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FORM 10-K.-ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1998
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: 0-25634
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 87-0365268
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
755 BOARDMAN-CANFIELD ROAD
SOUTH BRIDGE EXECUTIVE CENTER
BUILDING G-WEST
BOARDMAN, OHIO 44512
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (330) 965-9910
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
(Title of class)
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 twelve (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 ninety (90) days. Yes [X] No [ ]
Indicate by check mark, if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes [ ] No [X]
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State the aggregate market value of the voting stock held by nonaffiliates of
the Registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within sixty (60) days prior to the date of
filing. (See definition of affiliate in Rule 405, 17 CFR 230.405).
$9,140,319 as of February 28, 1999
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE (5) YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Not Applicable
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the Registrant's classes of
Common Stock, as of the latest practicable date.
13,942,211 shares of Common Stock, $.001 par value, as of February 28, 1999.
There are no other classes of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933: Certain sections of the Company's Annual
Report to Shareholders for the year ended December 31, 1998 are incorporated
into Part II, Items 6, 7 and 8, of this Form 10-K.
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C> <C>
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Market for Registrant's Common Equity and Related Stockholders'
Matters 10
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Item 8. Financial Statements and Supplementary Data 11
Item 9. Changes In and Disagreements on Accounting and Financial Disclosure 11
Item 10. Directors and Executive Officers of the Registrant 12
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial Owners and Management 19
Item 13. Certain Relationships and Related Transactions 21
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 23
</TABLE>
2
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PART I
ITEM 1. BUSINESS
BACKGROUND
American Architectural Products Corporation (the Company or AAPC) is
principally engaged in the business of manufacturing and distributing
residential, commercial and architectural windows and doors through its
wholly-owned subsidiaries Eagle & Taylor Company (ETC), Forte, Inc. (Forte),
Western Insulated Glass, Co. (Western), Thermetic Glass, Inc. (Thermetic),
Binnings Building Products, Inc. (Binnings), Danvid Window Company (Danvid),
Modern Window Corporation (Modern), American Glassmith Corporation (American
Glassmith), VinylSource, Inc. (VinylSource), Denver Window Corporation (Denver
Window) and American Weather-Seal Company (Weather-Seal).
American Architectural Products, Inc. (AAP) was incorporated on June
19, 1996 and had no significant operations or assets until it acquired Eagle
Window and Door, Inc. (Eagle) and Taylor Building Products Company (Taylor) on
August 29, 1996. Eagle is based in Dubuque, Iowa and manufactures and
distributes aluminum clad and all wood windows and doors. Taylor is based in
West Branch, Michigan and manufactures entry and garage doors. AAP subsequently
changed its name to Eagle & Taylor Company.
On June 25, 1996 AAP's ultimate controlling stockholder acquired
ownership of Mallyclad Corporation (Mallyclad) and Vyn-L Corporation (Vyn-L).
Mallyclad and Vyn-L, are based in Madison Heights, Michigan and process and
manufacture vinyl clad steel and aluminum coils and cut-to-length sheets. On
December 18, 1996, Mallyclad and Vyn-L were merged into AAP. Based on the
control maintained by this stockholder over AAP, Mallyclad and Vyn-L, the merger
was considered to be a transaction among companies under common control and was
accounted for at historical cost in a manner similar to a pooling of interests.
On December 18, 1996, pursuant to an Agreement and Plan of
Reorganization dated October 25, 1996 (Agreement) between Forte Computer Easy,
Inc. (FCEI) and AAP Holdings, Inc., FCEI acquired all of the issued and
outstanding shares of capital stock of AAP in exchange for 1,000,000 shares of
Series A Convertible Preferred Stock of FCEI (the Series A Preferred). Prior to
December 18, 1996, FCEI had a single wholly owned operating subsidiary, Forte
based in Youngstown, Ohio. Forte manufactures large contract commercial aluminum
windows and security screen windows and doors. Under the terms of the Agreement
and the Series A Preferred, AAP Holdings, Inc. obtained 60 percent of the voting
control of FCEI including options to purchase additional shares. Although FCEI
was the parent of AAP following the transaction, the transaction was accounted
for as a recapitalization of AAP and a purchase by AAP of FCEI because the
stockholders of AAP obtained a majority of the voting rights in FCEI as a result
of the transaction.
At a special shareholders' meeting held on April 1, 1997, the Company's
shareholders approved the reincorporation of the Company in Delaware.
Consequences of the reincorporation plan included the change of the Company's
name from FCEI to American Architectural Products Corporation to reflect its
operations and its emphasis on the fenestration industry; an increase in the
authorized common stock of the Company to 100,000,000 shares; a 1 for 10 reverse
stock split of the Company's common stock; and conversion of 1,000,000 shares of
Series A Preferred held by AAP Holdings, Inc. into 7,548,632 shares of common
stock. The reincorporation did not result in any substantive change to the
Company's business, assets, liabilities, net worth or operations, nor did it
result in any change in the ownership interest of any stockholder of the
Company.
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The Company has completed the following acquisitions during 1997 and
1998:
<TABLE>
<CAPTION>
COMPANY
ACQUIRED DATE LOCATION PRODUCTS
- ------------- ---- -------- --------
<S> <C> <C> <C>
Western March 14, 1997 Phoenix, AZ Residential aluminum
windows and doors
Thermetic July 18, 1997 Toluca, IL Residential vinyl
windows
Binnings December 10, 1997 Lexington, NC; Residential vinyl
Aventura, FL and aluminum windows
and storm doors
Danvid December 10, 1997 Carrollton, TX Residential aluminum
windows and doors and
vinyl windows
American December 10, 1997 Columbus, OH Decorative glass
Glassmith lites and laminated
glass
Modern December 10, 1997 Oak Park, MI Residential vinyl
windows and doors
VinylSource January 23, 1998 Austintown, OH Extruded vinyl window
and door profiles
Denver Window April 16, 1998 Denver, CO Residential specialty
wood windows
Weather-Seal June 12, 1998 Barberton, OH Wood and vinyl
Boardman, OH windows and patio
Norton, OH doors; aluminum and
Orrville, OH vinyl extrusions
Winesburg, OH
</TABLE>
On December 10, 1997, the Company consummated the offering of
$125,000,000 of 11 3/4% Senior Notes due 2007 (the Notes). A portion of the
proceeds of the Notes was used to finance the cash portions of the December 10,
1997 acquisitions discussed above as well as part of the purchase price for the
1998 acquisitions.
In March 1998, the Company sold Mallyclad and Vyn-L a division of
Eagle & Taylor Company, to a related party for approximately $1.1 million. The
Company sold this division at its approximate book value, which approximates
its fair market value, and therefore, recognized no gain or loss on the
transaction.
In August 1998, the Company entered into definitive agreements to
acquire TSG Industries, Inc., Nu-Sash of Indianapolis, Jarar Window Systems,
Inc. and RC Aluminum Industries, Inc. These acquisitions (collectively, the
Pending Acquisitions) will be accounted for as purchases with the purchase
prices allocated among the assets acquired and liabilities assumed based on
their estimated fair market values. The purchase price of the Pending
Acquisitions is estimated to be $47.4 million. The cash portion of this purchase
price is estimated to be $41.9 million and is expected to be funded through a
financing transaction.
DESCRIPTION OF BUSINESS
American Architectural Products Corporation is a leading manufacturer
and distributor of a broadly diversified line of windows, doors and related
products (collectively, "fenestration products") designed to meet a variety of
consumer demands in both the new construction and replacement and remodeling
markets for both residential and commercial uses. The Company has been formed
through the consolidation of a number of well-established fenestration
companies, with varying manufacturing histories dating back to 1946.
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The Company's strategy is to continue to increase its market share and
geographic and product diversity through aggressive pursuit of strategic
acquisitions of complementary companies. The Company distributes its products
regionally throughout the United States under a number of well-established brand
names that are recognized for their quality, value engineering and customer
service, including "Eagle", "Taylor", "Perma-Door", "Modern-View", "Season-All
Commercial", "Sumiglass", "Vinyline", "VinylSource", "Arlington", "Excel",
"Binnings", "Danvid", "Western", "Encore" and "Weather-Seal". This brand name
recognition and reputation have enabled the Company to establish long-lasting
relationships with leading wholesalers, lumberyards, do-it-yourself home
centers, architects and building contractors.
DISTRIBUTION AND MARKETING
The Company uses multiple distribution channels and brand names to
maximize market penetration. The Company distributes its windows and doors
through (i) one-step distribution to major do-it-yourself home centers,
lumberyards and specialty window and door stores; (ii) two-step distribution to
wholesalers who resell to do-it-yourself home centers and lumberyards; and (iii)
direct sales to homebuilders, remodelers and contractors.
The Company markets its products on a national basis, in all 48
contiguous states, through a sales force consisting of salaried and commissioned
sales representatives. Divisional sales managers coordinate the marketing
activities of the sales representatives. The sales representatives concentrate
on serving the Company's one-step, two-step, and direct sales functions with
marketing, sales and service support.
PRODUCTS
The Company's multiple product lines can generally be separated into
the following product categories: (i) aluminum windows and doors; (ii) wood
windows and doors; (iii) vinyl windows and doors; (iv) steel entry doors; (v)
aluminum and vinyl extrusions and insulated glass; and (vi) other fenestration
products.
Aluminum Windows and Doors. The Company produces aluminum windows,
including single/double hung, horizontal rolling, fixed light and specialty
windows, at its Binnings and Danvid facilities. In addition, Western
manufactures a full line of aluminum products designed for the luxury home
market in Arizona, California and Nevada. Western's aluminum products include
horizontal rolling windows, casement windows, arched configurations, window
wall systems and sliding glass doors. Forte manufactures aluminum double-hung
windows, projection windows and casement windows at its Youngstown, Ohio plant,
which are primarily targeted for use in office buildings, schools and other
non-residential buildings in the upper Midwest and mid-Atlantic states.
Wood Windows and Doors. Eagle manufactures a full line of wood windows
and doors, including aluminum-clad windows and doors, its primary product line.
The Company's wood windows are preservative treated to withstand harsh weather
conditions and are targeted at the higher priced segment of the residential
window market. Eagle's products, which include casement and double hung windows,
picture windows and geometrically shaped windows, are generally purchased for
use in custom residential construction and renovation and for use in certain
commercial applications. The customer has the option of selecting from stained,
primed, painted or unfinished interior surfaces and from a number of
pre-finished exterior surfaces, certain of which are resistant to ultraviolet
(UV) ray degradation and salt spray. Eagle also produces wood patio doors and
French doors for use in high-end custom residential new construction and
renovation. Weather-Seal produces two types of exterior-clad wood windows. The
"Cierra Grande" line is clad with pre-finished extruded aluminum and the wood
interior is available unfinished or primed. Additionally, the Company has
developed a new line of vinyl/wood composite windows which are marketed under
the trade name "Arlington".
Vinyl Windows and Doors. Thermetic and Modern manufacture vinyl
replacement windows sold under the trade name "Vinyline" and vinyl windows and
doors for use in new construction under the trade name "Modern-View". Vinyl
windows manufactured by Binnings are sold throughout the Southeast as less
expensive alternatives to wood
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windows. Danvid also manufactures vinyl windows that are sold primarily in the
Southern and Southwestern U.S. Weather-Seal manufactures vinyl single-hung
windows for the new construction market as well as three lines of double-hung
windows, two targeted for the replacement and remodeling market under the trade
names "Excel" and "Nu-Sash" and one targeted for the new construction market
under the trade name "Astoria Pro". The Company's business strategy includes
continued emphasis on expanding its vinyl fenestration products business through
acquisitions and through internal growth.
Steel Entry Doors. Taylor designs and manufactures a complete line of
steel entry doors and advanced steel patio door systems. These products are sold
under the trade names "Taylor" and "Perma-Door". The Company also manufactures
and markets insulated steel garage door panels under the trade names "Encore"
and "Taylor".
Aluminum and Vinyl Extrusions and Insulated Glass. The Company produces
aluminum extrusions at the Aventura, Florida location of Binnings and the
Boardman and Norton locations of Weather-Seal and produces vinyl extrusions at
VinylSource. This business supplies a portion of the raw materials used in the
manufacture of windows by the Company. The Company believes that this in-house
extrusion capacity provides it with a low-cost, reliable source for component
raw materials and reduces working capital requirements. Weather-Seal produces
insulated glass units under a licensing agreement, using two fully automated
"Intercept" insulated glass manufacturing lines. All of the insulated glass
produced is used in the manufacture of other products.
Other Fenestration Products. The Company's other fenestration products
include security screens and security screen doors, aluminum storm windows and
storm doors and decorative glass lites. One of Forte's key products is a
unitized security screen and window combination, designed to be functional and
aesthetically pleasing, which it markets to schools, institutions and other
office buildings. American Glassmith designs, manufactures and assembles
decorative glass lites for a variety of residential applications, including
windows, doors, transoms, cabinets, and sidelites. The decorative glass lites
are primarily distributed in the northern United States. American Glassmith also
manufactures laminated glass which is sold under the Sumiglass trademark.
Sumiglass products are distributed nationally and are used in a variety of
applications, including doors, windows, sidelites, room partitions, office
dividers, skylights and glass handrails.
The Company's operating subsidiaries currently market their products
primarily in the continental United States. Although currently not significant,
the Company plans to explore opportunities to increase exports of products. The
Company as a consolidated unit is not dependent on any single customer or small
group of customers and does not expect to derive a substantial portion of its
sales from such customers.
SEGMENTS
The Company operates in three separate segments. Residential
fenestration products includes a variety of window and door products
manufactured for uses in homes and light commercial businesses. These products
consist of a full line of aluminum, vinyl, wood and aluminum-clad wood windows
and doors. Commercial fenestration products consist of aluminum windows and
doors manufactured for uses in large commercial buildings such as schools,
dormitories, hospitals, institutions, municipal buildings and military
buildings. Extrusion products consist of aluminum and vinyl extrusions used
primarily in the fenestration products industry.
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ITEM 2. PROPERTIES
The Company's principal manufacturing facilities and administrative
offices are located at the following sites:
<TABLE>
<CAPTION>
PRODUCTS
OWNED/ MANUFACTURED/
LOCATION SIZE (FT 2) LEASED SERVICES PERFORMED
-------- ----------- ------ ------------------
<S> <C> <C> <C>
Eagle
Dubuque, Iowa 320,000 Owned Wood windows and
doors and aluminum-
clad windows and
doors; administration
Taylor
West Branch, Michigan 210,000 Owned Custom insulated
steel entry
systems, steel
garage doors and
vinyl-clad doors;
administration
Forte
Youngstown, Ohio 156,000 Owned Aluminum windows and
security windows,
screens and doors;
administration
Western
Phoenix, Arizona 46,600 Leased Custom aluminum
windows and doors;
administration
Corporate Headquarters
Boardman, Ohio 6,400 Leased Executive offices;
administration
Thermetic
Toluca, Illinois 70,000 Owned Vinyl windows and
doors; administration
Danvid
Carrollton, Texas 169,000 Leased Aluminum windows
and doors; vinyl
windows;
administration
Binnings
Lexington, North Carolina 268,000 Owned Vinyl windows,
aluminum windows
and storm windows
and doors;
administration
Binnings
Aventura, Florida 158,000 Owned Aluminum windows;
patio doors;
aluminum extrusions;
distribution
</TABLE>
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<TABLE>
<CAPTION>
PRODUCTS
OWNED/ MANUFACTURED/
LOCATION SIZE (FT 2) LEASED SERVICES PERFORMED
-------- ----------- ------ ------------------
<S> <C> <C> <C>
American Glassmith
Columbus, Ohio 60,000 Leased Decorative glass
lites and laminated
glass products;
administration
VinylSource
Austintown, Ohio 163,000 Leased Vinyl window and door
profiles; vinyl
extrusions;
administration
Weather-Seal
Barberton, Ohio 36,000 Owned Administration
Weather-Seal
Ottawa, Ohio 325,000 Owned Wood windows and
doors; warehouse
Weather-Seal
Norton, Ohio 150,000 Owned Aluminum extrusion;
painting and
fabrication
Weather-Seal
Boardman, Ohio 110,000 Owned Aluminum extrusion;
anodizing and
fabrication
Weather-Seal
Orrville, Ohio 96,000 Owned Vinyl windows;
administration
Weather-Seal
Orrville, Ohio 52,000 Owned Insulated glass
manufacturing
Weather-Seal
Orrville, Ohio 5,200 Owned Truck repair
Weather-Seal
Barberton, Ohio 34,000 Owned Vinyl extrusion
Weather-Seal
Winesburg, Ohio 110,000 Owned Vinyl windows and
------- doors
TOTAL 2,545,200
=========
</TABLE>
The Company also operates eleven distribution centers in Florida and
one each in California, Colorado, Iowa and Michigan. Management believes the
Company's manufacturing, distribution and administrative facilities are
sufficient to meet its current needs.
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ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending or, to the knowledge of the
Company, threatened legal proceedings that it believes will have a material
impact on the Company's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of its security holders
during the fourth quarter of the fiscal year covered by this report.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS' MATTERS
The shares of common stock of the Company are not listed on any
exchange. The following table represents the range of high and low bid prices
for each quarter commencing January 1, 1996 through February 28, 1999 as
reported by the OTC Electronic Bulletin Board market. These quotations reflect
interdealer prices, without retail mark up, mark down or commission and may not
necessarily represent actual transactions.
PERIOD HIGH LOW
------ ---- ---
1996
1st Quarter $1.900 $0.310
2nd Quarter 1.560 0.310
3rd Quarter 8.750 0.660
4th Quarter 5.310 0.438
1997
1st Quarter $7.500 $3.430
2nd Quarter 5.750 5.310
3rd Quarter 3.875 2.438
4th Quarter 4.125 2.500
1998
1st Quarter $4.625 $2.750
2nd Quarter 5.750 3.750
3rd Quarter 7.625 3.813
4th Quarter 4.938 2.125
1999
1st Quarter (through February 28, 1999) $4.000 $2.063
The per share amounts above reflect a 1 for 10 reverse stock split
which was approved by the Company's Board of Directors in April 1997. There were
approximately 440 holders of record of the common shares of the Company as of
December 31, 1998. The Company has never paid dividends on its outstanding
common shares. The current Board of Directors of the Company does not presently
intend to implement a policy regarding the payment of regular cash dividends on
the common shares and it is unlikely that dividends will be paid on the common
shares in the immediate future. The Board of Directors will review this policy
from time to time depending on the financial condition of the Company and other
factors that the Board of Directors may consider appropriate in the
circumstances. In addition, the ability of the Company to pay dividends is
limited by the terms of the Company's bank credit facility and the Indenture
dated December 10, 1997 to which the Company and its subsidiaries are parties.
As of December 31, 1998, options and warrants to purchase a total of 2,669,494
shares of the Company's common stock were outstanding, including options issued
to AAP Holdings, Inc. (AAPH) to purchase up to 707,655 shares.
During 1998, the Board of Directors agreed to extend the expiration
date of various options and warrants to acquire Common Stock which are
beneficailly owned by certain directors and executive officers of the Company.
See "Item 13 - Certain Relationships and Related Transactions." Other than the
extended expiration date, all terms and conditions of these options and warrants
remained unchanged. The Company did not receive cash proceeds in connection with
any such extension. The beneficial owners of all such options and warrants are
executive officers or directors of the Company whom the Company believes
acquired such options and/or warrants for investment purposes and not with a
view to the distribution thereof or the distribution of the underlying
securities. To the extent the extension of any such options or warrants
constitutes an issuance of new securities under the Securities Act of 1933, as
amended (the "Securities Act"), such issuance was deemed to be exempt from
registration under the Securities Act pursuant to the exemption from
registration set forth in Section 3(a)(9) and Section 4(2) thereof or pursuant
to the provisions of Regulation D promulgated thereunder.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference to
the Company's Annual Report to Shareholders and is filed as an exhibit to this
Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is incorporated by reference to
the Company's Annual Report to Shareholders and is filed as an exhibit to this
Report.
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ITEM 7(a). QUALITATIVE AND QUANTITATIVE DISCLOSURES REGARDING MARKET RISK
The information required by this item is incorporated by reference to
the Company's Annual Report to Shareholders and is filed as an exhibit to this
Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required for the Company by this item is incorporated
by reference to the Company's Annual Report to Shareholders and is filed as an
exhibit to this Report. Also, see Item 14 for additional financial statements
included in this filing.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
As reported on Form 8-K ( the "Form 8-K") dated February 17, 1997, the
Company engaged BDO Seidman, LLP as its independent auditors to replace the firm
of Semple & Cooper, LLP, which was dismissed at the same time. The decision to
change accountants was approved by the Board of Directors of the Company. The
reports of Semple & Cooper, LLP on the Company's financial statements for the
past two fiscal years did not contain an adverse opinion or a disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles.
In connection with the audits of the Company's financial statements for
each of the two fiscal years ended December 31, 1994 and 1995, and in subsequent
interim periods, there were no disagreements with Semple & Cooper, LLP on any
matters of accounting principles or practices, financial statement disclosure or
auditing scope or procedures which, if not resolved to the satisfaction of
Semple & Cooper, LLP, would have caused Semple & Cooper, LLP to make reference
to the matters in their report.
The Company requested Semple & Cooper, LLP to furnish it a letter
addressed to the Securities and Exchange Commission stating whether it agrees
with the above statement. Semple & Cooper, LLP furnished the Company with a copy
of a letter dated February 20, 1997 containing such a statement, which was filed
as Exhibit 1 to Amendment No. 1 to the Company's current Report on Form 8-K
dated February 17, 1997.
As reported on Form 8-K dated December 23, 1998, BDO Seidman, LLP
resigned as the independent auditors of the Company. At the same time, the
Company engaged Ernst & Young LLP. The change in accountants was approved by the
Board of Directors of the Company. The reports of BDO Seidman, LLP on the
Company's financial statements for the past two fiscal years did not contain an
adverse opinion or a disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope or accounting principles.
