<PAGE> 1
FORM 10Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from __________ to __________
Commission file number 15601
AMERICAN PRECISION INDUSTRIES INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 16-1284388
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2777 WALDEN AVENUE, BUFFALO, NEW YORK 14225
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(716) 684-9700
---------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
Number of shares of common stock outstanding
on August 6, 1999 7,308,002
<PAGE> 2
PART I
------
FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
AMERICAN PRECISION INDUSTRIES INC.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF EARNINGS
- ----------------------------------
(Unaudited)
(In thousands, except per share data) SECOND QUARTER ENDED SIX MONTHS ENDED
--------------------------- --------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET SALES $ 58,405 $ 53,659 $ 117,158 $ 108,672
COSTS AND EXPENSES
Cost of products sold 41,478 37,599 83,399 76,126
Selling and administrative 11,412 12,240 23,067 24,269
Research and product development 1,409 1,346 2,777 2,614
Interest and debt expense, net of
investment income 929 788 1,794 1,627
--------- --------- --------- ---------
55,228 51,973 111,037 104,636
--------- --------- --------- ---------
EARNINGS BEFORE INCOME TAXES 3,177 1,686 6,121 4,036
INCOME TAXES 1,143 662 2,203 1,453
--------- --------- --------- ---------
NET EARNINGS $ 2,034 $ 1,024 $ 3,918 $ 2,583
========= ========= ========= =========
Preferred stock dividends (458) -- (915) --
Net Earnings Available to Common Shareholders $ 1,576 $ 1,024 $ 3,003 $ 2,583
EARNINGS PER COMMON SHARE (1):
BASIC $ 0.21 $ 0.14 $ 0.40 $ 0.35
DILUTED $ 0.21 $ 0.11 $ 0.40 $ 0.28
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (1):
BASIC 7,400 7,462 7,439 7,453
DILUTED 7,571 9,347 7,578 9,366
</TABLE>
(1) See Exhibit 11 for the calculation of basic and diluted earnings per share.
See accompanying notes to Consolidated Financial Statements.
2
<PAGE> 3
AMERICAN PRECISION INDUSTRIES INC.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
- --------------------------
(Unaudited)
JUNE 30, DECEMBER 31,
(Dollars in thousands, except share and per share data) 1999 1998
----------- -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,429 $ 3,856
Accounts receivable less allowance for doubtful
accounts of $895 and $971 40,777 33,309
Inventories - net 45,609 43,715
Prepaid expenses 2,390 4,081
Deferred income taxes 2,645 2,672
-------- --------
TOTAL CURRENT ASSETS 94,850 87,633
OTHER ASSETS
Cost in excess of net assets acquired - net 26,599 20,129
Prepaid pension cost 1,693 1,747
Net cash value of life insurance 4,431 3,752
Other 2,819 2,344
-------- --------
35,542 27,972
PROPERTY, PLANT AND EQUIPMENT
Gross 102,130 85,356
Less accumulated depreciation 36,456 31,696
-------- --------
NET PROPERTY, PLANT AND EQUIPMENT 65,674 53,660
-------- --------
TOTAL ASSETS $196,066 $169,265
======== ========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
3
<PAGE> 4
AMERICAN PRECISION INDUSTRIES INC.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
- --------------------------
(Unaudited)
JUNE 30, DECEMBER 31,
(Dollars in thousands, except share and per share data) 1999 1998
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Short-term obligations $ 14,203 $ 14,158
Accounts payable 14,594 14,784
Accrued compensation and payroll taxes 9,119 6,838
Other liabilities and accrued expenses 9,087 7,071
Dividends payable 458 0
Current portion of long-term obligations 1,715 1,387
--------- ---------
TOTAL CURRENT LIABILITIES 49,176 44,238
DEFERRED INCOME TAXES 1,986 2,111
OTHER NONCURRENT LIABILITIES 3,722 3,964
LONG-TERM OBLIGATIONS, LESS CURRENT PORTION 58,606 34,484
SHAREHOLDERS' EQUITY
Series B seven percent (7%) cumulative convertible
preferred stock, par value $1.00 a share,
1,236,337 shares issued and outstanding 26,156 26,156
Common stock, par value $.66 2/3 a share:
Authorized - 30,000,000 shares
Issued - 7,870,564 and 7,853,635 shares 5,245 5,234
Additional paid-in capital 13,893 13,707
Retained earnings 44,932 41,930
Accumulated other comprehensive income (loss) (2,869) 279
--------- ---------
87,357 87,306
Less cost of treasury shares, 546,962 and 374,262 4,781 2,838
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 82,576 84,468
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 196,066 $ 169,265
========= =========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
4
<PAGE> 5
AMERICAN PRECISION INDUSTRIES INC.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
- ------------------------------------
(Unaudited)
SIX MONTHS ENDED
-------------------------
JUNE 30, JUNE 30,
(Dollars in thousands) 1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 3,918 $ 2,583
Adjustments to reconcile net income to cash and
cash equivalents provided by operating activities:
Depreciation and amortization 5,819 4,628
Stock compensation programs 152 (198)
Change in various allowance accounts 230 (91)
Other 143 63
(Increase) Decrease in:
Accounts receivable (6,215) (1,916)
Inventories 1,467 (2,128)
Prepaid expenses 1,736 1,197
Deferred income tax assets -- 214
Other assets, net (1,013) (836)
Increase (Decrease) in:
Accounts payable & accrued expenses (274) 827
Deferred income tax liabilities (49) 309
Other noncurrent liabilities 7 (280)
-------- --------
Net Cash Provided by Operating Activities 5,921 4,372
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in acquisitions, net of cash and cash equivalents acquired (21,165) (9)
Additions to property, plant and equipment (4,361) (5,114)
Other investing activities 35 687
-------- --------
Net Cash Used by Investing Activities (25,491) (4,436)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Exercise of stock options 106 303
Payment of long-term obligations, including current maturities (3,353) (666)
Purchase of stock for treasury (1,942) --
Dividends paid (458) --
Increase in long-term obligations 24,325 2,817
Increase (Decrease) in short-term borrowings 690 (674)
-------- --------
Net Cash Provided by Financing Activities 19,368 1,780
-------- --------
Effect of Exchange Rate Changes, net (225) (56)
Net Increase (Decrease) in Cash and Cash Equivalents (427) 1,660
Cash and Cash Equivalents at Beginning of Year 3,856 2,313
-------- --------
Cash and Cash Equivalents at End of Period $ 3,429 $ 3,973
======== ========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
5
<PAGE> 6
AMERICAN PRECISION INDUSTRIES INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Second Quarter Ended June 30, 1999
------------------------------------------
Note A Consolidated Financial Statements
- ------ ---------------------------------
The Consolidated Balance Sheet as of June 30,1999, and the
Consolidated Statement of Earnings and the Consolidated Statement
of Cash Flows for the periods ended June 30, 1999 and June 30,
1998 have been prepared by the Company without audit. In the
opinion of management, all adjustments necessary to present
fairly the financial position, results of operations, and changes
in cash flow at June 30, 1999 and for all periods presented have
been made. The Consolidated Balance Sheets include the assets,
liabilities and resulting goodwill of all subsidiaries. The
Consolidated Statements of Earnings and Cash Flows for the six
months ended June 30, 1999 include the results of API Elmo AB
from February 1, 1999, the date of acquisition.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with Generally
Accepted Accounting Principles have been condensed or omitted. It
is suggested these condensed consolidated financial statements be
read in conjunction with the financial statements and the notes
thereto included in the Company's 1998 Annual Report to
Shareholders.
Note B Inventories
- ------ -----------
The major classes of inventories are as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
(In thousands) 1999 1998
---------------- -----------------
<S> <C> <C>
Finished goods $ 10,086 $ 11,751
Work in process 9,970 8,509
Raw Materials 25,553 23,455
---------------- -----------------
$ 45,609 $ 43,715
================ =================
</TABLE>
Had the cost of all inventories at June 30, 1999 and December 31,
1998 been determined by the FIFO method, these amounts would have
been greater by $902 and $915, respectively.
6
<PAGE> 7
<TABLE>
<CAPTION>
Note C Long-Term Obligations
- ------ ---------------------
JUNE 30,1999 DECEMBER 31, 1998
---------------------------------- ---------------------------------
(In thousands) Total Current Long-Term Total Current Long-Term
-------- ------- ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Industrial Revenue Bonds $ 10,588 $ 1,160 $ 9,428 $ 11,165 $ 1,150 $ 10,015
Revolving Credit Debt 39,911 - 39,911 18,250 - 18,250
Supplemental Benefit Programs 739 234 505 821 237 584
Capital Lease Obligations 1,191 321 870 - - -
Portescap and Elmo Debt-
Mortgage and Other
Long-Term Loans 7,892 - 7,892 5,635 - 5,635
-------- ------- ------- -------- ------- --------
$ 60,321 $ 1,715 $ 58,606 $ 35,871 $ 1,387 $ 34,484
======== ======= ======== ======== ======= ========
</TABLE>
Note D Earnings Per Share
- ------ ------------------
In accordance with Statement of Financial Accounting Standards
No. 128 Earnings per Share ("SFAS 128"), basic earnings per
share is computed by dividing net earnings (adjusted by the
charge against Retained Earnings for the preferred stock
dividend) by the weighted average number of shares outstanding
during the period.
Diluted earnings per share is computed using the weighted
average number of shares determined for the basic computations
plus the number of shares of common stock that would be issued
assuming all contingently issuable shares having a dilutive
effect on earnings per share were outstanding for the period.
