<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED MARCH 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1--5332
P & F INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 22-1657413
(State of incorporation) (I.R.S. Employer Identification Number)
300 SMITH STREET, FARMINGDALE, NEW YORK 11735
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (516) 694-1800
-------------
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, and (2) has been subject to such filing
requirements for the past 90 days. YES ( X ) NO ()
As of May 8, 1997, there were outstanding 2,978,867 shares of the
Registrant's Class A Common Stock, par value $1.00 per share.
<PAGE>
P & F INDUSTRIES, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Financial Statements
Consolidated Balance Sheets as of
March 31, 1997 and December 31, 1996 1--2
Consolidated Statements of Income for the three
months ended March 31, 1997 and 1996 3
Consolidated Statements of Cash Flows for the three
months ended March 31, 1997 and 1996 4--5
Notes to Consolidated Financial Statements 6--7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8--9
PART II
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
i
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
-----------------------------------------
-----------------------------------------
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------- ---------------
<S> <C> <C>
ASSETS
------
CURRENT:
Cash......................................................... $ 1,555,210 $ 4,558,135
Accounts receivable, less allowance for possible losses of
$380,520 in 1997 and $370,410 in 1996...................... 5,403,590 6,113,259
Inventories.................................................. 13,056,872 11,119,850
Note receivable from officer................................. -- 40,000
Deferred income taxes........................................ 211,000 211,000
Prepaid expenses and other assets............................ 285,395 300,850
-------------- ---------------
TOTAL CURRENT ASSETS....................................... 20,512,067 22,343,094
-------------- ---------------
PROPERTY AND EQUIPMENT:
Land......................................................... 993,020 993,020
Buildings and improvements................................... 4,505,889 4,505,889
Machinery and equipment...................................... 5,287,439 5,246,699
-------------- ---------------
10,786,348 10,745,608
Less accumulated depreciation and amortization............... 5,141,323 4,965,956
-------------- ---------------
NET PROPERTY AND EQUIPMENT................................. 5,645,025 5,779,652
-------------- ---------------
DEFERRED INCOME TAXES.......................................... 175,000 175,000
GOODWILL, net of accumulated amortization of $951,931 in 1997
and $927,334 in 1996......................................... 2,861,836 2,886,433
OTHER ASSETS, net of accumulated amortization of $38,661 in
1997 and $34,659 in 1996..................................... 143,462 147,464
-------------- ---------------
TOTAL ASSETS............................................... $ 29,337,390 $ 31,331,643
-------------- ---------------
-------------- ---------------
</TABLE>
1
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(CONTINUED)
---------------------------------------
---------------------------------------
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------- ---------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term borrowings...................................... $ -- $ --
Accounts payable........................................... 3,618,051 2,661,589
Accruals and other liabilities............................. 1,395,888 2,082,031
Current maturities of long-term debt....................... 1,911,489 1,917,691
------------- ---------------
TOTAL CURRENT LIABILITIES................................. 6,925,428 6,661,311
LONG-TERM DEBT, less current maturities...................... 3,879,833 3,919,370
SUBORDINATED DEBENTURES...................................... 1,369,200 1,369,200
------------- ---------------
12,174,461 11,949,881
------------- ---------------
SHAREHOLDERS' EQUITY:
Preferred stock, $10 par, cumulative; shares authorized
2,000,000; outstanding 263,345........................... -- 2,633,450
Common stock:
Class A--$1 par; shares authorized 7,000,000; outstanding
2,978,867 and 2,928,867; reserved for options--727,000
shares; reserved for warrants-- 70,000 shares.......... 2,978,867 2,928,867
Class B--$1 par; shares authorized 2,000,000............. -- --
Additional paid-in capital................................. 7,632,614 7,607,614
Retained earnings.......................................... 6,551,448 6,211,831
------------- ---------------
TOTAL SHAREHOLDERS' EQUITY............................... 17,162,929 19,381,762
------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............... $ 29,337,390 $ 31,331,643
------------- ---------------
------------- ---------------
</TABLE>
2
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
--------------------------------------
--------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
<S> <C> <C>
1997 1996
------------ ------------
REVENUES:
Net sales....................................................... $ 9,188,688 $ 9,334,135
Other........................................................... 29,120 42,290
------------ ------------
9,217,808 9,376,425
------------ ------------
COSTS AND EXPENSES:
Cost of sales................................................... 5,834,214 6,143,005
Selling, administrative and general............................. 2,479,515 2,273,337
Interest--net................................................... 140,838 231,516
