
the Company and Subsidiaries are confidential and valuable proprietary
information of the Company and Subsidiaries. Inter Scan will not disclose
the identity of the customers, the engineering drawings and know-how of the
Company and Subsidiaries, or the Company's and Subsidiaries' sales
policies, strategies and employee training and operating practices to any
person or entity unless permitted in writing to do so by API Portescap or
required to do so by legal process. Inter Scan will transfer to API
Portescap at the Closing, and will not retain, any of its copies,
documents, manuals, summaries, memos, notes, computer programs, disks, and
database information, if any, in any form containing any of the above
described customer identities, engineering drawings and know-how, policies,
strategies and employee training and operating practices.
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(c) Inter Scan agrees that any court having jurisdiction may enter a
preliminary or permanent restraining order or injunction against Inter Scan
(without requiring API Portescap or the Company or any Subsidiary to (i)
prove any damages, irreparable harm or that money damages are insufficient
to compensate API Portescap, the Company or Subsidiaries, or (ii) post any
bond) in the event of actual or threatened breach of any of the provisions
of this Section. Any such relief shall not preclude API Portescap or the
Company or any Subsidiary from seeking any other relief at law or equity
with respect to any such claim.
(d) If any provision of this Section is deemed to be in violation of
law or unenforceable for any reason, the remainder of this Section shall
remain in full force and effect and shall continue to be binding upon Inter
Scan, and the parties agree that the court shall substitute a reasonable,
judicially enforceable limitation in place of the unenforceable provision
in order to serve the intent of the parties as expressed herein and the
reasonable business needs and expectations of API Portescap in purchasing
the Shares.
(e) Inter Scan agrees to exercise whatever right it has to cause the
officers, directors and employees of the Company and Subsidiaries who
resign their positions from the Company at, or prior to, the Closing
(collectively, the "Former Officers and Directors"), as well as all
Affiliates (as defined below) of Inter Scan, to comply with the provisions
of this Section. For purposes of this Agreement, "Affiliates" shall mean
any person, company or entity that controls, is controlled by or is under
common control with Inter Scan and, in any event, shall include Mr. Holger
Hjelm.
ARTICLE VIII.
TAXES
8.1 Liability for Taxes.
(a) Taxable Periods Ending on or Before the Closing Date. Inter Scan
shall be liable for, and shall indemnify and hold API and its subsidiaries,
and the Company and the Subsidiaries, harmless against, all Taxes due or
payable by the Company or any Subsidiary, either on its own account or by
reason of any tax sharing agreement or arising out of its inclusion in a
group of corporations filing on a consolidated basis, for any taxable year
or taxable period ending on or before the Closing Date, but only to the
extent that the amount of such Taxes exceeds the amount reserved therefor
in the Financial Statements. For the purposes of this Section 8.1(a), any
Taxes described in the parenthetical contained in Section 8.1(c) below
shall be deemed to be attributable to taxable periods ending on or before
the Closing Date, even if such Taxes are actually incurred with regard to a
tax period ending after the Closing Date.
(b) Taxable Periods Commencing on or After the Closing Date. API
Portescap shall be liable for, and shall indemnify and hold Inter Scan and
its subsidiaries harmless against any and all Taxes due or payable by the
Company, any Subsidiary or API Portescap with respect to the Company or any
Subsidiary for any taxable year or taxable period commencing after the
Closing Date.
(c) Definition of "Taxes." "Taxes" shall mean all taxes, levies,
assessments, charges or fees of any kind or character, including without
limitation U.S. federal, state, local and foreign income, profits, capital
gains, franchise, sales, use, value added, service, gross receipts,
occupation, property, property transfer, lease, capital stock, premium,
excise, payroll, withholding, estimated taxes, sanctions, and other
governmental charges imposed by the United States or any state, county,
local or foreign government or subdivision or agency thereof for any reason
whatsoever (including all such items and all Losses, as defined in Section
9.2, arising out of or resulting from the failure, beginning before the
Closing Date, of any Pension Plan to qualify under Section 401(a) of the
Code, where applicable, or the failure, beginning before the Closing Date,
of any trust through which any such Pension Plan is funded to be exempt
from income tax), including any interest, additions to tax and penalties
thereon.
8.2 Refunds or Credits.
(a) Except as otherwise set forth in this Agreement, any refunds or
credits of Taxes, to the extent that such refunds or credits are
attributable to taxable periods ending on or before the Closing Date and
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are not reflected on the Financial Statements, shall be for the account of
Inter Scan, and, to the extent that such refunds or credits are
attributable to taxable periods ending after the Closing Date, such refunds
or credits shall be for the account of API Portescap. API Portescap shall
cause the Company promptly to forward to Inter Scan or to reimburse Inter
Scan for any such refunds or credits due Inter Scan after receipt thereof
by API Portescap, the Company or any Subsidiary, and Inter Scan shall
promptly forward to API Portescap any such refunds or credits due API
Portescap after the receipt thereof by Inter Scan.
(b) If the examination of any federal, state, local, foreign or other
tax return of Inter Scan, the Company or any Subsidiary shall result (by
settlement or otherwise) in any adjustment that decreases deductions,
losses or tax credits or increases income, gains or recapture of tax
credits for any period ending on or before or including the Closing Date,
and that will permit API or a subsidiary thereof to increase deductions,
losses or tax credits or decrease the income, gains or recapture of tax
credits that would otherwise (but for such adjustments) have been taken or
reported with respect to API, a subsidiary of API, the Company or any
Subsidiary for one or more periods ending after the Closing Date, Inter
Scan will notify API, and provide it with adequate information so that it
can reflect on tax returns of API, a subsidiary of API, the Company or any
Subsidiary such increases in deductions, losses or tax credits or decreases
in income, gains or recapture of tax credits. With respect to such
increases or decreases on tax returns of API, a subsidiary of API, the
Company or any Subsidiary, API shall pay to Inter Scan the amounts by which
the aggregate of all Tax Benefits (as hereinafter defined) which result
therefrom exceeds $10,000, such amounts to be paid when and as such Tax
Benefits in excess of $10,000 are realized.
(c) If the examination of any federal, state, local, foreign or other
tax return of API, a subsidiary of API, the Company or any Subsidiary shall
result (by settlement or otherwise) in any adjustment that decreases
deductions, losses or other tax credits for any period ending after the
Closing Date, and that will permit Inter Scan or the Company or any
Subsidiary to increase deductions, losses or tax credits or decrease the
income, gains or recapture of tax credits that would otherwise (but for
such adjustment) have been taken or reported with respect to Inter Scan,
the Company or any Subsidiary for one or more periods before the Closing
Date, API will notify Inter Scan and provide it with adequate information
so that it can reflect on its return such increases in deductions, losses
or tax credits or decreases in income, gains or recapture of tax credits.
Inter Scan shall pay to API the amounts by which the aggregate of all Tax
Benefits which result therefrom exceeds $10,000, such amounts to be paid
when and as such Tax Benefits inn excess of $10,000 are realized.
(d) The term "Tax Benefits" shall mean in the case of a separate
state, local, foreign or other tax return, the sum of the amount by which
the tax liability of such corporation to the appropriate government or
jurisdiction is reduced (including by refund) and any interest from such
government or jurisdiction is reduced (including by refund) and any
interest from such government or jurisdiction relating to such tax
liability, and in the case of a consolidated federal income tax return or
similar state, local, foreign or other tax return, the sum of the amount by
which the tax liability of the affiliated group of corporations to the
appropriate government or jurisdiction is reduced (including tax refund)
and any interest from such government or jurisdiction relating to such tax
liability.
8.3 Contests. Whenever any taxing authority sends a notice of an audit,
initiates an examination of the Company or any Subsidiary, or otherwise asserts
a claim, makes an assessment, or disputes the amount of Taxes (i) for any
taxable period for which Inter Scan is or may be liable under this Agreement, or
(ii) for any taxable period that involves an issue that could potentially affect
a taxable period for which Inter Scan is or may be liable under this Agreement,
API shall promptly inform Inter Scan, and Inter Scan shall have the right to
control any resulting proceedings and to determine whether and when to settle
any such claim, assessment or dispute except to the extent such proceedings or
determinations affect the amount of Taxes for which API or a subsidiary of API
is liable under this Agreement. Whenever any taxing authority sends a notice of
an audit, initiates an examination of the Company or any Subsidiary, or
otherwise asserts a claim, makes an assessment or disputes the amount of Taxes
(i) for any taxable period for which API Portescap or API may be liable under
this Agreement, or (ii) for any taxable period that involves an issue that could
potentially affect a taxable period for which API Portescap or API is or may be
liable under this Agreement,
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Inter Scan shall promptly inform API, and API shall have the right to control
any resulting proceedings and to determine whether and when to settle any such
claim, assessment or dispute, except to the extent such proceedings affect the
amount of Taxes for which Inter Scan is liable under this Agreement.
8.4 Mutual Cooperation. Each of API and Inter Scan will provide the other
with such assistance as may reasonably be requested by either of them in
connection with the preparation of any tax return, any audit or other
examination by any taxing authority, or any judicial or administrative
proceedings relating to liability for Taxes, and each will retain and provide
the other with any records or information which may be relevant to such return,
audit or examination, proceedings or determination. Such assistance shall
include making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder and
shall include providing copies of any relevant tax return and supporting work
schedules. The party requesting assistance hereunder shall reimburse the other
for reasonable expenses incurred in providing such assistance. Without limiting
in any way the foregoing provisions of this Section 8.4, API hereby agrees that
it will retain, for a period of five years after Closing, copies of all tax
returns, supporting work schedules and other records or information which may be
relevant to such returns of the Company for all taxable periods which include
the dates from January 1, 1992, to and including the Closing Date.
8.5 Covenants and Agreements.
(a) Company's Obligation to File Returns. The Company shall timely
file, or cause to be timely filed, with the appropriate taxing authorities
all returns and reports with respect to Taxes that are required to be filed
on or prior to the Closing Date by or with respect to the Company and the
Subsidiaries, and the Company shall pay or cause to be paid all Taxes shown
as due thereon.
(b) API's Obligation to File Returns. API shall timely file or cause
to be timely filed all other returns and reports with respect to Taxes that
are required to be filed with respect to each of the Company and the
Subsidiaries, or any successor(s) to its business, after the Closing Date.
API shall pay or cause to be paid all Taxes shown as due on such returns,
to the extent provided in Section 8.1(b). Inter Scan shall pay or cause to
be paid all Taxes shown on such returns to the extent provided in Section
8.1(a). To the extent reasonably requested by Inter Scan, API shall
participate in the filing of and shall file any required returns, reports,
statements or forms with respect to any period that ends on or before
Closing. API shall prepare or cause to be prepared and shall file or cause
to be filed all other tax returns, reports, statements and forms required
of the Company, or in respect of its activities, for any period ending
after Closing that includes the operations of the Company prior to Closing.
To the extent reasonably requested by API, Inter Scan shall participate in
the filing of and shall file any required returns, reports, statutes, or
forms with respect to any period that includes the operation of the Company
and the Subsidiaries prior to the Closing Date. Any such tax returns,
reports, statements, forms or schedules that include or relate to tax
periods ending on or before Closing or that include the operations of the
Company and the Subsidiaries prior to Closing shall be subject to the
mutual agreement of Inter Scan and API on a basis consistent with the last
previous such returns, reports, statements, forms or schedules filed or
prepared in respect of the Company and the Subsidiaries, unless Inter Scan
or API as the case may be, concludes that there is no reasonable basis for
such position.
8.6 Tax Sharing Agreement. All tax sharing agreements or practices among
or between the Company or any Subsidiary and Inter Scan or any Affiliates
thereof shall be terminated as of Closing.
ARTICLE IX.
INDEMNIFICATION
9.1 Expiration of Representations and Warranties. Each of the
representations and warranties made by Inter Scan, the Company, API Portescap
and API in this Agreement (including the Exhibits, insofar as they relate to
such representations and warranties) shall survive until the Closing and shall
expire immediately upon the consummation of the Closing, and no action for
indemnification or otherwise with respect to a breach of any such representation
or warranty may be brought, and no litigation with respect thereto commenced,
and
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the party making such representation or warranty shall have no obligation with
respect thereto, after the Closing.