The sequence in which potential common shares are considered in
the computation of diluted EPS may effect the amount of dilution
that they produce. To reflect maximum potential dilution, each
issue or series of potential common shares should be considered
in sequence from the most dilutive to the least dilutive. If
including the next group of potential shares in the sequence
results in a higher EPS than prior to their inclusion, the
potential shares are antidilutive, and they should not be
included in the calculation of diluted EPS. Refer to Exhibit 11
for computation.
Note E Foreign Currency Translation
- ------ ----------------------------
The financial statements of subsidiaries outside the United
States are measured using the local currency as the functional
currency. Assets, including goodwill, and liabilities are
translated at the rates of exchange at the balance sheet date.
The resulting translation adjustments are included in equity
adjustment from foreign currency translation, a separate
component of shareholders' equity reported in Accumulated other
comprehensive income (loss). Income and expense items are
translated at average monthly rates of exchange.
7
<PAGE> 8
Note F Selected Segment Data
- ------ ---------------------
The Company conducts operations in two major industrial segments:
Motion Technologies and Heat Transfer. Information about the net
sales and operating profit of these segments follows:
<TABLE>
<CAPTION>
SECOND QUARTER ENDED SIX MONTHS ENDED
----------------------- ----------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
(Dollars in thousands) 1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES
Motion $ 35,482 $ 30,644 $ 71,649 $ 61,801
Heat Transfer 22,923 23,015 45,509 46,871
-------- -------- -------- --------
$ 58,405 $ 53,659 $117,158 $108,672
======== ======== ======== ========
OPERATING PROFIT:
Motion $ 3,005 $ 1,613 $ 5,943 $ 3,860
Heat Transfer 2,343 2,000 4,287 3,941
-------- -------- -------- --------
5,348 3,613 10,230 7,801
GENERAL CORPORATE EXPENSE, NET (1,242) (1,139) (2,315) (2,138)
INTEREST AND DEBT EXPENSE (929) (788) (1,794) (1,627)
-------- -------- -------- --------
EARNINGS BEFORE INCOME TAXES $ 3,177 $ 1,686 $ 6,121 $ 4,036
======== ======== ======== ========
</TABLE>
Note G Derivatives and Hedging Activities
- ------ ----------------------------------
In June 1998, the Financial Accounting Standards Board (FASB)
issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 133 provides authoritative
guidance on accounting and financial reporting for derivative
instruments, including certain derivative instruments embedded
in other contracts (collectively referred to as derivatives),
and for hedging activities. The Statement requires the
recognition of all derivatives as either assets or liabilities
in the consolidated balance sheet, and the periodic measurement
of those instruments at fair value. The classification of gains
and losses resulting from changes in the fair values of
derivatives is dependent on the intended use of the derivative
and its resulting designation, as further defined in the
Statement.
In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statement No. 133", which deferred the
required date of adoption of SFAS No. 133 for one year, to
fiscal years beginning after June 15, 2000; however, early
adoption is allowed, and initial application must be as of the
beginning of a fiscal quarter. Additionally, SFAS No. 133 cannot
be applied retroactively to prior periods. At adoption, existing
hedging relationships must be designated anew and documented
pursuant to the provisions of the Statement. The Company is
continuing its process of analyzing and assessing the impact
that the adoption of SFAS No. 133 is expected to have on its
consolidated results of operations, cash flows and financial
position, but has not yet reached any conclusions.
8
<PAGE> 9
<TABLE>
<CAPTION>
Note H Comprehensive Income
- ------ --------------------
The components of the Company's total comprehensive income
(loss) were:
SIX MONTHS ENDED
-----------------------
JUNE 30, JUNE 30,
(In thousands) 1999 1998
------- -------
<S> <C> <C>
Net earnings $ 3,918 $ 2,583
Other Comprehensive Income (Loss):
Foreign currency translation adjustments (3,169) (1,143)
Minimum pension liability adjustment, net of tax 21 --
------- -------
Total other comprehensive (loss) (3,148) (1,143)
------- -------
Total comprehensive income $ 770 $ 1,440
======= =======
</TABLE>
The foreign currency translation adjustments are not currently adjusted for
income taxes since they relate to investments which are permanent in nature.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
FINANCIAL REVIEW - OPERATIONS
NET SALES
American Precision Industries Inc.'s ("API") consolidated net sales for the
second quarter and six months of 1999 were $58.4 million and $117.2 million,
increases of 8.8% and 7.8% respectively as compared with the corresponding
periods last year. The acquisition on February 1, 1999 of Elmo Industrier AB
("Elmo"), a Swedish manufacturer of specialty electric motors, was the cause of
the increases. The addition of Elmo's sales more than offset lower sales at
continuing businesses caused by the weakness in the capital goods market.
COST OF PRODUCTS SOLD
Cost of products sold for the second quarter and first six months of 1999 were
$41.5 million and $83.4 million respectively as compared with $37.6 million and
$76.1 million for similar periods in 1998. Elmo's cost of goods sold, which was
the cause for the increase, was not completely offset by the reduced cost of
goods sold at continuing units resulting from cost reductions, productivity and
lower sales.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative costs in the second quarter 1999 were $11.4 million,
$.8 million below 1998's second quarter. Year-to-date selling and administrative
costs for 1999 are $23.1 million, $1.2 million lower than these costs for the
first half of 1998. Overhead reduction activities undertaken over the last 12
months in both business segments more than offset the additional selling and
administrative costs related to the Elmo acquisition.
RESEARCH AND PRODUCT DEVELOPMENT
Product development spending was $1.4 million in the second quarter of 1999 and
$2.8 million for the first six months as compared to $1.3 million and $2.6
million for similar periods in 1998. The acquisition of Elmo accounts for the
increases.
INTEREST AND DEBT EXPENSE, NET OF INVESTMENT INCOME
Interest and Debt Expense, net of investment income, was $.9 million in the
second quarter of 1999 as compared with $.8 million last year. Higher interest
expense resulting from the debt related to the Elmo acquisition was not fully
offset by reductions in other debt. For the first half of 1999 compared with the
similar period for 1998, interest and debt expense increased as a result of
interest on Elmo-related debt.
10
<PAGE> 11
TAXES
For both the second quarter and first six months of 1999, API's consolidated tax
rate was 36.0%. This compares with 39.3% and 36.0% for the corresponding periods
of 1998. The high second quarter 1998 tax rate reflected an adjustment to bring
the six months 1998 rate to 36%. During the second quarter of 1999, API
Portescap received approval from the Swiss federal government for a tax holiday
similar to that granted last December by the canton (state) of Neuchatel. A 100%
holiday from the 9% federal tax was granted for the years 1999 through 2002, and
a 50% holiday for the following six years. The benefit of the federal holiday to
API's consolidated 1999 tax rate was offset by the write-off of remaining tax
loss carry forwards included at acquisition on API Portescap's balance sheet.
NET EARNINGS
Net Earnings for the second quarter and first six months of 1999 were $2.0
million and $3.9 million respectively as compared with $1.0 million and $2.6
million for the similar periods of 1998. The Elmo acquisition contributed to the
99% increase in second quarter net earnings and the 52% increase in year-to-date
net earnings. The major contributor, however, was the cost and productivity
improvement activities at API's continuing businesses, which more than offset
the lower sales resulting from the weakness of the capital goods market.
BUSINESS SEGMENT DISCUSSION
API Motion
- ----------
API Motion's second quarter 1999 sales and operating profit were $35.5 million
and $3.0 million respectively. Second quarter 1999 sales increased 15.8% ($4.8
million) when compared to the same period in 1998.
The comparative sales increase at API Motion is solely due to the acquisition of
Elmo on February 1, 1999. The Elmo acquisition more than offset a sales decline
resulting from the current soft market conditions in a number of key market
segments served by API Motion.
Second quarter 1999 operating profit at API Motion increased 86% when compared
to the second quarter of 1998. Accounting for the majority of the $1.4 million
increase in operating profit were the cost and operating improvements made over
the last 12 months in API Motion's continuing businesses. These factors more
than offset the profit lost due to the revenue decline previously discussed.
Elmo accounted for the remainder of the profit increase.
For the first six months of 1999, sales of $71.6 million were up 15.9% compared
with the similar period of 1998. June 30, 1999 year-to-date operating profit of
$5.9 million was up 54% when compared with the first half of 1998. The February
1 acquisition of Elmo accounted for the sales increase, more than offsetting a
sales decline for API Motion's continuing businesses caused by soft business
conditions in key market segments. Contributing to the higher operating profit
were cost savings and productivity improvement activities in API Motion's
continuing business. These more than offset the profit loss from lower sales.
The Elmo acquisition also contributed to the increase in operating profit.
11
<PAGE> 12
API Heat Transfer
- -----------------
API Heat Transfer's second quarter 1999 sales and operating profit were $22.9
million and $2.3 million respectively. Second quarter 1999 sales were at the
same level as the second quarter of 1998, reflecting soft market conditions for
air-cooled and larger shell and tube heat exchangers offset by good shipments of
plate and frame products. Second quarter 1999 operating profit was 17.1% greater
than the second quarter of 1998, evidencing the actions taken to improve
operating performance and reduce costs.
For the first six months of 1999, API Heat Transfer sales of $45.5 million were
2.9% below the similar period last year. Weak demand in the capital goods market
resulted in lower sales of shell and tube and air-cooled products. Higher plate
and frame heat exchangers sales did not fully offset these declines. The higher
profitability reflects the benefits of cost and productivity improvement
actions, whose benefit more than offset the profit reduction resulting from the
lower sales volume.
FINANCIAL POSITION
Comparative information on the Company's liquidity position follows ($000
omitted).
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1999 1998
-------- --------
<S> <C> <C>
Net working capital $45,674 $39,915
Current ratio 1.9 1.9
Cash and cash equivalents $ 3,429 $ 3,973
Cash flow from operations (year-to-date) $ 5,921 $ 4,372
Capital expenditures (year-to-date) $ 4,361 $ 5,114
</TABLE>
The acquisition of Elmo is the most significant factor causing the increase in
net working capital.