In connection with the audits of the Company's financial statements for
each of the two fiscal years ended December 31, 1996 and 1997, and in subsequent
interim periods, there were no disagreements with BDO Seidman, LLP on any
matters of accounting principles or practices, financial statement disclosure or
auditing scope or procedures which, if not resolved to the satisfaction of BDO
Seidman, LLP, would have caused BDO Seidman, LLP to make reference to the
matters in their report.
The Company requested BDO Seidman, LLP to furnish it a letter addressed
to the Securities and Exchange Commission stating whether it agrees with the
above statement. BDO Seidman, LLP furnished the Company with a copy of a letter
dated December 22, 1998 containing such a statement, which was filed as Exhibit
1 to Amendment No. 1 to the Company's current Report on Form 8-K dated December
23, 1998.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, ages (as of December 31,
1998) and positions of directors and executive officers of the Company. The
Board of Directors of the Company currently consists of eight (8) members and
one vacancy. Directors hold office until the earlier of their resignation or
their successors have been duly elected and qualified. Officers are chosen by
and serve at the discretion of the Board of Directors. A summary of the
background and experience of each of these individuals is set forth after the
table.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
George S. Hofmeister 47 Chairman of the Board
Frank J. Amedia 46 President, Chief Executive Officer and Director
Joseph Dominijanni 42 Director and Treasurer
Richard L. Kovach 36 Vice President and Chief Financial Officer
David J. McKelvey 46 Vice President -- Development
Jeffrey V. Miller 52 Vice President -- Operations
Donald E. Lambrix Jr. 57 Vice President -- Manufacturing
J. Larry Powell 56 Vice President -- Sales & Marketing
Jonathan K. Schoenike 38 General Counsel & Secretary
John J. Cafaro 47 Director
W.R. Jackson, Jr. 65 Director
Joseph C. Lawyer 53 Director
John Masternick 73 Director
Charles E. Trebilcock 72 Director
</TABLE>
George S. Hofmeister has served as Chairman of the Board since December
1996. Mr. Hofmeister has served as Chief Executive Officer and Chairman of the
Board of American Commercial Holdings, Inc. ("ACH"), the parent company of AAPH,
since January 1996 and continues to serve in such roles. Mr. Hofmeister also
continues to serve as Vice Chairman of AP Automotive Systems, Inc. a
manufacturer of automobile exhaust systems. Mr. Hofmeister has held that
position since February 1996. From June 1991 until December 1995, Mr. Hofmeister
served as Chief Executive Officer and Chairman of the Board of EWI, Inc., a
manufacturer of automotive metal stampings.
Frank J. Amedia joined the Company's Board of Directors in June 1994
following the acquisition of Forte, Inc. by the Company, and has served as its
President and Chief Executive Officer since that date. From June 1994 until
December 1996, Mr. Amedia also served as the Chairman of the Board of Directors
of the Company. Prior to joining the Company, Mr. Amedia was President and Chief
Executive Officer of Forte, which he founded in 1989 in Youngstown, Ohio as a
welded aluminum security screen and storm door fabricator. Forte's products were
distributed through a manufacturers' representative distribution business
established by Mr. Amedia in 1986. Prior to founding the manufacturers'
representative business, Mr. Amedia served in various capacities for the
Youngstown Metropolitan Housing Authority.
Joseph Dominijanni has served as the Company's Treasurer since December
1996. Mr. Dominijanni has also served as the Vice President -- Finance of ETC
since its inception in June 1996. Mr. Dominijanni also currently serves as
Vice President -- Finance of ACH, the parent corporation of AAPH, and American
Commercial Industries, Inc., ("ACI"), which is principally engaged in the
manufacturing of automotive components. Mr. Dominijanni joined ACH and ACI in
May 1996. Mr. Dominijanni served as Vice President -- Finance of EWI, Inc. a
manufacturer of automotive metal stampings, from June 1991 until April 1996.
Prior to 1990, Mr. Dominijanni was with the accounting firm of Price Waterhouse.
12
<PAGE> 14
Richard L. Kovach joined the Company in January 1997 as its Vice
President and Chief Financial Officer. From 1991 until joining the Company, Mr.
Kovach assisted clients with finance and operations management issues in the
Financial Advisory Services and Management Consulting practice of Ernst & Young
LLP, most recently as a Senior Manager. From 1988 until 1991, Mr. Kovach was
the Manager of Financial Planning at Ferro Corporation. Prior to joining
Ferro Corporation, Mr. Kovach was with Arthur Andersen & Co.'s Small Business
Group.
David J. McKelvey joined the Company as Vice President--Development in
August 1995 and also served as Secretary from December 1996 through November
1997. From 1992 to 1995, Mr. McKelvey was employed by The Cafaro Company, a
major domestic shopping mall developer engaged in the ownership, operation and
management of enclosed regional shopping centers, as Executive Regional Director
of Real Estate and or Executive Vice President of Administration and Development
Jeffrey V. Miller joined the Company in May 1997 as Vice President --
Operations. From 1995 to 1997, Mr. Miller served as President of the North
American Window Division of Gentek Building Products. From 1992 through 1994,
Mr. Miller was Director of Vinyl Operations for SNE Corporation, a division of
Ply Gem Industries. Mr. Miller was general manager of the New Construction
Window Division and Vice President of Technology and Corporate Development for
Chelsea Building Products from 1989 to 1992.
Donald E. Lambrix, Jr. was appointed the Company's Vice President --
Manufacturing in December 1996 after serving as Vice President of Operations for
the Company's Forte subsidiary since 1990. Mr. Lambrix previously served as Vice
President of a multiple facility fenestration products manufacturer.
J. Larry Powell, the Company's Vice President - Sales & Marketing,
joined the Company in October 1996. Mr. Powell co-founded Blackhawk
Architectural Products, a manufacturer of steel security screen and storm door
products, in 1992 and served on its Board of Directors and as its Vice President
until 1996. From 1987 to 1991, Mr. Powell served as Vice President -- Marketing
and Sales for Sugarcreek Window & Door. Mr. Powell has been employed in the
fenestration industry since the early 1970s, principally in the marketing of
residential and commercial steel and aluminum window products and doors. In
addition, Mr. Powell founded and developed a nationwide marketing representative
group that sells a full range of fenestration products.
Jonathan K. Schoenike joined the Company in August 1997 as General
Counsel and has served as Secretary since November 1997. Prior to joining the
Company, Mr. Schoenike served for over 5 years as Assistant Counsel for The
Cafaro Company.
John J. Cafaro joined the Board of Directors in December 1996. Mr.
Cafaro also serves as the Executive Vice President of The Cafaro Company and has
been a principal officer there for the past 20 years.
William R. Jackson, Jr. has served as a director of the Company since
December 1996. Mr. Jackson has also served since 1982 on the Board of Directors
of Pitt-Des Moines, Inc., a steel construction, engineering and metal products
manufacturer. Mr. Jackson was also President and Treasurer of Pitt-Des Moines,
Inc. from 1983-87.
Joseph C. Lawyer has been a member of the Board since April 1998. Mr.
Lawyer has served as President, Chief Executive Officer and Director of Chatwins
Group, Inc., a manufacturer of a broad range of fabricated and machined
industrial parts and products, since 1986. Prior to 1986, Mr. Lawyer served as
General Manager of the Specialty Steel Products Division of USX Corporation,
where he was employed for over 17 years. Mr. Lawyer has been a director of
Respironics, Inc., a company engaged in the design, manufacture and sale of home
and hospital respiratory medical products, since November 1994.
13
<PAGE> 15
John Masternick has been a director of the Company since June 1994. Mr.
Masternick is a practicing attorney in Girard, Ohio, and since prior to 1994
has been the Chairman of the Board of Directors of Omni Manor, Inc. and Windsor
House, Inc., owners and operators of skilled nursing and extended care
facilities in northeastern Ohio and western Pennsylvania.
Charles E. Trebilcock has been a director of the Company since June
1994. Since 1964, Mr. Trebilcock has served as Chairman of Liberty Industries,
Inc., an Ohio-based distributor of industrial lumber packaging products and
equipment. Mr. Trebilcock is also a partner in Kings Company, which is also a
distributor of industrial lumber packaging products and equipment.
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes all annual and long-term compensation
paid to the Company's Chief Executive Officer and the other most highly
compensated executive officers of the Company whose total annual salary and
bonus exceeded $100,000 during the fiscal year ending December 31, 1998
(collectively, the "Named Executive Officers") for services rendered in all
capacities to the Company and its subsidiaries during the fiscal years ended
December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Long Term
Compensation
---------------------
Annual Compensation (1) Awards (2)
--------------------------------------- --------------------- All
Securities Other
Name and Underlying Compensation ($)
Principal Position Year Salary Bonus Options/SARs (#) (3)
- ------------------------------------ -------- ----------- ------------ --------------------- ------------------
<S> <C> <C> <C> <C> <C>
Frank J. Amedia 1998 350,000 329,990 50,000 6,258
President and 1997 266,807 250,000 100,000 --
Chief Executive Officer 1996 168,718 -- -- --
Jeffrey V. Miller 1998 143,750 15,000 55,000 5,000
Vice President- 1997 90,000 25,000 -- --
Operations
J. Larry Powell 1998 141,125 15,000 30,000 5,000
Vice President- 1997 114,167 25,000 25,000 --
Sales & Marketing
Richard L. Kovach 1998 138,750 15,000 30,000 3,369
Vice President and 1997 119,390 75,000 25,000 --
Chief Financial Officer
Jonathan K. Schoenike 1998 131,250 20,000 30,000 5,000
General Counsel 1997 35,245 10,000 25,000 --
</TABLE>
(1) Other annual compensation to the Named Executive Officers did not exceed
$50,000 or 10% of total annual salary and bonus during any fiscal year.
(2) Represents awards of options to purchase shares of common stock under the
1996 Stock Option Plan.
(3) Amounts include Company matching contribution under the 401(k) plan for all
officers (in an amount equal to 50% of the officers contribution) and
$1,258 for insurance premiums paid by the Company for Mr. Amedia.
BOARD OF DIRECTORS' REPORT ON REPRICING OF OPTIONS
The Board of Directors believes that the value of AAPC is necessarily
dependent upon its ability to attract and retain qualified and competent
employees. The 1996 Stock Option Plan was expressly established to provide an
incentive to attract and retain quality officers and employees. In February
1998, the Board of Directors concluded that the value of some of the stock
options previously granted to key employees under the 1996 Stock Option Plan had
eroded to
14
<PAGE> 16
such an extent that the intended incentive to these employees had failed. As a
result, the Board of Directors concluded that it would be in the best interest
of the Company, and the best interest of the shareholders of the Company, to
regrant such options with an exercise price that reflected the market price of
the common stock at that time. The Board of Directors believes that by repricing
the options previously granted under the 1996 Stock Option Plan, we have
restored the incentive for these key employees. In each case, we granted options
in replacement of previously granted options at an exercise price equal to the
market price of the underlying common stock on the grant date. The number of
shares subject to exercise, the vesting periods and the other terms remain
unchanged by the replacement options.
Submitted by the Board of Directors
February 25, 1998
George S. Hofmeister, Chairman
Frank J. Amedia
Joseph Dominijanni
John J. Cafaro
W.R. Jackson, Jr.
Joseph C. Lawyer
John Masternick
Charles E. Trebilcock
The following table sets forth information concerning repricing of stock options
during the period beginning when AAPC first became a reporting company under the
Exchange Act and continuing through December 31, 1998.
<TABLE>
<CAPTION>
10-YEAR OPTION/SAR REPRICINGS
Length of
Number of Original
Securities Market Price Option Term
Underlying of Stock at Exercise Remaining at
Options Time of Price at Time New Date of
Repriced or Repricing or of Repricing Exercise Repricing or
Name Date Amended Amendment or Amendment Price Amendment
- ----------------------------------- ----------- --------------- -------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Frank J. Amedia 2/25/98 100,000 $3.56 $6.19 $3.92(1) 108 months
Richard L. Kovach 2/25/98 25,000 $3.56 $5.63 $3.56 108 months
Donald E. Lambrix, Jr. 2/25/98 25,000 $3.56 $5.63 $3.56 108 months
David J. McKelvey 2/25/98 25,000 $3.56 $5.63 $3.56 108 months
J. Larry Powell 2/25/98 25,000 $3.56 $5.63 $3.56 108 months
</TABLE>
(1) Options granted at 110% of market price.
OPTION GRANTS
No stock options, stock appreciation rights or restricted stock awards
were granted as compensation to any officers, directors or employees of the
Company or its subsidiaries during the period from June 19, 1996 (date of
inception) through December 31, 1996. The Company entered into definitive stock
option agreements with Mr. Amedia and Mr. Masternick dated December 18, 1996,
memorializing the terms of stock options granted to them in 1994 as shareholders
of Forte, Inc. in connection with the acquisition by the Company of Forte, Inc.
The Company issued options to purchase up to 424,000 and 857,500 shares of
common stock to various officers, directors and employees of the Company or its
subsidiaries during the fiscal years ended December 31, 1997 and 1998,
respectively. The following table sets forth certain information concerning
individual grants of stock options to each of the Named Executive Officers
during the year ended December 31, 1998.
15
<PAGE> 17
<TABLE>
<CAPTION>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE
PERCENT ----------------- VALUE AT ASSUMED
NUMBER OF OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS/SARS STOCK PRICE
UNDERLYING GRANTED TO EXERCISE OR APPRECIATION
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION FOR OPTION TERM
NAME GRANTED(#) FISCAL YEAR ($/SH)(1) DATE 5%($) 10%($)
---- ---------- ------------ ------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Frank J. Amedia 50,000 6% 3.92 2/28/08 54,000 120,000
Jeffrey V. Miller 40,000 5% 3.56 2/28/08 90,000 227,000
15,000 2% 3.88 7/23/08 37,000 93,000
J. Larry Powell 15,000 2% 3.56 2/28/08 34,000 85,000
15,000 2% 3.88 7/23/08 37,000 93,000
Richard L. Kovach 15,000 2% 3.56 2/28/08 34,000 85,000
15,000 2% 3.88 7/23/08 37,000 93,000
Jonathan K. Schoenike 15,000 2% 3.56 2/28/08 34,000 85,000
15,000 2% 3.88 7/23/08 37,000 93,000
</TABLE>
(1) Represents market price at date of grant, except for Mr. Amedia, whose
options are granted at 110% of the market price at date of grant.
The following table sets forth certain information concerning each
exercise of stock options during the year ended December 31, 1998 by each of the
Named Executive Officers and the aggregated fiscal year-end value of the
unexercised options of each Named Executive Officer.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN FISCAL 1998 AND
OPTION VALUE AS OF DECEMBER 31, 1998
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS OPTIONS/SARS AT
ACQUIRED ON VALUE AT FISCAL YEAR END(#) FISCAL YEAR END($)(1)
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Frank J. Amedia 0 0 446,244 130,000 0 0
Jeffrey V. Miller 0 0 0 55,000 0 0
J. Larry Powell 0 0 5,000 50,000 0 0
Richard L. Kovach 0 0 5,000 50,000 0 0
Jonathan K. Schoenike 0 0 5,000 50,000 0 0
</TABLE>
(1) Based on the average of reported bid and asked prices for the Common Stock
on December 31, 1998.
EMPLOYMENT AGREEMENTS
On November 17, 1997, the Company entered into an employment agreement
with Frank J. Amedia for services as President and Chief Executive Officer. This
agreement requires Mr. Amedia to devote his full time to the Company during
normal business hours in exchange for a base annual salary of $350,000, subject
to annual increases at the discretion of the Board of Directors. In addition,
Mr. Amedia is entitled to receive bonuses at the discretion of the Board of
Directors in accordance with the Company's bonus plans in effect from time to
time, and the Company will pay certain life and disability insurance premiums on
behalf of Mr. Amedia. The agreement has an initial three-year term and provides
that Mr. Amedia may not compete with the Company anywhere in the United States
while he is employed by the Company and for a two-year period following the
termination of Mr. Amedia's employment. In addition, the Board of Directors has
approved the payment to Mr. Amedia of a bonus equal to 0.39% of the total
consideration paid by the Company for each acquisition transaction consummated
during 1998. The amount of this bonus paid in 1998 was $230,000. In December
1998, the Board of Directors increased this acquisition bonus percentage to
0.56% of total consideration paid for acquisitions completed in 1999.
16
<PAGE> 18
In addition, in 1998 the Company entered into employment agreements
with Jonathan K. Schoenike, J. Larry Powell, Richard L. Kovach and Jeffrey V.
Miller for services as General Counsel, Vice President - Sales & Marketing, Vice
President - Chief Financial Officer and Vice President - Operations,
respectively. The agreements require Messrs. Schoenike, Powell, Kovach and
Miller to devote their full time to the Company in exchange for annual base
salaries of $160,000, $159,500, $160,000 and $160,000, respectively, subject to
annual increases. In addition, Messrs. Schoenike, Powell, Kovach and Miller
are entitled to receive bonuses at the discretion of the Board of Directors in
accordance with the Company's bonus plans in effect from time to time, and the
Company will pay certain life insurance premiums and other benefits. The
agreements have an initial three-year term. The Company has also entered into
employment agreements with certain other officers and key employees.
EMPLOYEE STOCK OPTION PLANS
1992 Incentive Stock Option Plan. In May 1992, the Board of Directors
of the Company adopted an Employee Incentive Stock Option Plan (the "Option
Plan"). Options to purchase an aggregate of up to 500,000 shares of the
Company's common stock are authorized under the Option Plan. Options granted
under the Option Plan have a maximum duration of ten years from the date of
grant.
1996 Stock Option Plan. The Company's 1996 Stock Option Plan (the "1996
Plan"), which was approved by the shareholders of the Company, authorizes the
Board to grant options to Directors and employees of the Company to purchase in
the aggregate an amount of shares of common stock equal to 10% of the shares of
common stock issued and outstanding from time to time, but which aggregate
amount shall in no event exceed 10,000,000 shares of common stock. On July 23,
1998, the Board of Directors approved an increase in the number of shares
issuable under the 1996 Plan to 15% of the shares of Common Stock issued and
outstanding, which is being submitted for shareholder approval at the Company's
1999 Annual Meeting. Directors, officers and other employees of the Company who,
in the opinion of the Board of Directors, are responsible for the continued
growth and development and the financial success of the Company are eligible to
be granted options under the 1996 Plan. Options may be nonqualified options,
incentive stock options, or any combination of the foregoing. In general,
options granted under the 1996 Plan are not transferable and expire ten (10)
years after the date of grant. The per share exercise price of an incentive
stock option granted under the 1996 Plan may not be less than the fair market
value of the common stock on the date of grant. Incentive stock options granted
to persons who have voting control over 10% or more of the Company's common
stock are granted at 110% of the fair market value of the underlying shares on
the date of grant and expire five years after the date of grant. No option may
be granted after December 19, 2006.
The 1996 Plan provides the Board of Directors with the discretion to
determine when options granted thereunder will become exercisable. Generally,
such options may be exercised after a period of time specified by the Board of
Directors at any time prior to expiration, so long as the optionee remains
employed by the Company. No option granted under the 1996 Plan is transferable
by the optionee other than by will or the laws of descent and distribution, and
each option is exercisable during the lifetime of the optionee only by the
optionee.
As of December 31, 1998, options to purchase a total of 2,584,425
shares of the Company's common stock were outstanding, including options to
purchase 707,655 shares issued to AAP Holdings, Inc. on December 18, 1996, with
an exercise price of $3.75 per share, options to purchase 471,770 shares issued
to Mr. Amedia and Mr. Masternick (issued in connection with the acquisition of
Forte, Inc.) with an exercise price of $3.75 per share, options issued pursuant
to the Company's stock option plans described above and other options issued
outside of the described stock option plans.
EMPLOYEE STOCK PURCHASE PLAN
On February 26, 1998, the Board of Directors adopted the 1998 Employee
Stock Purchase Plan (the "1998 Purchase Plan") and reserved 1,200,000 shares of
common stock for issuance thereunder. At the Company's annual meeting, the 1998
Purchase Plan was approved by the stockholders. In general, the 1998 Purchase
Plan is designed to encourage common stock ownership by the Company's employees
through payroll deductions. If qualified in accordance with Section 423 of the
Code, the 1998 Purchase Plan will enable the Company to sell shares of common
stock to its employees at a price discount of up to 15% of market price, applied
to the lower of the price of the common stock at the beginning or end of the
option period.
17
<PAGE> 19
401(k) PLAN
Eligible employees of the Company may direct that a portion of their
compensation, up to a legally established maximum, be withheld by the Company
and contributed to a 401(k) plan. All 401(k) plan contributions are placed in a
trust fund to be invested by the 401(k) plan's trustee, except that the 401(k)
plan permits participants to direct the investment of their account balances
among mutual or investment funds available under the Plan. The 401(k) plan
provides a matching contribution of 50% of a participant's contributions up to a
maximum of seven percent of the participant's annual salary. Amounts contributed
to participant accounts under the 401(k) plan and any earnings or interest
accrued on the participant accounts are generally not subject to federal income
tax until distributed to the participant and may not be withdrawn until death,
retirement or termination of employment.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Audit Committee, which is comprised of William R.
Jackson, Jr., Charles E. Trebilcock and Joseph Dominijanni, is responsible for
reviewing and making recommendations regarding the Company's employment of
independent auditors, the annual audit of the Company's financial statements and
the Company's internal accounting controls, practices and policies. The Audit
Committee met twice during the year.
The Compensation Committee did not meet during the year. The Company's
Compensation Committee is responsible for making recommendations to the Board of
Directors regarding compensation arrangements for executive officers of the
Company, including annual bonus compensation, and consults with management of
the Company regarding compensation policies and practices. The Compensation
Committee also makes recommendations concerning the adoption of any compensation
plans in which management is eligible to participate, including the granting of
stock options and other benefits under such plans. The Compensation Committee is
comprised of George S. Hofmeister, Frank J. Amedia, and John Masternick.