9.2 Indemnification by Inter Scan. Inter Scan hereby indemnifies and
agrees to hold harmless API Portescap, API and the Company and Subsidiaries from
any and all liabilities, losses, claims, demands, damages, out of pocket costs
and expenses (including without limitation court costs and reasonable
attorneys', consultants' and accountants' fees necessarily incurred in
connection with litigation and administrative proceedings) (collectively,
"Losses") arising out of or resulting from: (a) any breach or violation of any
covenant or agreement by Inter Scan or the Company contained in this Agreement;
(b) any violation of any Environmental Laws or any disposal or release of
Hazardous Substances or Hazardous Wastes occurring in connection with the
operations of Portescap U.S. Inc. or Transicoil Inc. at or from any facilities
or sites owned, leased or used by such entities located at or around the North
Penn Area 12 Site in Worcester Township, Montgomery County, Pennsylvania; and
(c) the Company's and any of its Subsidiaries' failure to properly obtain any
required licenses for computer software programs or systems.
9.3 Indemnification by API Portescap. API Portescap hereby indemnifies and
agrees to hold harmless Inter Scan from any and all Losses arising out of or
resulting from any breach or violation of any covenant or agreement by API
Portescap or API contained in this Agreement.
9.4 Claims. In addition to any limitations set forth above, any party
seeking indemnification (the "Indemnified Party") will notify the party from
whom indemnification is requested (the "Indemnifying Party") as soon as
practicable after they have concluded that they have a claim for indemnification
against the Indemnifying Party under this Agreement, which notice shall include
a description of the nature and basis of such claim. Upon receipt of a notice
from Indemnified Party of such claim, Indemnifying Party may assume the defense
thereof with counsel reasonably satisfactory to Indemnified Party. Indemnified
Party shall have the right to employ separate counsel in any such action or
claim and to participate in the defense thereof, provided that the fees and
expenses of counsel employed by Indemnified Party shall be at the expense of
Indemnifying Party only if either (i) Indemnifying Party shall have failed,
within 20 days after having been notified of the existence of the claim, to
assume the defense thereof or (ii) the employment of such counsel has been
specifically authorized by Indemnifying Party. So long as Indemnifying Party is
reasonably contesting such claim in good faith, Indemnified Party shall not pay
or settle any such claim. Notwithstanding the foregoing, Indemnified Party shall
have the right to pay or settle any such claim, provided that in such event it
shall waive any right to indemnification therefor by Indemnifying Party. If
Indemnifying Party does not notify Indemnified Party within 20 days after
receipt of Indemnified Party's notice of a claim of indemnification hereunder
that Indemnifying Party elects to undertake the defense thereof, Indemnified
Party shall have the right to contest, settle or compromise the claim at the
expense of Indemnifying Party, subject to the consent of Indemnifying Party
which consent shall not be unreasonably, withheld, conditioned or delayed.
9.5 Limitations on Indemnification. Notwithstanding anything contained in
Sections 9.2 and 9.3 to the contrary:
(a) The Indemnifying Party shall be required to indemnify and hold
harmless the Indemnified Party under this Article IX only to the extent the
aggregate amount of all Losses incurred by the Indemnified Party shall
exceed a deductible of CHF 100,000 (it being understood that the Company,
Subsidiaries, API Portescap or API may assert indemnification rights under
Article IX if the combined Losses of such parties exceed such deductible);
provided, however, that the foregoing deductible shall not be applicable to
any amounts to which any party may be or become entitled under Article
VIII, Section 9.2(c) or Section 11.8 hereof.
(b) Inter Scan's liability under Section 9.2 to provide
indemnification for Losses incurred in connection with (i) all claims
asserted pursuant to clauses (b) and (c) of the first sentence of Section
9.2 hereof, shall be limited to an aggregate amount of 2,000,000 CHF and,
in any event, shall not exceed an aggregate amount of 1,000,000 CHF in
connection with any such claims asserted after the date which is one year
and three months after the Closing Date and (ii) all claims asserted
pursuant to clause (c) of the first sentence of Section 9.2 hereof, shall
be limited to an aggregate amount of 300,000 CHF (subject to the limits and
requirements set forth in Section 9.5(d) below.
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(c) Except to the extent otherwise provided in Section 9.4 above,
Losses which are recoverable in connection with a claim asserted pursuant
to clause (b) of the first sentence of Section 9.2 hereof shall be limited
to amounts payable as a result of the settlement (in accordance with the
terms of Section 9.4) of, or any judgments, orders or other similar relief
rendered in connection with, any claims asserted with regard to the matters
referenced in such clause (b).
(d) Notwithstanding the 100,000 CHF deductible referenced in Section
9.5(a) above, any claim by the Company, its Subsidiaries, API Portescap or
API for indemnification from Inter Scan for Losses related to computer
software licenses referred to in Section 9.2(c) and Section 9.5(b)(ii)
shall be subject to a deductible of 150,000 CHF, and with respect to such
claim Inter Scan's maximum liability of 300,000 CHF shall not arise unless
and until the Company and/or its Subsidiaries have expended a total of
150,000 CHF to acquire valid computer software licenses.
(e) Any litigation initiated by an Indemnified Party seeking to
enforce the indemnification obligations of an Indemnifying Party hereunder
shall be brought in a court of appropriate jurisdiction located in (i) Erie
County, New York State, U.S.A. with regard to any such litigation initiated
against API or API Portescap and (ii) in Zurich, Switzerland with regard to
any such litigation initiated against Inter Scan.
ARTICLE X.
MANAGEMENT OF THE COMPANY AND SUBSIDIARIES.
10.1 Appointment of API as Manager.
(a) Subject to the provisions of Section 10.2 below, Inter Scan and
the Company have appointed API as the exclusive manager for the day-to-day
operations of the Company and Subsidiaries and API has accepted such
appointment, for the period from the date of the Initial Agreement through
the earlier of (i) the Closing Date or (ii) the date of the termination of
this Agreement pursuant to the provisions of Section 5.6 above (the
"Management Period") on the terms and conditions hereinafter set forth.
(b) During the Management Period, API shall have full and exclusive
management responsibility for the day-to-day operations of the Company and
Subsidiaries, except for those decisions that must be approved by a
representative of Inter Scan (the "Inter Scan Representative") in
accordance with the provisions of Section 10.2 below. API shall manage the
businesses of the Company and Subsidiaries with the same degree of care and
prudence that it uses in managing its own operations, and shall incur no
liability to Inter Scan, the Company or Subsidiaries as a result of its
management activities as long as API exercises such care and prudence and
acts in accordance with the provisions of Section 10.2 below. The
responsibilities of API as manager of the Company and Subsidiaries shall
consist of the management of the following functions utilizing the assets
and personnel of the Company and Subsidiaries:
(1) the planning, scheduling and conducting of all business
incidental to the operation of the Company and Subsidiaries including,
but not limited to, purchasing of all supplies, materials and services
required for the operation of their respective businesses and planning
and conducting all research and development activities of the Company
and Subsidiaries;
(2) the selling and marketing of all products produced and services
rendered by the Company and Subsidiaries; and
(3) all other general management, supervisory and administrative
services incidental to the operation of the businesses of the Company
and Subsidiaries including, but not limited to, management information
systems, accounting, invoicing, payment of all uncontested liabilities
arising in the ordinary course of business as such liabilities become
due and payable, data processing, cash management, insurance, leasing,
legal, employee benefits, engineering, industrial relations and public
relations.
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10.2 Major Decisions. API shall be permitted to manage the day-to-day
operation of the Company and Subsidiaries without interference from Inter Scan
or their Boards of Directors; provided, however, that API must obtain the
approval of an Inter Scan Representative before implementing any Major Decision
as defined below. For the purposes of this Article X, Major Decisions shall
mean: the sale of assets other than in the ordinary course of business; the
grant of any options or rights to acquire any or all of the assets of the
Company or any Subsidiary; the execution by the Company or any Subsidiary of an
employment, collective bargaining or similar agreement; the adoption of,
termination of or material modification or amendment to any Company Employee
Benefit Plan; the issuance by the Company or any Subsidiary of notes or other
evidences of indebtedness; the grant by the Company or any Subsidiary of any
guaranties; the initiation of any voluntary bankruptcy or similar proceeding by
the Company or any Subsidiary; the entering into any contract by the Company or
any Subsidiary which is not in the ordinary course of business; the termination
of employees other than as disclosed by API to Inter Scan at an April 9, 1997
meeting between such parties; any other actions the approval of which is
customarily obtained by the Board of Directors of a U.S. corporation; and any
other actions which Swiss law requires be approved by the Company's or any
Subsidiary's Board of Directors or shareholders.
ARTICLE XI.
MISCELLANEOUS
11.1 Expenses. API Portescap and Inter Scan shall each bear their
respective fees, commissions and other expenses incurred by each of them in
connection with the negotiation and preparation of this Agreement and in
preparing to consummate the transactions contemplated hereby, including, without
limitation, the fees and expenses of their respective counsel. Transfer taxes,
if any, payable under Swiss law on the transfer of (i) the Shares by Inter Scan
to API Portescap and (ii) the issuance to Inter Scan of the Series A and Series
B Preferred Stock and Note shall be paid by Inter Scan. API shall be responsible
for payment of any fees or taxes (other than income or similar taxes) payable
under the laws of any states of the United States in connection with the
issuance of the Series A and Series B Preferred Stock and the transfer of the
Shares contemplated hereunder.
11.2 Execution in Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same instrument,
and shall become a binding agreement when one or more counterparts have been
signed by and delivered to each party.
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11.3 Notices. All notices, consents, demands, requests, waivers, appeals
and other communications required or permitted under this Agreement shall be in
writing and shall be deemed to have been duly given: (a) upon delivery if
delivered personally; (b) three (3) days following deposit in the United States
mail by registered airmail, postage prepaid; or (c) on the date of delivery, if
sent by Federal Express or other international overnight delivery service; and
in any case, addressed as follows:
If to Inter Scan:
Inter Scan Holding, Ltd.
Schifflande 5
CH -- 8001 Zurich
Switzerland
with a copy via same means to:
Stanley Weiss, Esq.
80 Main Street
West Orange, New Jersey 07052
If to API Portescap or API:
American Precision Industries Inc.
2777 Walden Avenue
Buffalo, New York 14225
Attn: President
with a copy via same means to:
Jaeckle Fleischmann & Mugel, LLP
800 Fleet Bank Building
12 Fountain Plaza
Buffalo, New York 14202
Attn: James J. Tanous, Esq. and
Tim C. Loftis, Esq.
No change in any of such addresses shall be effective insofar as such notices,
consents, demands, requests, waivers, appeals and other communications are
concerned, unless notice of such change shall have been given to the other party
hereto as provided in this Section 11.3.
11.4 Severability. The terms and provisions of this Agreement shall be
deemed to be severable, and if any provision hereof shall be held invalid or
unenforceable by a court of competent jurisdiction or as a result of future
legislative action, such holding or action shall be strictly construed and shall
not affect the validity or effect of any other provision hereof, and the parties
shall use all reasonable efforts to amend this Agreement in order to effect the
parties' original intent with respect to such provision, to the extent
practicable.
11.5 Titles and Headings. The titles and headings to the Articles,
Sections and Table of Contents contained in this Agreement are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.
11.6 Successors and Assigns; No Third Party Beneficiaries. This Agreement
shall be binding upon and shall inure to the benefit of the successors and
assigns of the parties hereto; no party hereto shall assign or delegate any of
the obligations created under this Agreement without the prior written consent
of the other parties hereto, provided, however, that Inter Scan hereby agrees
that any or all of API Portescap's rights and obligations under this Agreement
may be assigned to, and if so assigned shall be assumed by, API. Except to the
extent otherwise provided in this Agreement, no person not a party hereto shall
derive any rights hereunder or be construed to be a third party beneficiary
hereof.
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11.7 Incorporation of Exhibits. The Exhibits attached hereto are
incorporated into this Agreement and shall be deemed a part hereof as if set
forth herein in full.
11.8 Brokers and Finders.
(a) API Portescap represents and warrants to Inter Scan that neither
API Portescap nor API has employed the services of a broker or finder in
connection with this Agreement or any of the transactions contemplated
hereby, except that API has retained the services of Patricof & Co. Capital
Corp.
(b) Inter Scan represents and warrants to API Portescap that neither
Inter Scan nor the Company has employed the services of a broker or finder
in connection with this Agreement or any of the transactions contemplated
hereby.
(c) Inter Scan will indemnify API Portescap, API and the Company and
will hold them harmless from and against any claims by any broker, finder
or consultant deemed to be engaged by Inter Scan or the Company. API
Portescap will indemnify Inter Scan and will hold it harmless from and
against any claims by any broker, finder or consultant deemed to be engaged
by API Portescap or API.