Depreciation.................................................... 169,767 168,274
------------ ------------
8,624,334 8,816,132
------------ ------------
INCOME BEFORE TAXES ON INCOME..................................... 593,474 560,293
TAXES ON INCOME................................................... 232,000 210,000
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NET INCOME........................................................ $ 361,474 $ 350,293
------------ ------------
------------ ------------
Preferred dividends............................................... $ 21,857 $ 65,836
------------ ------------
------------ ------------
Net income attributable to common stock........................... $ 339,617 $ 284,457
------------ ------------
------------ ------------
Average number of common shares and common share
equivalents
--primary..................................................... 3,474,037 3,160,363
------------ ------------
------------ ------------
--fully diluted............................................... 3,483,326 3,228,952
------------ ------------
------------ ------------
Earnings per share of common stock--primary and fully diluted $.10 $.09
------------ ------------
------------ ------------
</TABLE>
3
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
----------------------------------------
----------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
<S> <C> <C>
1997 1996
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................ $ 361,474 $ 350,293
----------- ----------
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Depreciation and amortization................................... 207,266 213,581
Deferred income taxes........................................... -- --
Provision for losses on accounts receivable..................... 20,691 27,243
Decrease (increase):
Accounts receivable............................................. 688,978 3,013,312
Inventories..................................................... (1,937,022) (189,678)
Note receivable from officer.................................... 40,000 25,000
Prepaid expenses and other assets............................... 12,155 25,841
Other assets.................................................... -- 13,200
Increase (decrease):
Accounts payable................................................ 956,462 (589,907)
Accruals and other.............................................. (686,143) (603,225)
----------- ----------
Total adjustments............................................. (697,613) 1,935,367
----------- ----------
Net cash (used in) provided by operating activities......... (336,139) 2,285,660
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................................. (40,740) (19,586)
----------- ----------
Net cash used in investing activities....................... (40,740) (19,586)
----------- ----------
</TABLE>
4
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(UNAUDITED)
----------------------------------------
----------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
<S> <C> <C>
1997 1996
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings.............................. 3,117,612 4,530,262
Repayments of short-term borrowings.............................. (3,117,612) (6,580,694)
Principal payments on long-term debt............................. (45,739) (87,341)
Proceeds from exercise of stock options.......................... 75,000 --
Dividends paid on preferred stock................................ (21,857) (65,836)
Redemption of preferred stock.................................... (2,633,450) --
----------- -----------
Net cash used in financing activities........................ (2,626,046) (2,203,609)
----------- -----------
NET (DECREASE) INCREASE IN CASH.................................... (3,002,925) 62,465
CASH AT BEGINNING OF PERIOD........................................ 4,558,135 1,224,603
----------- -----------
CASH AT END OF PERIOD.............................................. $ 1,555,210 $ 1,287,068
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Income taxes................................................. $ 140,383 $ 152,699
----------- -----------
----------- -----------
Interest..................................................... $ 130,358 $ 264,798
----------- -----------
----------- -----------
</TABLE>
5
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
---------------------------------------
---------------------------------------
NOTE 1--SUMMARY OF ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements contained herein include the
accounts of P & F Industries, Inc. and its subsidiaries (the "Company"). All
significant intercompany balances and transactions have been eliminated.
The consolidated financial statements for the three months ended March
31, 1997 and 1996 are presented as unaudited but, in the opinion of the
Company, they include all adjustments necessary for a fair statement of the
results of operations for those periods. All such adjustments are of a normal
recurring nature. The consolidated balance sheet information for December 31,
1996 was derived from audited financial statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996. These
interim financial statements should be read in conjunction with that report.
Results for interim periods are not necessarily indicative of results to
be expected for a full year, since the operations of some of the Company's
subsidiaries are seasonal in nature.
The Company conducts its business operations through two wholly-owned
subsidiaries. Florida Pneumatic Manufacturing Corporation ("Florida
Pneumatic") is engaged in the importation, manufacture and sale of pneumatic
hand tools for the industrial, retail and automotive markets and air filters.