Since the Compensation Committee did not meet during 1998, the entire
Board of Directors performed the functions of this committee. The Board of
Directors considered the input of the Chief Executive Officer in making
executive officer compensation determinations. The Chief Executive Officer made
recommendations to the entire Board of Directors as to compensation levels for
all of the Company's executive officers. The entire Board of Directors, with
the exception of Mr. Amedia who is also an executive officer, then considered
and discussed these recommendations and made compensation determinations for
all executive officers. None of the Company's executive officers, including Mr.
Amedia, participated in the Board of Director's discussion of executive officer
compensation.
DIRECTORS' TERMS AND COMPENSATION
The Company's Board of Directors is currently comprised of eight
members, and one additional Board position which is currently vacant. Each
Director is elected for a period of one year at the Company's annual meeting of
shareholders and serves until the earlier of his or her resignation or until his
or her successor is duly elected and qualified. During the fiscal year ended
December 31, 1998, the Board of Directors of the Company met nine times. All
other actions taken by the Board of Directors during the fiscal year ended
December 31, 1998 were accomplished by means of unanimous written consent.
During the period in which they served as directors, Messrs. Cafaro and Lawyer
attended fewer than 75% of the meetings of the Board of Directors. All other
Directors attended 75% or more of the meetings of the Board of Directors and of
the meetings held by committees of the Board on which they served.
During the fiscal year ended December 31, 1998, members of the Board of
Directors who were not employees of the Company or of ACH or its affiliates
("non-employee directors") received a fee of $1,000 for each meeting of the
Board of Directors attended in person and were reimbursed for expenses incurred
in connection with their attendance at meetings of the Board. Pursuant to a
resolution of the Board, each non-employee director serving on December 31, 1998
who attended at least four of the regularly scheduled meetings of the Board and
at least 75% of all meetings of the Board during 1998 was granted options to
purchase 2,000 shares of the Company's common stock at an exercise price equal
to the average of the reported closing bid and asked prices on the date of
grant, vesting in full upon issuance. Such options are exercisable for a period
of five years following the vesting date and were issued pursuant to the
Company's 1996 Stock Option Plan. For the fiscal year ending December 31, 1999,
each non-employee director of the Company will receive $1,000 for every Board
of Directors meeting attended and $500 for every committee meeting attended and
2,000 shares of the Company's common stock if the Director attends 75% of all
meetings of the Board.
18
<PAGE> 20
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of February 28,
1999, concerning the beneficial ownership of the Company's common stock by (i)
each beneficial owner of more than 5% of the Company's common stock, (ii) each
Director and Named Executive Officer of the Company, and (iii) all Directors and
Executive Officers of the Company as a group. To the knowledge of the Company,
all persons listed below have sole voting and investment power with respect to
their shares, except to the extent that authority is shared by their respective
spouses under applicable law.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY OWNED
------------------
NAME OF BENEFICIAL OWNER(1) NUMBER PERCENT
- --------------------------- ------ -------
<S> <C> <C>
AAP Holdings, Inc. 7,548,633(2) 54.2%
George S. Hofmeister 7,551,133(3) 54.1%
Frank J. Amedia 3,429,326(4) 23.8%
Amedia Family Limited Partnership 1,500,000 10.8%
John Masternick 371,680(5) 2.7%
William R. Jackson, Jr. 73,287(6) *
Charles E. Trebilcock 40,513(7) *
Joseph Dominijanni 27,000(8) *
Joseph C. Lawyer 4,000 *
Richard L. Kovach 13,000(9) *
J. Larry Powell 23,412(9) *
Jeffrey V. Miller 8,000(10) *
Jonathan K. Schoenike 9,000(10) *
All directors and executive officers
of the Company as a group (15 persons) 11,576,351(11) 79.2%
</TABLE>
* Less than 1%
(1) The address of AAP Holdings, Inc. and George S. Hofmeister is 6500
Brooktree Road, Suite 202, Wexford, Pennsylvania 15090. The address of all
other beneficial owners is c/o American Architectural Products Corporation,
755 Boardman-Canfield Road, Building G West, Boardman, Ohio 44512.
(2) Does not include 707,655 shares of common stock which are subject to
unexercised options that are exercisable only upon the occurrence of
certain contingencies.
(3) Includes shares of common stock held by AAP Holdings, Inc. George S.
Hofmeister, the Chairman of the Board of Directors of the Company, is the
controlling shareholder of the corporate parent of AAP Holdings, Inc.
(4) Includes 476,244 shares of common stock which are subject to unexercised
options that were exercisable on February 28, 1999 or within sixty days
thereafter. Also includes 1,500,000 shares of common stock owned by the
Amedia Family Limited Partnership, in which Mr. Amedia and his spouse are
the general partners and each holds 48% of the partnership interests.
(5) Includes 47,526 shares of common stock which are subject to unexercised
options that were exercisable on February 28, 1999 or within sixty days
thereafter.
19
<PAGE> 21
(6) Includes 57,143 shares of common stock which are subject to unexercised
warrants that were exercisable on February 28, 1999 or within sixty days
thereafter.
(7) Includes 13,513 shares of common stock owned individually and 25,000 shares
held by a custodian for the benefit of an individual retirement account of
Mr. Trebilcock. Also includes 2,000 shares of common stock which are
subject to unexercised options that were exercisable on February 28, 1999
or within sixty days thereafter.
(8) Includes 25,000 shares of common stock which are subject to unexercised
options that were exercisable on February 28, 1999 or within sixty days
thereafter.
(9) Includes 13,000 shares of common stock which are subject to unexercised
options that were exercisable on February 28, 1999 or within sixty days
thereafter.
(10) Includes 8,000 shares of common stock which are subject to unexercised
options that were exercisable on February 28, 1999 or within sixty days
thereafter.
(11) Includes 675,913 shares of common stock which are subject to unexercised
options and warrants that were exercisable on February 28, 1999 or within
sixty days thereafter as described above.
20
<PAGE> 22
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. George S. Hofmeister, Chairman of the Board of Directors of the
Company, is the controlling shareholder of the corporate parent of AAPH. The
Company has agreed to pay AAPH an acquisition consulting fee of 1.0% for 1997
and 1998, increased to 1.44% for 1999, of the transaction price of each
acquisition transaction consummated by the Company with respect to which AAPH or
its affiliates provides acquisition consulting services. For purposes of
calculating the acquisition fee, the transaction price means the aggregate
amount of consideration paid by the Company or its affiliates for the
acquisition in the form of cash, stock, stock options, warrants, debt
instruments and other assumed liabilities. Acquisition consulting fees in 1997
and 1998 approximated $835,000 and $590,000, respectively. In addition, the
Company paid AAPH fees of $821,000 and $345,000 for management and other
transaction services provided in 1997 and 1998, respectively. AAPH charges
the Company on an hourly basis at competitive rates based on time incurred. The
Company expects to continue to use these services charged at rates comparable
to prior rates.
The Company contracts for air charter services with a company
affiliated with AAPH and Mr. Amedia. The Company paid approximately $450,000 and
$530,000 to this company for air charter services in 1997 and 1998,
respectively. The Company pays for these services at rates comparable to those
charged to unaffiliated parties. The Company expects to continue to use these
services at levels similar to prior years.
In November 1990, the U.S. Small Business Administration loaned
$409,000 to Forte, Inc. (the "SBA Loan"). The SBA Loan was payable in monthly
installments and the final installment was scheduled to be due on January 1,
2001. Mr. Amedia and his wife were personally liable on the SBA Loan. As of
December 31, 1997, the balance owed on the SBA Loan were approximately $172,000.
The Company repaid this loan in January 1998.
The Company acquired all of the issued and outstanding common stock of
Forte from Frank Amedia and John Masternick on June 8, 1994, in exchange for
3,311,010 shares of the Company's common stock and options to acquire 475,770
shares of the Company's common stock. Through a series of extensions approved by
the Board of Directors, the options are currently scheduled to expire in
January 2000.
Pursuant to reorganization of the Company and AAP on December 18, 1996
(the "Reorganization") the Company issued 1,000,000 shares of Series A Preferred
Stock in exchange for all of the issued and outstanding stock of AAP. In April
1997, AAPH converted the Series A Preferred Stock pursuant to its terms into
7,548,633 shares of common stock of the Company. In addition, the Company issued
to AAPH options to purchase 879,834 shares of common stock, of which options to
purchase 172,179 shares have subsequently terminated. Through a series of
extension approved by the Board of Directors, these options are currently
scheduled to expire in January 2000. Such options are identical in price and
exercise terms to certain options held by Messrs. Amedia and Masternick and are
exercisable only upon the exercise of the options held by Mr. Amedia and Mr.
Masternick.
Profile Extrusion Company ("PEC") loaned the Company $92,537 on May 19,
1997 and an additional $5,203 on September 28, 1997. This combined indebtedness
had an interest rate of 15% per annum and was payable in full on or before
December 31, 1997. In connection therewith, the Company issued to PEC warrants
to purchase a total of 27,926 shares of common stock at an exercise price of
$3.50 per share, expiring on September 1, 1998. The Company repaid this loan on
December 10, 1997. PEC is a wholly-owned subsidiary of American Commercial
Holdings, Inc., of which George Hofmeister is the controlling shareholder. These
warrants were extended to and expired unexercised on January 15, 1999.
In June 1997, Mr. Amedia pledged 133,333 shares of common stock to
secure the repayment of a short-term debt incurred by the Company in the
original principal amount of $250,000. The Company agreed to issue shares of
common stock to Mr. Amedia to replace any shares as to which the lender
exercises its security interest. The Company repaid this loan on January 16,
1998.
In September 1997, William R. Jackson, Jr., a director of the Company,
loaned the Company $200,000. This indebtedness had an interest rate of 15% per
annum and was payable in full in December 1997. In connection therewith, the
Company issued to Mr. Jackson warrants to purchase a total of 57,143 shares of
common stock at an exercise price of $3.50 per share, expiring in September
1998. The Company repaid this loan on December 10, 1997. Through a series of
extensions in 1998, the warrants are currently scheduled to expire in January
2000.
In January 1998, the Company purchased substantially all of the assets
of Blackhawk Architectural Products (Blackhawk) for approximately $400,000. The
assets were purchased at their approximate book value, which approximated fair
value, as approved by the Board of Directors. J. Larry Powell, an officer of
the Company, co-founded and owned a 20% equity interest in Blackhawk at the
time of this transaction.
In March, 1998, the Company sold Mallyclad, a division of Eagle &
Taylor Company, to a company controlled by one of its shareholders for
approximately $1.1 million. The Company sold this division at its book value,
which approximated fair market value as approved by the Board of Directors,
therefore, no gain or loss was recognized on this transaction.
21
<PAGE> 23
In July 1998, the Company sold windows in the amount of $160,000 to
Hughes O'Neill, a company owned by the wife of J. Larry Powell. These windows
were sold at normal market prices.
In October 1998, the Company entered into an operating lease at market
rates with a company affiliated with AAPH. Amounts paid under this lease were
$75,000 for the year ended December 31, 1998. The Company is committed to future
minimum lease payments of $225,000 in 1999 under this lease.
During the last quarter of 1998 and first quarter of 1999, the Company
sold, at cost, approximately $100,000 of windows to Mr. Hofmeister. This
transaction was approved by the Board of Directors.
22
<PAGE> 24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The following financial statements of AAPC and the auditor's report
thereon, are included in the Financial Review section of AAPC's 1998 Annual
Report to Shareholders and are incorporated herein by reference:
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
Report of Independent Auditors
Consolidated Balance Sheets at December 31, 1997 and 1998
Consolidated Statements of Operations for the period from June 19, 1996 (date
of inception) to December 31, 1996 and the years ended
December 31, 1997 and 1998
Consolidated Statements of Stockholders' Equity for the period from
June 19, 1996 (date of inception) to December 31, 1996 and the years
ended December 31, 1997 and 1998
Consolidated Statements of Cash Flows for the period from June 19,
1996 (date of inception) to December 31, 1996 and the years ended
December 31, 1997 and 1998
Notes to Consolidated Financial Statements
The following financial statements of the Predecessors and
Weather-Seal (a division of Louisiana-Pacific Corporation) and the auditors'
reports thereon are included as a separate section of this Form 10-K:
EAGLE WINDOW AND DOOR, INC. AND SUBSIDIARIES AND TAYLOR BUILDING
PRODUCTS COMPANY
Independent Auditors' Report
Combined Balance Sheet at August 29, 1996
Combined Statement of Operations and Accumulated Deficit for the
eight months ended August 29, 1996
Combined Statement of Cash Flows for the eight months ended August 29, 1996
Notes to Combined Financial Statements
MALLYCLAD CORPORATION AND VYN-L CORPORATION
Report of Independent Certified Public Accountants
Combined Balance Sheet at June 30, 1996
Combined Statement of Operations and Retained Earnings
for the seven months ended June 30, 1996
Combined Statement of Cash Flows for the seven months ended June 30, 1996
Notes to Combined Financial Statements
WEATHER-SEAL (A DIVISION OF LOUISIANA-PACIFIC CORPORATION)
Report of Independent Auditors
Balance Sheet at June 12, 1998
Statement of Operations for the period from January 1, 1998 through
June 12, 1998
Statement of Cash Flows for the period from January 1, 1998 through
June 12, 1998
Notes to Financial Statements
(a)(2) FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statement schedules of AAPC
are included in a separate section of this Form 10-K:
23
<PAGE> 25
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
All other financial statement schedules for AAPC and its predecessors
have been included in the consolidated financial statements or the related
footnotes, or they are either inapplicable or not required.
(a)(3) EXHIBITS
The exhibits are set forth on the Exhibit Index included herein.
(b) REPORTS ON FORM 8-K
The Company filed one report on Form 8-K during the fourth quarter of
1998. The current report, dated December 23,1998, reported the resignation of
BDO Seidman, LLP as the Company's independent auditors and the engagement of
Ernst & Young LLP.
24
<PAGE> 26
<TABLE>
<CAPTION>
EXHIBIT INDEX
<S> <C> <C>
2.1 Agreement and Plan of Merger, dated as of November 10, 1997,
by and among American Architectural Products Corporation,
BBPI Acquisition Corporation and Binnings Building Products,
Inc. D
2.2 Asset Purchase Agreement, dated as of November 10, 1997, by
and among DCI/DWC Acquisition Corporation, Danvid Company,
Inc. and Danvid Window Company. D
2.3 Shareholders Agreement in Support of Asset Purchase
Agreement, dated as of November 10, 1997, by and among
Daniel Crawford, Karen Crawford, David Crawford, Paul Comer
and DCI/DWC Acquisition Corporation. D
2.4 Asset Purchase Agreement, dated as of December 10, 1997, by
and among American Architectural Products Corporation,
American Glassmith Acquisition Corporation and American
Glassmith, Inc. D
2.5 Agreement, dated as of December 10, 1997, by and among
American Architectural Products Corporation, Modern Window
Acquisition Corporation and Modern Window Corporation. D
2.6 Agreement and Plan of Reorganization, dated October 25,
1996, between Forte Computer Easy, Inc. and AAP Holdings,
Inc. B
2.7 Share Purchase Agreement dated March 14, 1997 among Marcella
M. Egly Turner, as sole Trustee of the Egly Family Trust U/A
dated May 31, 1997, Western Insulated Glass, Co., Benny J.
Ellis and Forte Computer Easy, Inc. I
2.8 Asset Purchase Agreement, dated June 5, 1998, by and among,
Weather-Seal Acquisition Corporation and Louisiana-Pacific
Corporation. J
3.1 Certificate of Incorporation of American Architectural
Products Corporation. C
3.2 Bylaws of American Architectural Products Corporation. C
3.3 Certificate of Incorporation of American Glassmith
Acquisition Corporation. F
3.4 Bylaws of American Glassmith Acquisition Corporation. F
3.5 Amended and Restated Certificate of Incorporation of
Binnings Building Products, Inc. F
3.6 Bylaws of Binnings Building Products, Inc. F
3.7 Certificate of Incorporation of Danvid Window Company, as amended F
3.8 Bylaws of Danvid Window Company. F
3.9 Certificate of Incorporation of Eagle & Taylor Company, as
amended. F
3.10 Bylaws of Eagle & Taylor Company. F
3.11 Articles of Incorporation of Forte, Inc. F
3.12 Code of Regulations of Forte, Inc. F
3.13 Certificate of Incorporation of Modern Window Acquisition
Corporation. F
3.14 Bylaws of Modern Window Acquisition Corporation. F
3.15 Certificate of Incorporation of Thermetic Glass, Inc., as
amended. F
3.16 Bylaws of Thermetic Glass, Inc. F
3.17 Articles of Incorporation of Western Insulated Glass, Co. F
3.18 Bylaws of Western Insulated Glass, Co. F
3.19 Certificate of Incorporation of VinylSource, Inc., as amended. G
3.20 Bylaws of VinylSource, Inc. G
3.21 Certificate of Incorporation of AAPC One Acquisition Corporation. G
3.22 Bylaws of AAPC One Acquisition Corporation. G
3.23 Certificate of Incorporation of AAPC Two Acquisition Corporation. G
3.24 Bylaws of AAPC Two Acquisition Corporation. G
3.25 Certificate of Incorporation of Denver Window Acquisition
Corporation. G
3.26 Bylaws of Denver Window Acquisition Corporation. G
3.26 Certificate of Incorporation of Eagle Window & Door Center,
Inc., as amended. G
3.28 Bylaws of Eagle Window & Door Center, Inc. G
3.29 Certificate of Incorporation of Weather-Seal Acquisition
Corporation. G
</TABLE>
25
<PAGE> 27
<TABLE>
<S> <C> <C>
3.30 Bylaws of Weather-Seal Acquisition Corporation. G
4.1 Form of American Architectural Products Corporation Common
Stock Certificate. E
4.2 Indenture dated as of December 10, 1997 with respect to
11 3/4% Senior Notes due 2007 among American Architectural
Products Corporation, as issuer, American Glassmith
Acquisition Corporation, BBPI Acquisition Corporation, DCI/DWC
Acquisition Corporation, Eagle & Taylor Company, Forte, Inc.,
Modern Window Acquisition Corporation, Thermetic Glass, Inc.,
and Western Insulated Glass, Co., as subsidiary guarantors,
and United States Trust Company of
New York, as trustee. D
4.3 Amendment No. 1, dated as of April 15, 1998, to the Indenture
dated as of December 10, 1997 with respect to 11 3/4% Senior
Notes due 2007. H
4.4 First Supplemental Indenture, dated as of April 15, 1998, by
and among American Architectural Products Corporation, Eagle &
Taylor Company. Forte, Inc., Western Insulated Glass, Co.,
Thermetic Glass, Inc., Binnings Buildings Products, Inc.,
Danvid Window Company, American Glassmith Acquisition
Corporation, Modern Window Acquisition Corporation,
VinylSource, Inc., AAPC One Acquisitions Corporation, AAPC Two
Acquisition Corporation, Eagle Window & Door Center, Inc.,
Weather-Seal Acquisition Corporation and United States Trust
Company of New
York. H
10.1 1992 Incentive Stock Option Plan. A
10.2 1996 Stock Option Plan. C
10.3 Employment Agreement, dated November 17, 1997, between Frank
J. Amedia and American Architectural Products
Corporation. F
10.3a Employment Agreement, dated September 30, 1998, between
Richard L. Kovach and American Architectural Products
Corporation. *
10.3b Employment Agreement, dated September 30,1998, between
Jeffrey V. Miller and American Architectural Products
Corporation. *
10.3c Employment Agreement, dated September 30, 1998, between J.
Larry Powell and American Architectural Products Corporation. *
10.3d Employment Agreement, dated September 30, 1998, between
Jonathan K. Schoenike and American Architectural Products
Corporation. *
10.4a Lease Agreement, dated December 1989, between Centre
Consolidated Properties, Ltd. and Danvid Company, Inc. F
10.4b Lease Extension Agreement to Industrial Lease Agreement
between Beltline Business Center Limited Partnership and
Danvid Company, Inc. F
10.6a Lease Agreement, dated November 28, 1990, between J.M.J.
Partnership and The New Edgehill Co, Inc. F
10.6b Lease Modification No. 1, dated October 19, 1992, between
J.M.J. Partnership and The American Glassmith, Inc., f/k/a
The New Edgehill Co., Inc. F
10.6c Lease Modification No. 2, dated June 8, 1993, between J.M.J.
Partnership and The American Glassmith, Inc. F
10.6d Lease Modification No. 3, dated January 31, 1995, between
J.M.J. Partnership and American Glassmith, Inc. F
10.6e Lease Modification No. 4, dated as of March 31, 1995,
between J.M.J. Partnership and American Glassmith, Inc. F
10.6f Lease Modification No. 5, dated as of August 31, 1995,
between J.M.J. Partnership and American Glassmith, Inc. F
10.6g Lease Modification No. 6, dated June 19, 1996, between
J.M.J. Partnership and American Glassmith, Inc. F
10.7 Lease Agreement, dated March 14, 1997, by and among Benny J.
Ellis and Linda M. Ellis and Western Insulated Glass,
Co. F
10.8 Purchase Agreement, dated as of December 4, 1997, by and
among American Architectural Products Corporation, NatWest
Capital Markets Limited and McDonald & Company Securities,
Inc. D
</TABLE>
26
<PAGE> 28
<TABLE>
<S> <C> <C>
10.9 Exchange and Registration Rights Agreement, dated as of
December 10, 1997, by and among American Architectural
Products Corporation, American Glassmith Acquisition
Corporation, BBPI Acquisition Corporation, DCI/DWC Acquisition
Corporation, Eagle & Taylor Company, Forte, Inc., Modern
Window Acquisition Corporation, Thermetic Glass, Inc., Western
Insulated Glass, Co., NatWest Capital
Markets Limited and McDonald & Company Securities, Inc. D
10.10 Registration Rights Agreement, dated as of July 31, 1998, by
and between American Architectural Products Corporation and
Frank J. Amedia +
10.11 Registration Rights Agreement, dated as of July 31, 1998, by
and between American Architectural Products Corporation and
Miller Capital Group +
10.12 Credit Agreement, dated as of June 12, 1998, by and among
American Architectural Products Corporation, Eagle & Taylor
Company, Forte, Inc., Western Insulated Glass, Co. Thermetic
Glass, Inc., Binnings Building Products, Inc., Danvid Window
Company, Modern Window Acquisition Corporation, American
Glassmith Acquisition Corporation, Vinyl Source, Inc.