11.9 Entire Agreement; Waivers and Amendments. This Agreement and the
Exhibits attached hereto set forth the entire agreement among the parties hereto
with respect to the transactions contemplated herein. The waiver by any party
hereto of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach, whether or not similar. This
Agreement may be amended, modified or supplemented only by a written instrument
executed by the parties hereto.
11.10 Announcements. No press releases, announcements, or other disclosure
related to this Agreement or the transactions contemplated herein will be issued
or made to the press, employees, customers, suppliers or any other person
without the joint approval of API and Inter Scan, except for any public
disclosure which either API or Inter Scan in good faith believes is required by
law (in which event, the party hereto proposing to make such announcement shall
use all reasonable efforts to consult with the other party hereto before making
any such public announcement).
11.11 Construction. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any
provision of this Agreement.
11.12 Governing Law. The parties agree that the United Nations Convention
on the International Sale of Goods shall not be applicable to this Agreement.
11.13 References. All references to Section or Article numbers refer to
Section or Article numbers in this Agreement unless otherwise specifically
indicated. The words "hereby," "hereof," "hereunder" and words of similar
import, refer to this Agreement as a whole and not to any particular Sections or
subdivisions thereof.
35
<PAGE> 41
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first written above.
AMERICAN PRECISION INDUSTRIES INC.
By: /s/ KURT WIEDENHAUPT
-------------------------------------
Name: KURT WIEDENHAUPT
Title: President
API PORTESCAP INC.
By: /s/ BRUCE MCH. KIRCHNER
-------------------------------------
Name: BRUCE McH. KIRCHNER
Title: Vice President
INTER SCAN HOLDING LTD.
By: /s/ HOLGER HJELM
-------------------------------------
Name: HOLGER HJELM
By: /s/ MAX HUBER
-------------------------------------
Name: MAX HUBER
PORTESCAP
By: /s/ MAX ENDRE
-------------------------------------
Name: MAX ENDRE
By: /s/ RUDOLPH HEIZ
-------------------------------------
Name: RUDOLPH HEIZ
By execution above, American Precision Industries Inc.:
(a) agrees to be bound by the provisions of Sections 2.3(a) through (e),
2.3(jj), 4.1, 4.2, 6.1, 6.2 and Articles VIII, IX and X, and Section 11.1 of
this Agreement; (b) agrees to guaranty the payment of and performance by API
Portescap Inc. of its obligations arising under this Agreement; and (c)
represents and warrants to Inter Scan that (i) API is not aware of any untrue
statement of a material fact in the representations and warranties set forth in
Section 2.3 above, and it is not aware of any omission to state any material
fact necessary to make the statements contained in Section 2.3 not misleading,
and (ii) on the date of this Agreement and on the date of the Closing, no
representation or warranty of API in this Agreement, nor any written statement
or certificate executed by API and furnished or to be furnished to Inter Scan
pursuant to this Agreement or in connection with the transactions contemplated
hereby contains or will contain any untrue statement of a material fact or omits
or will omit to state a material fact necessary to make the statements contained
therein not misleading.
36
<PAGE> 42
EXHIBIT 1.2(A)(I)
TERMS OF CONVERTIBLE PREFERRED STOCK
<PAGE> 43
TERMS OF CONVERTIBLE PREFERRED STOCK
The 20,000 shares of authorized preferred stock, $50 par value per share,
shall be designated as the Series A Seven Percent (7%) Cumulative Convertible
Preferred Stock, $50 par value ("Convertible Preferred Stock"), and shall have
the rights, preferences and limitations set forth in the following paragraphs.
1. Liquidation Value. The face and liquidation value of the Convertible
Preferred Stock shall be $1,057.8125 per share ("Series A Liquidation Value").
2. Exchange Rights. The holders of the 20,000 shares of the Convertible
Preferred Stock shall have the right and obligation to promptly exchange all of
such shares for one million (1,000,000) shares of Series B Seven Percent (7%)
Cumulative Convertible Preferred Stock, $21.15625 face value and liquidation
value per share (also referred to as Convertible Preferred Stock) upon receipt
of written notification from the Corporation that the Corporation's Certificate
of Incorporation has been duly amended, with the approval of the Corporation's
Board of Directors and shareholders, to authorize such Series B Convertible
Preferred Stock and that the certificate of amendment of the Corporation's
Certificate of Incorporation authorizing such Series B Convertible Preferred
Stock has been duly filed with the Secretary of State of the State of Delaware.
Such written notification that the Certificate of Incorporation has been so
amended and filed is hereinafter referred to as the "Notification of Amendment
of Certificate of Incorporation." The Series B Convertible Preferred Stock shall
have a face and liquidation value of $21.15625 per share ("Series B Liquidation
Value") and shall have the additional rights, preferences and limitations set
forth in the following paragraphs.
3. Dividends. The holders of the Convertible Preferred Stock ("Preferred
Shareholder(s)") shall be entitled to receive cumulative cash dividends at the
rate of seven percent (7%) of the Series A Liquidation Value per share (or of
the Series B Liquidation Value per share, if applicable) per annum, and no more,
with such dividends 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. The cumulative cash dividends shall be paid when and
as declared by the Board of Directors of the Corporation, but only out of
surplus legally available for the payment of dividends. Such dividends shall be
payable before any dividends (other than a stock dividend in shares of the same
class of stock) on any class of common stock shall be paid or set apart for
payment. Dividends shall be cumulative from and after January 1, 1999, and any
arrearages in payment shall not bear interest.
4. Redemption of Convertible Preferred Stock.
(A) Optional Redemption. After the holders of the Convertible Preferred
Stock have received the Notification of Amendment of Certificate of
Incorporation, the Corporation, at the option of the Board of Directors, may
redeem all or any part of the Convertible Preferred Stock at any time
outstanding, at any time or from time to time, upon written notice duly given
pursuant to subsection 4(B), for an amount per share to be redeemed equal to the
sum of the Series A Liquidation Value (or Series B Liquidation Value, if
applicable) and an amount computed at the annual rate of seven percent (7%) of
the applicable Liquidation Value per annum per share 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 ("Redemption Price"). Notwithstanding the
receipt of any notice pursuant to subsection 4(B), the Preferred Shareholders
shall have the right to convert their shares of Convertible Preferred Stock as
set forth in Section 5 herein.
(B) Notice of Redemption. Notice of any redemption ("Redemption Notice")
of Convertible Preferred Stock shall be mailed at least forty-five (45) calendar
days prior to the date fixed for such redemption to the holders of record of
shares so to be redeemed at their respective addresses as the same shall appear
on the books of the Corporation. In case of redemption of only a part of the
Convertible Preferred Stock at the time outstanding, the shares to be redeemed
shall be selected in such manner as the Board of Directors may determine,
whether by lot or by pro rata redemption or by selection of particular shares,
and the proceedings and actions of the Board of Directors in making such
selection shall not be subject to attack except for fraud. The Redemption Notice
shall state the (i) date of redemption; (ii) the Redemption Price; and (iii) the
place of payment.
<PAGE> 44
5. Conversion of Convertible Preferred Stock.
(A) Optional Conversion. Preferred Shareholders shall have the right,
at their option, to convert as many shares of Convertible Preferred Stock
as they choose into the shares of the Corporation's common stock $.66 2/3
par value ("Common Stock") at any time after such shares of Common Stock
are authorized and on the terms and conditions set forth in subsection
5(B).
(B) Terms of Conversion. The conversion of the Convertible Preferred
Stock shall be upon the following terms and conditions:
(i) Conversion Ratio. The Convertible Preferred Stock shall be
convertible, at the principal office of the Corporation and at such
other office or offices, if any, as the Board of Directors of the
Corporation may designate, into fully paid and non-assessable shares of
Common Stock. The number of shares of Common Stock to be delivered upon
conversion shall be determined by the following calculation:
The sum of the LV and UD per share times CPS = NCS
--------------------------------------------
CP
where LV equals the Series A Liquidation Value (or the Series B
Liquidation Value, if applicable) per share; UD equals seven percent
(7%) of the per share LV per annum from and after the date on which
dividends on such share became cumulative to and including the date of
conversion less the aggregate of the dividends paid during the same
period, computed without interest; CPS equals the number of shares of
Convertible Preferred Stock to be converted; CP equals the conversion
price for a share of Common Stock which shall be $17.00 per share as
adjusted pursuant to subsection 5(B)(ii) or (iii) below; and NCS equals
the number of shares of Common Stock to be delivered upon conversion.
(ii) Adjustment of Conversion Price on Various Events. In case the
Corporation at any time shall change its outstanding shares of Common
Stock (which, for purposes of this subsection, shall include any other
class of common stock) into a greater number of shares or pay in shares
of Common Stock a dividend on then outstanding shares of Common Stock or
combine or subdivide its outstanding shares of Common Stock into a
smaller number of shares or issue or sell shares of Common Stock for
less than $17.00 per share (plus or minus previous adjustments), (except
for shares reserved or issued pursuant to a bona fide stock option or
benefit plan for directors, officers and/or employees of the
Corporation); then the Conversion Price for a share of Common Stock
shall be adjusted in accordance with the following equation:
(A X B) + C = NCP
-----------
D
where A equals the number of shares of Common Stock outstanding
immediately before the event requiring adjustment; B equals $17.00 per
share (plus or minus all previous adjustments); C equals the value of
the consideration received by the Corporation for the issuance or sale,
requiring adjustments, of shares of Common Stock for less than B; D
equals the number of shares of Common Stock outstanding after such
event; and NCP equals the new conversion price.
(iii) Adjustments for Reorganizations, Reclassifications, Mergers
and Consolidations. If any reorganization or reclassification of the
capital stock of the Corporation, or any merger or consolidation of the
Corporation with another corporation, shall be effected, a Preferred
Shareholder shall thereafter be entitled upon the exercise of conversion
rights to receive the number and kind of shares of stock, securities or
assets which the Preferred Shareholder would have been entitled to
receive in connection with such reorganization, reclassification, merger
or consolidation if he had been a holder of the number of shares of
Common Stock of the Corporation issuable upon the
2
<PAGE> 45
conversion of his Convertible Preferred Stock immediately prior to the
time such reorganization, reclassification, merger or consolidation
became effective.
(iv) Notice of Adjustment. Whenever any adjustments are required
pursuant to subsections 5(B)(ii) and (iii) above, the Corporation shall
give the Preferred Shareholder written notice detailing the method of
calculation of such adjustment and the facts requiring the adjustment
and upon which the calculation is based.
(v) Method of Conversion. In order to convert shares of
Convertible Preferred Stock into shares of Common Stock, the Preferred
Shareholder shall surrender at any office mentioned above the
certificate or certificates therefor, duly endorsed to the Corporation
or in blank, and give written notice at such office that he elects to
convert such shares of Convertible Preferred Stock which shall be deemed
to have been converted as of the date ("Conversion Date") of the
surrender of such shares for conversion as provided above, and Preferred
Shareholder shall be treated for all purposes as the record holder or
holders of such Common Stock on such date. As soon as practicable on or
after the Conversion Date, the Corporation will deliver at such office a
certificate or certificates for the number of full shares of Common
Stock issuable on such conversion, together with cash in lieu of any
fraction of a share, as hereinafter provided, to the persons entitled to
receive the same. In case shares of Convertible Preferred Stock are
called for redemption, the right to convert such shares shall cease and
terminate at the close of business on the date fixed for redemption,
unless exercised prior thereto or unless default shall have been made in
the payment of the Redemption Price.
(vi) Fractional Shares. No fractional shares of Common Stock shall
be issued upon conversion, but the Corporation shall pay a cash
adjustment in respect of any fraction of a share which would otherwise
be issuable, in an amount equal to the same fraction of the Market Price
per share of Common Stock at the close of business on the Conversion
Date.
(vii) Market Price. The market price per share shall be (a) if
traded on the over-the-counter market, the mean between the closing bid
and asked quotations on the Conversion Date, or if no such bid or
quotation was made on the Conversion Date, then such bid and quotation
on the first date preceding the Conversion Date that such bid and
quotation was published, or (b) if traded on a national securities
exchange, the closing sale price on the Conversion Date, or if no such
sale was made on the Conversion Date, then the closing sale price on the
first date preceding the Conversion Date that such sale took place, or
(c) if traded on both the over-the-counter market and an exchange, the
mean between the prices determined in accordance with clauses (a) and
(b) of this sentence.