Florida Pneumatic also markets, through its Berkley Tool Division
("Berkley"), a line of pipe cutting and threading tools, wrenches and
replacement electrical components for a widely used brand of pipe cutting and
threading machines. Embassy Industries, Inc. ("Embassy") is engaged in the
manufacture and sale of baseboard and radiant hot-water heating products.
Embassy also imports, assembles and packages a line of small hardware items
through its Franklin Hardware division ("Franklin").
BASIS OF FINANCIAL STATEMENT PRESENTATION
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
6
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
---------------------------------------
---------------------------------------
NOTE 1--SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
Primary and fully diluted earnings per share are computed using the
treasury stock method, modified for stock options and warrants outstanding in
excess of 20% of the total outstanding shares of common stock. Under this
method, the aggregate number of shares outstanding reflects the assumed use
of proceeds from the hypothetical exercise of the outstanding options and
warrants, unless the effect on earnings per share is antidilutive. The
assumed proceeds are used to repurchase shares of common stock, to a maximum
of 20% of the shares outstanding. The balance of the proceeds, if any, are
used to reduce outstanding debt. Fully diluted earnings per share also
reflects the assumed use of proceeds from the hypothetical exercise of
contingent issuances if such contingent issuances have a reasonable
possibility of occurring.
In calculating the purchase price of common stock, the average market
value for the period is used for primary earnings per share and the greater
of the average or ending market value for the period is used for fully
diluted earnings per share.
Net income or loss is adjusted for preferred dividends in computing the
net income or loss attributable to the common stock.
NOTE 2--INVENTORIES
Major classes of inventory were as follows:
MARCH 31, DECEMBER 31,
1997 1996
------------- ---------------
Finished goods.............................. $ 9,459,880 $ 11,004,092
Work in process............................. 884,477 423,114
Raw materials and supplies.................. 2,712,515 3,476,355
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$ 13,056,872 $ 14,903,561
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7
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
---------------------------------------
---------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FIRST QUARTER ENDED MARCH 31, 1997 COMPARED WITH FIRST QUARTER ENDED
MARCH 31, 1996
Consolidated revenues decreased 1.7%, from $9,376,425 to $9,217,808.
Revenues from pneumatic tools and related equipment decreased 2.8%, from
$6,784,367 to $6,594,915. Selling prices of pneumatic tools and related
equipment were virtually unchanged from the prior year.
Revenues from heating equipment increased 1.5%, from $1,636,661 to
$1,660,942. Revenues from hardware increased less than 1%, from $955,037 to
$961,199. Selling prices of both heating equipment and hardware were
unchanged from the prior year.
Consolidated gross profit, as a percentage of revenues, rose from 34.5%
to 36.7%. Gross profit from pneumatic tools and related equipment rose from
35.8% to 38.5%, due to a more profitable product mix and an increase in the
value of the U.S. dollar as compared to the Japanese yen, which lowered the
cost of imported product. Gross profit from heating equipment rose from 33.2%
to 34.2% and gross profit from hardware rose from 23.9% to 24.7%, both due to
a more profitable product mix.
Consolidated selling, general and administrative expenses increased 9.1%,
from $2,273,337 to $2,479,515, primarily due to increases in advertising,
commissions and salaries. Interest expense fell sharply, from $231,516 to
$140,838, as a result of lower average short-term borrowings in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company gauges its liquidity and financial stability by the
measurements shown in the following table (dollar amounts in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
1997 1996 1996
----------- --------------- -----------
<S> <C> <C> <C>
Working Capital.................................................. $ 13,587 $ 15,682 $ 16,236
Current Ratio.................................................... 2.96 to 1 3.35 to 1 3.30 to 1
Shareholders' Equity............................................. $ 17,163 $ 19,382 $ 17,976
</TABLE>
During the quarter ended March 31, 1997, accounts receivable decreased by
approximately $689,000. Inventories increased approximately $1,937,000, to a
level more suitable to the needs of the customers in the current mix of
sales. Accounts payable increased approximately $956,000 as a result of the
increase in inventories.
8
<PAGE>
On January 30, 1997, the Company redeemed all of its outstanding
preferred stock, at the par value of $10 per share, for a total of
$2,633,450. This redemption was funded by working capital and resulted in a
significant decrease in the Company's working capital, current ratio and
shareholders' equity.