Weather-Seal Acquisition Corporation, Eagle Window & Door
Center, Inc., Denver Window Acquisition Corporation, AAPC One
Acquisition Corporation, AAPC Two Acquisition Corporation and
the Institutions from time to time party hereto as Lenders and
BankBoston, N.A. as Agent. K
10.12a Amendment No. 1 to Credit Agreement, dated as of September 15,
1998, by and among American Architectural Products
Corporation, Eagle & Taylor Company, Forte, Inc., Western
Insulated Glass, Co. Thermetic Glass, Inc., Binnings Building
Products, Inc., Danvid Window Company, Modern Window
Acquisition Corporation, American Glassmith Acquisition
Corporation, Vinyl Source, Inc. Weather-Seal Acquisition
Corporation, Eagle Window & Door Center, Inc., Denver Window
Acquisition Corporation, AAPC One Acquisition Corporation,
AAPC Two Acquisition Corporation and the Institutions from
time to time party hereto as Lenders and BankBoston, N.A.
as Agent. *
10.12b Amendment No. 2 to Credit Agreement, dated as of September 30,
1998, by and among American Architectural Products
Corporation, Eagle & Taylor Company, Forte, Inc., Western
Insulated Glass, Co. Thermetic Glass, Inc., Binnings Building
Products, Inc., Danvid Window Company, Modern Window
Acquisition Corporation, American Glassmith Acquisition
Corporation, Vinyl Source, Inc. Weather-Seal Acquisition
Corporation, Eagle Window & Door Center, Inc., Denver Window
Acquisition Corporation, AAPC One Acquisition Corporation,
AAPC Two Acquisition Corporation and the Institutions from
time to time party hereto as Lenders and BankBoston, N.A.
as Agent. L
10.12c Amendment No. 3 to Credit Agreement, dated as of December 31,
1998, by and among American Architectural Products
Corporation, Eagle & Taylor Company, Forte, Inc., Western
Insulated Glass, Co. Thermetic Glass, Inc., Binnings Building
Products, Inc., Danvid Window Company, Modern Window
Acquisition Corporation, American Glassmith Acqusition
Corporation, Vinyl Source, Inc. Weather-Seal Acquisition
Corporation, Eagle Window & Door Center, Inc., Denver Window
Acquisition Corporation, AAPC One Acquisition Corporation,
AAPC Two Acquisition Corporation and the Institutions from
time to time party hereto as Lenders and BankBoston, N.A. as
Agent. *
10.13 1998 Employee Stock Purchase Plan M
10.14 Subordinated Promissory Note, dated June 12, 1998 between
American Architectural Products Corporation and Louisiana-
Pacific Corporation *
10.14a Letter Agreement, dated February 16, 1999, between American
Architectural Products Corporation and Louisiana-Pacific
Corporation. *
13 Annual Report *
21 Subsidiaries of American Architectural Products Corporation *
23.1 Consent of Ernst & Young LLP *
23.2 Consent of BDO Seidman, LLP *
23.3 Consent of Semple & Cooper *
27 Financial Data Schedules *
</TABLE>
* Filed herewith.
+ Previously filed.
A Incorporated by reference to Amendment No. 1 to the Company's Registration
Statement on Form 10-SB filed November 22, 1996.
B Incorporated by reference to the Company's Current Report on Form 8-K dated
October 25, 1996.
C Incorporated by reference to the Company's definitive Information Statement
relating to the special meeting of shareholders held on April 1, 1997.
D Incorporated by reference to the Company's Current Report on Form 8-K dated
December 10, 1997.
E Incorporated by reference to Amendment No. 2 to the Company's Registration
Statement on Form 10-SB filed April 17, 1997.
F Incorporated by reference to the Company's Registration Statement on Form
S-4 filed January 15, 1998.
G Incorporated by reference to Amendment No. 1 to the Company's Registration
Statement on Form S-4 filed April 7, 1998.
H Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1998 filed May 15, 1998.
I Incorporated by reference to the Company's Current Report on Form 8-K dated
March 31, 1997.
J Incorporated by reference to the Company's Current Report on Form 8-K dated
June 29, 1998.
K Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 1998, filed August 14, 1998.
L Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1998, filed November 16, 1998.
M Incorporated by reference to the Company's definitive Information Statement
relating to the Annual Shareholders Meeting held on April 30, 1998.
27
<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMERICAN ARCHITECTURAL PRODUCTS CORP.
March 30, 1999 By: /s/ Frank J. Amedia
-------------------------------------
Frank J. Amedia
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report on Form 10-K has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Chairman of the Board of Directors March 30, 1999
- ------------------------------------
George S. Hofmeister
/s/ Frank J. Amedia
- ------------------------------------ President (Principal Executive March 30, 1999
Frank J. Amedia Officer) and Director
/s/ Richard L. Kovach Chief Financial Officer (Principal March 30, 1999
- ------------------------------------
Richard L. Kovach Financial Officer)
/s/Joseph Dominijanni
- ------------------------------------ Treasurer and Director March 30, 1999
Joseph Dominijanni
/s/ John J. Cafaro
- ------------------------------------ Director March 30, 1999
John J. Cafaro
/s/ W. R. Jackson, Jr.
- ------------------------------------ Director March 30, 1999
W. R. Jackson, Jr.
/s/ Joseph C. Lawyer
- ------------------------------------ Director March 30, 1999
Joseph C. Lawyer
- ------------------------------------ Director March 30, 1999
John Masternick
/s/ Charles E. Trebilcock
- ------------------------------------ Director March 30, 1999
Charles E. Trebilcock
</TABLE>
28
<PAGE> 30
<TABLE>
<CAPTION>
ITEM 8.
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
INDEX TO FINANCIAL STATEMENTS
PAGE
----
<S> <C>
EAGLE WINDOW AND DOOR, INC. AND SUBSIDIARIES AND TAYLOR
BUILDING PRODUCTS COMPANY
Independent Auditors' Report F-2
Combined Balance Sheet at August 29, 1996 F-3
Combined Statement of Operations and Accumulated Deficit
for the eight months ended August 29, 1996 F-4
Combined Statement of Cash Flows for the eight months ended
August 29, 1996 F-5
Notes to Combined Financial Statements F-6
MALLYCLAD CORPORATION AND VYN-L CORPORATION
Report of Independent Certified Public Accountants F-11
Combined Balance Sheet at June 30, 1996 F-12
Combined Statement of Operations and Retained Earnings
for the seven months ended June 30, 1996 F-13
Combined Statement of Cash Flows for the seven months ended
June 30, 1996 F-14
Notes to Combined Financial Statements F-15
WEATHER-SEAL (A DIVISION OF LOUISIANA-PACIFIC CORPORATION)
Report of Independent Auditors F-18
Balance Sheet at June 12, 1998 F-19
Statement of Operations for the period from January 1, 1998 through
June 12, 1998 F-21
Statement of Cash Flows for the period from January 1, 1998 through
June 12, 1998 F-22
Notes to Financial Statements F-23
</TABLE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENT SCHEDULES
PAGE
----
<S> <C>
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
Report of Independent Certified Public Accountants S-1
Schedule II - Valuation and Qualifying Accounts S-2
EAGLE WINDOW AND DOOR, INC. AND SUBSIDIARIES AND TAYLOR
BUILDING PRODUCTS COMPANY
Report of Independent Public Accountants on Schedule II S-3
Schedule II - Valuation and Qualifying Accounts S-4
</TABLE>
F-1
<PAGE> 31
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Eagle Window & Door, Inc. and Subsidiaries and
Taylor Building Products Company (Wholly-Owned Subsidiaries)
We have audited the accompanying combined balance sheet of Eagle Window
& Door, Inc. and Subsidiaries and Taylor Building Products Company (Wholly-Owned
Subsidiaries), as of August 29, 1996, and the related combined statements of
operations and accumulated deficit, and cash flows for the eight months ended
August 29, 1996. These combined financial statements are the responsibility of
the Companies' management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined financial position of
Eagle Window & Door, Inc. and Subsidiaries and Taylor Building Products Company
(Wholly-Owned Subsidiaries) as of August 29, 1996, and the results of their
combined operations and cash flows for the eight months ended August 29, 1996 in
conformity with generally accepted accounting principles.
SEMPLE & COOPER, P.L.C.
Phoenix, Arizona
January 31, 1997
F-2
<PAGE> 32
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (WHOLLY-OWNED SUBSIDIARIES)
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
<S> <C>
AUGUST 29,
1996
----
ASSETS
Current Assets:
Cash (Note 2) $ 395,859
Accounts receivable, net (Note 1) 7,736,517
Inventory (Notes 1 and 3) 8,483,224
Prepaids and other 314,240
-----------
Total Current Assets 16,929,840
-----------
Property, Plant and Equipment, Net (Notes 1 and 4) 6,966,340
-----------
Deposits and Other Assets 93,376
-----------
Total Assets $23,989,556
===========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current Liabilities:
Accounts payable $ 2,429,053
Accrued wages and payroll taxes 453,459
Payable to affiliates (Note 8) 19,441,656
Other accrued expenses 2,346,756
Accrued warranty reserve--short-term portion
(Note 7) 1,479,000
-----------
Total Current Liabilities 26,149,924
-----------
Long-Term Liabilities:
Accrued warranty reserve--long-term portion
(Note 7) 3,148,412
-----------
Commitments and Contingencies: (Note 5) --
Stockholder's Deficit: (Note 6)
Common stock 211,851
Additional paid-in capital 27,224,456
Accumulated deficit (32,745,087)
-----------
Total Stockholder's Deficit (5,308,780)
-----------
Total Liabilities and Stockholder's Deficit $23,989,556
===========
</TABLE>
The accompanying notes are an integral part
of the combined financial statements.
F-3
<PAGE> 33
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (WHOLLY-OWNED SUBSIDIARIES)
COMBINED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
FOR THE
EIGHT
MONTHS ENDED
AUGUST 29,
1996
----
<S> <C>
Sales $ 39,971,058
Cost of Sales 33,832,799
------------
Gross Profit 6,138,259
Selling Expense 3,948,778
General and Administrative Expenses 3,141,852
------------
Loss from Operations (952,371)
------------
Other Income (Expense):
Interest expense (Note 8) (1,142,519)
Loss on sale of assets (773,866)
Other 274,661
------------
(1,641,724)
------------
Loss before Income Tax Benefit (2,594,095)
Income Tax Benefit (Note 1) 907,933
------------
Net Loss (1,686,162)
Accumulated Deficit, Beginning of Period (31,058,925)
------------
Accumulated Deficit, End of Period $(32,745,087)
============
</TABLE>
The accompanying notes are an integral part
of the combined financial statements.
F-4
<PAGE> 34
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (WHOLLY-OWNED SUBSIDIARIES)
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
EIGHT
MONTHS ENDED
AUGUST 29,
1996
----
<S> <C>
Cash Flows from Operating Activities:
Cash received from customers $ 39,462,693
Cash paid to suppliers and employees (38,177,166)
Interest received 1,340
------------
Net cash provided by operating activities 1,286,867
------------
Cash Flows from Investing Activities:
Cash received from sale of equipment 37,289
Purchase of equipment (1,678,658)
------------
Net cash used by investing activities (1,641,369)
Net decrease in cash (354,502)
Cash at beginning of period 750,361
------------
Cash at end of period $ 395,859
============
Reconciliation of Net Loss to Net Cash Provided by
Operating Activities:
Net Loss $ (1,686,162)
------------
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operating Activities:
Depreciation 2,661,961
Loss on sale of assets 773,866
Interest expense contributed to capital by Parent
Company 1,142,519
Changes in Assets and Liabilities:
Accounts receivable (781,687)
Inventory (152,631)
Prepaids and other 134,186
Deposits and other (38,005)
Accounts payable (430,203)
Accrued wages and payroll taxes 72,539
Other accrued expenses 828,870
Payable to affiliates (1,040,998)
Accrued warranty reserve (197,388)
------------
2,973,029
------------
Net cash provided by operating activities $ 1,286,867
============
</TABLE>
The accompanying notes are an integral part
of the combined financial statements.
F-5
<PAGE> 35
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (WHOLLY-OWNED SUBSIDIARIES)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND USE OF ESTIMATES:
Basis of Presentation:
The combined financial statements include the financial position,
results of operations and cash flows of Eagle Window & Door, Inc. and
Subsidiaries and Taylor Building Products Company (the Companies). All material
intercompany transactions, accounts and balances have been eliminated.
Each Company is a wholly-owned subsidiary of MascoTech, Inc. Because of
these relationships, the financial statements of the Companies have been
prepared on a combined format as if they were a single entity. In addition,
MascoTech, Inc. performed the Companies' treasury function, and allocated
expenses for various services it provided (See Note 8).
Eagle Window & Door, Inc. and Subsidiaries (Eagle) are engaged in the
manufacture of aluminum clad and all wood windows and doors. Eagle's primary
market is the construction industry. Products are marketed through various
distributors located throughout the United States and Pacific Rim. Eagle's
wholly-owned subsidiaries, Eagle Window & Door of Bellevue, Inc. and Eagle
Service Company are engaged in the sale and distribution of windows and doors
throughout the United States.
The accompanying combined financial statements include the consolidated
accounts of Eagle Window & Door, Inc. and its wholly-owned subsidiaries, Eagle
Window & Door of Bellevue, Inc. and Eagle Service Company. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Taylor Building Products Company (Taylor) is engaged in the manufacture
of entry and garage doors. The Company markets entry doors under the brand names
of Perma Door and Taylor Door. The Perma Door brand is primarily marketed
through millwork distributors and the Taylor Door brand is primarily marketed
through installing dealers. The Company markets garage doors under the Taylor
Door brand name throughout the United States.
Pervasiveness of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
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.
Earnings Per Share:
Historical earnings per share data has not been presented in the
accompanying financial statements due to the subsequent acquisition of the two
Companies by American Architectural Products, Inc. and its reverse merger with a
public reporting company (See Note 11).
Accounts Receivable:
As of August 29, 1996, an allowance has been established for
potentially uncollectible accounts receivable in the amount of $791,521.
F-6
<PAGE> 36
Inventory:
Inventory is stated at the lower of cost (first-in, first-out method)
or market. Inventories are reviewed periodically for obsolescence, and an
allowance established to record potentially obsolete inventory at net realizable
value (See Note 3).
Property, Plant and Equipment:
Property, plant and equipment are stated at cost. Depreciation is
provided for using the straight-line method over the estimated useful lives of
the assets. Maintenance and repairs that neither materially add to the value of
the property nor appreciably prolong its life are charged to expense as
incurred. Betterments or renewals are capitalized when incurred. Depreciation
expense for the eight months ended August 29, 1996, was $2,661,961. Assets are
being depreciated over their estimated useful lives, as follows:
YEARS
-----
Buildings and improvements 40
Machinery and equipment 6-15
Computer and office equipment 10
Tools, dies and fixtures 3
Income Taxes:
The Companies file their income tax returns on a consolidated basis
with their parent company. All provisions for federal and state income taxes,
including provisions for deferred income taxes, are provided for through the
intercompany accounts.
Advertising:
The cost of advertising is expensed as incurred. Advertising expense
was $479,300 for the eight months ended August 29, 1996.
2. CONCENTRATION OF CREDIT RISK:
The combined Companies maintain cash balances at various financial
institutions. At August 29, 1996, the combined Companies have uninsured cash in
the approximate amount of $230,000.
3. INVENTORY:
As of August 29, 1996, inventory consisted of the following:
AUGUST 29,
1996
----
Raw materials $6,118,026
Work in process 1,366,212
Finished goods 1,473,501
----------
8,957,739
Less: provision for obsolete inventory (474,515)
----------
$8,483,224
==========
F-7
<PAGE> 37
4. PROPERTY, PLANT AND EQUIPMENT:
As of August 29, 1996, property, plant and equipment consisted of the
following:
AUGUST 29,
1996
----
Land and improvements $ 408,934
Buildings and improvements 7,698,252
Machinery and equipment 11,276,992
Computer and office equipment 2,223,089
Tools, dies and fixtures 3,698,385
------------
25,305,652
Less: accumulated depreciation (18,339,312)
------------
$ 6,966,340
============
5. COMMITMENTS AND CONTINGENCIES:
Commitments:
The Companies are currently leasing certain office and manufacturing
space in Dubuque, Iowa and West Branch, Michigan under non-cancellable operating
lease agreements which expire through July, 1997. The terms of the leases
provide for combined monthly payments totalling approximately $12,000. The lease
terms also require the Companies to pay common area maintenance, taxes,
insurance and other costs. The Companies are also leasing equipment under
various non-cancellable operating lease agreements which expire through July,
2000. Rent expense under the operating lease agreements was $477,761 for the
eight months ended August 29, 1996.
A schedule of future minimum lease payments due under the
non-cancellable operating lease agreements, is as follows:
YEAR ENDED
AUGUST 31, AMOUNT
------------ ------
1997 $ 382,862
1998 176,427
1999 88,472
2000 7,092
----------
$ 654,853
==========
Contingencies:
Environmental Issue:
Based on an evaluation of Eagle's operating facility,
asbestos-containing materials were located in various sections of the facility.
No provision or accrual has been made to provide for any potential future costs
for abatement because, in management's opinion, they should not have a material
adverse effect upon the combined financial position of the Companies. In
connection with the sale of the Companies to American Architectural Products,
Inc. (See Note 11), the former parent of the Companies agreed to bear certain
abatement costs relating to this matter.
Litigation:
At August 29, 1996, the Companies are a party to several lawsuits. The
Companies believe that the lawsuits are without merit and intend to vigorously
defend their position. A provision has been charged to operations in the
accompanying financial statements for the eight months ended August 29, 1996 for
approximately $100,000 for a lawsuit involving product performance issues.
F-8
<PAGE> 38
6. STOCKHOLDERS' EQUITY:
The stock of Taylor Building Products Company consists of 1,000 shares
of $1 par value common stock authorized, issued and outstanding. The stock of
Eagle Window & Door, Inc. consists of 500,000 shares of $1 par value common
stock authorized, 210,851 shares issued and outstanding.
7. WARRANTY RESERVE:
The Companies sell the majority of their products with limited
warranties of two to 25 years. At August 29, 1996, the accompanying financial
statements include a reserve of $4,627,412 for estimated warranty claims based
on the Companies' historical claims experience.
8. RELATED PARTY TRANSACTIONS:
As of August 29, 1996, the Companies had amounts payable to affiliates
of $19,441,656. These affiliates represent primarily the parent company and
subsidiaries of the parent company. Various shared expenses were charged to the
Companies through the payable to affiliate account. These expenses included
items such as general insurance, health insurance, and workers compensation
insurance, which were charged based on specific identification of the expense.
For the eight months ended August 29, 1996, total expenses charged to the
Companies through specific identification was $1,613,407.
In addition, MascoTech, Inc., the parent company, charged the Companies
a management fee based on budgeted sales for the various operating subsidiaries.
For the eight months ended August 29, 1996, total management fees charged to the
Companies were $951,000.
MascoTech, Inc. also provided cash management services for the
Companies. For the eight months ended August 29, 1996, the Companies had
recorded interest expense relating to the amounts payable to affiliates of
$1,142,519. Interest expense for the eight month period ended August 29, 1996
was treated as contributed to capital by the Parent Company.
9. BENEFIT PLANS:
401K Profit Sharing Plan and Pension Plan:
The Companies' former parent sponsored the MascoTech, Inc. Salaried
Savings Plan. All salaried employees of the Company with three months of
service, were eligible to participate in the Plan. The Plan operated as a 401K
Savings Plan. The Plan did not provide for a discretionary matching or profit
sharing contribution. As such, no expense has been recorded for contributions in
the accompanying financial statements.
The Companies' former parent sponsored the MascoTech, Inc. Master
Hourly Employees' Pension Plan. All hourly employees of the Companies were
eligible to participate in the Plan with participation commencing on the date of
hire. Benefits in the Plan were vested and based on the number of years of
credited service.
Pursuant to the pending sale of the Companies to American Architectural
Products, Inc., in August, 1996, and in accordance with the Stock Purchase
Agreement, coverage under these plans ceased. The seller agreed to fully vest
all participants and pay benefits in the normal course of the plans. As such, no
liability has been reported in the accompanying combined financial statements
for any potential unfunded liabilities.
F-9
<PAGE> 39
Post-Retirement Benefits:
Taylor Building Products Company sponsors a post-retirement health
benefit program pursuant to its collective bargaining contract. Under the
principal terms of the contract, the Company will pay a retired employee with a
minimum of ten years service, a benefit of $100 per month after retirement at
age 62. As of the date of the financial statements, no material post-retirement
benefit obligation has been incurred.
Labor Force:
Most of the hourly employees of Taylor Building Products Company,
comprising approximately 85 percent of the Taylor labor force, are covered under
a collective bargaining agreement. The contract expired in February, 1997, and
was renegotiated for an additional five years.
10. ECONOMIC DEPENDENCY:
For the eight month period ended August 29, 1996, Eagle purchased
approximately 15 percent of their materials from one supplier. At August 29,
1996, amounts due to the supplier was $332,179.
For the eight month period ended August 29, 1996, Taylor Building
Products Company purchased approximately 20 percent, of their materials from one
supplier. At August 29, 1996, amounts due to the supplier were approximately
$362,000.