(viii) Partial Conversion of Shares. In the event the holders of
the Convertible Preferred Stock elect to convert only a part of their
shares, the Corporation shall deliver new certificates to the holders of
the Convertible Preferred Stock in an amount equal to the unconverted
amount of shares held by the Preferred Shareholder.
(ix) Issuance of Certificates. The issuance of new certificates
for shares of Common Stock or Convertible Preferred Stock to the
Preferred Shareholder upon conversion shall be without any charge or
tax.
6. Voting Rights.
(A) Subject to the limitations contained below, the holders of
Convertible Preferred Stock shall vote as a class on the following
transactions that shall be submitted to the holders of Convertible
Preferred Stock for their approval:
(i) the holders of the Series A Seven Percent (7%) Cumulative
Convertible Preferred Stock, $50 par value, shall vote as a class on
proposals relating to the merger or consolidation of the Corporation
with or into another corporation or a partnership, trust or other
entity;
3
<PAGE> 46
(ii) the holders of the Series A Seven Percent (7%) Cumulative
Convertible Preferred Stock, $50 par value, shall vote as a class on
proposals relating to the sale of all or substantially all of the assets
of the Corporation;
(iii) the holders of the Series A Seven Percent (7%) Cumulative
Convertible Preferred Stock, $50 par value, shall vote as a class on
proposals relating to the dissolution of the Corporation;
(iv) the holders of both the Series A Seven Percent (7%) Cumulative
Convertible Preferred Stock, $50 par value, and the Series B Seven
Percent (7%) Cumulative Convertible Preferred Stock, $21.15625 face
value and liquidation value per share shall each vote as a class on any
amendment to the Corporation's Certificate of Incorporation that would
amend, change, modify or revoke the rights, preference or limitations
applicable to the Convertible Preferred Stock; and
(v) the holders of both the Series A Seven Percent (7%) Cumulative
Convertible Preferred Stock, $50 par value, and the Series B Seven
Percent (7%) Cumulative Convertible Preferred Stock, $21.15625 face
value and liquidation value per share shall each vote as a class on any
other proposal or transaction that requires the approval of the holders
of Convertible Preferred Stock, voting as a class, under Delaware's
General Corporation Law.
In each instance set forth above, the holders of Convertible Preferred Stock, as
the case may be, shall be entitled to one vote for each share of such stock
owned of record and the approval of the holders of a majority of the shares of
Convertible Preferred Stock issued and outstanding and entitled to vote shall be
required to adopt such proposal.
Notwithstanding the foregoing, the holders of Convertible Preferred Stock
shall lose any and all right to vote as a class (except to the extent, if any,
that such holders thereafter have the right to vote as a class pursuant to the
provisions of Delaware's General Corporation Law) if at any time the total
number of issued and outstanding shares of Convertible Preferred Stock is less
than twenty five percent (25%) of: (i) the number of shares of either the Series
A Convertible Preferred Stock initially issued to the Preferred Shareholders; or
(ii) if the Series A Convertible Preferred Stock is subsequently converted into
Series B Convertible Preferred Stock, the number of shares of Series B
Convertible Preferred Stock that would have been issued to the Preferred
Shareholders if such Series B stock had been initially issued to the Preferred
Stockholders in lieu of the Series A stock.
(B) In addition to the voting rights granted in subsection 6(A) above, the
holders of Convertible Preferred Stock shall be entitled to vote on all matters
(except the election of directors and the ratification of the independent public
accountants retained by the Corporation to audit its financial statements)
submitted for a vote to the holders of the Corporation's Common Stock, and in
that instance each holder of Convertible Preferred Stock shall have a number of
votes equal to the number of shares of Common Stock into which his shares of
Convertible Preferred Stock would be convertible as of the record date for the
meeting of shareholders at which such matter will be voted on.
(C) If the Corporation shall breach any of its obligations hereunder or
fail to make any exchange, conversion, or payment to which the Preferred
Shareholder is entitled hereunder, or fail to maintain its corporate existence
in good standing or continue its normal business operations, or if any
bankruptcy, reorganization, insolvency, receivership or other credit proceedings
is instituted by or against the Corporation and is not dismissed within sixty
(60) calendar days, or if the Corporation makes an assignment for the benefit of
creditors, then the Preferred Shareholders, in addition to all other rights they
may have at law or in equity, shall have the right to vote for the election of
directors and to exercise all the rights any holder of the Common Stock may have
to call a special meeting of the shareholders of the Corporation and to
participate in such special meeting and any annual meeting of the shareholders.
7. Payment on Liquidation, Dissolution or Winding Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, the Preferred Shareholders shall be entitled to receive out of the
assets of the Corporation, before any distribution or payment shall be made to
the holders of any class of common stock, an amount equal to the Series A
Liquidation Value (or Series B Liquidation Value, if applicable) of the stock
plus a sum computed at the dividend rate of seven percent (7%) per annum
4
<PAGE> 47
from and after the date on which dividends on such shares became cumulative to
and including the date fixed for such payment, less the aggregate of the
dividends theretofore paid thereon, during the same period, but computed without
interest. For the purpose of this Section 7, a consolidation or merger of the
Corporation with one or more other corporations shall not be deemed to be a
liquidation, dissolution or winding up of the Corporation.
8. No Impairment. The Corporation, whether by amendment of its Certificate
of Incorporation, or through any reorganization, transfer of its assets, merger,
dissolution, issue or sale of securities or any other voluntary actions, will
not avoid or seek to avoid the observance or performance of any of the terms to
be observed hereunder by the Corporation, but at all times in good faith will
assist in the carrying out of all such action as may be necessary or appropriate
in order to protect the rights of the Preferred Shareholders.
9. Reservation of Stock. The Corporation will at all times keep available
out of its authorized but unissued shares of Common Stock a sufficient number of
shares of Common Stock for the purposes of effectuating the conversion of the
Convertible Preferred Stock. If at any time the number of authorized but
unissued shares of Common Stock are not sufficient to effect the conversion of
all of the outstanding Convertible Preferred Stock, then the Corporation shall
take such actions as is necessary to increase the authorized but unissued shares
of Common Stock to be equal to the number needed for the conversion.
5
<PAGE> 48
EXHIBIT 1.2(A)(II)
FORM OF EXCHANGEABLE PROMISSORY NOTE
<PAGE> 49
EXCHANGEABLE PROMISSORY NOTE
U.S. $5,000,000 Buffalo, New York
Dated July 8, 1997
This Note and the shares of Series B Seven Percent (7%) Cumulative
Convertible Preferred Stock for which this Note may be exchanged are
subject to restrictions on disposition pursuant to a Shareholder Agreement
between Inter Scan Holding Ltd. and American Precision Industries Inc.
dated the date of this Note. A copy of that agreement may be obtained from
American Precision Industries Inc.
This Note and the shares of Series B Seven Percent (7%) Cumulative
Preferred Stock for which this Note may be exchanged have not been
registered with the Securities and Exchange Commission ("SEC") under the
Securities Act of 1933, as amended (the "1933 Act"), or under any
applicable state laws ("State Laws"), in reliance upon applicable
exemptions under the 1933 Act and State Laws. This Note and such shares of
Series B Seven Percent (7%) Cumulative Convertible Preferred Stock may not
be sold, assigned, transferred, pledged, hypothecated or otherwise disposed
of without (i) registration under the 1933 Act and any applicable State Law
or (ii) an opinion of counsel reasonably satisfactory to American Precision
Industries Inc. or a "no-action" letter from the SEC that registration
under the 1933 Act and any applicable State Laws is not necessary for such
sale, assignment, transfer, pledge, hypothecation or disposition.
FOR VALUE RECEIVED, AMERICAN PRECISION INDUSTRIES INC., a Delaware
corporation with an address at 2777 Walden Avenue, Buffalo, New York 14225
("Issuer"), promises to pay to the order of INTER SCAN HOLDING LTD., a Swiss
corporation with an address at Schifflande 5, CH-8001 Zurich, Switzerland
("Holder"), the sum of Five Million U.S. Dollars ($5,000,000), together with
interest thereon accruing and payable in accordance with the terms described
below.
If at any time from the date of this Note through and including April 30,
1998, Issuer's Board of Directors and shareholders approve an amendment to
Issuer's certificate of incorporation authorizing at least 1,200,000 shares of
Series B Seven Percent (7%) Cumulative Convertible Preferred Stock, and
increasing the Common Stock, $.66 2/3 par value per share, of Issuer by at least
1,000,000 shares and such amendment is duly filed with the Secretary of State of
the State of Delaware (the "Amendment"), the principal amount of this Note (i.e.
$5,000,000) shall be automatically exchanged for 236,337 shares of Issuer's
Series B Seven Percent (7%) Cumulative Convertible Preferred Stock, with a face
and liquidation value of $21.15625 per share, which shall be convertible into
shares of Issuer's Common Stock at the initial conversion price of $17.00 per
share, subject to adjustment under certain circumstances as specified in Exhibit
1.2(a)(i) to the Amended and Restated Stock Purchase Agreement dated July 3,
1997 by and among Inter Scan Holding Ltd., Portescap and API Portescap Inc. and
American Precision Industries Inc. Upon such exchange, Issuer's obligation to
pay any amounts of principal and accrued interest owing under this Note shall be
discharged in full.
No interest shall accrue on the principal balance of this Note prior to
April 30, 1998, if the Amendment is duly filed with the Secretary of State of
the State of Delaware by April 30, 1998 and if no "Event of Default" (as
hereinafter identified) has occurred and not been remedied prior to that date.
If the Amendment is not so filed by April 30, 1998, then interest shall accrue
on the unpaid principal balance of this Note from the date of this Note and
thereafter at a per annum rate of fifteen percent (15%), calculated on the basis
of a 365-day year for the actual number of days elapsed.
If the Amendment is not duly filed with the Secretary of State of the State
of Delaware by April 30, 1998, all indebtedness evidenced by this Note shall be
immediately due and payable, without notice, in which event Issuer will pay to
Holder on May 1, 1998 an amount equal to the greatest of:
<PAGE> 50
(i) Five million U.S. dollars (U.S. $5,000,000) plus interest thereon at
the annual rate of fifteen percent (15%) on the principal amount from
the date of this Note through April 30, 1998 (i.e. interest at the
rate of $2,054.80 per day);
or
(ii) an amount in U.S. dollars equal to (A) the number of shares of the
Issuer's Common Stock this Note would represent the right to acquire
on April 30, 1998 assuming it were exchanged for shares of Series B
Seven Percent (7%) Cumulative Convertible Preferred Stock of Issuer
(e.g. 294,118 shares of Common Stock at the initial conversion price
of $17.00 per share), multiplied by (B) the average closing price of
the Issuer's Common Stock on the New York Stock Exchange ("NYSE") for
the ten trading days prior to April 30, 1998 that such stock was
actually traded on the NYSE;
or
(iii) an amount in U.S. dollars equal to (A) the number of shares of the
Issuer's Common Stock this Note would represent the right to acquire
on April 30, 1998 assuming it were exchanged for shares of Series B
Seven Percent (7%) Cumulative Convertible Preferred Stock of Issuer
(e.g. 294,118 shares of Common Stock at the initial conversion price
of $17.00 per share), multiplied by (B) the actual closing price of
the Issuer's Common Stock on the NYSE on the last day prior to the
date of this Note that the stock actually traded on the NYSE.
If the Amendment is not so duly filed by April 30, 1998, then in addition to any
amount payable under clauses (ii) or (iii) above, if Holder elects to purchase
any shares of Issuer's Common Stock during the two-month period from May 1, 1998
through and including June 30, 1998, Issuer shall reimburse Holder for any costs
Holder incurs in acquiring such shares in excess of the market price of Issuer's
Common Stock on the relevant date or dates used in calculating the applicable
amount payable under clause (ii) or clause (iii), multiplied by the number of
shares actually purchased by Holder during that two-month period, subject to a
maximum number of shares equal to the number of shares calculated under (A) in
clause (ii) or clause (iii), whichever is applicable (e.g. a maximum of 294,118
shares at the initial conversion price of $17.00 per share).
Upon Issuer's payment to Holder of the amount payable under the provisions
of the immediately preceding paragraph, all of Issuer's obligations under this
Note (including any obligation to pay interest on the unpaid principal balance
hereof) shall be discharged in full.