Capital spending for the quarter ended March 31, 1997 was approximately
$40,000. The total amount was provided from working capital. Capital
expenditures for the rest of 1997 are expected to total approximately
$795,000, some of which may be financed. Included in the expected total for
1997 are capital expenditures relating to new products, expansion of existing
product lines and replacement of old equipment.
The Company's credit facility provides a line of credit totalling
$18,000,000. Of this amount, $14,000,000 is available for direct loans,
letters of credit and bankers' acceptances. At March 31, 1997, there were no
loans outstanding against this line of credit. There was a commitment at
March 31, 1997 of approximately $1,105,000 for as yet unused letters of
credit. In addition, at March 31, 1997, approximately $1,710,000 of the
Company's credit facility was used to secure accounts payable. The total line
of credit also includes $4,000,000 earmarked for acquisitions subject to the
lending bank's approval. The Company's credit facility also provides the
availability of up to $10,000,000 in foreign currency forward contracts.
These contracts fix the exchange rate on future purchases of Japanese yen
needed for payments to foreign suppliers. The total amount of foreign
currency forward contracts outstanding at March 31, 1997 was approximately
$2,640,000.
The Company's credit facility agreement is subject to annual review by
the lending bank. Under this agreement, the Company is required to adhere to
certain financial covenants. At March 31, 1997, and for the quarter then
ended, the Company satisfied all of these covenants.
The Company continues to conduct an extensive acquisition search. The
funds for an acquisition will be provided by working capital and existing
credit facilities, including the $4,000,000 credit facility earmarked for
acquisitions referred to above. The total funds available, including cash
derived from operations, will be approximately $9,000,000.
The Company, through Florida Pneumatic, imports a significant amount of
its purchases from Japan, with payment due in Japanese yen. As a result, the
Company is subject to the effects of foreign currency exchange fluctuations.
The Company uses a variety of techniques to protect itself from any adverse
effects from these fluctuations, including increasing its selling prices,
obtaining price reductions from its overseas suppliers, using alternative
supplier sources and entering into foreign currency forward contracts.
Because of these steps taken by the Company, foreign currency exchange rate
fluctuations have not had a significant negative effect on the Company's
results of operations or its financial position. Any future weakness of the
dollar would again, however, present a problem and there can be no certainty
that the Company will continue to be successful in its efforts to counter
this problem.
9
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits have been filed as part of this report:
Exhibit 10--Employment Agreement, dated February 28, 1997, between
the Registrant and Richard A. Horowitz
Exhibit 11--Schedule of Computation of Earnings Per Common Share
Exhibit 27--Financial Data Schedules (submitted to the Securities
and Exchange Commission in electronic format)
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the
quarter ended March 31, 1997.
10
<PAGE>
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 thereunto duly authorized.
P & F INDUSTRIES, INC.
(Registrant)
By /s/ Leon D. Feldman
------------------------------------
Leon D. Feldman
Executive Vice President
Dated: May 8, 1997 (Principal Financial Officer)
11
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 10
EMPLOYMENT AGREEMENT WITH RICHARD A. HOROWITZ
---------------------------------------------
---------------------------------------------
EMPLOYMENT AGREEMENT, dated as of February 28, 1997, among P&F
INDUSTRIES, INC., a Delaware corporation (the "Company") having its principal
place of business at 300 Smith Street, Farmingdale, New York 11735, and
RICHARD A. HOROWITZ, residing at 5 Fir Drive, Kings Point, New York 11024
(the "Executive").
W I T N E S S E T H:
--------------------
WHEREAS, the Executive has served the Company as President of the Company
since 1986; and
WHEREAS, the Company wishes to replace the Employment Agreement among the
parties hereto, dated as of September 30, 1993, with this Agreement; and
WHEREAS, the Company wishes to assure the continued services of the
Executive for the present and in the event of any actual or threatened change
in control of the Company;
NOW, THEREFORE, it is hereby agreed by and between the parties as follows:
1. Employment, Duties and Acceptance
1.1. Subject to the provisions of Article 4, the Executive hereby
agrees to be employed and the Company hereby agrees to employ the Executive,
for the term of this Agreement, as defined in Article 2 hereof, to render
services as President of the Company and to perform such executive duties as
he may be reasonably directed to perform by the Board of Directors of the
Company.
1.2. The Executive hereby accepts such employment and agrees to
render full time services to the Company.