11. SUBSEQUENT EVENT:
Acquisition:
Effective August 29, 1996, the Companies were acquired by American
Architectural Products, Inc. (AAP). On December 18, 1996, American Architectural
Products Holdings, Inc. (AAPH, parent of AAP) consummated transactions
contemplated under an Agreement and Plan of Reorganization dated October 25,
1996. Under terms of this Agreement, all of the capital stock of AAP was
exchanged by AAPH for a 60 percent interest in Forte Computer Easy, Inc. The
financial statements do not give effect to these transactions.
F-10
<PAGE> 40
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Mallyclad Corporation and Vyn-L Corporation
We have audited the accompanying combined balance sheet of Mallyclad
Corporation and Vyn-L Corporation as of June 30, 1996, and the related combined
statements of operations and retained earnings, and cash flows for the seven
months ended June 30, 1996. These combined financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined financial position of
Mallyclad Corporation and Vyn-L Corporation as of June 30, 1996, and the results
of their combined operations and their combined cash flows for the seven months
ended June 30, 1996 in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Troy, Michigan
April 28, 1997
F-11
<PAGE> 41
MALLYCLAD CORPORATION
AND VYN-L CORPORATION
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30,
1996
----
<S> <C>
ASSETS (Note 3)
CURRENT ASSETS
Cash and equivalents $ 229,615
Accounts receivable, less allowance for doubtful
accounts of $7,000 358,731
Refundable income taxes 26,160
Inventories (Note 2) 285,635
Prepaid expenses 18,736
-----------
TOTAL CURRENT ASSETS 918,877
-----------
PROPERTY AND EQUIPMENT
Leasehold improvements 128,391
Machinery and equipment 2,205,604
Computers and office equipment 87,420
-----------
2,421,415
Less accumulated depreciation (2,304,178)
-----------
NET PROPERTY AND EQUIPMENT 117,237
-----------
OTHER ASSETS 32,896
-----------
$ 1,069,010
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 158,039
Accruals
Product claims 46,101
Commissions 20,150
Compensation 8,647
Other 52,103
-----------
TOTAL CURRENT LIABILITIES 285,040
-----------
COMMITMENTS (Note 5)
STOCKHOLDERS' EQUITY
Common stock, $1 par, authorized 50,000 shares;
Outstanding 50,000 shares - Mallyclad Corporation 50,000
Common stock, $1 par, authorized 50,000 shares;
outstanding 38,000 shares--Vyn-L Corporation 38,000
Retained earnings 695,970
-----------
TOTAL STOCKHOLDERS' EQUITY 783,970
-----------
$ 1,069,010
===========
</TABLE>
See accompanying notes to combined financial statements.
F-12
<PAGE> 42
MALLYCLAD CORPORATION
AND VYN-L CORPORATION
COMBINED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
SEVEN
MONTHS ENDED
JUNE 30,
1996
----
<S> <C>
Net Sales $1,915,620
Cost of Goods Sold 1,596,753
----------
Gross Profit 318,867
Selling, General and Administrative Expenses 349,671
----------
Loss from Operations (30,804)
Other Income--Net 19,133
----------
Loss Before Taxes on Income (11,671)
Tax Benefits (Note 6) --
----------
Net Loss (11,671)
Retained Earnings, beginning of period 707,641
----------
Retained Earnings, end of period $ 695,970
==========
</TABLE>
See accompanying notes to combined financial statements.
F-13
<PAGE> 43
<TABLE>
<CAPTION>
MALLYCLAD CORPORATION
AND VYN-L CORPORATION
COMBINED STATEMENT OF CASH FLOWS
SEVEN
MONTHS
ENDED
JUNE 30,
1996
----
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (11,671)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 35,800
Changes in operating assets and liabilities:
Receivables 171,679
Inventories 145,267
Prepaid expenses 4,117
Other assets 26,585
Accounts payable (122,698)
Accruals (26,091)
---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 222,988
CASH FLOWS USED IN INVESTING ACTIVITIES
Additions to property and equipment (3,972)
CASH FLOWS USED IN FINANCING ACTIVITIES
Net repayments under line of credit
arrangements (100,000)
---------
NET INCREASE IN CASH AND EQUIVALENTS 119,016
CASH AND EQUIVALENTS, at beginning of period 110,599
---------
CASH AND EQUIVALENTS, at end of period $ 229,615
=========
</TABLE>
See accompanying notes to combined financial statements.
F-14
<PAGE> 44
MALLYCLAD CORPORATION
AND VYN-L CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business and Basis of Presentation
Mallyclad Corporation (Mallyclad) manufactures vinyl clad steel and
aluminum cut to length sheets, primarily for the construction, appliance and
automotive industries. Vyn-L Corporation (Vyn-L) is a steel and aluminum
processor, performing shearing and forming functions for its customers.
Mallyclad and Vyn-L ("the Companies") were under common control and
because of these relationships, the financial statements of the Companies have
been prepared on a combined basis as if they were a single entity. All material
intercompany transactions, accounts and balances have been eliminated.
Use Of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
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 these estimates.
Fair Value of Financial Instruments
The carrying amounts of receivables, payables and accrued expenses
approximate fair value because of the short maturity of these items.
Cash Equivalents
Cash equivalents are short-term, highly liquid investments consisting
of money market funds.
Inventories
Inventories are stated at the lower of cost or market value determined
on the first-in, first-out (FIFO) basis.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided for
using accelerated methods over the following estimated useful lives:
YEARS
-----
Leasehold improvements 7-31
Machinery and equipment 7-15
Computers and office equipment 5-7
Depreciation expense for the seven months ended June 30, 1996, was
$35,800.
Expenditures for renewals and betterments are capitalized. Expenditures
for maintenance and repairs are charged against income as incurred.
F-15
<PAGE> 45
Revenue Recognition
Revenues from sales and the corresponding receivables are recorded upon
the shipment of product to the customer.
Income Taxes
The income tax provision is computed using the liability method.
Deferred taxes are recorded for the expected future tax consequences of
temporary differences between the financial reporting and the tax bases of the
Companies' assets and liabilities.
2. INVENTORIES
Inventories consisted of the following:
JUNE 30,
1996
----
Raw materials $198,605
Finished goods 87,030
--------
$285,635
========
3. REVOLVING LINE OF CREDIT
Mallyclad had a $400,000 revolving line of credit secured by
substantially all of the assets of Mallyclad. There were no outstanding
borrowings on the line as of June 30, 1996. The interest rate on the line was
prime plus 1/2 percent. Interest expense was $2,110 for the period ended June
30, 1996. The revolving line of credit was terminated in connection with the
acquisition of the Company's common stock (see Note 8).
4. RETIREMENT PLAN
Mallyclad sponsors a defined contribution retirement plan for salaried
employees. Employees are eligible to participate in the Plan one year after
employment. Company contributions are required in the amount of 4.3 percent of
the participant's total compensation plus 4.3 percent of the participant's
compensation in excess of $30,000. Contributions were $17,500 for the period
ended June 30, 1996.
5. COMMITMENTS
The Companies leased their facilities from a related party under
non-cancellable operating lease agreements which commenced January 1, 1994. The
operating lease agreements are for a term of five years and provide for total
monthly payments of $16,168. Rent expense under the operating lease agreements
for the period ended June 30, 1996 was $95,000.
6. TAXES ON INCOME
Income taxes, including current and deferred, amounted to zero in 1996.
F-16
<PAGE> 46
Significant components of deferred taxes consist of deferred tax assets
arising from accrued expenses, allowance for doubtful accounts and depreciation.
Management has recorded a full valuation allowance against these deferred tax
assets at June 30, 1996.
7. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest approximated interest expense.
Cash paid for taxes on income for the period June 30, 1996 was $-0-.
8. SUBSEQUENT EVENT
On June 25, 1996, all of the outstanding stock of the Companies was
purchased by an individual. On December 18, 1996 Mallyclad and Vyn-L were merged
into American Architectural Products, Inc. (AAP), a Company controlled by this
same individual. These financial statements do not give effect to these
transactions.
F-17
<PAGE> 47
Report of Independent Auditors
The Board of Directors and Shareholders
American Architectural Products Corporation
We have audited the accompanying balance sheet of Weather-Seal (a division of
Louisiana-Pacific Corporation) as of June 12, 1998, and the related statements
of operations and cash flows for the period from January 1 1998 through June 12,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Weather-Seal (a division of
Louisiana-Pacific Corporation) at June 12, 1998, and the results of its
operations and its cash flows for the period from January 1, 1998 through June
12, 1998, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
March 12, 1999
Akron, Ohio
F-18
<PAGE> 48
Weather-Seal (a division of
Louisiana-Pacific Corporation)
<TABLE>
<CAPTION>
Balance Sheet
June 12, 1998
<S> <C>
ASSETS
Current assets:
Cash $ 215,306
Accounts receivable, less allowance for
doubtful accounts of $158,800 4,369,012
Inventories 9,255,692
Prepaid expenses 6,184
Deferred income taxes 767,000
------------
Total current assets 14,613,194
Property and equipment:
Land and improvements 638,683
Buildings 8,480,224
Machinery, equipment and furniture and
fixtures 24,218,262
Construction-in-progress 1,835,292
------------
35,172,461
Less accumulated depreciation (18,050,405)
------------
17,122,056
Other assets 118,983
------------
Total assets $ 31,854,233
============
</TABLE>
F-19
<PAGE> 49
<TABLE>
<CAPTION>
<S> <C>
LIABILITIES AND EQUITY
Current liabilities:
Bank overdraft $ 546,260
Accounts payable 968,039
Accrued expenses:
Compensation and employee benefits 1,143,719
Current portion of warranty obligations 600,000
Workers' compensation 357,233
Other 524,548
-----------
2,625,500
-----------
Total current liabilities 4,139,799
Accrued warranty obligations, less current portion 900,000
Deferred income taxes 1,526,000
-----------
Total liabilities 6,565,799
Divisional equity 25,288,434
-----------
Total liabilities and equity $31,854,233
===========
</TABLE>
See accompanying notes.
F-20
<PAGE> 50
Weather-Seal (a division of
Louisiana-Pacific Corporation)
<TABLE>
<CAPTION>
Statement of Operations
Period from January 1, 1998 through June 12, 1998
<S> <C>
Net sales $22,344,752
Cost of sales 21,289,276
-----------
Gross profit 1,055,476
Selling, general and administrative expenses 3,807,560
-----------
Operating loss (2,752,084)
Other income, net 9,100
-----------
Loss before income tax benefit (2,742,984)
Income tax benefit 890,000
-----------
Net loss $(1,852,984)
===========
</TABLE>
See accompanying notes.
F-21
<PAGE> 51
Weather-Seal (a division of
Louisiana-Pacific Corporation)
<TABLE>
<CAPTION>
Statement of Cash Flows
Period from January 1, 1998 through June 12, 1998
<S> <C>
OPERATING ACTIVITIES
Net loss $(1,852,984)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 935,416
Deferred income taxes (106,000)
Loss on disposition of property and equipment 5,250
Changes in assets and liabilities:
Increase in receivables and other assets (2,173,938)
Decrease in prepaid expenses 259,975
Decrease in inventories 64,244
Increase in accounts payable and bank overdraft 810,281
Decrease in accrued expenses (35,782)
-----------
Net cash used in operating activities (2,093,538)
INVESTING ACTIVITIES
Purchase of property and equipment (1,289,898)
Proceeds from sales of property and equipment 26,840
-----------
Net cash used in investing activities (1,263,058)
FINANCING ACTIVITIES
Net increase in intercompany advances from Louisiana-
Pacific Corporation included in divisional equity 3,341,517
-----------
Net decrease in cash (15,079)
Cash at beginning of period 230,385
-----------
Cash at end of period $ 215,306
===========
</TABLE>
See accompanying notes.
F-22
<PAGE> 52
Weather-Seal (a division of
Louisiana-Pacific Corporation)
Notes to Financial Statements
June 12, 1998
1. SUMMARY OF ACCOUNTING POLICIES
NATURE OF BUSINESS AND BASIS OF PRESENTATION
Weather-Seal (the "Company"), a division of Louisiana-Pacific Corporation
("LP"), is engaged principally in the manufacture and distribution of vinyl and
wood windows, patio doors and aluminum and vinyl extrusions to customers located
primarily in the mid-west United States.
The accompanying financial statements present the historical financial position,
results of operations and cash flows of the Company. The statement of operations
reflects all costs incurred by LP directly related to the Company as well as
allocations of certain corporate costs and expenses from LP.
Divisional equity included in the accompanying balance sheet represents 1) LP's
original investment in Weather-Seal, 2) cumulative income or loss since the
acquisition of Weather-Seal by LP and 3) net advances from LP. Management has
not segregated divisional equity into its component parts.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts of accounts receivable, payables and accrued expenses
approximate fair value because of the short maturity of these items.
F-23
<PAGE> 53
Weather-Seal (a division of
Louisiana-Pacific Corporation)
Notes to Financial Statements
June 12, 1998
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of accounts receivable. Due to the nature of the
Company's business, its customer base is concentrated in the construction
industry. The Company does not generally require collateral and attempts to
minimize its credit risk by reviewing customers' credit history before extending
credit and by monitoring customers' credit exposure on a continuing basis. The
Company establishes an allowance for possible losses on accounts receivable,
when necessary, based upon factors surrounding the credit risk of specific
customers, historical trends and other information.
Sales to one customer amounted to 17% of total net sales during the period from
January 1, 1998 through June 12, 1998 and 12% of total accounts receivable at
June 12, 1998.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined using
an average cost method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The Company uses the units of
production method of depreciation for most machinery and equipment which
amortizes the cost of equipment over the estimated units that will be produced
during its useful life. Provisions for depreciation of buildings, improvements,
furniture and fixtures and the remaining machinery and equipment have been
computed using the straight-line method over the following estimated useful
lives:
Buildings and improvements 20 years
Machinery, equipment and furniture and fixtures 3-10 years
Expenditures for renewals and betterments are capitalized. Expenditures for
maintenance and repairs are charged to operations as incurred.
F-24
<PAGE> 54
Weather-Seal (a division of
Louisiana-Pacific Corporation)
Notes to Financial Statements
June 12, 1998
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
EMPLOYEE STOCK OWNERSHIP PLAN
Substantially all non-union Company employees participate in LP's employee stock
ownership plan ("ESOP"). The statement of operations includes an allocation of
$380,000 from LP for the costs associated with Company employees who participate
in the ESOP.
WARRANTY OBLIGATIONS
The Company sells their products with warranties ranging generally from two to
ten years. Accrued warranty obligations are estimated based on claims experience
and levels of sales. Warranty obligations estimated to be satisfied within one
year are classified as current liabilities in the accompanying balance sheets.
REVENUE RECOGNITION
Revenues are recorded upon the shipment of product to the customer.
INCOME TAXES
The Company is a division of LP and will be included in LP's consolidated
federal income tax return. The provision for income taxes included in the
financial statements has been calculated as if the Company had filed a separate
income tax return and any current income tax payable of income tax receivable is
recorded against the intercompany payable or receivable to LP.
Deferred income taxes have been provided to reflect the temporary differences
between the carrying amounts of the assets and liabilities for financial
statement purposes and the amounts used for income tax purposes.
ADVERTISING
Advertising costs are expensed as incurred. Advertising costs for the period
from January 1, 1998 through June 12, 1998 were $ 344,100.
F-25
<PAGE> 55
Weather-Seal (a division of
Louisiana-Pacific Corporation)
Notes to Financial Statements
June 12, 1998
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS
Long-lived assets, such as property and equipment, are evaluated for impairment
when events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable through the estimated undiscounted future cash
flows from the use of these assets. When any such impairment exists, the related
assets will be written down to fair value. Management believes no material
impairment exists at June 12, 1998. No impairment charges were recorded by the
Company during the period January 1, 1998 through June 12, 1998.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
130), which establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS 130 requires
that all items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS 130 is effective for financial statements for periods beginning
after December 15, 1997 and requires comparative information for earlier years
to be restated.
Additionally, in June 1997, the Financial Accounting Standards Board issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
(SFAS 131) which supersedes SFAS 14, "Financial Reporting for Segments of a
Business Enterprise." SFAS 131 establishes standards for the reporting by public
companies of information about operating segments in annual financial statements
and requires reporting of selected information about operating segments in
interim financial statements. It also establishes standards for disclosures
regarding products and services, geographic areas and major customers. SFAS 131
is effective for financial statements for periods beginning after December 15,
1997 and requires comparative information for earlier years to be restated.
F-26
<PAGE> 56
Weather-Seal (a division of
Louisiana-Pacific Corporation)
Notes to Financial Statements
June 12, 1998
In February 1998, the Financial Accounting Standards Board issued SFAS No. 132,
"Employers' Disclosures about Pensions and Other Post-retirement Benefits" (SFAS
132), which revises employers' disclosures about pension and other
post-retirement benefit plans. SFAS 132 does not change the measurement or
recognition of those plans and is effective for fiscal years beginning after
December 15, 1997.
Management believes these standards will not have a material impact on the
Company's financial statement disclosures. Results of operations and financial
position are unaffected by implementation of these standards.
2. RELATED PARTY TRANSACTIONS
In the statements of operations, selling, general and administrative expenses
include allocations of certain LP corporate expenses totaling $110,000 for the
period from January 1, 1998 through June 12, 1998.
Expenses which are allocated by LP to Weather-Seal are based on LP's estimated
incremental costs associated with managing Weather-Seal. Management believes
that such allocated corporate expenses have been calculated using reasonable
methods.
The advances from LP are non-interest bearing. A reconciliation of the
divisional equity included in the accompanying balance sheets is as follows:
Balance at beginning of period $23,799,901
Advances from LP 3,341,517
Repayment of advances from LP --
Net loss for the period (1,852,984)
-----------
Balance at end of period $25,288,434
===========
F-27
<PAGE> 57
Weather-Seal (a division of
Louisiana-Pacific Corporation)
Notes to Financial Statements
June 12, 1998
<TABLE>
<CAPTION>
3. INVENTORIES
Inventories consist of the following:
<S> <C>
Raw materials $4,353,302
Work in process 832,741
Finished goods 4,069,649
----------
$9,255,692
==========
</TABLE>
4. ACCRUED COMPENSATION AND EMPLOYEE BENEFITS
<TABLE>
<CAPTION>
Accrued compensation and employee benefits consist of the following:
<S> <C>
Accrued ESOP contributions $ 230,000
Accrued vacation pay 766,938
Accrued salary and wages 20,997
Accrued other 125,784
----------
$1,143,719
==========
</TABLE>
5. BENEFIT PLANS
Substantially all of the Company's salaried and non-union hourly employees
participate in LP's ESOP. The Company contributes 10% of eligible compensation
to the plan on behalf of the employees. The Company recognized $ 380,000 expense
for the period from January 1, 1998 through June 12, 1998.
In addition, the Company sponsors various defined contribution plans with
certain unionized hourly employees. The Company contributes amounts ranging from
$0.70 to $2.45 per hour worked. The expense related to these plans was
approximately $ 170,300 for the period from January 1, 1998 through June 12,
1998.
At June 12, 1998 approximately 10% of the Company's employees are covered under
collective bargaining agreements that expire in June 1998 and February 1999. At
June 12, 1998, an additional 20% of the Company's unionized employees are
currently operating without a collective bargaining agreement.
F-28
<PAGE> 58
Weather-Seal (a division of
Louisiana-Pacific Corporation)
Notes to Financial Statements
June 12, 1998
The Company sponsors a defined benefit health care plan that provides certain
postretirement medical, vision and dental benefits to eligible retirees. The net
periodic postretirement benefit cost for the period from January 1, 1998 through
June 12, 1998 was $12,000, and the accumulated benefit obligation at June 12,
1998 was $174,400.
6. INCOME TAXES
The income tax benefits included in the statement of operations is made up of
the following components:
<TABLE>
<S> <C>
Current:
Federal $ 784,000
Deferred 106,000
-----------
$ 890,000
===========
</TABLE>
Significant components of deferred tax assets and liabilities as of June 12,
1998 are as follows:
<TABLE>
<S> <C>
DEFERRED TAX LIABILITIES
Depreciation $ 1,832,000
DEFERRED TAX ASSETS
Accrued warranty obligations 510,000
Other 563,000
-----------
1,073,000
-----------
NET DEFERRED TAX LIABILITIES $ (759,000)
===========
Current deferred taxes $ 767,000
Long-term deferred taxes, net (1,526,000)
-----------
NET DEFERRED TAX LIABILITIES $ (759,000)
===========
</TABLE>
F-29
<PAGE> 59
Weather-Seal (a division of
Louisiana-Pacific Corporation)
Notes to Financial Statements
June 12, 1998
6. INCOME TAXES (CONTINUED)
The actual income tax benefit attributable to the loss for the period ended June
12, 1998 differed from the amounts computed by applying the U.S. federal tax
rate of 34 percent to pre-tax loss as a result of the following:
Tax benefit at U.S. federal statutory rate $899,000
Expenses not deductible for tax purposes (9,000)
--------
INCOME TAX BENEFIT $890,000
========
7. LITIGATION
The Company is involved from time to time in litigation arising in the ordinary
course of business, none of which is currently expected to have a material
effect on its business, results of operations or financial condition.
8. SUBSEQUENT EVENT
At the close of business on June 12, 1998, LP sold substantially all of the
assets of the Company to American Architectural Products Corporation. The
accompanying financial statements do not give effect to this transaction.
F-30
<PAGE> 60
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
American Architectural Products Corporation
The audits referred to in our report dated February 26, 1998 relating
to the consolidated financial statements of American Architectural Products
Corporation, which is contained in Item 8 of this Form 10-K included the audits
of Schedule II - Valuation and Qualifying Accounts for the period from the date
of inception (June 19, 1996) to December 31, 1996 and for the year ended
December 31, 1997. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based upon our audits.
In our opinion, such financial statement schedule presents fairly, in
all material respects, the information set forth therein.