The Company has available short-term lines of credit which it utilizes to fund
current operations.
On February 1, 1999, the Company used 189.9 million Swedish kronor ($24.2
million) of its $100 million multicurrency credit facility to acquire Elmo
Industrier AB and fund its working capital needs. As part of the Elmo
acquisition, API assumed bank debt of 44.2 million Swedish kronor ($5.7
million). API's bank debt at June 30, 1999 was $72.5 million. The remaining
availability at June 30, 1999 under the $100 million credit agreement is $60
million.
In February 1999, API's Board of Directors approved a stock repurchase program
and authorized the repurchase of up to $5 million of API common stock. At June
30, 1999, the Company had spent $1.9 million to repurchase 172,700 shares.
During the second quarter of 1999, the Company spent $1.7 million to acquire
146,800 shares.
12
<PAGE> 13
Effective January 1, 1999, a 7% annual dividend began to accrue on the $26.2
million principal amount of the Series B Seven Percent (7%) Cumulative
Convertible Preferred Stock outstanding, all of which is owned by InterScan
Holdings Ltd. The accrued dividend at June 30, 1999 was $458,000, which was paid
on July 1, 1999. A similar quarterly dividend will be accrued in subsequent
quarters with payments occurring on October 1, January 1, April 1 and July 1 of
each year.
YEAR 2000 INITIATIVES
The Company is addressing through its business groups the business and
technology issues presented by the year 2000 ("Y2K") and the possibility that
computer programs may not properly recognize the turn of the century. The
Company oversees its Y2K efforts through a committee chaired by the Company's
Chief Financial Officer. The committee includes a business executive and
information technology ("IT") manager from each business group. Outside computer
consultants are utilized as the need arises. Periodic status reports are
provided to the Company's Audit Committee.
The Y2K Committee has organized its efforts to address IT Systems, Non-IT Areas,
Products & Customers and Suppliers. The primary focus is on assuring that
mission critical systems are or will become Y2K compliant before year-end 1999.
U.S. Status:
- ------------
An inventory and assessment of IT systems at API's U.S. facilities occurred in
mid-1997. Most of the non-compliant systems required software upgrades available
from the software package suppliers. Such upgrades on major, mission critical
systems were completed during the second quarter. The majority of non-mission
critical systems are compliant, with only a few awaiting supplier furnished
upgrades. Written certification of compliance is being secured from the
suppliers of the release upgrades. Ongoing tests are performed to assure
compliance. In non-IT areas, evaluation of production, testing and office
equipment and of facilities has identified no mission critical non-compliance
issues. The Company continues to monitor this area.
Reviews have not identified any U.S. products which would be non-compliant.
However, the Company is limited in its ability to identify and review all
products that were sold in the past, particularly by its Motion Group. The
Company cannot be certain that there are not older products still in use which
contain embedded logic which may be non-Y2K compliant.
The Company's review of its U.S. raw material and parts requirements has
indicated it is not dependent upon a sole supplier for critical materials or
components. The Company has been surveying its suppliers of materials and
services to assess their compliance status. To date, the results of these
surveys have not identified any areas of significant concern.
European Status:
- ----------------
Status reviews at Schmidt-Bretten in Germany and Portescap in Switzerland and
the UK identified critical systems requiring upgrade.
13
<PAGE> 14
Schmidt-Bretten has completed its program to replace its operating and
administrative systems. Reviews of non-IT areas have identified several
non-compliant items and remedies are in process. The identified items are not
considered to be significant. Raw material and parts reviews have identified no
significant Y2K issues. Supplier surveys, begun in the first quarter of 1999,
have identified no significant concerns to date.
Portescap's Y2K review identified as non-compliant the integrated manufacturing
and administrative system which supports its Swiss facilities. A program begun
in the third quarter of 1998 brought this system into compliance during the
second quarter of 1999. A review of systems in Portescap's sales subsidiaries is
scheduled for completion during the third quarter of 1999.
Elmo, the Swedish motor company acquired on February 1, 1999, was in the process
of implementing a Y2K compliance program prior to its acquisition. The program
covers the areas discussed above and has identified no significant areas of
non-compliance. Upgrades to its operational and administrative systems were
completed in the second quarter of 1999.
At December 31, 1998, management estimated that U.S. costs incurred through that
date of Y2K related hardware and software upgrades to be less than $200,000 and
costs for outside consultants to be less than $100,000. At that time, future
costs were not expected to exceed an additional $200,000. The 1999 cost to
complete the implementation of the system at Schmidt-Bretten was estimated to be
under $200,000. The remaining compliance cost for Elmo was expected to be less
than $100,000. Future costs specifically related to Y2K compliance at Portescap
were estimated to be $500,000. At June 30, 1999, management believes the costs
and estimates described above to be accurate.
At this time, the Company does not have reason to believe that there will be any
significant interruption in the Company's U.S. or European operations caused by
a Y2K problem that is unique to the Company, and, therefore, the Company has not
adopted a contingency plan for such an event. However, the Y2K Committee
continues to monitor this possibility and will attempt to identify cost
effective and timely solutions should a problem in this regard be likely.
EURO CONVERSION
On January 1, 1999, certain member countries of the European Union established
fixed conversion rates between their existing currencies and the European
Union's common currency (Euro). The transition period for the introduction of
the Euro is between January 1, 1999 and January 1, 2002.
The Company has conducted an internal review of the potential effects of the
Euro conversion and determined that the modification of existing business
systems to accommodate the Euro are not expected to be material. Other factors
such as competitive implications of increased price transparency, currency
exchange rate risk and derivative exposures, continuity of material contracts
and potential tax consequences are not expected to have a material impact on the
Company's financial condition, liquidity or results of operations.
14
<PAGE> 15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The Company, as a result of its financing and international operating
activities, is exposed to market risk from changes in interest rates and foreign
currency exchange rates which may adversely affect its results of operations and
financial position. The Company seeks to minimize the risks from these interest
rate and foreign currency exchange rate fluctuations through its normal
operating and financing activities. When deemed appropriate, the Company
utilizes forward contracts to minimize the foreign currency exchange rate risk.
The Company does not use derivative financial instruments for trading or other
speculative purposes.
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's debt obligations which consist of a revolving credit
facility, industrial revenue bonds and various term loans. The majority of these
debt obligations have variable interest rates, primarily based on the London
Interbank Offered Rate (LIBOR) and an index rate based on short-term federal tax
exempt obligations. At June 30, 1999 and December 31, 1998, the carrying value
and fair values under these obligations were approximately $74 million and $49
million, respectively. If these variable interest rates were to change by 10%,
the impact on annual consolidated interest expense would be approximately
$350,000 and $225,000 for 1999 and 1998, respectively.
The Company's exposure to market risk for changes in foreign currency exchange
rates arises from investment in and intercompany balances with foreign
subsidiaries, receivables, payables, and firm commitments arising from
international transactions. The Company attempts to have all such transaction
exposures hedged with internal natural offsets to the fullest extent possible
and, once these opportunities have been exhausted, selectively through
derivative financial instruments with third parties using forward agreements. At
June 30, 1999 there were two outstanding forward agreements with fair values of
$425,000 and $75,000, with settlement dates of November 15, 1999 and August 13,
1999, respectively. At December 31, 1998 one forward agreement with a settlement
date of April 30, 1999 was outstanding with a fair value of approximately
$300,000. A 10% change in foreign exchange rates would not have a material
impact on the fair value of the forward agreements or the Company's results of
operations or cash flows related to these contracts.
The above discussion and the estimated amounts generated from the sensitivity
analyses referred to above include forward-looking statements of market risk
which assume that certain adverse market conditions may occur. Actual future
market conditions may differ materially from such assumptions. Accordingly, the
forward-looking statements should not be considered projections by the Company
of future events of losses.
15
<PAGE> 16
PART II
-------
OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
- ------- -----------------
None
Item 2. Changes in Securities and Use of Proceeds
- ------- -----------------------------------------
None
Item 3. Defaults Upon Senior Securities
- ------- -------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
At the Annual Meeting of Shareholders held on April 23, 1999, the
following directors were elected for terms expiring at the annual
meeting in the year 2002:
Class II Votes Votes
For Withheld
- --------------------------- --------------- ----------------
Bernard J. Kennedy 4,984,828 105,736
Kurt Wiedenhaupt 4,952,487 138,077
Holger Hjelm, Victor A. Rice and Jerre L. Stead continue to
serve as Class III directors for a term expiring at the annual
meeting in 2000.
John M. Albertine, PhD, Douglas J. MacMaster, Jr. and Klaus K.
Oertel continue to serve as Class I directors for a term expiring
at the annual meeting in 2001.
Also at the Annual Meeting, the selection of
PricewaterhouseCoopers LLP as auditors for the 1999 fiscal year
was approved with 5,051,468 votes for, 23,094 votes against, and
16,002 votes withheld.
Item 5. Other Information
- ------- -----------------
None
16
<PAGE> 17
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
See the index to exhibits immediately preceding the exhibits
filed with this report.
(b) Reports on Form 8-K
None
* * * * * *
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES
--------------------------------------------------
LITIGATION REFORM ACT OF 1995
-----------------------------
Certain statements made in this report constitute forward-looking
statements based upon current expectations and are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve certain assumptions,
risks and uncertainties that could cause actual results to differ
materially from those included in, or contemplated by, the statements.