2. Term of Employment
The term of the Executive's employment pursuant to this Agreement (the
"Term") will commence on the date hereof (the "Effective Date") and will
continue until the seventh anniversary of the Effective Date, unless sooner
terminated pursuant to the provisions of Article 4. Such employment will,
unless sooner terminated pursuant to the provisions of Article 4, continue
from year to year thereafter (each such year, an "Additional Term") until one
party gives the other notice of its intention to terminate the Executive's
employment at the end of the Term or an Additional Term, as the case may be,
which notice may not be given more than ninety and less than thirty days
prior to the last day of such Additional Term.
12
<PAGE>
3. Compensation
3.1. The base compensation of the Executive will be $458,000 per annum.
All compensation will be paid in installments as determined by the Company,
but not less frequently than monthly.
3.2. The Company will pay or reimburse the Executive for all reasonable
expenses actually incurred or paid by him during the Term and each Additional
Term in connection with the performance of his services under this Agreement,
upon presentation of expense statements or vouchers or such other supporting
information as it may reasonably require, it being understood that the
character of and amount available for such expenses will be in accordance
with applicable policies of the Company and may be fixed in advance by the
Board of Directors of the Company. In addition, the Company shall provide the
Executive, at the Company's expense, with a current model automobile similar
to the automobile furnished to the Executive at the date hereof.
3.3. The Executive will also be eligible to receive such increases in
base compensation as the Board of Directors of the Company may from time to
time grant to him (which shall not thereafter be reduced) and to receive such
bonuses as the Board of Directors of the Company, in its discretion, may
allocate to him. In addition, so long as the Company.continues to provide
money purchase pension, group insurance, medical insurance and vacation
benefits, for its senior management generally, the Executive will be entitled
to participate therein as well as in any other employee benefit plan
hereafter established for senior management.
4. EVENTS OF TERMINATION
4.1. In the event of the Executive's death, this Agreement will
terminate. In that event, the Executive's estate will be entitled to his (i)
full salary through the date of death together with any bonus under the then
current executive bonus plan accrued through the date of death; and (ii) an
additional payment equal to his then current salary for an additional twelve
months.
4.2. If during the Term or an Additional Term, the Executive becomes
physically or mentally disabled, whether totally or partially, so that he is
prevented from performing his usual duties for a period of 140 consecutive
business days or for 161 business days during any period of 195 business
days, the Company may terminate his employment under this Agreement by notice
to the Executive. In that event, the Executive will be entitled to his (i)
full salary through the date of termination, less any amount received by the
Executive under any policy of disability insurance carried by the Company;
and (ii) an additional payment equal to his then current salary for an
additional twelve months, without regard to any amount received by the
Executive under any policy of disability insurance. In addition, during the
period of disability and until (x) the death of the Executive or (y) the
re-employment of the Executive, the Company shall provide the Executive with
medical benefits similar to those provided for other executive officers of
the Company, taking into account medical benefits provided to the Executive
by other sources.
13
<PAGE>
5. Protection of Information: Noncompetition
5.1. In view of the fact that the Executive's work with the Company will
bring him into close contact with many confidential affairs of the Company
including matters of a business nature such as information about costs,
profits, markets, sales, plans for future development and other information
not readily available to the public, the Executive will:
5.1.1. Keep secret all confidential information relating to the Company
and not disclose the same to anyone outside of the Company either during or
after his employment with the Company, except with the Company's written
consent;
5.1.2. Deliver promptly to the Company on termination of his services
hereunder, or at any time the Company may so request, all memoranda, notes,
records, lists, reports and other documents (and all copies thereof) relating
to the business of the Company which he may then possess or have under his
control; and
5.1.3. During his employment and for a period of three years following
the termination of his employment, not, directly or indirectly, (i) enter the
employ of, or render any services to, any person, firm or corporation engaged
in any business competitive with the business of the Company, (ii) engage in
such a business for his own account, or (iii) become interested in such a
business as an individual, partner, shareholder, director, officer,
principal, agent, employee, trustee, consultant or in any other relationship
or capacity.
5.2. "Business competitive with the business of the Company" means, as of
any date, any business then being conducted by the Company in which Executive
has been actively engaged.