BDO SEIDMAN, LLP
Troy, Michigan
February 26, 1998
S-1
<PAGE> 61
<TABLE>
<CAPTION>
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FROM DATE OF INCEPTION (JUNE 19, 1996) TO DECEMBER 31, 1996
AND YEARS ENDED DECEMBER 31, 1997 AND 1998
ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- --------- -------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL
ACCOUNTS
From date of inception
(June 19, 1996) to
December 31, 1996 $ -- $ 12,546 $ 914,552(1) $ 487,894(2) $ 439,204
Year ended December 31, 1997 439,204 (17,102) 491,864(1) 74,825(2) 839,141
Year ended December 31, 1998 (3) 839,141 745,229 68,721 648,353(2) 1,004,738
WARRANTY OBLIGATIONS
From date of inception
(June 19, 1996) to
December 31, 1996 -- 369,324 4,627,412(1) 615,657 4,381,079
Year ended December 31, 1997 4,381,079 1,470,320 491,544(1) 1,517,216 4,825,727
Year ended December 31, 1998 (3) 4,825,727 1,676,616 1,574,172(1) 1,935,425 6,141,090
</TABLE>
(1) Purchased in business acquisitions
(2) Accounts deemed to be uncollectible
(3) Report of Independent Auditors on year ended December 31, 1998 information
is included on the Consent of Independent Auditors included in Exhibit 23.1
S-2
<PAGE> 62
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE II
To the Shareholders and Board of Directors of
Eagle Window & Door, Inc. and Subsidiaries and
Taylor Building Products Company (Wholly-Owned Subsidiaries)
We have audited in accordance with generally accepted auditing
standards, the August 29, 1996 financial statements included in this
registration statement, and have issued our reports thereon dated January 31,
1997. Our audits were made for the purpose of forming an opinion on those
statements taken as a whole. Schedule II is presented for purposes of complying
with the Securities and Exchange Commission's rules and is the responsibility of
the company's management. It is not part of the basic financial statements. The
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
SEMPLE & COOPER, L.L.P.
Phoenix, Arizona
June 23, 1997
S-3
<PAGE> 63
<TABLE>
<CAPTION>
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES
AND TAYLOR BUILDING PRODUCTS COMPANY
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END OF
PERIOD ENDED DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ------------ ----------- --------- -------- -------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
August 29, 1996 Allowance for
doubtful $ 445,418 $425,595 $-- $ 79,492 $ 791,521
accounts
August 29, 1996 Provision for
obsolete $1,623,500 $ 70,000 $-- $1,218,985 $ 474,515
inventory
August 29, 1996 Accrued
warranty $4,824,800 $801,073 $-- $ 998,461 $4,627,412
obligations
</TABLE>
S-4
<PAGE> 1
Exhibit 10.3a
EMPLOYMENT AGREEMENT
This Agreement, executed of this 1st day of October 1998, by and
between American Architectural Products Corporation, a Delaware corporation,
located at 755 Boardman-Canfield Rd., Bldg. G-West, Boardman, Ohio 44512
("Company" or "AAPC"), and Richard Kovach, residing at 6869 St. Regis, Hudson,
OH 44236 ("Employee").
RECITALS
A. The Company desires to retain Employee as its Vice President and CFO
in accordance with the provisions of this Agreement.
B. Employee desires to act as Company's Vice President and CFO, in
accordance with the provisions of this Agreement.
PROVISIONS
In consideration of the mutual covenants and agreements contained
herein, the parties agree as follows:
1. APPOINTMENT. Company hereby employs Employee to serve as its Vice
President and CFO and to perform such other services and duties as may be
determined from time to time by the Chief Executive Officer of the Company in
cooperation with the Board of Directors of the Company.
2. PERFORMANCE. Employee agrees to devote his full time and effort to
the performance of his duties as an employee of the Company and agrees to do so
in accordance with
1
<PAGE> 2
the general policies and general standards of performance in respect to the
services performed by him as are determined by the Chief Executive Officer of
the Company from time to time while this Agreement is in force. This Agreement
shall not be construed as preventing the Employee from engaging in transactions
unrelated to his duties as an employee or from making investment of his assets
as long as they do not conflict with his employment as provided herein.
3. TERM. Except in the case of earlier termination as herein
specifically provided, the term of this Agreement shall begin as of the 1st day
of October,1998, and continue for a period of three (3) years, after which it
will continue on an annual basis until one party notifies the other of its
termination of this Agreement, in writing, at least sixty (60) days prior to
such termination.
4. COMPENSATION.
(a) BASE COMPENSATION. For all the services to be rendered by Employee
in any capacity hereunder, Company will pay to Employee the sum of
$160,000 per year, adjusted annually to an amount reasonably agreed to
by Employee and the Company, payable in accordance with the Company's
normal payroll practices.
(b) ANNUAL BONUS. In addition to the base compensation provided for in
subparagraph ( a), hereof, Company will pay to Employee an annual bonus
equal an amount determined by the Company Board of Directors in the
Board's sole discretion. The annual bonus shall be determined by the
Company within 75 days following the end of each tax year and shall be
paid to Employee no later than the 75th day following the end of each
tax year.
(c) STOCK OPTIONS. Incentive stock options will be provided to Employee
in accordance with AAPC's Incentive Stock Option Plan. In addition to
the stock options previously granted Employee, Company shall issue
Employee 10,000 additional stock options pursuant to the Stock Option
Plan with an effective grant date of 7/23/98, which options shall vest
2
<PAGE> 3
pro-rata over five (5) years.
5. VACATION. Employee shall be entitled to three (3) weeks paid
vacation per year and the weeks of vacation shall not accumulate from
year to year.
6. INSURANCE.
(a) HEALTH INSURANCE. Employee will be provided with the same medical
and dental coverage provided to all regular employees of the Company.
Company will pay the cost of that medical and dental coverage for
Employee and his immediate family (i.e. spouse and dependent children).
(b) DISABILITY INSURANCE. Company will also provide and pay the
premiums for a long-term disability policy.
(c) KEY EMPLOYEE LIFE INSURANCE. Company shall provide and pay the
premiums on a key employee life insurance policy on the life of
Employee to include a $750,000 benefit payable to the Company and a
$750,000 benefit payable to Employee's beneficiaries upon his death.
The key employee life insurance policy will be effective upon securing
such policy from a qualified insurance company and Employee's
compliance with policy requirements.
7. AUTOMOBILE. During the course of employment, Company will provide a
car allowance in the amount of $500.00 per month to Employee.
8. DISCLOSURE OF INFORMATION. It is understood that during the term of
this Agreement, and for a period of three (3) years after the termination of
this Agreement, Employee will not disclose any confidential or proprietary
information concerning the Company (including, but not limited to, customer
lists, prices, contracts, processes, devices, plans, models, supply sources,
opportunities for new business, financial and business methods and activities,
financial
3
<PAGE> 4
records, trade secrets, business techniques or processes) to any
person, corporation, partnership, sole proprietorship, governmental agency,
organization, joint venture or other entity. Should Employee violate this
provision of this Agreement, Company shall be entitled to an action for
injunctive relief as well as monetary damages, and any payments of compensation
remaining to be paid to Employee shall terminate and no longer be required to be
paid to Employee.
9. NON-COMPETITION AND NON-SOLICITATION.
(a) NON-COMPETITION. As an inducement to the Company to engage
Employee, Employee covenants with the Company that during the period
commencing with the date of this Agreement and for a period two (2)
years following the date of termination of this Agreement by Employee
pursuant to Paragraph 10(a) or by Company pursuant to Paragraph 10(b)
(the "Non-Compete Period"), Employee shall not, individually, or for,
on behalf of, or in conjunction with, any other individual, company or
other entity or person, directly or indirectly own (in whole or in
part), manage, operate, control, be an agent for, participate in, or be
connected in any manner with the ownership, management, operation or
control of any corporation, partnership, proprietorship or other
business entity engaged in a business which is the same as, similar to,
or competes with, the Company in the fenestration business anywhere in
the Continental United States at any time during such Non-Compete
Period. Notwithstanding the foregoing, nothing herein will prohibit
Employee from performing accounting services within the Non-Compete
Period, including areas of accounting currently performed for the
Company, except that such accounting services within the Non-Compete
Period shall not be more than incidental within the fenestration
industry.
(b) NON-SOLICITATION; NON-INTERFERENCE. During the period commencing on
the date of
4
<PAGE> 5
this Agreement and ending two (2) years after the termination of this
Agreement by Employee pursuant to Paragraph 10(a) or Company pursuant
to Paragraph 10(b), Employee shall not, directly or indirectly;
i. solicit customers, business, patronage, or orders for
himself or for any person, firm, association, corporation, or
other entity engaged in a business that competes with the
Company's business, or supervise sales agents or
representatives in such sales activities;
ii. employ or otherwise associate in business with any officer
or employee of the Company or its affiliates; or
iii. induce any officer, employee, or consultant of or to the
Company or its affiliates to terminate such relationship.
(c) TRADE SECRETS AND CONFIDENTIAL INFORMATION. Employee acknowledges
that he has had, and during the Term shall continue to have, access to
and shall acquire confidential information relating to the business and
operations of the Company including, but not limited to, customer lists
and records, policy manuals, price lists, business contracts,
inventions, proprietary technology and other confidential information
relating to any of the Company's products, processes, plans, methods of
doing business and special needs of customers of the Company
(collectively referred to in this Agreement as the "Confidential
Information"). Employee acknowledges that all of the Confidential
Information is solely the property of the Company and constitutes trade
secrets and confidential information of the Company and, upon
termination of this Agreement, his knowledge of the Confidential
Information shall enable him to compete with the Company in a manner
likely to cause the Company irrevocable harm upon the disclosure of
such matters. Employee hereby
5
<PAGE> 6
irrevocably represents, warrants and covenants that during the period
commencing on the date of this Agreement and ending three (3) years
after the termination of this Agreement by Employee pursuant to
Paragraph 10(a) or by the Company pursuant to Paragraph 10(b) he shall
(i) not disclose, directly or indirectly, any of the Confidential
Information to any individual, firm, corporation or other entity, (ii)
return all of the Confidential Information in his possession to the
Company within five (5) calendar days after the date his engagement is
terminated (without retaining copies), and (iii) certify to the Company
that he has so complied.
10. TERMINATION.
(a) BY EMPLOYEE. Employee may terminate his/her employment relationship
for any reason whatsoever and at any time upon giving the Company sixty
(60) days written notice of his intent to do so.
(b) BY THE COMPANY FOR CAUSE. The Company may terminate Employee, for
good cause, at any time during the term hereof upon giving Employee ten
(10) days written notice of its intent to terminate his service. In the
event of such termination, Employee shall not be entitled to any
benefits, rights, bonuses or privileges under this Agreement past the
day of termination. Good cause shall be defined as the material breach
of this Agreement, or the negligent or willful mis-performance or
non-performance by Employee of his obligations and/or duties under this
Agreement or the fraudulent or criminal acts on the part of Employee
which are adverse to the interest of the Company.
(c) BY COMPANY WITHOUT CAUSE. If the Company terminates Employee at any
time during the term hereof without good cause as set forth in
subparagraph (b) hereof, Company shall release Employee from
restriction contained in Paragraph 9(a) herein and shall pay
6
<PAGE> 7
Employee severance pay calculated by multiplying the number of months
remaining on the term of this Agreement by the amount of Employee's
then monthly base salary, along with any bonus declared for Employee by
the Board of Directors of the Company but not yet paid for the year in
which Employee was terminated without cause. In no event will
Employee's severance pay be less than $160,000.
11. SUCCESSORS. This Agreement shall not be terminated by the voluntary
dissolution of the Company or parent, subsidiary or successor of the Company, or
merger whereby the Company (or such parent, subsidiary or successor corporation)
is not the surviving or resulting corporation or any transfer of substantially
all of the assets of the Company. In the event of any such merger or
consolidation or transfer of assets, the provisions of this Agreement shall
inure to the benefit of the entity to which assets shall be transferred.
12. PERSONAL SERVICES. The services of the Employee are of a personal
nature to Company and may not be assigned or transferred by Employee to any
other person, firm, corporation, or other entity without the prior, express, and
written consent of Company which may be arbitrarily withheld.
13. NOTICES. All notices, demands and other communications to be given
or delivered pursuant to this Agreement shall be in writing and shall be deemed
to have been given after (a) personal delivery or (b) upon transmission by
telecopier, or facsimile or (c) three (3) days from deposit in the mails
registered or certified mail, return receipt requested, and postage prepaid to
the party to whom notice is to be given, in any case at the following address:
If to Employee: Richard Kovach
6869 St. Regis
Hudson, Ohio 44236
If to the Company: American Architectural Products Corp.
7
<PAGE> 8
Attn: Chief Executive Officer
755 Boardman-Canfield Rd., Bldg. G-West
Boardman, OH 44512
With a Copy To: American Architectural Products Corp.
Attn: Jonathan K. Schoenike
755 Boardman-Canfield Rd. - Bldg. G-West
Boardman, OH 44512
14. GOVERNING LAW. It is agreed that this Agreement shall be governed
by, construed, and enforced in accordance with the laws of the State of Ohio.
15. ENTIRE AGREEMENT. This Agreement shall constitute the entire
Agreement between the parties and any prior understanding or representation of
any kind preceding the date of this Agreement shall not be binding upon either
party except to the extent incorporated in this Agreement.
16. MODIFICATION. Any modification of this Agreement or additional
obligation assumed by either party in connection with this Agreement shall be
binding only if evidenced in writing signed by each party or an authorized
representative of each party.
17. NO WAIVER. The failure of either party to this Agreement to insist
upon the performance of any of the terms and conditions of this Agreement, or
the waiver of any breach of any of the terms and conditions of this Agreement,
shall not be construed as thereafter waiving any such terms and conditions, but
the same shall continue and remain in full force and effect as if no such
forbearance or waiver had occurred.
18. PROFESSIONAL FEES. In the event that any action is filed in
relation to this Agreement, the unsuccessful party in the action shall pay to
the successful party, in addition to all the sums that either party may be
called on to pay, a reasonable sum for the successful party's professional fees.
8
<PAGE> 9
19. EFFECT OF PARTIAL INVALIDITY. The invalidity of any portion of this
Agreement will not and shall not be deemed to affect the validity of any other
provision. In the event that any provision of this Agreement is held to be
invalid, the parties agree that the remaining provisions shall be deemed to be
in full force and effect as if they had been executed by both parties subsequent
to the expungement of the invalid provisions.
20. PARAGRAPH HEADINGS. The titles to the paragraphs of this Agreement
are solely for the convenience of the parties and shall not be used to explain,
modify, simplify, or aid in the interpretation of the provisions of this
Agreement.
21. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the heirs, personal representatives, successors, and permitted
assigns of the respective parties hereto.
22. CHANGE IN CONTROL. Notwithstanding anything to the contrary
contained herein, in the event (a) all or substantially all of the assets of the
Company are sold, (b) a sale or other disposition of common stock of the Company
occurs such that George S. Hofmeister and Frank J. Amedia do not thereafter
collectively own or control at least 51% of the common stock of the Company, or
(c) the Company merges with or into another entity such that George S.
Hofmeister and Frank J. Amedia do not thereafter collectively own or control at
least 51% of the common stock of the surviving entity (collectively, "Change in
Control"), then all the stock options granted to Employee as of the date of such
Change in Control shall immediately vest.
IN WITNESS WHEREOF, each party to this Agreement has caused it to be
executed on the date first indicated herein.
9
<PAGE> 10
AMERICAN ARCHITECTURAL
PRODUCTS CORPORATION
By /s/ Frank J. Amedia
------------------------------
Frank J. Amedia
Its Chief Executive Officer
/s/ Richard L. Kovach
----------------------------------
Richard Kovach "Employee"
10
<PAGE> 1
Exhibit 10.3b
EMPLOYMENT AGREEMENT
This Agreement, executed of this 1st day of October 1998, by and
between American Architectural Products Corporation, a Delaware corporation,
located at 755 Boardman-Canfield Rd., Bldg. G-West, Boardman, Ohio 44512
("Company" or "AAPC"), and Jeffrey Miller, residing at 1449 Arthur Drive,
Wooster, Ohio 44691 ("Employee").
RECITALS
A. The Company desires to retain Employee as its Vice
President-Operations, in accordance with the provisions of this Agreement.
B. Employee desires to act as Company's Vice President-Operations, in
accordance with the provisions of this Agreement.
PROVISIONS
In consideration of the mutual covenants and agreements contained
herein, the parties agree as follows:
1. APPOINTMENT. Company hereby employs Employee to serve as its Vice
President-Operations and to perform such other services and duties as may be
determined from time to time by the Chief Executive Officer of the Company in
cooperation with the Board of Directors of the Company.
2. PERFORMANCE. Employee agrees to devote his full time and effort to
the
1
<PAGE> 2
performance of his duties as an employee of the Company and agrees to do so
in accordance with the general policies and general standards of performance in
respect to the services performed by him as are determined by the Chief
Executive Officer of the Company from time to time while this Agreement is in
force. This Agreement shall not be construed as preventing the Employee from
engaging in transactions unrelated to his duties as an employee or from making
investment of his assets as long as they do not conflict with his employment as
provided herein.
3. TERM. Except in the case of earlier termination as herein
specifically provided, the term of this Agreement shall begin as of the 1st day
of October,1998, and continue for a period of three (3) years, after which it
will continue on an annual basis until one party notifies the other of its
termination of this Agreement, in writing, at least ninety (90) days prior to
such termination.
4. COMPENSATION.
(a) BASE COMPENSATION. For all the services to be rendered by Employee
in any capacity hereunder, Company will pay to Employee the sum of
$160,000 per year adjusted annually to an amount reasonably agreed to
by Employee and the Company, payable in accordance with the Company's
normal payroll practices.
(b) ANNUAL BONUS. In addition to the base compensation provided for in
subparagraph ( a), hereof, Company will pay to Employee an annual bonus
equal to an amount determined by the Company Board of Directors in the
Board's sole discretion. The annual bonus shall be determined by the
Company within 75 days following the end of each tax year and shall be
paid to Employee no later than the 75th day following the end of each
tax year.
(c) STOCK OPTIONS. Incentive stock options will be provided to Employee
in accordance
2
<PAGE> 3
with AAPC's Incentive Stock Option Plan. In addition to the stock
options previously granted Employee, Company shall issue Employee
15,000 additional stock options pursuant to the Stock Option Plan with
an effective grant date of 7/23/98, which options shall vest pro-rata
over five (5) years. Employee acknowledges that these additional
options have already been granted.
5. VACATION. Employee shall be entitled to three (3) weeks paid
vacation per year and the weeks of vacation shall not accumulate from
year to year.
6. INSURANCE.
(a) HEALTH INSURANCE. Employee will be provided with the same medical
and dental coverage provided to all regular employees of the Company.
Company will pay the cost of that medical and dental coverage for
Employee and his immediate family (i.e. spouse and dependent children).
(b) DISABILITY INSURANCE. Company will also provide and pay the
premiums for a long-term disability policy.
(c) KEY EMPLOYEE LIFE INSURANCE. Company shall provide and pay the
premiums on a key employee life insurance policy on the life of
Employee to include a $750,000 benefit payable to the Company and a
$750,000 benefit payable to Employee's beneficiaries upon his death.
The key employee life insurance policy will be effective upon securing
such policy from a qualified insurance company and Employee's
compliance with policy requirements.
7. AUTOMOBILE. During the course of employment, Company will provide a
car
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allowance in the amount of $500.00 per month to Employee.
8. RELOCATION. In the event Employee relocates his primary residence to
within 15 miles of the Company Headquarters during the term of this Agreement,
the Company will reimburse Employee's reasonable relocation expenses (including
real estate broker commission for sale of existing house, moving expenses and
costs/points paid in securing financing of a new home) in an amount not to
exceed $15,000 in total.
9. DISCLOSURE OF INFORMATION. It is understood that during the term of
this Agreement, and for a period of three (3) years after the termination of
this Agreement, Employee will not disclose any confidential or proprietary
information concerning the Company (including, but not limited to, customer
lists, prices, contracts, processes, devices, plans, models, supply sources,
opportunities for new business, financial and business methods and activities,
financial records, trade secrets, business techniques or processes) to any
person, corporation, partnership, sole proprietorship, governmental agency,
organization, joint venture or other entity. Should Employee violate this
provision of this Agreement, Company shall be entitled to an action for
injunctive relief as well as monetary damages, and any payments of compensation
remaining to be paid to Employee shall terminate and no longer be required to be
paid to Employee.
10. NON-COMPETITION AND NON-SOLICITATION.
(a) NON-COMPETITION. As an inducement to the Company to engage
Employee, Employee covenants with the Company that during the period commencing
with the date of this Agreement and for a period two (2) years following the
date of termination of this Agreement by Employee pursuant to Paragraph 11(a) or
by Company pursuant to Paragraph 11(b) (the "Non-
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Compete Period"), Employee shall not, individually, or for, on behalf of, or in
conjunction with, any other individual, company or other entity or person,
directly or indirectly own (in whole or in part), manage, operate, control, be
an agent for, participate in, or be connected in any manner with the ownership,
management, operation or control of any corporation, partnership, proprietorship
or other business entity engaged in a business which is the same as, similar to,
or competes with, the Company in the fenestration business anywhere in the
Continental United States at any time during such Non-Compete Period.
(b) NON-SOLICITATION; NON-INTERFERENCE. During the period commencing on
the date of this Agreement and ending two (2) years after the
termination of this Agreement by Employee pursuant to Paragraph 11(a)
or Company pursuant to Paragraph 11(b), Employee shall not, directly or
indirectly;
i. solicit customers, business, patronage, or orders for
himself or for any person, firm, association, corporation, or
other entity engaged in a business that competes with the
Company's business, or supervise sales agents or
representatives in such sales activities;
ii. employ or otherwise associate in business with any officer
or employee of the Company or its affiliates; or
iii. induce any officer, employee, or consultant of or to the
Company or its affiliates to terminate such relationship.