These assumptions, risks and uncertainties include, but are not limited
to, the successful transition of the Elmo acquisition into the Company,
the success of the actions taken to improve profitability, the
realization of benefits from cost savings initiatives, market
acceptance of new products, the absence of any disruptions to the
Company's business as a result of the effect of the Year 2000 on
computer and information technology and conversion to the Euro, and the
Company's effectiveness at gaining market share, as well as general
economic conditions in North America, Western Europe and Asia. The
Company expressly disclaims any obligation to update any
forward-looking statements as a result of developments occurring after
the date hereof.
* * *
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN PRECISION INDUSTRIES INC.
/s/ Bruce McH. Kirchner
- -----------------------------------------
Bruce McH. Kirchner
Chief Financial Officer
/s/ Mark E. Wood
- -----------------------------------------
Mark E. Wood
Corporate Controller
August 12, 1999
17
<PAGE> 18
EXHIBIT INDEX
-------------
10-A. Amendment to Executive Supplemental Retirement Plan between American
Precision Industries Inc. and Kurt Wiedenhaupt dated as of February 19,
1999 and Schedule A thereto. #
10-B. Executive Supplemental Retirement Plan (as restated) between American
Precision Industries Inc. and Kurt Wiedenhaupt, first dated as of July
1, 1992, as amended and restated as of July 1, 1996, and Schedule A
thereto as amended effective February 19, 1999. #
10-C. Amendment to Life Insurance Split-Dollar Agreement between American
Precision Industries Inc. and Kurt Wiedenhaupt dated as of February 19,
1999 and Schedule A thereto. #
10-D. Life Insurance Split-Dollar Agreement (Second Restatement) between
American Precision Industries Inc. and Kurt Wiedenhaupt, first dated
August 26, 1992, as amended and restated as of February 19, 1999, and
Schedule A thereto. #
11. Statement re computation of per share earnings.
27. Financial Data Schedule.
- ---------------
# Management contract or compensatory plan or arrangement
18
<PAGE> 1
EXHIBIT 10-A
AMENDMENT TO
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
AGREEMENT by and between AMERICAN PRECISION INDUSTRIES INC., a Delaware
corporation with its principal office at 2777 Walden Avenue, Buffalo, New York
14225 (the "Company"), and KURT WIEDENHAUPT (the "Executive"), residing at 280
Carnoustie Road, East Aurora, New York 14052, dated as of February 19, 1999.
W I T N E S S E T H
WHEREAS, the Company and the Executive entered into an agreement
entitled the Executive Supplemental Retirement Plan (the "Plan") as of July 1,
1992, and entered into an agreement amending and restating the Plan as of July
1, 1996; and
WHEREAS, the Board of Directors of the Company has authorized the
following amendment to the Plan as so amended and restated, and the Executive
has agreed to the amendment,
NOW, THEREFORE, the Plan is amended as follows, effective February 19,
1999:
1. The first two lines of Schedule A to the Plan are amended to read as
follows:
SCHEDULE A
As Amended Effective as of February 19, 1999
2. Part I of Schedule A is deleted and the following paragraph is
substituted in its place:
I. NORMAL RETIREMENT BENEFIT. Effective February 19,
1999 the Normal Retirement Benefit is $3,000,000.
<PAGE> 2
3. The Schedule A appended to this Agreement, which has been restated
to include the amendments described above, shall be executed and attached to the
Plan in place of the Schedule A that was designated "Effective as of July 1,
1996."
IN WITNESS WHEREOF, the Executive has executed this Agreement,
and the Company, pursuant to the authorization of its Board of Directors, has
caused this Agreement to be executed, as of the day and year first above
written.
AMERICAN PRECISION INDUSTRIES INC.
By s/ Bruce McH. Kirschner
------------------------------------------------
Bruce McH. Kirchner,
Vice President and Chief Financial Officer
s/ James J. Tanous
-------------------------------------------------
James J. Tanous, Secretary
s/ Kurt Wiedenhaupt
-------------------------------------------------
Kurt Wiedenhaupt, individually
<PAGE> 3
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
SCHEDULE A
As Amended Effective as of February 19, 1999
1. Normal Retirement Benefit
-------------------------
Effective February 19, 1999, the Normal Retirement Benefit is
$3,000,000.
2. After-Tax Rate
---------------
The After-Tax Rate is the percentage that is the remainder after the
subtraction from (i) 100 percent of (ii) the effective marginal tax
rate applicable to the Employee on the date as of which a calculation
is being made. The Company shall determine the effective marginal tax
rate applicable to the Employee as of the calculation date, taking into
account federal, state, and local income tax rates; the hospital
insurance tax rate under the Federal Insurance Contribution Act; the
deduction (for income tax purposes) for state and local income taxes;
and no income other than income attributable to the Company. An amount
shall be converted to an after-tax amount by multiplying it by the
After-Tax Rate in effect for the calculation date.
3. Applicable Annual Rate
----------------------
The Applicable Annual Rate is the annual rate of interest determined
for a given calendar year as follows: For each calendar year, the
Company shall obtain quotes from the Guardian Life Insurance Company
and two other A+ rated life insurance companies on the single premium
that would be required in January of that year to purchase an immediate
annuity policy paying a fixed monthly benefit for a term certain of 180
months. The premiums quoted shall be translated into discount rates.
The highest of the three discount rates shall be the Applicable Annual
Rate in effect for calculations made as of any date during the given
calendar year.
AMERICAN PRECISION INDUSTRIES INC.
by s/ Bruce McH. Kirchner
-----------------------------------------------
Bruce McH. Kirchner,
Vice President and Chief Financial Officer
s/ Kurt Wiedenhaupt
--------------------------------------------------
Kurt Wiedenhaupt
<PAGE> 1
EXHIBIT 10-B
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
(as restated)
AGREEMENT by and between AMERICAN PRECISION INDUSTRIES INC. (the
"Company"), a Delaware corporation with its principal office at 2777 Walden
Avenue, Buffalo, New York 14225, and KURT WIEDENHAUPT ("Employee"), residing at
280 Carnoustie Road, East Aurora, New York 14052, first dated as of July 1,
1992, as amended and restated as of July 1, 1996.
W I T N E S S E T H :
WHEREAS, the Employee is currently employed by the Company in the
capacities of President and Chief Executive Officer; and
WHEREAS, the Company desires to continue to provide the Employee with
additional incentive in connection with his employment by the Company; and
WHEREAS, the Employee is a member of a select management group of the
Company;
NOW, THEREFORE, the parties agree as follows:
1. Conditions.
-----------
(a) The payment of benefits to the Employee or designated
beneficiaries under this Agreement is conditioned upon the Employee's compliance
with the terms of this Agreement.
(b) The Company shall withhold Federal, state, and local taxes
from all payments under this Agreement to the extent required by law at the time
such payments are made.
2. Normal Retirement.
------------------
(a) If the Employee's employment with the Company ceases on or
after his sixty-fifth birthday because of normal retirement or if the Employee
becomes totally and permanently disabled while employed by the Company, the
Company shall pay to the Employee the amount specified under paragraph I in
Schedule A to this Agreement (the "Normal Retirement Benefit").
(b) Subject to Sections 6 and 7, such amount shall be paid in 180
equal monthly installments, the first of which shall be paid within thirty days
after the Employee ceases to be employed by the Company, and the balance of
which shall be paid on or about the first business day of each month thereafter
for 179 months.
<PAGE> 2
(c) In the event that the Employee dies before all of the
payments provided for have been made, the unpaid balance of the payments due
shall continue to be paid by the Company to the designated beneficiaries.
3. Involuntary Termination.
------------------------
(a) If the Employee's employment is terminated involuntarily (that
is, by the Company) before age sixty-five, he will receive that percentage of
the Normal Retirement Benefit determined in accordance with the following
vesting schedule:
Full Years of Service Percentage Vested
--------------------- -----------------
[S] [C]
Five years or less 50
Six years 60
Seven years 70
Eight years 80
Nine years 90
Ten years or more 100
(b) Subject to Sections 6 and 7, the amount so determined shall
be paid in 180 equal monthly installments, the first of which shall be paid
within thirty days after the Employee ceases to be employed by the Company, and
the balance of which shall be paid on or about the first business day of each
month thereafter for 179 months.
(c) In the event that the Employee dies before all of the
payments provided for have been made, the unpaid balance of the payments due
shall continue to be paid by the Company to the designated beneficiaries.
4. Voluntary Termination.
----------------------
(a) If the Employee quits before age sixty-five he will have ten
percent of the Normal Retirement Benefit for each full year of service with the
Company.
(b) Subject to Sections 6 and 7, the amount so determined shall
be paid in 180 equal monthly installments, the first of which shall be paid
within thirty days after the Employee ceases to be employed by the Company, and
the balance of which shall be paid on or about the first business day of each
month thereafter for 179 months.
-2-
<PAGE> 3
(c) In the event that the Employee dies before all of the
payments provided for have been made, the unpaid balance of the payments due
shall continue to be paid by the Company to the designated beneficiaries.
5. Change in Control.
------------------
(a) As used in this Section 5, the terms "Change in Control",
"Protection Period", "Company", "Cause", and "Good Reason" shall have the
meanings given to them in the Change in Control Agreement entered into by and
between the Company and the Employee as of July 1, 1996.
(b) If, during a Protection Period, the Employee's employment is
terminated by the Company other than for Cause or the Employee terminates his
employment for Good Reason, then the Company shall pay to the Employee the
amount of the Normal Retirement Benefit under the provisions of this Section 5,
notwithstanding any conflicting provisions of Section 2, 3, or 4.
(c) Subject to Sections 6 and 7, such amount shall be paid in 180
equal monthly installments, the first of which shall be paid within thirty days
after the Employee ceases to be employed by the Company and the balance of which
shall be paid on or about the first business day of each month thereafter for
179 months.
(d) In the event that the Employee dies before all the payments
provided for have been made, the unpaid balance of the payments due shall
continue to be paid by the Company to the designated beneficiaries.