6. CHANGE IN CONTROL
6.i. The term "change in control" of the Company shall mean:
6.1.1. An occurrence of a nature that would be required to be reported in
response to (i) Item 6(e) of Schedule 14A of Regulation 14A promulgated under
the Securities Exchange Act of 1934 (the "Exchange Act") as in effect on the
date of this Agreement, or (H) Item I(a) of Form 8-K under the Exchange Act,
or (iii) if Item 6(e) of Schedule 14A or Item I(a) of Form 8-K is no longer
in effect, any regulations issued by the Securities and Exchange Commission
pursuant to the Exchange Act which serve similar purposes; or
6.1.2. An event in which (i) any "Person" (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act) (other than the
Executive) is or becomes a beneficial owner, directly or indirectly, of
securities of the Company representing 250-. or more of the combined voting
power of the Company's then outstanding securities then entitled to vote for
the election of directors or (ii) individuals who were the nominees of
management to the Board of Directors of the Company immediately prior to a
meeting of the shareholders of the Company involving a contest for the
election of directors shall not constitute a majority of the Board of
Directors following such election; or
14
<PAGE>
6.1.3. An event in which there shall be consummated (i) any
consolidation, merger or recapitalization of the Company or any similar
transaction involving the Company, whether or not the Company is the
continuing or surviving corporation, pursuant to which shares of the
Company's common stock, par value $1.00 per share ("Common Stock"), would be
converted into cash, securities or other property, other than a merger of the
Company in which the holders of Common Stock immediately prior to the merger
have the same proportionate ownership of common stock of the surviving
corporation immediately after the merger, (ii) any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions) of
all, or substantially all, of the assets of the Company or (iii) the adoption
of a plan of complete liquidation of the Company (whether or not in
connection with the sale of all or substantially all of the Company's assets)
or a series of partial liquidations of the Company that is dejure or defacto
part of a plan of complete liquidation of the Company; provided, that the
divestiture of less than substantially all of the assets of the Company in
one transaction or a series of related transactions, whether effected by
sale, lease, exchange, spin-off, sale of the stock or merger of a subsidiary
or otherwise, or a transaction solely for the purpose of reincorporating the
Company in another jurisdiction, shall not constitute a change in control.
6.2. The "change date" shall be the date on which a change in control of
the Company (as described in paragraph G.1) occurs.
6.3. The term "discharge" shall mean termination by the Company of the
employment of the Executive following a change in control of the Company or
resignation of the Executive upon a determination by the Executive that, as a
result of a change in control of the Company and a change in circumstances
thereafter significantly affecting his position, he is unable to exercise the
authorities, powers, functions or duties attached to his position and
contemplated by paragraph 1.1 of the Agreement. 6.4. In the event of a
discharge and subject to the provisions of paragraphs 5.1 and 6.5 of this
Agreement, the Company shall pay to the Executive and provide him with the
following:
6.4.1. During the remainder of the Term, the Company shall continue to
pay the Executive his salary as frequently as the Company then pays other
executives and at the same rate as payable immediately prior to the date of
discharge plus the estimated amount of any bonuses to which he would have
been entitled had he remained in the employ of the Company;
6.4.2. During the remainder of the Term, the Executive shall continue to
be entitled to all benefits and service credit for benefits under medical,
insurance, life insurance and other employee benefit plans, programs and
arrangements of the Company as if he were still employed during such period
under this Agreement;
6.4.3. If, despite the provisions of paragraph 6.4.2 above, benefits or
service credits under any employee benefit plan shall not be payable or
provided under any such plan to the Executive, or his dependents,
beneficiaries or the Company, the Company itself shall, to the extent
necessary, pay or provide for payment of such benefits and
15
<PAGE>
service credit so as to place the Executive, his dependents, beneficiaries
and estate in such financial position as if the Executive were employed by
the Company during the Term; and
6.4.4. Any outstanding Incentive Stock Options held by the Executive
shall be converted to nonqualified stock options on the day after the last
day of the three month period following the date of discharge.
6.5. Obligation to Mitigate Damages. In the event of a discharge, the
Executive shall make reasonable efforts to mitigate damages by seeking other
employment; provided, however, that he shall not be required to accept a
position of substantially different character than the highest position held
by him with the Company or a position that would cause him to violate the
provisions of Article 5, nor shall he be required to accept a position in a
location which is unreasonable, given the personal circumstances of the
Executive. To the extent that the Executive shall receive compensation,
benefits and service credit for benefits from such other employment, the
payments to be made and the benefits and service credit for benefits to be
provided by the Company under the provisions of this Article 6 shall be
correspondingly reduced.