(c) TRADE SECRETS AND CONFIDENTIAL INFORMATION. Employee acknowledges
that he has had, and during the Term shall continue to have, access to
and shall acquire confidential
5
<PAGE> 6
information relating to the business and operations of the Company
including, but not limited to, customer lists and records, policy
manuals, price lists, business contracts, inventions, proprietary
technology and other confidential information relating to any of the
Company's products, processes, plans, methods of doing business and
special needs of customers of the Company (collectively referred to in
this Agreement as the "Confidential Information"). Employee
acknowledges that all of the Confidential Information is solely the
property of the Company and constitutes trade secrets and confidential
information of the Company and, upon termination of this Agreement, his
knowledge of the Confidential Information shall enable him to compete
with the Company in a manner likely to cause the Company irrevocable
harm upon the disclosure of such matters. Employee hereby irrevocably
represents, warrants and covenants that during the period commencing on
the date of this Agreement and ending three (3) years after the
termination of this Agreement by Employee pursuant to Paragraph 11(a)
or by the Company pursuant to Paragraph 11(b) he shall (i) not
disclose, directly or indirectly, any of the Confidential Information
to any individual, firm, corporation or other entity, (ii) return all
of the Confidential Information in his possession to the Company within
five (5) calendar days after the date his engagement is terminated
(without retaining copies), and (iii) certify to the Company that he
has so complied.
11. TERMINATION.
(a) BY EMPLOYEE. Employee may terminate his/her employment relationship
for any reason whatsoever and at any time upon giving the Company
ninety (90) days written notice of his intent to do so.
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(b) BY THE COMPANY FOR CAUSE. The Company may terminate Employee, for
good cause, at any time during the term hereof upon giving Employee ten
(10) days written notice of its intent to terminate his service. In the
event of such termination, Employee shall not be entitled to any
benefits, rights, bonuses or privileges under this Agreement past the
day of termination. Good cause shall be defined as the material breach
of this Agreement, or the negligent or willful mis-performance or
non-performance by Employee of his obligations and/or duties under this
Agreement or the fraudulent or criminal acts on the part of Employee
which are adverse to the interest of the Company.
(c) BY COMPANY WITHOUT CAUSE. If the Company terminates Employee at any
time during the term hereof without good cause as set forth in
subparagraph (b) hereof, Company shall release Employee from
restriction contained in Paragraph 10(a) herein and shall pay Employee
severance pay calculated by multiplying the number of months remaining
on the term of this Agreement by the amount of Employee's then monthly
base salary, along with any bonus declared for Employee by the Board of
Directors of the Company but not yet paid for the year in which
Employee was terminated without cause. In no event will Employee's
severance pay be less than $80,000. The Company will also reimburse
Employee for Employee's COBRA expenses for his family health insurance
coverage for six (6) months following a termination pursuant to this
Paragraph 11(c).
12. SUCCESSORS. This Agreement shall not be terminated by the voluntary
dissolution of the Company or parent, subsidiary or successor of the Company, or
merger whereby the Company (or such parent, subsidiary or successor corporation)
is not the surviving or resulting corporation or any transfer of substantially
all of the assets of the Company. In the event of any
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<PAGE> 8
such merger or consolidation or transfer of assets, the provisions of this
Agreement shall inure to the benefit of the entity to which assets shall be
transferred.
13. PERSONAL SERVICES. The services of the Employee are of a personal
nature to Company and may not be assigned or transferred by Employee to any
other person, firm, corporation, or other entity without the prior, express, and
written consent of Company which may be arbitrarily withheld.
14. NOTICES. All notices, demands and other communications to be given
or delivered pursuant to this Agreement shall be in writing and shall be deemed
to have been given after (a) personal delivery or (b) upon transmission by
telecopier, or facsimile or (c) three (3) days from deposit in the mails
registered or certified mail, return receipt requested, and postage prepaid to
the party to whom notice is to be given, in any case at the following address:
If to Employee: Jeffrey Miller
1449 Arthur Drive
Wooster, Ohio 44691
If to the Company: American Architectural Products Corp.
Attn: Chief Executive Officer
755 Boardman-Canfield Rd., Bldg. G-West
Boardman, OH 44512
With a Copy To: American Architectural Products Corp.
Attn: Jonathan K. Schoenike
755 Boardman-Canfield Rd. - Bldg. G-West
Boardman, OH 44512
15. GOVERNING LAW. It is agreed that this Agreement shall be governed
by, construed, and enforced in accordance with the laws of the State of Ohio.
16. ENTIRE AGREEMENT. This Agreement shall constitute the entire
Agreement
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<PAGE> 9
between the parties and any prior understanding or representation of any kind
preceding the date of this Agreement shall not be binding upon either party
except to the extent incorporated in this Agreement.
17. MODIFICATION. Any modification of this Agreement or additional
obligation assumed by either party in connection with this Agreement shall be
binding only if evidenced in writing signed by each party or an authorized
representative of each party.
18. NO WAIVER. The failure of either party to this Agreement to insist
upon the performance of any of the terms and conditions of this Agreement, or
the waiver of any breach of any of the terms and conditions of this Agreement,
shall not be construed as thereafter waiving any such terms and conditions, but
the same shall continue and remain in full force and effect as if no such
forbearance or waiver had occurred.
19. PROFESSIONAL FEES. In the event that any action is filed in
relation to this Agreement, the unsuccessful party in the action shall pay to
the successful party, in addition to all the sums that either party may be
called on to pay, a reasonable sum for the successful party's professional fees.
20. EFFECT OF PARTIAL INVALIDITY. The invalidity of any portion of this
Agreement will not and shall not be deemed to affect the validity of any other
provision. In the event that any provision of this Agreement is held to be
invalid, the parties agree that the remaining provisions shall be deemed to be
in full force and effect as if they had been executed by both parties subsequent
to the expungement of the invalid provisions.
21. PARAGRAPH HEADINGS. The titles to the paragraphs of this Agreement
are
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<PAGE> 10
solely for the convenience of the parties and shall not be used to explain,
modify, simplify, or aid in the interpretation of the provisions of this
Agreement.
22. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the heirs, personal representatives, successors, and permitted
assigns of the respective parties hereto.
IN WITNESS WHEREOF, each party to this Agreement has caused it to be
executed on the date first indicated herein.
AMERICAN ARCHITECTURAL
PRODUCTS CORPORATION
By /s/ Frank J. Amedia
--------------------------
Frank J. Amedia
Its Chief Executive Officer
/s/ Jeffrey V. Miller
-----------------------------
Jeffrey Miller "Employee"
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Exhibit 10.3c
EMPLOYMENT AGREEMENT
This Agreement, executed of this 15th day of August 1998, by and
between American Architectural Products Corporation, a Delaware corporation,
located at 755 Boardman-Canfield Rd., Bldg. G-West, Boardman, Ohio 44512
("Company" or "AAPC"), and, Larry Powell, residing at 3390 Rivermont Parkway,
Alpharetta, GA 30022-5470 ("Employee").
RECITALS
A. The Company desires to retain Employee as its Vice President Sales &
Marketing, in accordance with the provisions of this Agreement.
B. Employee desires to act as Company's Vice President Sales &
Marketing, in accordance with the provisions of this Agreement.
PROVISIONS
In consideration of the mutual covenants and agreements contained
herein, the parties agree as follows:
1. APPOINTMENT. Company hereby employs Employee to serve as its Vice
President Sales & Marketing and to perform such other services and duties as may
be determined from time to time by the Chief Executive Officer of the Company in
cooperation with the Board of Directors of the Company.
2. PERFORMANCE. Employee agrees to devote his full time and effort to
the
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<PAGE> 2
performance of his duties as an employee of the Company and agrees to do so
in accordance with the general policies and general standards of performance in
respect to the services performed by him as are determined by the Chief
Executive Officer of the Company from time to time while this Agreement is in
force. This Agreement shall not be construed as preventing the Employee from
engaging in transactions unrelated to his duties as an employee or from making
investment of his assets as long as they do not conflict with his employment as
provided herein.
3. TERM. Except in the case of earlier termination as herein
specifically provided, the term of this Agreement shall begin as of the 15th day
of August,1998, and continue for a period of three (3) years, after which it
will continue on an annual basis until one party notifies the other of its
termination of this Agreement, in writing, at least ninety (90) days prior to
such termination.
4. COMPENSATION.
(a) BASE COMPENSATION. For all the services to be rendered by Employee
in any capacity hereunder, Company will pay to Employee the sum of
$140,000 per year, increasing to $159,500 per year at October 1, 1998,
adjusted annually to an amount reasonably agreed to by Employee and the
Company, payable in accordance with the Company's normal payroll
practices.
(b) ANNUAL BONUS. In addition to the base compensation provided for in
subparagraph ( a), hereof, Company will pay to Employee an annual bonus
equal to an amount determined by the Company Board of Directors in the
Board's sole discretion. The annual bonus shall be determined by the
Company within 75 days following the end of each tax year and shall be
paid to Employee no later than the 75th day following the end of each
tax year.
(c) STOCK OPTIONS. Incentive stock options will be provided to Employee
in accordance
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<PAGE> 3
with AAPC's Incentive Stock Option Plan. In addition to the stock
options previously granted Employee, Company shall issue Employee
10,000 additional stock options pursuant to the Stock Option Plan with
an effective grant date of 7/23/98, which options shall vest pro-rata
over five (5) years.
(d) COUNTRY CLUB MEMBERSHIP. The membership fee and monthly dues for
Employee to be a member of Rivermont Country Club located in
Alpharetta, GA, shall be paid by the Company.
5. VACATION. Employee shall be entitled to three (3) weeks paid
vacation per year and the weeks of vacation shall not accumulate from
year to year.
6. INSURANCE.
(a) HEALTH INSURANCE. Employee will be provided with the same medical
and dental coverage provided to all regular employees of the Company.
Company will pay the cost of that medical and dental coverage for
Employee and his immediate family (i.e. spouse and dependent children).
(b) DISABILITY INSURANCE. Company will also provide and pay the
premiums for a long- term disability policy.
(c) KEY EMPLOYEE LIFE INSURANCE. Company shall provide and pay the
premiums on a key employee life insurance policy on the life of
Employee to include a $750,000 benefit payable to the Company and a
$750,000 benefit payable to Employee's beneficiaries upon his death.
The key employee life insurance policy will be effective upon securing
such policy from a qualified insurance company and Employee's
compliance with policy requirements.
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<PAGE> 4
7. AUTOMOBILE. During the course of employment, Company will provide a
car allowance in the amount of $600.00 per month to Employee.
8. DISCLOSURE OF INFORMATION. It is understood that during the term of
this Agreement, and for a period of three (3) years after the termination of
this Agreement, Employee will not disclose any confidential or proprietary
information concerning the Company (including, but not limited to, customer
lists, prices, contracts, processes, devices, plans, models, supply sources,
opportunities for new business, financial and business methods and activities,
financial records, trade secrets, business techniques or processes) to any
person, corporation, partnership, sole proprietorship, governmental agency,
organization, joint venture or other entity. Should Employee violate this
provision of this Agreement, Company shall be entitled to an action for
injunctive relief as well as monetary damages, and any payments of compensation
remaining to be paid to Employee shall terminate and no longer be required to be
paid to Employee.
9. NON-COMPETITION AND NON-SOLICITATION.
(a) NON-COMPETITION. As an inducement to the Company to engage
Employee, Employee covenants with the Company that during the period commencing
with the date of this Agreement and for a period two (2) years following the
date of termination of this Agreement by Employee pursuant to Paragraph 10(a) or
by Company pursuant to Paragraph 10(b) (the "Non-Compete Period"), Employee
shall not, individually, or for, on behalf of, or in conjunction with, any other
individual, company or other entity or person, directly or indirectly own (in
whole or in part), manage, operate, control, be an agent for, participate in, or
be connected in any manner with the ownership, management, operation or control
of any corporation, partnership, proprietorship or other business entity engaged
in a business which is the same as, similar to, or competes with, the
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<PAGE> 5
Company in the fenestration business anywhere in the Continental United States
at any time during such Non-Compete Period.
(b) NON-SOLICITATION; NON-INTERFERENCE. During the period commencing on
the date of this Agreement and ending two (2) years after the
termination of this Agreement by Employee pursuant to Paragraph 10(a)
or Company pursuant to Paragraph 10(b), Employee shall not, directly or
indirectly;
i. solicit customers, business, patronage, or orders for himself or
for any person, firm, association, corporation, or other entity
engaged in a business that competes with the Company's business, or
supervise sales agents or representatives in such sales activities;
ii. employ or otherwise associate in business with any officer or
employee of the Company or its affiliates; or
iii. induce any officer, employee, or consultant of or to the
Company or its affiliates to terminate such relationship.
(c) TRADE SECRETS AND CONFIDENTIAL INFORMATION. Employee acknowledges
that he has had, and during the Term shall continue to have, access to
and shall acquire confidential information relating to the business and
operations of the Company including, but not limited to, customer lists
and records, policy manuals, price lists, business contracts,
inventions, proprietary technology and other confidential information
relating to any of the Company's products, processes, plans, methods of
doing business and special needs of customers of the Company
(collectively referred to in this Agreement as the "Confidential
Information"). Employee acknowledges that all of the Confidential
Information is solely
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<PAGE> 6
the property of the Company and constitutes trade secrets and
confidential information of the Company and, upon termination of this
Agreement, his knowledge of the Confidential Information shall enable
him to compete with the Company in a manner likely to cause the Company
irrevocable harm upon the disclosure of such matters. Employee hereby
irrevocably represents, warrants and covenants that during the period
commencing on the date of this Agreement and ending three (3) years
after the termination of this Agreement by Employee pursuant to
Paragraph 10(a) or by the Company pursuant to Paragraph 10(b) he shall
(i) not disclose, directly or indirectly, any of the Confidential
Information to any individual, firm, corporation or other entity, (ii)
return all of the Confidential Information in his possession to the
Company within five (5) calendar days after the date his engagement is
terminated (without retaining copies), and (iii) certify to the Company
that he has so complied.
10. TERMINATION.
(a) BY EMPLOYEE. Employee may terminate his/her employment relationship
for any reason whatsoever and at any time upon giving the Company
ninety (90) days written notice of his intent to do so.
(b) BY THE COMPANY FOR CAUSE. The Company may terminate Employee, for
good cause, at any time during the term hereof upon giving Employee
ten (10) days written notice of its intent to terminate his service. In
the event of such termination, Employee shall not be entitled to any
benefits, rights, bonuses or privileges under this Agreement past the
day of termination. Good cause shall be defined as the material breach
of this Agreement, or the negligent or willful mis-performance or
non-performance by Employee of his obligations
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<PAGE> 7
and/or duties under this Agreement or the fraudulent or criminal acts
on the part of Employee which are adverse to the interest of the
Company.
(c) BY COMPANY WITHOUT CAUSE. If the Company terminates Employee at any
time during the term hereof without good cause as set forth in
subparagraph (b) hereof, Company shall release Employee from
restriction contained in Paragraph 9(a) herein and shall pay Employee
severance pay calculated by multiplying the number of months remaining
on the term of this Agreement by the amount of Employee's then monthly
base salary, along with any bonus declared for Employee by the Board of
Directors of the Company but not yet paid for the year in which
Employee was terminated without cause.
11. SUCCESSORS. This Agreement shall not be terminated by the voluntary
dissolution of the Company or parent, subsidiary or successor of the Company, or
merger whereby the Company (or such parent, subsidiary or successor corporation)
is not the surviving or resulting corporation or any transfer of substantially
all of the assets of the Company. In the event of any such merger or
consolidation or transfer of assets, the provisions of this Agreement shall
inure to the benefit of the entity to which assets shall be transferred.
12. PERSONAL SERVICES. The services of the Employee are of a personal
nature to Company and may not be assigned or transferred by Employee to any
other person, firm, corporation, or other entity without the prior, express, and
written consent of Company which may be arbitrarily withheld.
13. NOTICES. All notices, demands and other communications to be given
or delivered pursuant to this Agreement shall be in writing and shall be deemed
to have been given after (a) personal delivery or (b) upon transmission by
telecopier, or facsimile or (c) three (3) days from
7
<PAGE> 8
deposit in the mails registered or certified mail, return receipt requested, and
postage prepaid to the party to whom notice is to be given, in any case at the
following address:
If to Employee: Larry Powell
3390 Rivermont Parkway
Alpharetta, GA 30022-5470
If to the Company: American Architectural Products Corp.
Attn: Chief Executive Officer
755 Boardman-Canfield Rd., Bldg. G-West
Boardman, OH 44512
With a Copy To: American Architectural Products Corp.
Attn: Jonathan K. Schoenike
755 Boardman-Canfield Rd. - Bldg. G-West
Boardman, OH 44512
14. GOVERNING LAW. It is agreed that this Agreement shall be governed
by, construed, and enforced in accordance with the laws of the State of Ohio.
15. ENTIRE AGREEMENT. This Agreement shall constitute the entire
Agreement between the parties and any prior understanding or representation of
any kind preceding the date of this Agreement shall not be binding upon either
party except to the extent incorporated in this Agreement.
16. MODIFICATION. Any modification of this Agreement or additional
obligation assumed by either party in connection with this Agreement shall be
binding only if evidenced in writing signed by each party or an authorized
representative of each party.
17. NO WAIVER. The failure of either party to this Agreement to insist
upon the performance of any of the terms and conditions of this Agreement, or
the waiver of any breach of any of the terms and conditions of this Agreement,
shall not be construed as thereafter waiving any
8
<PAGE> 9
such terms and conditions, but the same shall continue and remain in full force
and effect as if no such forbearance or waiver had occurred.
18. PROFESSIONAL FEES. In the event that any action is filed in
relation to this Agreement, the unsuccessful party in the action shall pay to
the successful party, in addition to all the sums that either party may be
called on to pay, a reasonable sum for the successful party's professional fees.
19. EFFECT OF PARTIAL INVALIDITY. The invalidity of any portion of this
Agreement will not and shall not be deemed to affect the validity of any other
provision. In the event that any provision of this Agreement is held to be
invalid, the parties agree that the remaining provisions shall be deemed to be
in full force and effect as if they had been executed by both parties subsequent
to the expungement of the invalid provisions.
20. PARAGRAPH HEADINGS. The titles to the paragraphs of this Agreement
are solely for the convenience of the parties and shall not be used to explain,
modify, simplify, or aid in the interpretation of the provisions of this
Agreement.
21. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the heirs, personal representatives, successors, and permitted
assigns of the respective parties hereto.
IN WITNESS WHEREOF, each party to this Agreement has caused it to be
executed on the date first indicated herein.
AMERICAN ARCHITECTURAL
PRODUCTS CORPORATION
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<PAGE> 10
By /s/ Frank J. Amedia
----------------------------
Frank J. Amedia
Its Chief Executive Officer
/s/ Larry Powell
--------------------------------
Larry Powell "Employee"
10
<PAGE> 1
Exhibit 10.3d
EMPLOYMENT AGREEMENT
This Agreement, executed of this 1st day of September 1998, by and
between American Architectural Products Corporation, a Delaware corporation,
located at 755 Boardman-Canfield Rd., Bldg. G-West, Boardman, Ohio 44512
("Company" or "AAPC"), and Jonathan K. Schoenike, residing at 12954 Unity Rd.,
New Springfield, OH 44443 ("Employee").
RECITALS
A. The Company desires to retain Employee as its General Counsel in
accordance, with the provisions of this Agreement.
B. Employee desires to act as Company's General Counsel, in accordance
with the provisions of this Agreement.
PROVISIONS
In consideration of the mutual covenants and agreements contained
herein, the parties agree as follows:
1. APPOINTMENT. Company hereby employs Employee to serve as its General
Counsel and to perform such other services and duties as may be determined from
time to time by the Chief Executive Officer of the Company in cooperation with
the Board of Directors of the Company.
2. PERFORMANCE. Employee agrees to devote his full time and effort to
the
1
<PAGE> 2
performance of his duties as an employee of the Company and agrees to do so
in accordance with the general policies and general standards of performance in
respect to the services performed by him as are reasonably determined by the
Chief Executive Officer of the Company from time to time while this Agreement is
in force. This Agreement shall not be construed as preventing the Employee from
engaging in transactions unrelated to his duties as an employee or from making
investment of his assets as long as they do not conflict with his employment as
provided herein.
3. TERM. Except in the case of earlier termination as herein
specifically provided, the term of this Agreement shall begin as of the 1st day
of September, 1998, and continue for a period of three (3) years, after which
the term will continue on an annual basis until one party notifies the other of
its termination of this Agreement, in writing, at least ninety (90) days prior
to such termination. Notwithstanding the foregoing, Employee shall have the
right to terminate this Agreement in its entirety in the event Frank J. Amedia
ceases to be the President and Chief Executive Officer of the Company.
4. COMPENSATION.
(a) BASE COMPENSATION. For all the services to be rendered by Employee
in any capacity hereunder, Company will pay to Employee the sum of
$135,000 per year, increasing to $160,000 on October 1, 1998, adjusted
annually to an amount as reasonably agreed to by Employee and the
Company, payable in accordance with the Company's normal payroll
practices.
(b) ANNUAL BONUS. In addition to the base compensation provided for in
subparagraph ( a), hereof, Company will pay to Employee an annual bonus
equal to an amount determined by the Company Board of Directors in the
Board's sole discretion. The annual bonus shall
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<PAGE> 3
be determined by the Company within 75 days following the end of each
tax year and shall be paid to Employee no later than the 75th day
following the end of each tax year.
(c) STOCK OPTIONS. Incentive stock options will be provided to Employee
in accordance with AAPC's Incentive Stock Option Plan. In addition to
the stock options previously granted Employee, Company shall issue
Employee 10,000 additional stock options pursuant to the Stock Option
Plan with an effective grant date of 7/23/98, which options shall vest
pro-rata over five (5) years.
5. VACATION. Employee shall be entitled to three (3) weeks paid
vacation per year and the weeks of vacation shall not accumulate from
year to year.
6. INSURANCE.
(a) HEALTH INSURANCE. Employee will be provided with the same medical
and dental coverage provided to all regular employees of the Company.