6. Reduction of Benefits.
----------------------
(a) The Company and the Employee have entered into a Life
Insurance Split-Dollar Agreement dated as of August 26, 1992, pursuant to which
the Employee's designated beneficiaries may receive a death benefit in the event
of the Employee's death while employed by the Company and the Employee may own
an interest in the cash surrender value of a life insurance policy (the
"Policy") at the time his employment with the Company terminates by retirement
or otherwise. Therefore, notwithstanding any other provision of this Agreement
to the contrary, the benefits that the Company is obligated to pay to the
Employee pursuant to Sections 2, 3, 4 and 5 shall be reduced in the manner
provided in Paragraph (b) below by the amount of the Employee's interest in the
cash surrender value of the Policy at the date of the Employee's retirement,
termination, or total and permanent disability, whichever first occurs.
(b) The reduction under Paragraph (a) above shall be calculated
as follows as of the date on which the Employee ceases to be employed by the
Company:
-3-
<PAGE> 4
(i) Calculate the monthly benefit under Section 2, 3, 4, or 5,
as the case may be.
(ii) Convert the monthly benefit (from (i) above) into an
after-tax monthly benefit, using the after-tax rate specified under paragraph II
in Schedule A to this Agreement (the "After-Tax Rate").
(iii) Calculate the monthly annuity amount that would be
payable to the Employee monthly for 180 months if an amount equal to the
Employee's interest in the cash surrender value of the Policy were converted
into an annuity with a term certain of 180 months using an interest rate equal
to the applicable annual interest rate specified under paragraph III in Schedule
A to this Agreement (the "Applicable Annual Rate").
(iv) Convert the monthly annuity amount (from (iii) above)
into an after-tax monthly annuity amount, using the After-Tax Rate, but applying
the After-Tax Rate only to that part of the monthly annuity amount that would
not represent the return of the Employee's investment in the policy.
(v) Subtract the after-tax monthly annuity amounts (from (iv)
above) from the after-tax monthly benefit (from (ii) above). Divide the
remainder, if any, by the After-Tax Rate; the quotient is, notwithstanding the
provisions of Sections 2, 3, 4, and 5, the monthly benefit payable for 180
months in accordance with the terms of the relevant section of this Agreement.
7. Acceleration of Payments; Frequency of Payments.
------------------------------------------------
At the Company's option or, should amounts become payable pursuant
to Section 5 of this Agreement, at the Employee's option, amounts that become
payable under this Agreement may be paid in a lump sum rather than over a period
of years, discounted at the Applicable Annual Rate in effect as of the date the
Employee ceases to be employed by the Company. Should the Employee exercise the
foregoing option, the Company shall make the lump sum payment to Employee within
thirty days after he gives notice of the exercise of said option to the Company.
The Company may, at its option, but subject to the preceding
paragraph of this Section 7, divide any amount due under this Agreement in any
month into two or more installments to be paid during that month at times
corresponding to the Company's regular pay dates for executive employees. The
Company's exercise of the foregoing option shall not be cause for an adjustment
of the amount otherwise payable under this Agreement.
-4-
<PAGE> 5
8. Administrator and Claims Procedure.
-----------------------------------
(a) The Administrator for purposes of the claims procedure under
this Agreement is the Vice President of Finance of the Company. The business
address and telephone number of the Administrator is: 2777 Walden Avenue,
Buffalo, New York 14225; telephone: (716) 684-9700.
(b) The Company shall have the right to change the Administrator.
The Company shall also have the right to change the address and telephone number
of the Administrator. The Company shall give the Employee written notice of any
of the foregoing changes.
(c) Benefits shall be paid in accordance with the provisions of
this Agreement.
(d) The Administrator shall present any disputed claim for
benefits to the Compensation Committee for review. The Compensation Committee in
conjunction with the Board of Directors shall determine the disposition of the
disputed claim.
(e) If the claim is denied, either wholly or partially, notice of
the decision shall be mailed to the Claimant within ninety days after the
receipt of the claim by the Administrator.
(f) The Administrator shall provide a written notice to any
Claimant who is denied a claim for benefits under this Agreement. The notice
shall set forth the following information:
(i) the specific reasons for the denial;
(ii) the specific reference to pertinent provisions of the
Agreement on which the denial is based;
(iii) a description of any additional material or
information necessary for the Claimant to perfect the claim and an explanation
of why such material or information is necessary; and
(iv) appropriate information and an explanation of the
claims procedure under this Agreement to permit the Claimant to submit his claim
for review.
All of this information shall be set forth in the notice in a
manner calculated to be understood by the Claimant.
-5-
<PAGE> 6
(g) The claims procedure under this Agreement shall allow the Claimant
a reasonable opportunity to appeal a denied claim and to get a full and fair
review of that decision from the Administrator. The Claimant shall exercise his
right of appeal by submitting a written request for a review of the denied claim
to the Administrator.
This written request for review must be submitted to the Administrator
within sixty days after receipt by the Claimant of the written notice of denial.
The Claimant shall have the following rights under this appeal procedure:
(i) to request a review upon written application to the
Administrator;
(ii) to review pertinent documents with regard to this
Agreement;
(iii) to submit issues and comments in writing;
(iv) to request an extension of time to make a written
submission of issues and comments; and
(v) to request that a hearing be held to consider Claimant's
appeal.
(h) The Administrator shall notify the Claimant in writing of the
decision on review of the denied claim within 60 days after the receipt of the
request for review if no hearing was held, or within 120 days after the receipt
of the request for review, if an extension of time is necessary in order to hold
a hearing. If an extension of time is necessary in order to hold a hearing, the
Administrator shall give the Claimant written notice of the extension of time
and of the hearing. This notice shall be given prior to any extension. The
written notice of extension shall indicate that an extension of time will occur
in order to hold a hearing on the Claimant's appeal.
The notice shall also specify the place, date, and time of
that hearing and the Claimant's opportunity to participate in the hearing. It
may also include any other information the Administrator believes may be
important or useful to the Claimant in connection with the appeal.
(i) The decision to hold a hearing to consider the Claimant's appeal
of the denied claim shall be within the sole discretion of the Administrator,
whether or not the Claimant requests such a hearing.
-6-
<PAGE> 7
(j) The written decision on review required by Paragraph (h) above
shall contain the following information:
(i) the decisions;
(ii) the reasons for the decisions; and
(iii) specific references to the provisions of the Agreement
on which the decisions are based.
All of this information shall be written in a manner
calculated to be understood by the Claimant.
(k) The Administrator shall be entitled to retain and rely on the
advice of experts (including without limitation attorneys and accountants
retained by the Company) in taking or refraining from taking any action or
making any decision pursuant to this Section 8. All fees and expenses of such
experts shall be paid by the Company.
9. Nature of Company's Obligation.
-------------------------------
The Company's obligation under this Agreement shall be an unfunded
and unsecured promise to pay. Any assets which the Company may acquire to help
cover its financial liabilities are and remain general assets of the Company
subject to the claims of its creditors. The Company does not give, nor does this
Agreement create nor the Employee receive, any beneficial ownership interest in
any asset of the Company. The Employee understands and agrees that his
participation in the acquisition of any general asset which the Company may
acquire or use to help support its financial obligations under this Agreement
shall not constitute a representation to the Employee, his designated
beneficiary, or any person claiming through the Employee that any of them has a
special or beneficial interest in such general asset.
10. No Employment Rights.
---------------------
This Agreement shall not be deemed to constitute a contract of
employment between the Company and Employee. Nothing contained in this Agreement
shall be deemed to give to Employee the right to be retained in the employ of
the Company or to interfere with the right of the Company to discharge the
Employee, nor shall it be determined to give to the Company the right to require
the Employee to remain in its employ nor shall it interfere with Employee's
right to terminate his employment.
11. Independence of Benefits.
-------------------------
-7-
<PAGE> 8
The benefits payable under this Agreement shall be independent of,
and in addition to, any other benefits or compensation, whether by salary, or
bonus or otherwise, payable under any other employment agreements that now exist
or may hereafter exist from time to time between the Company and the Employee.
This Agreement between the Company and the Employee does not involve a reduction
in salary or foregoing of an increase in future salary by the Employee. Nor does
the Agreement in any way affect or reduce the existing and future compensation
and other benefits of the Employee.
12. Assignability.
--------------
Except insofar as this provision may be contrary to applicable law,
no sale, transfer, alienation, assignment, pledge, collateralization, or
attachment of any benefits under this Agreement shall be valid or recognized by
the Company.
13. Payment Due Incompetents. Minors. Etc.
--------------------------------------
If it shall be found that any person to whom a payment is due
hereunder is unable to care for his affairs because of physical or mental
disability, or that such person is a minor, the Company shall have the authority
to cause the payments becoming due to such person to be made to the spouse,
brother, sister, or other individual with whom the person to whom the payment is
due is living, or any other individual deemed by the Company to have incurred
expense for such person otherwise entitled to payment (unless prior claim shall
have been made by a duly qualified guardian or other legal representative),
without responsibility of the Company to see to the application of such
payments. Payments made pursuant to such power shall, to the extent thereof,
operate as a complete discharge of the obligation of the Company hereunder.
14. Employee Waiver.
----------------
The Employee acknowledges and agrees that if the Agreement and the
benefits described in the Agreement constitute an employee benefit plan or part
of an employee benefit plan for purposes of Title I of the Employee Retirement
Income Security Act, as amended ("ERISA"), (i) such plan is an unfunded plan,
(ii) the Employee belongs to a select group of management or highly compensated
employees, and, therefore, (iii) such plan is exempt from the participation,
vesting, benefit accrual, joint and survivor and preretirement survivor annuity,
minimum funding, fiduciary responsibility, and other requirements of Title I of
ERISA. The Employee further agrees that, should the Agreement and the benefits
described in the Agreement be construed as a funded plan or part of a funded
plan for purposes of Title I of ERISA, the Employee irrevocably waives on behalf
of himself and any spouse to whom he may now or in the future be married, any
rights and claims the Employee or his spouse or both of them may have now or in
the future under Title I of ERISA with respect to
-8-
<PAGE> 9
such plan. The Employee acknowledges that he has had sufficient opportunity to
review this waiver with counsel.