Upon the occurrence of any of the following specified events prior to May
1, 1998, (each sometimes hereinafter referred to as an "Event of Default"), the
entire unpaid principal balance of this Note, together with interest thereon
accrued at the annual rate of fifteen percent (15%) from the date of this Note
through the date of payment, shall become immediately due and payable at the
option of Holder:
(1) Failure of Issuer to maintain its corporate existence in good
standing; or
(2) The liquidation of Issuer, or the discontinuance of the normal
operations of Issuer; or
(3) The merger or consolidation of Issuer with or into any other
corporation unless (i) Issuer is the surviving entity, or (ii) the
surviving entity, which shall be reasonably acceptable to Holder, agrees in
writing to assume all of the Issuer's obligations under this Note; or
(4) The sale, lease or conveyance by Issuer of all or substantially
all of its property, assets or business to any other party, unless the
other party, which shall be reasonably acceptable to Holder, agrees in
writing to assume all of the Issuer's obligations under this Note; or
(5) The making of a general assignment by Issuer for the benefit of
creditors, or the institution by Issuer of any type of bankruptcy,
reorganization or insolvency proceeding under any state or federal law or
of any formal or informal proceeding for the dissolution or liquidation of,
settlement of claims against or winding up of affairs of Issuer; or
(6) The appointment of a receiver or trustee for Issuer or for any
assets of Issuer or the institution against Issuer of any type of
bankruptcy, reorganization or insolvency proceeding for the liquidation or
2
<PAGE> 51
winding up of the affairs of Issuer and the failure to have such
appointment vacated, or such proceeding dismissed within forty-five (45)
days.
If Holder exercises its option to accelerate the payment of principal and
interest upon the occurrence of an Event of Default prior to May 1, 1998, then
Holder's right and obligation to exchange this Note for shares of the Issuer's
Series B Seven Percent (7%) Cumulative Convertible Preferred Stock shall
terminate upon Issuer's payment in full of all principal and interest due
hereunder upon such acceleration.
This Note may not be prepaid at any time in full or in part without
Holder's written consent. Any permitted partial prepayment will first be applied
to principal and then to accrued and unpaid interest to the date of prepayment.
No omission or delay by Holder or other holder hereof in exercising any
right or power under this Note will impair such right or power or be construed
to be a waiver of or acquiescence in any default hereunder, and no waiver by
Holder or other holder hereof of any breach or default hereunder shall be deemed
to be a waiver of any right or power upon the later occurrence or recurrence of
any such breach or default.
Issuer agrees to pay to Holder the reasonable expenses incurred by Holder
in connection with the enforcement of Holder's rights hereunder, including,
without limitation, the reasonable fees and disbursements of legal counsel.
Any notice or demand hereunder shall be duly given if mailed by registered
or certified mail, if to Holder, at Schifflande 5, CH-8001 Zurich, Switzerland,
or if to Issuer, at 2777 Walden Avenue, Buffalo, New York 14225, Attention:
President. Any such notice shall be effective on the date of mailing.
Holder's right to sell this Note or any interest in this Note in a "Private
Offer" is subject to Issuer's "Right" as set forth in the Shareholder Agreement
between Issuer and Holder dated the same date as this Note; the terms "Private
Offer" and "Right" have the same meanings as given to them in the Shareholder
Agreement.
This Note shall be governed by the internal laws of the State of Delaware
without regard to principles of conflict of laws.
AMERICAN PRECISION INDUSTRIES INC.
By: /s/ KURT WIEDENHAUPT
------------------------------------
Kurt Wiedenhaupt, President
and Chief Executive Officer
STATE OF NEW YORK)
) ss.:
COUNTY OF ERIE )
On this 3rd day of July 1997 before me personally came KURT WIEDENHAUPT, to me
known, who, being by me duly sworn, did depose and say that he resides at 280
Carnoustie Road, East Aurora, New York; that he is the President and Chief
Executive Officer of AMERICAN PRECISION INDUSTRIES INC., the Issuer described in
and which executed the above instrument; and that he signed his name thereto by
order of the Board of Directors of said Issuer.
/s/ SUSAN E. SZUCS
--------------------------------------
Notary Public
SUSAN E. SZUCS
NOTARY PUBLIC, STATE OF NEW YORK
NO. 01SZ5058503
QUALIFIED IN WYOM. COUNTY
MY COMMISSION EXPIRES 04/08/98
3
<PAGE> 52
EXHIBIT 5.1(D)(1)
SHAREHOLDER AGREEMENT
<PAGE> 53
SHAREHOLDER AGREEMENT
This AGREEMENT, dated the 8th day of July 1997, is by and between AMERICAN
PRECISION INDUSTRIES INC., a Delaware corporation with its principal office at
2777 Walden Avenue, Buffalo, New York 14225 ("API"), and INTER SCAN HOLDING
LTD., a Swiss corporation with its principal office at Schifflande 5
CH-8001-Zurich, Switzerland which, with all of its affiliates (which include all
of its officers, directors, shareholders and Holger Hjelm) are referred to
herein as "Inter Scan" and/or "Shareholders" and/or individually as
"Shareholder."
R E C I T A L S:
WHEREAS, API and a subsidiary of API, and Inter Scan and Portescap are
parties to an Amended and Restated Stock Purchase Agreement dated July 3, 1997
("Stock Purchase Agreement"), to which a copy of this Shareholder Agreement is
an Exhibit, pursuant to which API's subsidiary acquired from Inter Scan all of
the outstanding stock of Portescap SA in exchange for, inter alia, (a) 20,000
shares of Series A Seven Percent (7%) Cumulative Convertible Preferred Stock of
API ("Series A Preferred Stock") which are convertible into shares of API's
Common Stock, $.66 2/3 par value per share ("Common Stock") and which are also
exchangeable for shares of API's Series B Seven Percent (7%) Cumulative
Convertible Preferred Stock ("Series B Preferred Stock"), which are also
convertible into shares of Common Stock; and (b) an Exchangeable Promissory Note
("Note") which is exchangeable for shares of Series B Preferred Stock; the
Series A Preferred Stock and Series B Preferred Stock (including both the Series
B Preferred Stock issued upon exchange of Series A Preferred Stock and under the
Note) are jointly referred to herein as the "Preferred Stock"; and
WHEREAS, API and the Shareholders desire to set forth the agreement between
them concerning certain rights and obligations of Shareholders relating to Inter
Scan's status as a holder of the Preferred Stock, the Note and shares of Common
Stock which may be issued to Inter Scan upon conversion of the Preferred Stock.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Term of this Agreement. This Agreement and each party's respective
rights and obligations hereunder shall terminate at 5:00 p.m. Buffalo, New York
time three (3) years after the date of this Agreement ("Termination Date").
2. Board Representation.
(a) Immediately after API's subsidiary's acquisition of Inter Scan's shares
of Portescap SA pursuant to the Stock Purchase Agreement, the Board of Directors
of API shall elect to the nine-person Board of Directors of API a nominee
selected by Inter Scan, who shall be acceptable to API's Board of Directors.
That individual, or such other nominee selected by Inter Scan who is acceptable
to API's Board of Directors, shall be nominated by API's Board of Directors to a
term as a Director of API's Board of Directors expiring at the annual meeting of
API's shareholders in the year 2000, subject to shareholder approval at the next
annual meeting of API's shareholders, and shall be entitled to hold that
position for the balance of such term, provided that throughout that period
Inter Scan continues to own shares of Preferred Stock and/or Common Stock which
represent at least ten percent (10%) of the shares of API entitled to vote on
matters submitted to API's shareholders for their approval, other than election
of directors and ratification of appointment of auditors.
(b) The nominee of Inter Scan on the Board of Directors shall be appointed
to the Nominating Committee of the Board of Directors.
3. Voting Agreement. On all matters submitted to API's shareholders for a
vote, the Shareholders agree to vote any and all shares of Common Stock and
Preferred Stock which they own in accordance with the recommendations of API's
Board of Directors as set forth in any proxy statement distributed by API to its
shareholders in connection with any meetings held to consider the matters to be
voted on. In this regard, the
<PAGE> 54
Shareholders shall give their irrevocable proxy to API's Board of Directors
prior to any shareholder meetings held on or prior to the Termination Date.
4. Grant of Right of First Refusal to API.
(a) The Shareholders hereby grant to API an exclusive, irrevocable right of
first refusal ("Right") to match any offer to purchase in a private offering any
or all of their shares of Preferred Stock, the Note or shares of Common Stock
acquired by Shareholders upon the conversion of any of their Preferred Stock
(hereinafter collectively referred to as "Company Securities"), whether such
offer is solicited or unsolicited by Shareholders, received by Shareholders at
any time on or prior to the Termination Date (a "Private Offer"). Prior to
committing to sell any of their Company Securities pursuant to a Private Offer,
the Shareholders shall notify API of that Offer, the identity of the person or
persons making the Private Offer, the number of Company Securities covered by
the Private Offer, and the financial terms of that Offer, including the price
per share or the price for all or a portion of the Note and the terms and timing
of payment. API shall have twenty (20) calendar days after its receipt of the
notice of the Private Offer to exercise its Right by paying to Shareholders the
price that the third party has offered, on the terms offered by that party. If
API fails to purchase the Company Securities covered by the Private Offer within
this 20-day period, then the Shareholders shall be entitled to sell those
Company Securities covered by the Private Offer to the third party pursuant to
that Offer, on the condition that the Private Offer is a bona fide offer made by
a person who is not an affiliate of the Shareholders. If the Shareholders fail
to sell their Company Securities to the third party within twenty (20) calendar
days after the close of API's 20-day period to match the Private Offer, their
Company Securities shall once again be subject to all of the terms of this
Paragraph 4(a). The Company Securities covered by the Right granted in this
Paragraph 4(a) shall include all of the shares of Preferred Stock, the Note and
Common Stock issuable upon conversion of the Preferred Stock owned, of record or
beneficially, by the Shareholders as of the date hereof and any shares into
which those securities may be converted or exchanged and any shares issued with
respect to those securities as a stock dividend or in the form of a stock split.
(b) Prior to proposing to sell any of their Company Securities pursuant to
a public offering (a "Public Offering"), the Shareholders shall notify API of
that proposal, the identity of the proposed underwriter for the Public Offering,
the number of Company Securities which Shareholders propose to sell in a Public
Offering and the proposed plan of distribution. API shall have twenty (20)
calendar days after its receipt of the notice of the Public Offering to purchase
the shares from Shareholders on terms and conditions, including the price per
share, acceptable to Shareholders. If API fails to purchase the Company
Securities covered by the proposed Public Offering within this 20-day period,
then the Shareholders shall be entitled to sell those Company Securities in the
proposed Public Offering pursuant to that Offering. If the Shareholders fail to
sell their Company Securities pursuant to the proposed Public Offering within
nine (9) months after the close of API's 20-day period referred to above, their
Company Securities shall once again be subject to all of the terms of this
Paragraph 4(b). The Company Securities covered by this Paragraph 4(b) shall
include all of the shares of Preferred Stock, the Note and Common Stock issuable
upon conversion of the Preferred Stock owned, of record or beneficially, by the
Shareholders as of the date hereof and any shares into which those securities
may be converted or exchanged and any shares issued with respect to those
securities as a stock dividend or in the form of a stock split.
5. Grant of Right to Inter Scan to Participate in Private Placements. If
at any time on or prior to the Termination Date API shall offer to sell in a
private placement or other offering not registered with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (a "Private
Placement"), any shares of its Common Stock or other securities convertible into
Common Stock (collectively, the "Offered Securities"), it shall notify Inter
Scan in writing of the Private Placement, the terms of the Offered Securities,
the number of shares of Offered Securities to be sold, and the financial terms
of the Private Placement, including the price per share and the terms and timing
of payment. Inter Scan shall have twenty (20) calendar days after its receipt of
the notice of the Private Placement to give API its written irrevocable, binding
commitment to purchase up to that number of shares of Offered Securities to be
offered in the Private Placement which are necessary to maintain Inter Scan's
percentage of outstanding voting securities immediately after the Private
Placement is concluded at the percentage immediately prior to the sale of the
2
<PAGE> 55
shares of Offered Securities in the Private Placement. If the Private Placement
is concluded within thirty (30) calendar days after API's receipt of Inter
Scan's commitment, Inter Scan shall be obligated to purchase that number of
Offered Securities indicated in its commitment but not more than that number of
shares of Offered Securities as are required to allow Inter Scan to avoid a
dilution in its percentage of voting securities.