6.6. Severance Allowance. In the event of discharge of the Executive
during the Term, the Executive may elect, within 60 days after such
discharge, to be paid a lump sum severance allowance, in lieu of payments to
be made pursuant to 6.4.1 hereof, in an amount equal to 2.99 times the
Executive's "annualized includible compensation for the base period," as
those terms are defined in section 280G of the Internal Revenue Code of 1986,
as amended (the "Code"). Any payment due hereunder will be made within five
days after the election by the Executive to receive the lump sum payment.
In the event of discharge by reason of an event described in paragraph
6.3, if the Executive makes an election pursuant to the first sentence of
this paragraph 6.6 to receive a lump sum severance allowance, then, in
addition to such amount, he shall receive (i) in addition to the benefits
provided under any pension plan maintained by the Company, the pension
benefits he would have accrued under such pension plan if he had remained in
the employ of the Company for 36 calendar months after his discharge, which
benefits will be paid concurrently with, and in addition to, the benefits
provided under such pension plan, (ii) incentive compensation (including, but
not limited to, the right to receive and exercise stock options and stock
appreciation rights and to receive restricted stock and grants thereof and
similar incentive compensation benefits) to which he would have been entitled
under all incentive compensation plans maintained by the Company if he had
remained in the employ of the Company for 36 calendar months after his
discharge, and (iii) the employee benefits (including, but not limited to,
coverage under any medical, disability and life insurance arrangements or
programs) to which he would have been entitled under all employee benefit
plans, programs or arrangements maintained by the Company if he had remained
in the employ of the Company for 36 calendar months after his discharge, or
the value of the amounts described in clauses (i), (ii) and (iii) of this
sentence. The amount of the payments described in the preceding sentence
shall be determined and
16
<PAGE>
such payments shall be distributed as soon as it is reasonably possible. The
payments under this paragraph 6.6 shall not be subject to reduction under
paragraph 6.5 nor shall the Executive making an election pursuant to this
paragraph 6.6 be restricted by the provisions of paragraph 5.1.3.
6.7. Parachute Payment. If any payment to be made by the Company to the
Executive pursuant to Article 6 of this Agreement, after taking into account
any other payments to be made by the Company to the Executive, is not
deductible by the Company pursuant to section 280G(a) of the Code, then any
payment to be made pursuant to Article 6 of this Agreement shall be reduced
by the smallest amount necessary so that no such payment shall fail to be
deductible pursuant to section 280G(a) of the Code. If the Company determines
that any payment to the Executive is subject to limitation pursuant to this
paragraph 6.7, it shall provide the Executive with a written determination
within 30 days of the Executive's discharge during the terms of this
Agreement. If the Executive disagrees with the Company's determination, he
shall provide the Company with written-notice of his objection within 15 days
of receipt of the Company's determination. The matter shall then be promptly
submitted by either the Executive or the Company to a "Big 6" accounting
firm, not otherwise associated with the Company or the Executive, for a
determination within 30 days on both the Executive and the Company. The
expenses incurred in connection with any determination will be shared equally
by the parties. Any payment due hereunder shall be paid within five days of
the determination by the Company or the "Big 6" accounting firm.
7. Miscellaneous.
7.1. If any of the provisions contained in this Agreement is hereafter
construed to be invalid or unenforceable, such event will not affect the
remainder of this Agreement, which will be given full effect, without regard
to the invalid portions.
7.2. If any of the covenants contained in Article 5, or any part thereof,
is held to be unenforceable because of the duration or scope of such
provision or the area covered thereby, the parties agree that the court
making such determination will have the power to reduce the duration, scope
and/or area of such provision and in its reduced form, such provision will
then be enforceable.
7.3. This Agreement has been negotiated and executed in the State of New
York, and will be construed and enforced in accordance with the laws of the
State of New York applicable to agreements made and to be performed entirely
in New York.
7.4. All notices, requests, consents and other communications, required
or permitted to be given hereunder, will be in writing and shall be deemed to
have been duly given if delivered personally or sent by prepaid telegram, or
mailed first class, postage prepaid, by registered or certified mail (if
possible), addressed to either party at the address set forth in the preamble
to this Agreement (or to such other address as either party shall designate
by notice in writing to the other in accordance herewith).