15. Amendment.
----------
During the lifetime of the Employee, this Agreement may be amended
or terminated at any time, in whole or in part, by the mutual written agreement
of the parties; provided, however, that this Agreement may not be amended in a
manner which would materially increase the cost to the Company without the
approval of the Board of Directors.
16. Plan Administrator.
-------------------
The plan administrator shall be the Compensation Committee of the
Board of Directors of the Company. The plan administrator shall administer this
Agreement, construe its terms, and make all determinations necessary under this
Agreement and shall have complete discretion in doing so.
17. Notices.
--------
All notices, requests, demands and other communications which are
required or permitted to be given under this Agreement shall be in writing and
shall be deemed duly given upon the delivery or mailing thereof, as the case may
be, if delivered personally or sent by registered or certified mail, return
receipt requested, postage prepaid:
(a) If to the Company, to:
American Precision Industries Inc.
2777 Walden Avenue
Buffalo, New York 14225
Attention: Chairman, Compensation Committee
(b) If to the Administrator, to:
American Precision Industries Inc.
2777 Walden Avenue
Buffalo, New York 14225
Attention: Vice President of Finance
(c) If to the Employee or Claimant, to:
Mr. Kurt Wiedenhaupt
280 Carnoustie Road
East Aurora, New York 14052
-9-
<PAGE> 10
or to such other address as any of the foregoing shall have specified by notice
given in said manner to each of the others.
18. Miscellaneous.
--------------
This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof. This Agreement shall be
governed by the laws of the State of New York, except to the extent that Federal
law supersedes. This Agreement is solely between the Company and the Employee.
However, it shall be binding upon the designated recipients, beneficiaries,
heirs, executors and administrators of the Employee and upon the successors and
assigns of the Company. Headings in this Agreement are for reference purposes
only and shall not be deemed to have any substantive effect.
IN WITNESS WHEREOF, the Executive has executed this Agreement, and
the Company, pursuant to the authorization of its Board of Directors, has caused
this Agreement to be executed, as of the day and year first above written.
AMERICAN PRECISION INDUSTRIES INC.
By s/ John M. Murray
--------------------------------------------
John M. Murray, Vice President
- Finance and Treasurer
By s/ James J. Tanous
--------------------------------------------
James J. Tanous, Secretary
s/ Kurt Wiedenhapt
----------------------------------------------
Kurt Wiedenhaupt
-10-
<PAGE> 11
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
SCHEDULE A
As Amended Effective as of February 19, 1999
I. Normal Retirement Benefit
-------------------------
Effective February 19, 1999, the Normal Retirement Benefit is $3,000,000.
II. After-Tax Rate
--------------
The After-Tax Rate is the percentage that is the remainder after the
subtraction from (i) 100 percent of (ii) the effective marginal tax rate
applicable to the Employee on the date as of which a calculation is being
made. The Company shall determine the effective marginal tax rate
applicable to the Employee as of the calculation date, taking into
account federal, state, and local income tax rates; the hospital
insurance tax rate under the Federal Insurance Contribution Act; the
deduction (for income tax purposes) for state and local income taxes; and
no income other than income attributable to the Company. An amount shall
be converted to an after-tax amount by multiplying it by the After-Tax
Rate in effect for the calculation date.
III. Applicable Annual Rate
-------------------------
The Applicable Annual Rate is the annual rate of interest determined for
a given calendar year as follows: For each calendar year, the Company
shall obtain quotes from the Guardian Life Insurance Company and two
other A+ rated life insurance companies on the single premium that would
be required in January of that year to purchase an immediate annuity
policy paying a fixed monthly benefit for a term certain of 180 months.
The premiums quoted shall be translated into discount rates. The highest
of the three discount rates shall be the Applicable Annual Rate in effect
for calculations made as of any date during the given calendar year.
AMERICAN PRECISION INDUSTRIES INC.
by s/ Bruce McH. Kirchner
------------------------------------------
Bruce McH. Kirchner,
Vice President and Chief
Financial Officer
s/ Kurt Wiedenhaupt
-------------------------------------------
Kurt Wiedenhaupt
<PAGE> 1
EXHIBIT 10-C
AMENDMENT TO
LIFE INSURANCE SPLIT-DOLLAR AGREEMENT
AGREEMENT by and between AMERICAN PRECISION INDUSTRIES INC., a Delaware
corporation with its principal office at 2777 Walden Avenue, Buffalo, New York
14225 (the "Company"), and KURT WIEDENHAUPT (the "Executive"), residing at 280
Carnoustie Road, East Aurora, New York 14052, dated as of February 19, 1999.
W I T N E S S E T H
WHEREAS, the Company and the Executive entered into an agreement entitled
the Life Insurance Split-Dollar Agreement, dated as of August 26, 1992, an
agreement amending the Life Insurance Split-Dollar Agreement effective July 1,
1994, and an agreement amending and restating the Life Insurance Split-Dollar
Agreement as of July 1, 1996; and
WHEREAS, the Board of Directors of the Company has authorized the
following amendment to the Life Insurance Split-Dollar Agreement as so amended
and restated, and the Executive has agreed to the amendment;
NOW, THEREFORE, the Life Insurance Split-Dollar Agreement as amended and
restated as of July 1, 1996, is amended as follows, effective February 19, 1999:
1. Paragraph 2 is amended to read in its entirety as follows:
2. ASSIGNMENT. The Executive has executed a collateral assignment
(the "Assignment") of a partial interest in the Policy to the Company. The
"Assignee's Interest" to which the Assignment refers means the Company's
interests in the Policy's death benefit and cash surrender value as described in
Paragraph of this Agreement, which shall supersede any contrary or inconsistent
provisions of the Assignment. The Assignment shall terminate upon the
termination of this Agreement in accordance with the terms of Paragraph of this
Agreement.
2. Paragraph 5 is amended to read in its entirety as follows:
5. ALLOCATION OF POLICY VALUES. During the term of this Agreement,
the Executive shall retain a death benefit from the Policy equal to the amount
specified in Schedule A to this Agreement. The remaining proceeds payable from
the Policy upon the death of the Executive shall be payable to the Company under
the Assignment. During the term of this Agreement, the Company's interest in the
cash surrender value of the Policy pursuant to the Assignment shall be equal to
the amount described in Paragraph 5(a), except as provided in Paragraph 5(b).
<PAGE> 2
(a) The lesser of the sum of the premiums paid by the Company
on the Policy or the cash surrender value of the Policy.
(b) If, during a Protection Period in connection with a Change
in Control, the Executive's employment is terminated by the Company other than
for Cause, or the Executive terminates his employment for Good Reason, then the
Company's interest in the cash surrender value shall be equal to the amount of
the excess, if any of the cash surrender value over the Executive's interest in
the cash surrender value as defined in Schedule A to this Agreement. (As used in
this Paragraph 5(b), the terms "Protection Period," "Change in Control,"
"Company," "Cause," and "Good Reason" shall have the meanings given to them in
the Change in Control Agreement entered into by and between the Company and the
Executive as of July 1, 1996.)
The Company's interest in the cash surrender value shall be
payable to the Company upon the termination of the Executive's employment with
the Company other than by reason of death. The Company shall furnish to the
Executive a schedule after each anniversary of the Policy showing the relative
allocations of the cash surrender value of the Policy.
3. The first two lines of Schedule A to the Life Insurance
Split-Dollar Agreement are amended to read as follows:
SCHEDULE A
As Amended Effective as of February 19, 1999
4. Part II of Schedule A is deleted and the following paragraph
is substituted in its place:
II. DEATH BENEFIT. The death benefit is $3,000,000, or, if
less, the difference between the full death benefit under the Policy and the sum
of the premiums paid by the Company on the Policy.
5. Schedule A is further amended by the addition of new Parts
III, IV, and V to read as follows:
2
<PAGE> 3
III. EXECUTIVE'S INTEREST IN CASH SURRENDER VALUE UPON A CHANGE
IN CONTROL.
The Executive's interest in the cash surrender value of the
Policy under the circumstances described in Paragraph 5(b) of the Life Insurance
Split-Dollar Agreement shall be calculated as follows as of the date of the
termination of the Executive's employment with the Company:
(a) Divide the amount of the Executive's investment in the
Policy by 180.
(b) Divide the amount of the quotient from (a) by the
after-tax rate (as defined in Part IV of this Schedule A).
(c) Subtract the amount of the quotient from (b) from
$16,666,67. If the remainder is a negative number substitute zero in its place
for the purposes of this calculation.
(d) Add the amount of the quotient from (a) plus the amount
of the remainder from (c).
(e) Find the present value of 180 monthly payments each
equal in amount to the sum from (d), assuming interest at the applicable annual
rate (as defined in Part V of this Schedule A).
The present value calculated under (e) is the Executive's
interest in the cash surrender value.
IV. After-Tax Rate.
---------------
The After-Tax Rate is the percentage that is the remainder
after the subtraction from (i) 100 percent of (ii) the marginal tax rate defined
in Part I of this Schedule A, but determined as of the date as of which the
calculation is being made.