6. API's Obligation on a Shareholder's Sales of Series A Preferred
Stock. API shall use its best efforts to have its Board of Directors and
shareholders adopt an amendment to API's certificate of incorporation
authorizing 1,250,000 shares of Series B Preferred Stock and increasing the
Common Stock of API by at least 1,000,000 shares, and to have that amendment
duly filed with the Secretary of State of the State of Delaware by April 30,
1998. If such an amendment is not filed with the Secretary of State of the State
of Delaware by April 30, 1998, and if a Shareholder elects to sell some or all
of the 20,000 shares of Series A Preferred Stock, or some or all of the shares
of Common Stock issued to Shareholder upon its conversion of some or all of its
shares of Series A Preferred Stock, at any time between May 1, 1998 and a date
ten (10) years after the date of this Shareholder Agreement to a purchaser who
is not an affiliate of a Shareholder, in a bona fide arms-length transaction,
then API shall pay to such selling Shareholder the difference, if any, between
the net proceeds per share received by such selling Shareholder in such bona
fide arms-length transaction and 115% of the liquidation value per share of
Series A Preferred Stock so sold, plus any accrued unpaid dividends on each
share sold, or 115% of the conversion price of any Common Stock issued to
Shareholder upon its conversion of Series A Preferred Stock which shares of
Common Stock are so sold, as the case may be. Net proceeds shall equal the gross
selling price less any brokerage commissions paid by the selling Shareholder;
gross selling price shall not be reduced, for purposes of this Paragraph 6, by
any discount paid by Shareholder to an underwriter if such sale is by or through
an underwriter in a public offering. API's obligation under this Paragraph 6
shall be limited to a total of 20,000 shares of Series A Preferred Stock, if
Series A Preferred Stock is sold, and 1,244,485 shares of Common Stock, if
Common Stock issued on conversion of Series A Preferred Stock is sold.
7. Restrictions on Shareholders. Inter Scan hereby agrees, on its own
behalf and on behalf of each of its affiliates, that at no time prior to the
Termination Date will that Shareholder or any such affiliate directly or
indirectly:
(a) make, or in any way participate, directly or indirectly, in any
solicitation of proxies or votes or written consents with respect to the
election of Directors of API or any other matter submitted to a vote or the
written consent of API's shareholders;
(b) acquire, offer to acquire, or agree to acquire, directly or
indirectly, by purchase or otherwise, any voting securities or direct or
indirect rights to acquire any voting securities of API or any subsidiary
thereof, or of any successor to or person in control of API, or any assets
of API or any subsidiary or division thereof or of any such successor or
controlling person, except that during each 12-month period after the date
of this Agreement Shareholders may acquire in the aggregate through open
market or privately negotiated purchases up to 2% of API's then outstanding
Common Stock; provided, however, that at no time prior to the Termination
Date may the Shareholders or any of their affiliates, individually, jointly
or in the aggregate, own directly or indirectly, of record or beneficially,
more than 25% of API's then outstanding Common Stock unless specifically
authorized in writing to do so by API;
(c) make, or in any way participate, directly or indirectly, in any
"solicitation" of "proxies" (as such terms are used in the rules of the
Securities and Exchange Commission) to vote, or seek to advise or influence
any person or entity with respect to the voting, of any voting securities
of API;
(d) make any public announcement with respect to, or submit a proposal
for, or offer of (with or without conditions) any extraordinary transaction
(including but not limited to any tender or exchange offer, merger,
recapitalization or other business combination) involving API or its
securities or assets;
(e) submit any shareholder proposal to API; or
(f) form, join or in any way participate in a "group" as such term is
used in Section 13(d) of the Securities Exchange Act of 1934, as amended,
in connection with any of the foregoing.
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<PAGE> 56
Each Shareholder shall promptly advise API of any inquiry or proposal made
to it or any of its affiliates with respect to any of the foregoing.
8. Covenants; Legends.
(a) Shareholders acknowledge that the Company Securities have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"), or
under any state or foreign securities laws. Shareholders are acquiring the
Company Securities, solely for investment, with no present intention to
distribute any of such securities to any person. Shareholders will not sell or
otherwise dispose of any of the Company Securities except in compliance with the
registration requirements or exemption provisions under the 1933 Act and the
rules and regulations promulgated thereunder and any other applicable securities
laws, or unless Shareholders provide API with an opinion of counsel reasonably
satisfactory to API or with a "no-action" letter from the Securities and
Exchange Commission that registration of the Company Securities is not
necessary.
(b) Shareholders hereby covenant and agree that for so long as they own,
directly or indirectly, any Company Securities covered by this Agreement they
will not sell, transfer, assign, pledge, hypothecate, gift, encumber or
otherwise dispose of those Company Securities or any interest in such Company
Securities except in compliance with the terms of this Agreement. Unless
specifically authorized by API in writing, any Company Securities so sold,
transferred, assigned, pledged, hypothecated, gifted, encumbered or otherwise
disposed of in a private offering shall remain subject to all of the terms of
this Agreement, and the owner, holder or recipient of any Company Securities so
sold, transferred, assigned, pledged, hypothecated, gifted, encumbered or
otherwise disposed of shall be subject to all of the restrictions imposed on
Shareholders under this Agreement.
(c) The stock certificates and note representing all of the Company
Securities covered by this Agreement shall bear the following legends, as
applicable:
"The shares represented by this certificate are subject to restrictions on
disposition pursuant to an agreement between the owner of these shares and
American Precision Industries Inc. dated July 8, 1997. A copy of that
agreement may be obtained from American Precision Industries Inc.
The shares represented by this certificate have not been registered with
the Securities and Exchange Commission ("SEC") under the Securities Act of
1933, as amended (the "1933 Act"), or under any applicable state laws
("State Laws"), in reliance upon applicable exemptions under the 1933 Act
and State Laws. The shares represented by this certificate may not be
sold, assigned, transferred, pledged, hypothecated or otherwise disposed
of without (i) registration under the 1933 Act and any applicable State
Laws or (ii) an opinion of counsel reasonably satisfactory to American
Precision Industries Inc. or a "no-action" letter from the SEC that
registration under the 1933 Act and any applicable State Laws is not
necessary for such sale, assignment, transfer, pledge, hypothecation or
disposition."
* * * *
"This Note and the shares of Series B Seven Percent (7%) Cumulative
Convertible Preferred Stock for which this Note may be exchanged are
subject to restrictions on disposition pursuant to an agreement between
the owner of this Note and American Precision Industries Inc. dated July
8, 1997. A copy of that agreement may be obtained from American Precision
Industries Inc.
This Note and the shares of Series B Seven Percent (7%) Cumulative
Convertible Preferred Stock for which this Note may be exchanged have not
been registered with the Securities and Exchange Commission ("SEC") under
the Securities Act of 1933, as amended (the "1933 Act"), or under any
applicable state laws ("State Laws"), in reliance upon applicable
exemptions under the 1933 Act and State Laws. This Note and such shares of
Series B Seven Percent (7%) Cumulative Convertible Preferred Stock may not
be sold, assigned, transferred, pledged, hypothecated or otherwise
disposed of without (i) registration under the 1933 Act and any applicable
State Laws or
4
<PAGE> 57
(ii) an opinion of counsel reasonably satisfactory to American Precision
Industries Inc. or a "no-action" letter from the SEC that registration
under the 1933 Act and any applicable State Laws is not necessary for such
sale, assignment, transfer, pledge, hypothecation or disposition."
In addition, similar legends shall be affixed to the stock transfer records and
corporate records of indebtedness, and API's stock transfer agent shall be
advised of the terms of this Agreement.
9. Binding Effect. This Agreement and the Right granted hereunder shall
inure to the benefit of and be binding upon API and its successors and assigns,
and shall be binding upon Shareholders and their successors, assigns, heirs,
legatees, devisees, beneficiaries, legal representatives, executors and estate,
and any of their assigns, transferees and donees permitted pursuant to
subparagraph 8(b) above.
10. Dispute Resolution Procedure. API and the Shareholders shall attempt
to resolve between them any dispute which arises under this Agreement. If they
cannot agree within ten (10) calendar days after either party submits a demand
for arbitration to the other party, then the dispute, except for any dispute
which arises under Paragraph 6 of this Agreement which shall not be subject to
arbitration, shall be submitted to binding 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 two
(2) of the three (3) arbitrators shall be final and binding. The arbitration
shall take place in New York, New York. The arbitrators shall apply Delaware
law, but shall not be allowed to award punitive damages. Any dispute which
arises under Paragraph 6 of this Agreement which is not resolved between the
parties shall be submitted to a court of appropriate jurisdiction located in
Erie County, New York State, U.S.A. with regard to any litigation initiated by a
Shareholder against API and in Zurich, Switzerland with regard to any litigation
initiated by API against any Shareholder.
11. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, without reference to principles of conflict
of laws. The captions of this Agreement are not part of the provisions hereof
and shall have no force or effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors or legal representatives.
(b) The term "affiliate" as used in this Agreement shall mean any person
that directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with any Shareholder or any other
affiliate of any Shareholder.
(c) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, to the address for each party
as first written above or to such other address as either party shall have
furnished to the other in writing in accordance herewith. Notices and
communications shall be effective when actually received by the addressee.
(d) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(e) Each party hereto shall be responsible for the fees and expenses they
incur (including, but not limited to, fees of their attorneys, accountants and
advisors) in connection with this Agreement and all transactions contemplated
herein.
5
<PAGE> 58
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
executed as of the day and year first above written.
AMERICAN PRECISION INDUSTRIES INC.
By: /s/ KURT WIEDENHAUPT
-------------------------------------
Kurt Wiedenhaupt, President
and Chief Executive Officer
INTER SCAN HOLDING LTD.
By: /s/ HOLGER B. HJELM
-------------------------------------
HOLGER B. HJELM
By: /s/ MAX E. HUBER
-------------------------------------
MAX E. HUBER
6
<PAGE> 59
EXHIBIT 5.1(D)(2)
REGISTRATION AGREEMENT
<PAGE> 60
REGISTRATION AGREEMENT
This Agreement, made as of the 8th day of July, 1997, by and between
AMERICAN PRECISION INDUSTRIES INC., a Delaware corporation, having an office at
2777 Walden Avenue, Buffalo, New York 14225 (the "Company"), and INTER SCAN
HOLDING LTD., a Swiss company, having an office at Schifflande 5 CH-8001-Zurich,
Switzerland ("Shareholder").
W I T N E S S E T H :
WHEREAS, the Company and Shareholder are parties to an Amended and Restated
Stock Purchase Agreement dated July 3, 1997 (the "Stock Purchase Agreement") to
which a copy of this Registration Agreement is an Exhibit; and
WHEREAS, pursuant to the Stock Purchase Agreement the Company has issued to
Shareholder shares of Convertible Preferred Stock ("Preferred Stock") and an
Exchangeable Promissory Note ("Note") which is exchangeable for shares of
Preferred Stock; and
WHEREAS, the Preferred Stock is convertible into shares of the Company's
Common Stock, $.66 2/3 par value per share (the "Common Stock"); and
WHEREAS, the Shareholder may from time to time wish to have a public
offering of all or part of the Preferred Stock or the Common Stock issuable upon
conversion of the Preferred Stock and to require the Company to file a
registration statement with respect to such offerings with the Securities and
Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 Act"), upon the terms and subject to the conditions stated in this
Agreement; and
WHEREAS, the Company, as an additional part of the consideration for the
Stock Purchase Agreement, has agreed to provide the Shareholder with certain
rights provided for in this Agreement.
NOW, THEREFORE, in consideration of the terms, conditions, agreements and
covenants set forth in this Agreement, the Company and Shareholder agree:
Section 1. The Shareholder shall have registration rights, at any time
within the ten (10) year period following the initial issuance of the Preferred
Stock and Note pursuant to the Stock Purchase Agreement, with respect to two (2)
separate public offerings of its Preferred Stock and/or Common Stock, provided
that there shall be an interval of at least one (1) year between each such
public offering. For purposes of this Agreement, the words "registration rights"
shall mean the right of the Shareholder to have the Company (a) file a
registration statement on an appropriate form with the SEC covering a proposed
public offering, (b) use its best efforts to have the registration statement
declared effective and kept current and in compliance with the 1933 Act until
completion of the public offering, and (c) use its best efforts to effect
qualification and compliance with the securities laws of such states as the
Shareholder may reasonably designate in which the public offering is to be made
(the "Registration Rights").