17
<PAGE>
7.5. The article headings contained herein are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.
7.6. This Agreement sets forth the entire agreement and understanding of
the parties relating to the subject matter hereof, and supersedes and will
supersede all prior agreements, arrangements and understandings, written or
oral, relating to the subject matter hereof among the Executive, Embassy
Industries, Inc. and the Company.
7.7. This Agreement may be amended, modified, superseded, canceled,
renewed or extended and the terms or covenants hereof may be waived, only by
a written instrument executed by all of the parties hereto, or in the case of
a waiver, by-the party waiving compliance. The failure of any party at any
time or times to require performance o f any provision hereof-will in no
manner affect the right at a later time to enforce the same. No waiver by
either party of-the breach of any term or covenant contained in this
Agreement, whether by conduct or otherwise, in any one or more instances,
will be deemed to be, or construed as, a further or continuing waiver of any
such breach, or a waiver of the breach of any other term or covenant
contained in this Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
P & F INDUSTRIES, INC.
By /s/ Leon D. Feldman
--------------------------------------
Leon D. Feldman
Executive Vice President
/s/ Richard A. Horowitz
--------------------------------------
Richard A. Horowitz
18
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 11
SCHEDULE OF COMPUTATION OF EARNINGS PER COMMON SHARE
THREE MONTHS ENDED MARCH 31, 1997
----------------------------------------------------
----------------------------------------------------
<TABLE>
<CAPTION>
FULLY
PRIMARY DILUTED
----------- -----------
<S> <C> <C>
Net income......................................................... $ 361 474 $ 361 474
Dividends on preferred stock....................................... (21 857) (21 857)
----------- -----------
Net income for earnings per common share........................... $ 339 617 $ 339 617
----------- -----------
----------- -----------
Weighted average number of common shares outstanding during the
year............................................................. 2 956 102 2 956 102
Common share equivalents--shares issuable upon exercise of stock
options.......................................................... 517 935 527 224
----------- -----------
Weighted average number of common shares and common share
equivalents used in calculation of earnings per common share..... 3 474 037 3 483 326
----------- -----------
----------- -----------
Earnings per common share $.10 $.10
----------- -----------
----------- -----------
</TABLE>
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 11
(CONTINUED)
SCHEDULE OF COMPUTATION OF EARNINGS PER COMMON SHARE
THREE MONTHS ENDED MARCH 31, 1996
----------------------------------------------------
----------------------------------------------------
<TABLE>
<CAPTION>
FULLY
PRIMARY DILUTED
----------- -----------
<S> <C> <C>
Net income......................................................... $ 350 293 $ 350 293
Dividends on preferred stock....................................... (65 836) (65 836)
------------ -----------
284 457 284 457
Addback to net income of decrease in interest expense resulting
from assumed use of proceeds from exercise of options to reduce
outstanding debt................................................. 450 --
------------ -----------
Net income for earnings per common share........................... $ 284 907 $ 284 457
----------- -----------
----------- -----------
Weighted average number of common shares outstanding during the
year............................................................. 2 929 991 2 929 991
Common share equivalents--shares issuable upon exercise of stock
options.......................................................... 230 372 298 961
----------- -----------
Weighted average number of common shares and common share
equivalents used in calculation of earnings per common share..... 3 160 363 3 228 952
----------- -----------
----------- -----------
Earnings per common share $.09 $.09
----------- -----------
----------- -----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,555,210
<SECURITIES> 0
<RECEIVABLES> 5,403,590
<ALLOWANCES> 0
<INVENTORY> 13,056,872
<CURRENT-ASSETS> 20,512,067
<PP&E> 10,786,348
<DEPRECIATION> 5,141,323
<TOTAL-ASSETS> 29,337,390
<CURRENT-LIABILITIES> 6,925,428
<BONDS> 5,249,033
0
0
<COMMON> 2,978,867
<OTHER-SE> 14,184,062
<TOTAL-LIABILITY-AND-EQUITY> 29,337,390
<SALES> 9,188,688
<TOTAL-REVENUES> 9,217,808
<CGS> 5,834,214
<TOTAL-COSTS> 5,834,214
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 140,838
<INCOME-PRETAX> 593,474
<INCOME-TAX> 232,000
<INCOME-CONTINUING> 361,474
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 361,474
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>