V. Applicable Annual Rate.
-----------------------
The Applicable Annual Rate is the annual rate of interest
determined for a given calendar year as follows: For each calendar year, the
Company shall obtain quotes from the Guardian Life Insurance Company and two
other A+ rated life insurance companies on the single premium that would be
required in January of that year to
3
<PAGE> 4
purchase an immediate annuity policy paying a fixed monthly benefit for a term
certain of 180 months. The premiums quoted shall be translated into discount
rates. The highest of the three discount rates shall be the Applicable Annual
Rate in effect for calculations made as of any date during the given calendar
year.
6. The Schedule A appended to this Agreement, which has been
restated to include the amendments described above, shall be executed and
attached to the Life Insurance Split-Dollar Agreement in place of the Schedule A
that was designated "Effective July 1, 1996."
IN WITNESS WHEREOF, the Executive has executed this Agreement, and
the Company, pursuant to the authorization of its Board of Directors, has caused
this Agreement to be executed, as of the day and year first above written.
AMERICAN PRECISION INDUSTRIES INC.
By s/ Bruce McH. Kirchner
------------------------------------------------
Bruce McH. Kirchner,
Vice President and Chief Financial Officer
s/ James J. Tanous
--------------------------------------------------
James J. Tanous, Secretary
s/ Kurt Wiedenhaupt
---------------------------------------------------
Kurt Wiedenhaupt, individually
4
<PAGE> 5
LIFE INSURANCE SPLIT-DOLLAR AGREEMENT
SCHEDULE A
As Amended Effective as of February 19, 1999
I. Marginal Tax Rate
-----------------
The marginal tax rate is the marginal tax rate applicable to the Employee
on the date as of which a premium payment is made, as determined by the
Company. The Company shall determine the marginal tax rate applicable to
the Employee as of the premium payment date, taking into account federal,
state, and local income tax rates; the hospital insurance tax rate under
the Federal Insurance Contribution Act; the deduction (for income tax
purposes) for state and local income taxes; and no income other than
income attributable to the Company.
II. Death Benefit
-------------
The death benefit is $3,000,000, or, if less, the difference between the
full death benefit under the Policy and the sum of the premiums paid by
the Company on the Policy.
III. Executive's Interest in Cash Surrender Value Upon a Change in Control.
-----------------------------------------------------------------------
The Executive's interest in the cash surrender value of the Policy under
the circumstances described in Paragraph 5(b) of the Life Insurance
Split-Dollar Agreement shall be calculated as follows as of the date of
the termination of the Executive's employment with the Company:
(a) Divide the amount of the Executive's investment in the Policy by
180.
(b) Divide the amount of the quotient from (a) by the after-tax rate
(as defined in Part IV of this Schedule A).
(c) Subtract the amount of the quotient from (b) from $16,666,67. If
the remainder is a negative number substitute zero in its place
for the purposes of this calculation.
(d) Add the amount of the quotient from (a) plus the amount of the
remainder from (c).
<PAGE> 6
(e) Find the present value of 180 monthly payments each equal in
amount to the sum from (d), assuming interest at the applicable
annual rate (as defined in Part V of this Schedule A).
The present value calculated under (e) is the Executive's interest in the
cash surrender value.
IV After-Tax Rate.
---------------
The After-Tax Rate is the percentage that is the remainder after the
subtraction from (i) 100 percent of (ii) the marginal tax rate defined in
Part I of this Schedule A, but determined as of the date as of which the
calculation is being made.
V. Applicable Annual Rate.
----------------------
The Applicable Annual Rate is the annual rate of interest determined for
a given calendar year as follows: For each calendar year, the Company
shall obtain quotes from the Guardian Life Insurance Company and two
other A+ rated life insurance companies on the single premium that would
be required in January of that year to purchase an immediate annuity
policy paying a fixed monthly benefit for a term certain of 180 months.
The premiums quoted shall be translated into discount rates. The highest
of the three discount rates shall be the Applicable Annual Rate in effect
for calculations made as of any date during the given calendar year.
AMERICAN PRECISION INDUSTRIES INC.
by s/ Bruce McH. Kirchner
------------------------------------------------
Bruce McH. Kirchner,
Vice President and Chief Financial Officer
s/ Kurt Wiedenhaupt
--------------------------------------------------
Kurt Wiedenhaupt
-2-
<PAGE> 1
EXHIBIT 10-D
LIFE INSURANCE SPLIT-DOLLAR AGREEMENT
(Second Restatement)
AGREEMENT by and between AMERICAN PRECISION INDUSTRIES INC., a Delaware
corporation with its principal office at 2777 Walden Avenue, Buffalo, New York
14225 (the "Company"), and KURT WIEDENHAUPT ("Executive"), residing at 280
Carnoustie Road, East Aurora, New York 14052, first dated as of August 26, 1992,
as amended and restated as of February 19, 1999.
W I T N E S S E T H
WHEREAS, the Executive is currently serving as President and Chief
Executive Officer of the Company; and
WHEREAS, the Company desires to continue to assist the Executive in
providing protection for the Executive's family (or other beneficiaries) in the
event of the Executive's death while employed by the Company and in augmenting
his assets at the time of his retirement or other termination of employment; and
WHEREAS, the Company has determined that this assistance can best be
provided under a "split-dollar" arrangement under this Agreement, which was
first dated July 1, 1992, was amended and restated effective July 1, 1996, and
is now restated to incorporate amendments adopted as of February 19, 1999; and
WHEREAS, the Executive has applied for and has taken delivery of
Insurance Policy No. 3705278 issued by Guardian Life Insurance Company (the
"Insurer") in the original face amount of $1,583,240.00 on the life of the
Executive (the "Policy");
NOW, THEREFORE, the parties agree as follows:
1. OWNERSHIP OF POLICY. The Executive will continue to be the owner of
the Policy in accordance with the terms and provisions of this Agreement.
2. ASSIGNMENT. The Executive has executed a collateral assignment (the
"Assignment") of a partial interest in the Policy to the Company. The
"Assignee's Interest" to which the Assignment refers means the Company's
interests in the Policy's death benefit and cash surrender value as described in
Paragraph 5 of this Agreement, which shall supersede any contrary or
inconsistent provisions of the Assignment. The Assignment shall terminate upon
the termination of this Agreement in accordance with the terms of Paragraph 11
of this Agreement.
3. PAYMENT OF PREMIUMS. On or before the due date of each annual premium
on the Policy, or within the grace period allowed by the Policy or the Insurer
for the
<PAGE> 2
payment of such annual premium, and for so long as the Executive is
employed by the Company before attaining the age of 65, the Company shall pay a
portion of the annual premium on the Policy. The portion of each such annual
premium to be paid by the Company shall be determined by the Company in its
discretion from year to year. The Executive shall pay the balance of each such
annual premium, on or before its due date or within the grace period allowed by
the Policy or the Insurer for the payment of such annual premium.
4. ADDITIONAL COMPENSATION. The Company shall pay to the Executive as
additional compensation an amount equal to (i) the portion of each annual
premium to be paid by the Executive pursuant to Paragraph 3 of this Agreement
plus (ii) an amount such that, after payment of taxes at the marginal rate (as
defined in Schedule A to this Agreement) on the entire additional compensation
payment, the Executive would have left an amount equal to the portion of the
annual premium payment to be paid by the Executive. The Company shall pay such
additional compensation to the Executive, subject to any applicable payroll tax
withholding, by the end of the grace period allowed by the Policy or the Insurer
for the payment of the annual premium.
5. ALLOCATION OF POLICY VALUES. During the term of this Agreement, the
Executive shall retain a death benefit from the Policy equal to the amount
specified in Schedule A to this Agreement. The remaining proceeds payable from
the Policy upon the death of the Executive shall be payable to the Company under
the Assignment. During the term of this Agreement, the Company's interest in the
cash surrender value of the Policy pursuant to the Assignment shall be equal to
the amount described in Paragraph 5(a), except as provided in Paragraph 5(b).
(a) The lesser of the sum of the premiums paid by the Company on
the Policy or the cash surrender value of the Policy.
(b) If, during a Protection Period in connection with a Change in
Control, the Executive's employment is terminated by the Company other than for
Cause, or the Executive terminates his employment for Good Reason, then the
Company's interest in the cash surrender value shall be equal to the amount of
the excess, if any of the cash surrender value over the Executive's interest in
the cash surrender value as defined in Schedule A to this Agreement. (As used in
this Paragraph 5(b), the terms "Protection Period," "Change in Control,"
"Company," "Cause," and "Good Reason" shall have the meanings given to them in
the Change in Control Agreement entered into by and between the Company and the
Executive as of July 1, 1996.)
The Company's interest in the cash surrender value shall be
payable to the Company upon the termination of the Executive's employment with
the Company other than by reason of death. The Company shall furnish to the
Executive a schedule after each
-2-
<PAGE> 3
anniversary of the Policy showing the relative allocations of the cash surrender
value of the Policy.
6. DESIGNATION OF BENEFICIARY. The Executive shall have the right to name
the beneficiary or beneficiaries of the Policy, who, upon the death of the
Executive shall receive the proceeds of the Executive's interest in the death
benefit of the Policy in accordance with Paragraph 7 below. If the Executive
elects to name someone other than his spouse as beneficiary, a written consent
from the spouse will be required.
7. DEATH CLAIMS. In the event of the Executive's death, the Executive's
personal representative and the Company will promptly take all steps necessary
to cause the death benefits provided under the Policy to be paid by the Insurer.
The Policy shall provide by endorsement or otherwise that in the event of the
death of the Executive while the Policy is in full force and effect during the
term of this Agreement, there shall be paid to the beneficiary or beneficiaries
designated by the Executive as provided in Paragraph 6 of this Agreement, that
portion of the death benefit retained by the Executive as provided in Paragraph
5 of this Agreement, and the remaining proceeds from the Policy shall be paid
directly to the Company.