Section 2. Each time the Shareholder exercises its Registration Rights, it
shall:
(a) furnish to the Company such information regarding Shareholder, the
contemplated distribution of such shares held by Shareholder and such other
information regarding the proposed sale as the Company may request in
writing and as shall be required in connection with the registration. The
information shall be furnished to the Company in writing and signed by the
Shareholder stating that the information is specifically for use in the
related registration statement, prospectus, offering circular or other
document incident to the registration;
(b) except as indicated in Sections 5 and 6 below, pay the expenses of
the registration directly related to the proposed sale of the Common Stock
or Preferred Stock owned by Shareholder which shall include, without
limitation, all registration and filing fees related to the shares of
Common Stock or Preferred Stock to be sold by Shareholder, the reasonable
fees and disbursements of counsel and auditors for the Shareholder and any
selling commissions, expenses or taxes incident to the sale of the
Shareholder's shares; and
<PAGE> 61
(c) defer the sale of any shares for a period not to exceed ninety
(90) days if (i) a registration statement is filed with respect to a
pending offering by the Company other than pursuant to this Section, and
(ii) the Company so requests that the shares not be sold for such a period;
but in such event, and if a registration statement filed under this Section
has become effective, the Company shall use its best efforts to keep such
registration statement covering the shares of the Shareholder current and
in compliance with the Act for ninety (90) days following the expiration of
such period.
Section 3. On each occasion, if any, during the four (4) year period after
the initial issuance of the Preferred Stock and Note pursuant to the Stock
Purchase Agreement, the Company proposes to register under the 1933 Act any
equity 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, the Company agrees:
(a) it will give written notice to Shareholder at least forty-five
(45) days prior to the filing of each registration statement of such
proposal and intention to do so;
(b) Shareholder shall have the right to include, in addition to its
rights under Section 1 above, any or all of its shares of Preferred Stock
or Common Stock in the registration statement;
(c) if Shareholder requests inclusion of any of the shares of
Preferred Stock or Common Stock in such proposed registration within
twenty-five (25) days after the Company gives Shareholder such notice, the
Company will include those shares of Preferred Stock or Common Stock 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 of Preferred Stock or Common
Stock sought to be included in such offering cannot be sold, the Company
will include in the offering only the number of shares of Preferred Stock
or Common Stock 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 of
Preferred Stock or Common Stock in any registration statement provided for
in this Section 3 unless Shareholder agrees, if so required by the Company,
to offer and sell Shareholder's shares of Preferred Stock or Common Stock
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 Section 3 to include
Shareholder's shares of Preferred Stock or Common Stock in the registration
statement or prospectus to be used in any state which (i) refuses to permit
the shares of Preferred Stock or Common Stock to be offered or (ii) imposes
additional requirements upon the Company in order for the shares of
Preferred Stock or Common Stock to be included in the registration
statement and prospectus, if such requirements would unreasonably inhibit
or delay the offering by the Company.
Section 4. The Shareholder and the Company will cooperate with each other
in the preparation and filing of any registration statement contemplated in the
above Sections 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.
Section 5. Subject to the provisions of Section 6 and except as otherwise
provided in Section 2(b), the Company will pay the following costs and expenses
incidental to the performance of its obligations under Section 3 of 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
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<PAGE> 62
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 of Preferred Stock or Common Stock 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 statement, 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
Section 5, 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 the Preferred Stock or Common Stock,
such as, but not limited to, transfer taxes incident to transfer of the
Preferred Stock or the Common Stock to any underwriter or underwriters.
Section 6. Notwithstanding anything in the foregoing provisions of this
Agreement, the Company will bear the costs set out in Section 5 only in
connection with the registration of all or part of the Preferred Stock or Common
Stock under Section 3 in connection with a public offering pursuant to which the
Company offers equity securities for sale. In the event of a registration
pursuant to Section 3, 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).
Section 7. 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 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 Section 8 in the manner set forth in that Section)
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 Preferred Stock or Common
Stock 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; and
(b) reimburse Shareholder, each such director, officer and underwriter, and
each such controlling person, for 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 Section 7;
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.
3
<PAGE> 63
Section 8. 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):
(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 Preferred Stock or Common
Stock 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; and
(b) reimburse the Company, each such director, officer or controlling
person for any legal or other expenses reasonable 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 Section 8;
provided, however, that any obligation or liability of Shareholder shall be
limited in each case and only be to the extent, 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.
Section 9. Within sixty (60) days after receipt by a party to be
indemnified (the "indemnified party") pursuant to the provisions of Section 7 or
8 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 Section 7,
hereof or, as the case may be, of Section 8 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 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 Section 7 or 8, as the case may be,
and under this Section 9.
Section 10. In the event that Shareholder acquires any additional
Preferred Stock or Common Stock 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 such Preferred Stock or Common Stock, or the payment of any stock
dividend on such Preferred Stock or Common Stock, or if any of such Preferred
Stock or Common Stock are exchanged for or converted into any other equity
securities, then, in any such event, such additional Preferred Stock or Common
Stock 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
4
<PAGE> 64
Preferred Stock or Common Stock. 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.
Section 11.
(a) The Company agrees that, in any case where:
(1) it has notified Shareholder in writing in connection with a
proposed public disposition of any of the Preferred Stock or Common
Stock, 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 Preferred Stock or Common Stock 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
Preferred Stock or Common Stock owned by Shareholder; or
(3) a registration statement has been declared effective in
relation to any of the Preferred Stock or Common Stock;
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 Preferred Stock or Common Stock referred to in this Section
11, without any restrictive legend whatsoever upon surrender to the Company
of the certificates or other appropriate instruments evidencing such
Preferred Stock or Common Stock 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 Preferred Stock or
Common Stock, or in the event of a withdrawal of any such registration
statement, it will, without prejudice to its rights under this Section 11,
surrender to the Company those certificates or other appropriate
instruments evidencing such Preferred Stock or Common Stock (if any)
bearing no legend which it has received in exchange for certificates or
other appropriate instruments evidencing such Preferred Stock or Common
Stock bearing a legend and will accept in exchange therefor, certificates
or other appropriate instruments evidencing such Preferred Stock or Common
Stock bearing such a legend.
Section 12. 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; provided, however, that Shareholder may not assign its rights under
this Agreement without the Company's prior written consent.
Section 13. 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 the following addresses:
<TABLE>
<S> <C>
Company: American Precision Industries Inc.
2777 Walden Avenue
Buffalo, New York 14225
Attention: President
Shareholder: Inter Scan Holding Ltd.
Schifflande 5
CH-8001 Zurich
Switzerland
Attention: President
</TABLE>
5
<PAGE> 65
Section 14. This instrument, and the documents referred to here, including
the Stock Purchase Agreement, contain the entire 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 in this instrument or in such
documents to which such party is also a party.
Section 15. If any provision of this Agreement is held by a court of
competent jurisdiction for any reason to be unenforceable, the remainder of this
Agreement shall, nevertheless, remain in full force and effect in such
jurisdiction.
Section 16. 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.
Section 17. 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) calendar days after either
party submits a demand for arbitration to the other party, then the issue shall
be submitted to binding 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 two (2) of
the three (3) arbitrators shall be final and binding. The arbitration shall take
place in New York, 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: /s/ KURT WIEDENHAUPT
------------------------------------
Kurt Wiedenhaupt, President
and Chief Executive Officer
INTER SCAN HOLDING LTD.
By: /s/ HOLGER B. HJELM
------------------------------------
HOLGER B. HJELM
By: /s/ MAX E. HUBER
------------------------------------
MAX E. HUBER
6
<PAGE> 1
EXHIBIT 4
CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS OF
SERIES A SEVEN PERCENT (7%) CUMULATIVE
CONVERTIBLE PREFERRED STOCK
OF
AMERICAN PRECISION INDUSTRIES INC.
PURSUANT TO SECTION 151 OF THE GENERAL CORPORATION LAW
OF THE
STATE OF DELAWARE
We, John M. Murray, Vice President-Finance and Treasurer, and
James J. Tanous, Secretary, of American Precision Industries Inc., a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the "Corporation"), in accordance with the provisions of Section 103
thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of
Directors by the Restated Certificate of Incorporation of the Corporation, the
Board of Directors on July 2, 1997, adopted the following resolution creating a
series of 20,000 shares of Preferred Stock designated as Series A Seven Percent
(7%) Cumulative Convertible Preferred Stock:
RESOLVED, that as required by Section 151(g) of the Delaware
General Corporation Law and as authorized by Article IV of the Corporation's
Restated Certificate of Incorporation, this Board of Directors hereby designates
all shares, $50.00 par value per share, of the preferred stock authorized in
Article IV of the Corporation's Restated Certificate of Incorporation as "Series
A Seven Percent (7%) Cumulative Convertible Preferred Stock, $50.00 par value"
(hereinafter referred to as the "Series A Preferred Stock"); and this Board of
Directors hereby fixes the number of shares in that Series at 20,000, and the
dividend rate per annum, the redemption features, the terms and conditions on
which those shares may be converted, and the other rights, preferences and
limitations pertaining to those shares as set forth in this Certificate of
Designation; and the officers of the Corporation are hereby authorized and
directed to file this Certificate of Designation with the Secretary of State of
Delaware.
The terms of the Series A Preferred Stock are as follows:
Section 1. DESIGNATION AND AMOUNT. The shares of such series
shall be designated as "Series A Seven Percent (7%) Cumulative Convertible
Preferred Stock" and the number of shares constituting such series shall be
20,000.
Section 2. LIQUIDATION VALUE. The liquidation value of the
Series A Preferred Stock shall be $1,057.8125 per share ("Series A Liquidation
Value").
Section 3. EXCHANGE RIGHTS AND OBLIGATIONS. The holders of the
Series A Preferred Stock shall have the right and obligation to promptly
exchange all of such shares
<PAGE> 2
for one million (1,000,000) shares of Series B Seven Percent (7%) Cumulative
Convertible Preferred Stock, $50.00 par value per share, upon receipt of written
notification from the Corporation that the Corporation's Restated Certificate of
Incorporation has been duly amended, with the approval of the Corporation's
Board of Directors and shareholders, to authorize such Series B Seven Percent
(7%) Cumulative Convertible Preferred Stock and that the certificate of
amendment of the Corporation's Restated Certificate of Incorporation authorizing
such Series B Seven (7%) Cumulative Convertible Preferred Stock has been duly
filed with the Secretary of State of the State of Delaware. Such written
notification that the Restated Certificate of Incorporation has been so amended
and filed is hereinafter referred to as the "Notification of Amendment of
Certificate of Incorporation."
Section 4. REDEMPTION OF SERIES A PREFERRED STOCK.
(A) OPTIONAL REDEMPTION. After the holders of the
Series A Preferred Stock have received the Notification of Amendment of
Certificate of Incorporation, the Corporation, at the option of the Board of
Directors, may redeem all or any part of the Series A Preferred Stock at any
time outstanding, at any time or from time to time, upon written notice duly
given pursuant to subsection 4(B), for an amount per share to be redeemed equal
to the sum of the Series A Liquidation Value and an amount computed at the
annual rate of seven percent (7%) of the Series A Liquidation Value per annum
per share 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 ("Redemption Price"). Notwithstanding the receipt of any notice
pursuant to subsection 4(B), the holders of Series A Preferred Stock shall have
the right to convert their shares of Series A Preferred Stock as set forth in
Section 7 below.
(B) NOTICE OF REDEMPTION. Notice of any redemption
("Redemption Notice") of Series A Preferred Stock shall be mailed at least
forty-five (45) calendar days prior to the date fixed for such redemption to the
holders of record of shares so to be redeemed at their respective addresses as
the same shall appear on the books of the Corporation. In case of redemption of
only a part of the Series A Preferred Stock at the time outstanding, the shares
to be redeemed shall be selected in such manner as the Board of Directors may
determine, whether by lot or by pro rata redemption or by selection of
particular shares, and the proceedings and actions of the Board of Directors in
making such selection shall not be subject to attack except for fraud. The
Redemption Notice shall state (i) the date of redemption; (ii) the Redemption
Price; and (iii) the place of payment.
Section 5. DIVIDENDS AND DISTRIBUTIONS. The holders of the
Series A Preferred Stock shall be entitled to receive cumulative cash dividends
at the rate of seven percent (7%) of the Series A Liquidation Value (as defined
above in Section 2) per share per annum, and no more, with such dividends
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. The
cumulative cash dividends shall be paid when and as declared by the Board of
Directors of the Corporation, but only out of surplus legally available for the
payment of dividends. Such dividends shall be payable before any
- 2 -
<PAGE> 3
dividends (other than a stock dividend in shares of the same class of stock) on
any class of common stock shall be paid or set apart for payment. Dividends
shall be cumulative from and after January 1, 1999, and any arrearages in
payment shall not bear interest.
Section 6. VOTING RIGHTS.
(A) Subject to the limitations contained below, the
holders of Series A Preferred Stock shall vote as a class on the following
transactions that shall be submitted to the holders of Series A Preferred Stock
for their approval:
(i) the merger or consolidation of the
Corporation with or into another
corporation or a partnership, trust
or other entity;
(ii) the sale of all or substantially all
of the assets of the Corporation;
(iii) the dissolution of the Corporation;
(iv) any amendment to the Corporation's
Restated Certificate of
Incorporation that would amend,
change, modify or revoke the rights,
preference or limitations applicable
to the Series A Preferred Stock; and
(v) any other proposal or transaction
that requires the approval of the
holders of Series A Preferred Stock,
voting as a class, under Delaware's
General Corporation Law.
In each instance set forth in subsections (i)
through (v) above, the holders of Series A Preferred Stock shall be entitled to
one vote for each share of such stock owned of record and the approval of the
holders of a majority of the shares of Series A Preferred Stock issued and
outstanding and entitled to vote shall be required to adopt such proposal.
Notwithstanding the foregoing, the holders of
Series A Preferred Stock shall lose any and all right to vote as a class (except
to the extent, if any, that such holders thereafter have the right to vote as a
class pursuant to the provisions of Delaware's General Corporation Law) if at
any time the total number of issued and outstanding shares of Series A Preferred
Stock is less than twenty five percent (25%) of: (i) the number of shares of the
Series A Preferred Stock initially issued; or (ii) if the Series A Preferred
Stock is subsequently converted into Series B Seven Percent (7%) Cumulative
Convertible Preferred Stock, the number of shares of Series B Seven Percent (7%)
Cumulative Convertible Preferred Stock that would have been issued if such
Series B stock had been initially issued in lieu of the Series A stock.
- 3 -
<PAGE> 4
(B) In addition to the voting rights granted above,
the holders of Series A Preferred Stock shall be entitled to vote on all matters
(except the election of directors and the ratification of the independent public
accountants retained by the Corporation to audit its financial statements)
submitted for a vote to the holders of the common stock, par value $0.66-2/3 per
share, of the Corporation (the "Common Stock"), and in that instance each holder
of Series A Preferred Stock shall have a number of votes equal to the number of
shares of Common Stock into which his or her shares of Series A Preferred Stock
would be convertible as of the record date for the meeting of shareholders at
which such matter will be voted on.
(C) If the Corporation shall breach any of its
obligations hereunder or fail to make any exchange, conversion, or payment to
which the holder of Series A Preferred Stock is entitled hereunder, or fail to
maintain its corporate existence in good standing or continue its normal
business operations, or if any bankruptcy, reorganization, insolvency,
receivership or other credit proceeding is instituted by or against the
Corporation and is not dismissed within sixty (60) calendar days, or if the
Corporation makes an assignment for the benefit of creditors, then the holders
of Series A Preferred Stock, in addition to all other rights they may have at
law or in equity, shall have the right to vote for the election of directors and
to exercise all the rights any holder of the Common Stock may have to call a
special meeting of the shareholders of the Corporation and to participate in
such special meeting and any annual meeting of the shareholders.
Section 7. CONVERSION OF SERIES A PREFERRED STOCK.
(A) OPTIONAL CONVERSION. Holders of Series A
Preferred Stock shall have the right, at their option, to convert as many shares
of Series A Preferred Stock as they choose into the shares of the Corporation's
Common Stock, at any time after such shares of Common Stock are authorized and
on the terms and conditions set forth below.
(B) TERMS OF CONVERSION. The conversion of the
Series A Preferred Stock shall be upon the following terms and conditions:
(i) CONVERSION RATIO. The Series A Preferred
Stock shall be convertible, at the principal office of the Corporation and at
such other office or offices, if any, as the Board of Directors of the
Corporation may designate, into fully paid and non-assessable shares of Common
Stock. The number of shares of Common Stock to be delivered upon conversion
shall be determined by the following calculation:
THE SUM OF THE LV AND UD PER SHARE TIMES CPS = NCS
--------------------------------------------
CP
where LV equals the Series A Liquidation Value per share; UD equals seven
percent (7%) of the per share LV per annum from and after the date on which
dividends on such share became cumulative to and including the date of
conversion less the aggregate of the dividends paid during the same period,
computed without interest; CPS equals the number of shares of
- 4 -
<PAGE> 5
Series A Preferred Stock to be converted; CP equals the conversion price for a
share of Common Stock which shall be $17.00 per share as adjusted pursuant to
subsection (ii) or (iii) below; and NCS equals the number of shares of Common
Stock to be delivered upon conversion.
(ii) ADJUSTMENT OF CONVERSION PRICE ON VARIOUS
EVENTS. In case the Corporation at any time shall change its outstanding shares
of Common Stock (which, for purposes of this subsection, shall include any other
class of common stock) into a greater number of shares or pay in shares of
Common Stock a dividend on then outstanding shares of Common Stock or combine or
subdivide its outstanding shares of Common Stock into a smaller number of shares
or issue or sell shares of Common Stock for less than $17.00 per share (plus or
minus previous adjustments), (except for shares reserved or issued pursuant to a
bona fide stock option or benefit plan for directors, officers and/or employees
of the Corporation); then the Conversion Price for a share of Common Stock shall
be adjusted in accordance with the following equation:
(A X B) + C= NCP
-----------
D
where A equals the number of shares of Common Stock outstanding immediately
before the event requiring adjustment; B equals $17.00 per share (plus or minus
all previous adjustments); C equals the value of the consideration received by
the Corporation for the issuance or sale, requiring adjustments, of shares of
Common Stock for less than B; D equals the number of shares of Common Stock
outstanding after such event; and NCP equals the new conversion price.
(iii) ADJUSTMENTS FOR REORGANIZATIONS,
RECLASSIFICATIONS, MERGERS AND CONSOLIDATIONS. If any reorganization or
reclassification of the capital stock of the Corporation, or any merger or
consolidation of the Corporation with another corporation, shall be effected, a
holder of Series A Preferred Stock shall thereafter be entitled upon the
exercise of conversion rights to receive the number and kind of shares of stock,
securities or assets which the holder of Series A Preferred Stock would have
been entitled to receive in connection with such reorganization,
reclassification, merger or consolidation if he or she had been a holder of the
number of shares of Common Stock of the Corporation issuable upon the conversion
of his or her Series A Preferred Stock immediately prior to the time such
reorganization, reclassification, merger or consolidation became effective.
(iv) NOTICE OF ADJUSTMENT. Whenever any adjustments
are required pursuant to subsections (ii) and (iii) above, the Corporation shall
give the holder of Series A Preferred Stock written notice detailing the method
of calculation of such adjustment and the facts requiring the adjustment and
upon which the calculation is based.
(v) METHOD OF CONVERSION. In order to convert
shares of Series A Preferred Stock into shares of Common Stock, the holder of
Series A Preferred Stock shall surrender at any office mentioned above the
certificate or certificates therefor,
- 5 -
<PAGE> 6
duly endorsed to the Corporation or in blank, and give written notice at such
office that he or she elects to convert such shares of Series A Preferred Stock
which shall be deemed to have been converted as of the date ("Conversion Date")
of the surrender of such shares for conversion as provided above, and the holder
of Series A Preferred Stock shall be treated for all purposes as the record
holder or holders of such Common Stock on such date. As soon as practicable on
or after the Conversion Date, the Corporation will deliver at such office a
certificate or certificates for the number of full shares of Common Stock
issuable on such conversion, together with cash in lieu of any fraction of a
share, as hereinafter provided, to the persons entitled to receive the same. In
case shares of Series A Preferred Stock are called for redemption, the right to
convert such shares shall cease and terminate at the close of business on the
date fixed for redemption, unless exercised prior thereto or unless default
shall have been made in the payment of the Redemption Price.
(vi) FRACTIONAL SHARES. No fractional shares of
Common Stock shall be issued upon conversion, but the Corporation shall pay a
cash adjustment in respect of any fraction of a share which would otherwise be
issuable, in an amount equal to the same fraction of the Market Price, as
defined below, per share of Common Stock at the close of business on the
Conversion Date.
(vii) MARKET PRICE. The Market Price per share
shall be (a) if traded on the over-the-counter market, the mean between the
closing bid and asked quotations on the Conversion Date, or if no such bid or
quotation was made on the Conversion Date, then such bid and quotation on the
first date preceding the Conversion Date that such bid and quotation was
published, or (b) if traded on a national securities exchange, the closing sale
price on the Conversion Date, or if no such sale was made on the Conversion
Date, then the closing sale price on the first date preceding the Conversion
Date that such sale took place, or (c) if traded on both the over-the-counter
market and an exchange, the mean between the prices determined in accordance
with clauses (a) and (b) of this sentence.
(viii) PARTIAL CONVERSION OF SHARES. In the event
the holders of the Series A Preferred Stock elect to convert only a part of
their shares, the Corporation shall deliver new certificates to the holders of
the Series A Preferred Stock in an amount equal to the unconverted amount of
shares held by the holder of Series A Preferred Stock.
(ix) ISSUANCE OF CERTIFICATES. The issuance of new
certificates for shares of Common Stock or Series A Preferred Stock to the
holder of Series A Preferred Stock upon conversion shall be without any charge
or tax.
Section 8. PAYMENT ON LIQUIDATION, DISSOLUTION OR WINDING UP.
In the event of any voluntary or involuntary liquidation, dissolution or winding
up of the Corporation, the holders of Series A Preferred Stock shall be entitled
to receive out of the assets of the Corporation, before any distribution or
payment shall be made to the holders of any class of common stock, an amount
equal to the Series A Liquidation Value of the stock plus a sum computed at the
dividend rate of seven percent (7%) per annum from and after
- 6 -
<PAGE> 7
the date on which dividends on such shares became cumulative to and including
the date fixed for such payment, less the aggregate of the dividends theretofore
paid thereon, during the same period, but computed without interest. For the
purpose of this Section 8, a consolidation or merger of the Corporation with one
or more other corporations shall not be deemed to be a liquidation, dissolution
or winding up of the Corporation.
Section 9. NO IMPAIRMENT. The Corporation, whether by
amendment of its Certificate of Incorporation, or through any reorganization,
transfer of its assets, merger, dissolution, issue or sale of securities or any
other voluntary actions, will not avoid or seek to avoid the observance or
performance of any of the terms to be observed hereunder by the Corporation, but
at all times in good faith will assist in the carrying out of all such action as
may be necessary or appropriate in order to protect the rights of the holders of
Series A Preferred Stock.
Section 10. RESERVATION OF STOCK. The Corporation will at all
times keep available out of its authorized but unissued shares of Common Stock a
sufficient number of shares of Common Stock for the purposes of effectuating the
conversion of the Series A Preferred Stock. If at any time the number of
authorized but unissued shares of Common Stock are not sufficient to effect the
conversion of all of the outstanding Series A Preferred Stock, then the
Corporation shall take such actions as is necessary to increase the authorized
but unissued shares of Common Stock to be equal to the number needed for the
conversion.
IN WITNESS WHEREOF, we have executed and subscribed this
Certificate and do affirm the foregoing as true under the penalties of perjury
this 2nd day of July 1997.
/s/ John M. Murray
--------------------------------------
Name: John M. Murray
Title: Vice President-Finance and
Treasurer
(Corporate Seal)
ATTEST:
/s/ James J. Tanous
----------------------
Name: James J. Tanous
Title: Secretary
- 7 -
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Shareholders
Portescap SA
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (Nos. 33-31315, 33-61734 and 33-61839) of American Precision Industries
Inc. of our report dated 3 June 1997 with respect to the consolidated balance
sheets of Portescap SA, La Chaux-de-Fonds as of 31 December 1996 and 1995 and
the related consolidated statements of income, cash flows and shareholders'
equity for each of the years in the three year period ended 31 December 1996
which appears in the Report on Form 8-K of American Precision Industries Inc.
dated 21 July 1997.
KPMG Fides Peat
Arthur Schenker Andre Kunz
18 July 1997
Aarau, Switzerland