8. POLICY LOANS. While this Agreement is in effect and except as provided
in Paragraph 10 of this Agreement, there shall be no loans made to the Company
or the Executive secured by the Policy.
9. TERMINATION OF POLICY. The Executive agrees that while this Agreement
is in full force and effect, he will not, without the consent of the Company,
sell, transfer, surrender, assign, or otherwise terminate the Policy.
10. TERMINATION OF EMPLOYMENT. Upon the termination of the Executive's
employment with the Company, the Executive shall pay to the Company (through a
loan secured by the Policy or from other funds) an amount equal to the Company's
interest in the cash surrender value of the Policy (as specified in Paragraph 5
of this Agreement). Upon such payment no other amount will be due to the Company
under this Agreement and the Company shall release the Assignment. The Executive
will thereafter own the Policy free from the terms of this Agreement.
11. TERMINATION OF AGREEMENT. This Agreement shall terminate upon the
termination of the Executive's employment with the Company and the satisfaction
of the Company's interest in the Policy under the Assignment as provided in
Paragraph 10 of this Agreement.
12. EXECUTIVE WAIVER. The Executive acknowledges and agrees that if the
Agreement and the benefits described in the Agreement constitute an employee
benefit plan or part of an employee benefit plan for purposes of Title I of the
Employee Retirement Income
-3-
<PAGE> 4
Security Act, as amended ("ERISA"), (i) the plan is a welfare plan and not a
pension plan and, therefore, is exempt from the participation, vesting, benefit
accrual, joint and survivor and preretirement survivor annuity, and other
requirements of Title I of ERISA, and (ii) the Executive irrevocably waives, on
behalf of himself and any spouse to whom he may now or in the future be married,
any rights and claims the Executive or his spouse or both of them may have now
or in the future under Title I of ERISA with respect to such plan, even if it
should be construed as a pension plan. The Executive has had sufficient
opportunity to review this waiver with counsel. The Company shall administer
this Agreement, construe its terms, and make all determinations necessary under
this Agreement and shall have complete discretion in doing so.
13. AMENDMENT OF AGREEMENT. This Agreement shall not be modified or
amended except by a written amendment signed by the Company and the Executive.
This Agreement shall be binding on the beneficiaries, heirs, and personal
representatives of the Executive and the successors and assigns of the Company.
14. STATE LAW. This Agreement shall be subject to and shall be construed
under the laws of the State of New York.
15. PARAGRAPH READINGS. Paragraph headings as to contents of particular
paragraphs of this Agreement are inserted only for convenience and are in no way
to be construed as part of the provisions of this Agreement or as a limitation
on the scope of particular paragraphs to which they refer.
16. EFFECTIVE DATE OF RESTATEMENT. The amendment of the Agreement as set
forth in this document is effective as of February 19, 1999.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
AMERICAN PRECISION INDUSTRIES INC.
By s/ Bruce McH. Kirchner
-------------------------------------------------
Bruce McH. Kirchner,
Vice President and Chief Financial Officer
-4-
<PAGE> 5
By s/ James J. Tanous
-------------------------------------------------
James J. Tanous, Secretary
s/ Kurt Wiedenhaupt
---------------------------------------------------
Kurt Wiedenhaupt, individually
<PAGE> 6
LIFE INSURANCE SPLIT-DOLLAR AGREEMENT
SCHEDULE A
As Amended Effective as of February 19, 1999
I. Marginal Tax Rate
-----------------
The marginal tax rate is the marginal tax rate applicable to the Employee
on the date as of which a premium payment is made, as determined by the
Company. The Company shall determine the marginal tax rate applicable to
the Employee as of the premium payment date, taking into account federal,
state, and local income tax rates; the hospital insurance tax rate under
the Federal Insurance Contribution Act; the deduction (for income tax
purposes) for state and local income taxes; and no income other than
income attributable to the Company.
II. Death Benefit
-------------
The death benefit is $3,000,000, or, if less, the difference between the
full death benefit under the Policy and the sum of the premiums paid by
the Company on the Policy.
III. Executive's Interest in Cash Surrender Value Upon a Change in Control.
----------------------------------------------------------------------
The Executive's interest in the cash surrender value of the Policy under
the circumstances described in Paragraph 5(b) of the Life Insurance
Split-Dollar Agreement shall be calculated as follows as of the date of
the termination of the Executive's employment with the Company:
(a) Divide the amount of the Executive's investment in the Policy by
180.
(b) Divide the amount of the quotient from (a) by the after-tax rate
(as defined in Part IV of this Schedule A).
(c) Subtract the amount of the quotient from (b) from $16,666,67. If
the remainder is a negative number substitute zero in its place
for the purposes of this calculation.
(d) Add the amount of the quotient from (a) plus the amount of the
remainder from (c).
<PAGE> 7
(e) Find the present value of 180 monthly payments each equal in
amount to the sum from (d), assuming interest at the applicable
annual rate (as defined in Part V of this Schedule A).
The present value calculated under (e) is the Executive's interest
in the cash surrender value.
IV After-Tax Rate.
---------------
The After-Tax Rate is the percentage that is the remainder after the
subtraction from (i) 100 percent of (ii) the marginal tax rate defined in
Part I of this Schedule A, but determined as of the date as of which the
calculation is being made.
V. Applicable Annual Rate.
-----------------------
The Applicable Annual Rate is the annual rate of interest determined for
a given calendar year as follows: For each calendar year, the Company
shall obtain quotes from the Guardian Life Insurance Company and two
other A+ rated life insurance companies on the single premium that would
be required in January of that year to purchase an immediate annuity
policy paying a fixed monthly benefit for a term certain of 180 months.
The premiums quoted shall be translated into discount rates. The highest
of the three discount rates shall be the Applicable Annual Rate in effect
for calculations made as of any date during the given calendar year.
AMERICAN PRECISION INDUSTRIES INC.
by s/ Bruce McH. Kirchner
----------------------------------------------------
Bruce McH. Kirchner,
Vice President and Chief Financial Officer
s/ Kurt Wiedenhaupt
-----------------------------------------------------
Kurt Wiedenhaupt
-2-
<PAGE> 1
<TABLE>
<CAPTION>
EXHIBIT 11
----------
AMERICAN PRECISION INDUSTRIES INC.
COMPUTATION OF NET INCOME PER SHARE
(Shares and dollars in thousands except per share amounts)
SECOND QUARTER ENDED
------------------------------------------------------------
JUNE 30, 1999 JUNE 30, 1998
--------------------------- ------------------------------
Income Common Per Income Common Per
Available Shares Share Available Shares Share
--------- ------- ----- ----------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Net income $2,034 7,400 $0.27 $1,024 7,462 $0.14
Series B preferred stock dividends 458 -
------ ------
EARNINGS PER SHARE - BASIC 1,576 7,400 0.21 1,024 7,462 0.14
Stock options & warrants - 171 - 346
------ ----- ------ -----
1,576 7,571 0.21 1,024 7,808 0.13
Series B convertible preferred stock 458 1,539 - 1,539
------ ----- ------ -----
2,034 9,110 0.22 1,024 9,347 0.11
Adjustment for anti-dilutive effect of
preferred stock dividend 458 1,539 N\A N\A
------ ----- ------ -----
EARNINGS PER SHARE - DILUTED $1,576 7,571 $0.21 $1,024 9,347 $0.11
====== ===== ====== =====
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------------------------------------
JUNE 30, 1999 JUNE 30, 1998
--------------------------- ------------------------------
Income Common Per Income Common Per
Available Shares Share Available Shares Share
--------- ------- ----- ----------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Net income $3,918 7,439 $0.53 $2,583 7,453 $0.35
Series B preferred stock dividends 915 -
------ ------
EARNINGS PER SHARE - BASIC 3,003 7,439 0.40 2,583 7,453 0.35
Stock options & warrants - 139 - 374
------ ----- ------ -----
3,003 7,578 0.40 2,583 7,827 0.33
Series B convertible preferred stock 915 1,539 - 1,539
------ ----- ------ -----
3,918 9,117 0.43 2,583 9,366 0.28
Adjustment for anti-dilutive effect of
preferred stock dividend 915 1,539 N\A N\A
------ ----- ------ -----
EARNINGS PER SHARE - DILUTED $3,003 7,578 $0.40 $2,583 9,366 $0.28
====== ===== ====== =====
</TABLE>
Refer to Footnote D concerning Earnings per Share calculation methodology.
For purposes of calculating basic and diluted earnings per share, net earnings
have been reduced by the dividend payable on the Company's convertible preferred
stock (if such shares had been outstanding during such period) to arrive at
earnings available to common shareholders. The weighted average number of
outstanding common shares used to calculate basic earnings per share is
calculated on an equivalent share basis using the weighted average number of
shares outstanding of the Company's common stock.
The assumed conversion of the convertible preferred stock is not considered in
the calculation of diluted earnings per share for the applicable periods
presented since the effect is antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,429
<SECURITIES> 0
<RECEIVABLES> 41,672
<ALLOWANCES> 895
<INVENTORY> 45,609
<CURRENT-ASSETS> 94,850
<PP&E> 102,130
<DEPRECIATION> 36,456
<TOTAL-ASSETS> 196,066
<CURRENT-LIABILITIES> 49,176
<BONDS> 58,606
0
26,156
<COMMON> 5,245
<OTHER-SE> 51,175
<TOTAL-LIABILITY-AND-EQUITY> 196,066
<SALES> 117,158
<TOTAL-REVENUES> 117,158
<CGS> 83,399
<TOTAL-COSTS> 83,399
<OTHER-EXPENSES> 2,777
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,794
<INCOME-PRETAX> 6,121
<INCOME-TAX> 2,203
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,918
<EPS-BASIC> .40
<EPS-DILUTED> .40
</TABLE>