Company will pay the cost of that medical and dental coverage for
Employee and his immediate family (i.e. spouse and dependent children).
(b) DISABILITY INSURANCE. Company will also provide and pay the
premiums for a long-term disability policy.
(c) KEY EMPLOYEE LIFE INSURANCE. Company shall provide and pay the
premiums on a key employee life insurance policy on the life of
Employee to include a $750,000 benefit payable to the Company and a
$750,000 benefit payable to Employee's beneficiaries upon his death.
The key employee life insurance policy will be effective upon securing
such policy from a qualified insurance company and Employee's
compliance with policy requirements.
3
<PAGE> 4
7. AUTOMOBILE. During the course of employment, Company will provide a
car allowance in the amount of $450.00 per month to Employee.
8. DISCLOSURE OF INFORMATION. It is understood that during the term of
this Agreement, and for a period of three (3) years after the termination of
this Agreement, Employee will not disclose any confidential or proprietary
information concerning the Company (including, but not limited to, customer
lists, prices, contracts, processes, devices, plans, models, supply sources,
opportunities for new business, financial and business methods and activities,
financial records, trade secrets, business techniques or processes) to any
person, corporation, partnership, sole proprietorship, governmental agency,
organization, joint venture or other entity. Should Employee violate this
provision of this Agreement, Company shall be entitled to an action for
injunctive relief as well as monetary damages, and any payments of compensation
remaining to be paid to Employee shall terminate and no longer be required to be
paid to Employee.
9. NON-COMPETITION AND NON-SOLICITATION.
(a) NON-COMPETITION. As an inducement to the Company to engage
Employee, Employee covenants with the Company that during the period
commencing with the date of this Agreement and for a period two (2)
years following the date of termination of this Agreement by Employee
pursuant to Paragraph 10(a) or by Company pursuant to Paragraph 10(b)
(the "Non-Compete Period"), Employee shall not, individually, or for,
on behalf of, or in conjunction with, any other individual, company or
other entity or person, directly or indirectly own (in whole or in
part), manage, operate, control, be an agent for, participate in, or be
connected in any manner with the ownership, management, operation or
control of any corporation, partnership, proprietorship or other
business entity engaged in a business
4
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which is the same as, similar to, or competes with, the Company in the
fenestration business anywhere in the Continental United States at any
time during such Non-Compete Period. Notwithstanding the foregoing,
nothing herein will prohibit the Employee from practicing law within
the Non-Compete Period, including areas of the law Employee currently
practices for Company, except that such practice within the Non-Compete
Period shall not be more than incidental within the fenestration
industry.
(b) NON-SOLICITATION; NON-INTERFERENCE. During the period commencing on
the date of this Agreement and ending two (2) years after the
termination of this Agreement by Employee pursuant to Paragraph 10(a)
or Company pursuant to Paragraph 10(b), Employee shall not, directly or
indirectly;
i. solicit customers, business, patronage, or orders for himself or
for any person, firm, association, corporation, or other entity
engaged in a business that competes with the Company's business, or
supervise sales agents or representatives in such sales activities;
ii. employ or otherwise associate in business with any officer or
employee of the Company or its affiliates; or
iii. induce any officer, employee, or consultant of or to the
Company or its affiliates to terminate such relationship.
(c) TRADE SECRETS AND CONFIDENTIAL INFORMATION. Employee acknowledges
that he has had, and during the Term shall continue to have, access to
and shall acquire confidential information relating to the business and
operations of the Company including, but not limited to, customer lists
and records, policy manuals, price lists, business contracts,
5
<PAGE> 6
inventions, proprietary technology and other confidential information
relating to any of the Company's products, processes, plans, methods of
doing business and special needs of customers of the Company
(collectively referred to in this Agreement as the "Confidential
Information"). Employee acknowledges that all of the Confidential
Information is solely the property of the Company and constitutes trade
secrets and confidential information of the Company and, upon
termination of this Agreement, his knowledge of the Confidential
Information shall enable him to compete with the Company in a manner
likely to cause the Company irrevocable harm upon the disclosure of
such matters. Employee hereby irrevocably represents, warrants and
covenants that during the period commencing on the date of this
Agreement and ending three (3) years after the termination of this
Agreement by Employee pursuant to Paragraph 10(a) or by the Company
pursuant to Paragraph 10(b) he shall (i) not disclose, directly or
indirectly, any of the Confidential Information to any individual,
firm, corporation or other entity, (ii) return all of the Confidential
Information in his possession to the Company within five (5) calendar
days after the date his engagement is terminated (without retaining
copies), and (iii) certify to the Company that he has so complied.
10. TERMINATION.
(a) BY EMPLOYEE. Employee may terminate his/her employment relationship
for any reason whatsoever and at any time upon giving the Company
ninety (90) days written notice of his intent to do so.
(b) BY THE COMPANY FOR CAUSE. The Company may terminate Employee, for
good cause, at any time during the term hereof upon giving Employee ten
(10) days written
6
<PAGE> 7
notice of its intent to terminate his service. In the event of such
termination, Employee shall not be entitled to any benefits, rights,
bonuses or privileges under this Agreement past the day of termination.
Good cause shall be defined as the material breach of this Agreement,
or the negligent or willful mis-performance or non-performance by
Employee of his obligations and/or duties under this Agreement or the
fraudulent or criminal acts on the part of Employee which are adverse
to the interest of the Company.
(c) BY COMPANY WITHOUT CAUSE. If the Company terminates Employee at any
time during the term hereof without good cause as set forth in
subparagraph (b) hereof, Company shall release Employee from
restriction contained in Paragraph 9(a) herein and shall pay Employee
severance pay calculated by multiplying the number of months remaining
on the term of this Agreement by the amount of Employee's then monthly
base salary, along with any bonus declared for Employee by the Board of
Directors of the Company but not yet paid for the year in which
Employee was terminated without cause.
11. SUCCESSORS. This Agreement shall not be terminated by the voluntary
dissolution of the Company or parent, subsidiary or successor of the Company, or
merger whereby the Company (or such parent, subsidiary or successor corporation)
is not the surviving or resulting corporation or any transfer of substantially
all of the assets of the Company. In the event of any such merger or
consolidation or transfer of assets, the provisions of this Agreement shall
inure to the benefit of the entity to which assets shall be transferred.
12. PERSONAL SERVICES. The services of the Employee are of a personal
nature to Company and may not be assigned or transferred by Employee to any
other person, firm, corporation, or other entity without the prior, express, and
written consent of Company which may
7
<PAGE> 8
be arbitrarily withheld.
13. NOTICES. All notices, demands and other communications to be given
or delivered pursuant to this Agreement shall be in writing and shall be deemed
to have been given after (a) personal delivery or (b) upon transmission by
telecopier, or facsimile or (c) three (3) days from deposit in the mails
registered or certified mail, return receipt requested, and postage prepaid to
the party to whom notice is to be given, in any case at the following address:
If to Employee: Jonathan K. Schoenike
12954 Unity Rd.
New Springfield, OH 44443
If to the Company: American Architectural Products Corp.
Attn: Chief Executive Officer
755 Boardman-Canfield Rd., Bldg. G-West
Boardman, OH 44512
14. GOVERNING LAW. It is agreed that this Agreement shall be governed
by, construed, and enforced in accordance with the laws of the State of Ohio.
15. ENTIRE AGREEMENT. This Agreement shall constitute the entire
Agreement between the parties and any prior understanding or representation of
any kind preceding the date of this Agreement shall not be binding upon either
party except to the extent incorporated in this Agreement.
16. MODIFICATION. Any modification of this Agreement or additional
obligation assumed by either party in connection with this Agreement shall be
binding only if evidenced in writing signed by each party or an authorized
representative of each party.
17. NO WAIVER. The failure of either party to this Agreement to insist
upon the
8
<PAGE> 9
performance of any of the terms and conditions of this Agreement, or the waiver
of any breach of any of the terms and conditions of this Agreement, shall not be
construed as thereafter waiving any such terms and conditions, but the same
shall continue and remain in full force and effect as if no such forbearance or
waiver had occurred.
18. PROFESSIONAL FEES. In the event that any action is filed in
relation to this Agreement, the unsuccessful party in the action shall pay to
the successful party, in addition to all the sums that either party may be
called on to pay, a reasonable sum for the successful party's professional fees.
19. EFFECT OF PARTIAL INVALIDITY. The invalidity of any portion of this
Agreement will not and shall not be deemed to affect the validity of any other
provision. In the event that any provision of this Agreement is held to be
invalid, the parties agree that the remaining provisions shall be deemed to be
in full force and effect as if they had been executed by both parties subsequent
to the expungement of the invalid provisions.
20. PARAGRAPH HEADINGS. The titles to the paragraphs of this Agreement
are solely for the convenience of the parties and shall not be used to explain,
modify, simplify, or aid in the interpretation of the provisions of this
Agreement.
21. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the heirs, personal representatives, successors, and permitted
assigns of the respective parties hereto.
22. INDEMNITY. AAPC agrees to indemnify and hold Employee harmless from
all costs, claims or actions, including but not limited to professional fees and
judgments, resulting from claims made against Employee for actions taken or
opinions rendered, in the course and scope of
9
<PAGE> 10
employment.
23. CHANGE IN CONTROL. Notwithstanding anything to the contrary
contained herein, in the event (a) all or substantially all of the assets of the
Company are sold, (b) a sale or other disposition of common stock of the Company
occurs such that George S. Hofmeister and Frank J. Amedia do not thereafter
collectively own or control at least 51% of the common stock of the Company, or
(c) the Company merges with or into another entity such that George S.
Hofmeister and Frank J. Amedia do not thereafter collectively own or control at
least 51% of the common stock of the surviving entity (collectively, "Change in
Control"), then all the stock options granted to Employee as of the date of such
Change in Control shall immediately vest.
IN WITNESS WHEREOF, each party to this Agreement has caused it to be
executed on the date first indicated herein.
AMERICAN ARCHITECTURAL
PRODUCTS CORPORATION
By /s/ Frank J. Amedia
--------------------------------
Frank J. Amedia
Its Chief Executive Officer
/s/ Jonathan K. Schoenike
-----------------------------------
Jonathan K. Schoenike "Employee"
10
<PAGE> 1
EXHIBIT 10.12a
AMENDMENT NO. 1
TO
CREDIT AGREEMENT
AMENDMENT NO. 1 TO CREDIT AGREEMENT (the "AMENDMENT"), dated
as of September 15, 1998, among American Architectural Products Corporation, a
Delaware corporation, Eagle & Taylor Company, a Delaware corporation, Forte,
Inc., an Ohio corporation, Western Insulated Glass, Co., an Arizona corporation,
Thermetic Glass, Inc., a Delaware corporation, Binnings Building Products, Inc.,
a Delaware corporation, Danvid Window Company, a Delaware corporation, Modern
Window Acquisition Corporation, a Delaware corporation, American Glassmith
Acquisition Corporation, a Delaware corporation, VinylSource, Inc., a Delaware
corporation, Weather-Seal Acquisition Corporation, a Delaware corporation, Eagle
Window & Door Center, Inc., a Delaware corporation, Denver Window Acquisition
Corporation, a Delaware corporation, AAPC One Acquisition Corporation, a
Delaware corporation, and AAPC Two Acquisition Corporation, a Delaware
corporation (the "BORROWERS"), the institutions from time to time parties hereto
(the "LENDERS"), and BankBoston, N.A., in its capacity as contractual
representative for itself and the other Lenders (the "AGENT") under that certain
Credit Agreement dated as of June 9, 1998 by and among the Borrowers, the
Lenders and the Agent (the "CREDIT AGREEMENT"). Defined terms used herein and
not otherwise defined herein shall have the meaning given to them in the Credit
Agreement.
WHEREAS, the Borrowers, the Lenders and the Agent have entered
into the Credit Agreement; and
WHEREAS, the Borrowers, the Lenders and the Agent have agreed
to amend the Credit Agreement on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises set forth
above, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrowers, the Lenders and the
Agent agree as follows:
1. AMENDMENT TO THE CREDIT AGREEMENT. Effective as of the date
first above written and subject to the execution of this Amendment by the
parties hereto and the satisfaction of the conditions precedent set forth in
SECTION 2 below, the Credit Agreement shall be and hereby is amended as follows:
The definition of "BORROWING BASE" in Section 1.1 is hereby
amended to add at the end thereof immediately after the phrase
"at the Boardman Aluminum Plant": ", (10) fifty percent (50%)
of the raw materials component and fifty percent (50%) of the
finished goods component of the Gross Amount of Eligible
Inventory of
<PAGE> 2
American Glassmith Acquisition Corporation and 0% of any other
portion of the Inventory of American Glassmith Acquisition
Corporation, (11) fifty percent (50%) of the raw materials
component and fifty percent (50%) of the finished goods
component of the Gross Amount of Eligible Inventory of
Thermetic Glass, Inc. and 0% of any other portion of the
Inventory of Thermetic Glass, Inc., and (12) sixty-two percent
(62%) of the raw materials component consisting of aluminum,
fifty percent (50%) of the raw materials component consisting
of glass, and fifty percent (50%) of the finished goods
component of the Gross Amount of Eligible Inventory of Western
Insulated Glass, Co. and 0% of any other portion of the
Inventory of Western Insulated Glass, Co."
2. CONDITIONS PRECEDENT. This Amendment shall become effective
as of the date above written, if, and only if, the Agent has received duly
executed originals of this Amendment from the Borrowers, the Lenders and the
Agent.
3. REPRESENTATIONS AND WARRANTIES OF THE BORROWERS. The
Borrowers hereby represent and warrant as follows:
(a) This Amendment and the Credit Agreement, as amended
hereby, constitute legal, valid and binding obligations of the Borrowers and are
enforceable against the Borrowers in accordance with their terms.
(b) Upon the effectiveness of this Amendment, the Borrowers
hereby reaffirm all representations and warranties made in the Credit Agreement,
and to the extent the same are not amended hereby, agree that all such
representations and warranties shall be deemed to have been remade as of the
date of delivery of this Amendment, unless and to the extent that any such
representation and warranty is stated to relate solely to an earlier date, in
which case such representation and warranty shall be true and correct as of such
earlier date.
4. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT.
(a) Upon the effectiveness of Section 1 hereof, on and after
the date hereof, each reference in the Credit Agreement to "this Credit
Agreement," "hereunder," "hereof," "herein" or words of like import shall mean
and be a reference to the Credit Agreement as amended hereby.
(b) The Credit Agreement, as amended hereby, and all other
documents, instruments and agreements executed and/or delivered in connection
therewith, shall remain in full force and effect, and are hereby ratified and
confirmed.
(c) Except as expressly provided herein, the execution,
delivery and effectiveness of this Amendment shall not operate as a waiver of
any right, power or remedy of the Agent or the Lenders, nor constitute a waiver
of any provision of the Credit Agreement or any other documents, instruments and
agreements executed and/or delivered in connection therewith.
<PAGE> 3
5. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the internal laws (as opposed to the conflict of
law provisions) of the State of Illinois.
6. HEADINGS. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
7. COUNTERPARTS. This Amendment may be executed by one or more
of the parties to the Amendment on any number of separate counterparts and all
of said counterparts taken together shall be deemed to constitute one and the
same instrument.
<PAGE> 4
IN WITNESS WHEREOF, this Amendment has been duly executed and
delivered on the date first above written.
AMERICAN ARCHITECTURAL BANKBOSTON, N.A.
PRODUCTS CORPORATION By: /s/ W. J. Sherald
------------------------
EAGLE AND TAYLOR COMPANY Name: W. J. Sherald
Title: Vice President
FORTE, INC.
WESTERN INSULATED GLASS, CO.
THERMETIC GLASS, INC.
BINNINGS BUILDING PRODUCTS, INC.
DANVID WINDOW COMPANY
MODERN WINDOW ACQUISITION
CORPORATION
AMERICAN GLASSMITH ACQUISITION
CORPORATION
VINYLSOURCE, INC.
WEATHER-SEAL ACQUISITION
CORPORATION
EAGLE WINDOW & DOOR CENTER, INC.
DENVER WINDOW ACQUISITION
CORPORATION
AAPC ONE ACQUISITION CORPORATION
AAPC TWO ACQUISITION CORPORATION
By: /s/ Richard L. Kovach
---------------------------------------
(on behalf of the parties named above)
Name: Richard L. Kovach
Title: Chief Financial Officer
<PAGE> 1
EXHIBIT 10.12c
AMENDMENT NO. 3
TO
CREDIT AGREEMENT
AMENDMENT NO. 3 TO CREDIT AGREEMENT (the "AMENDMENT"), dated
as of December 31, 1998, among American Architectural Products Corporation, a
Delaware corporation, Eagle & Taylor Company, a Delaware corporation, Forte,
Inc., an Ohio corporation, Western Insulated Glass, Co., an Arizona corporation,
Thermetic Glass, Inc., a Delaware corporation, Binnings Building Products, Inc.,
a Delaware corporation, Danvid Window Company, a Delaware corporation, Modern
Window Acquisition Corporation, a Delaware corporation, American Glassmith
Acquisition Corporation, a Delaware corporation, VinylSource, Inc., a Delaware
corporation, Weather-Seal Acquisition Corporation, a Delaware corporation, Eagle
Window & Door Center, Inc., a Delaware corporation, Denver Window Acquisition
Corporation, a Delaware corporation, AAPC One Acquisition Corporation, a
Delaware corporation, and AAPC Two Acquisition Corporation, a Delaware
corporation (the "BORROWERS"), the institutions party hereto (the "LENDERS"),
and BankBoston, N.A., in its capacity as contractual representative for itself
and the other Lenders (the "AGENT") under that certain Credit Agreement, dated
as of June 9, 1998, as amended, by and among the Borrowers, the Lenders and the
Agent (the "CREDIT AGREEMENT"). Defined terms used herein and not otherwise
defined herein shall have the meaning given to them in the Credit Agreement.
WHEREAS, the Borrowers, the Lenders and the Agent have entered
into the Credit Agreement; and
WHEREAS, the Borrowers, the Lenders and the Agent have agreed
to amend the Credit Agreement on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises set forth
above, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrowers, the Lenders and the
Agent agree as follows:
1. AMENDMENT TO THE CREDIT AGREEMENT. Effective as of the date
first above written and subject to the execution of this Amendment by the
parties hereto and the satisfaction of the conditions precedent set forth in
SECTION 2 below, the Credit Agreement shall be and hereby is amended as follows:
1.1 Section 1.1 is hereby amended to delete from the
definition of "BORROWING BASE" the phrase "(12) sixty-two percent (62%) of the
raw materials component consisting of aluminum" and to substitute therefor the
phrase "(12) zero percent (0%) of the raw materials component consisting of
aluminum extrusion".
<PAGE> 2
1.2 Section 7.3(D) is hereby amended to insert therein the
following clause (vii): "(vii) Investments in TM Window and
Door Company not exceeding $3,250,000 in the aggregate.
1.3 Section 7.4(A) is hereby amended and restated as follows:
(A) MINIMUM FIXED CHARGE COVERAGE RATIO. The
Borrowers shall maintain a ratio ("FIXED CHARGE COVERAGE
RATIO") of (i) the sum of the amounts of (a) EBITDA for the
applicable period PLUS (b) cash proceeds from any Asset Sale
during the applicable period, excluding proceeds from the sale
or other transfer of any of the assets of or Equity Interests
in any Subsidiary MINUS (c) Capital Expenditures for the
applicable period MINUS (d) cash taxes paid by the Borrowers
and their respective consolidated Subsidiaries during the
applicable period to (ii) the sum of the amounts of (a)
Interest Expense for the applicable period PLUS (b) scheduled
amortization of the principal portion of all Indebtedness for
borrowed money of the Borrowers for the applicable period of
at least:
(i) 1.15 to 1.00 for the fiscal quarter ending
September 30, 1998;
(ii) 0.77 to 1.00 for the fiscal quarter ending
December 31, 1998; and
(iii) 1.10 to 1.00 for each fiscal quarter beginning
with the fiscal quarter ending December 31, 1999
through the Termination Date.
In each case, the Fixed Charge Coverage Ratio shall be
determined as of the last day of each fiscal quarter for the
four fiscal quarter period ending on such day (PROVIDED,
HOWEVER, for the first two of such calculations made after the
date of this Agreement, such calculations shall be done based
upon the period commencing with June 1, 1998 and ending with
the quarterly period then ended).
1.4 Section 7.4(B) of the Credit Agreement is hereby amended
and restated as follows:
(B) MINIMUM CONSOLIDATED NET WORTH. Holdings shall not permit
its Consolidated Net Worth to be less than (i) as of September 30,
1998, $2,648,953 MINUS the amount of any non-recurring charges and tax
reserves taken by the Borrower with respect to fiscal year 1998, and
(ii) as of December 31, 1998, $(1,900,000), PLUS one hundred percent
(100%) of the net cash proceeds resulting from the issuance by any
Borrower of any Capital Stock.
<PAGE> 3
1.5 Section 7.4 is hereby amended to insert immediately after
Section 7.4(B) the following:
(C) MINIMUM EBITDA. The Borrowers, on a consolidated basis,
shall not permit EBITDA to be less than the amounts set forth
below for each of the fiscal quarters ending on the dates set
forth below:
<TABLE>
<CAPTION>
Fiscal Quarter Ending on or
Minimum Ebitda About the Dates Set Forth Below
-------------- -------------------------------
<S> <C>
$1,900,000 March 31, 1999
$7,200,000 June 30, 1999
$9,100,000 September 30, 1999
$6,100,000 December 31, 1999
</TABLE>
In each case, EBITDA shall be determined as of the last day of each
fiscal quarter for the fiscal quarter ending on such date.
(D) MAXIMUM CAPITAL EXPENDITURES. The Borrowers, on a
consolidated basis, shall not expend for Capital Expenditures
in the acquisition of fixed assets, in excess of the following
amounts during the fiscal quarters ending on the dates listed
below:
Capital Expenditures Fiscal Quarter Ending
-------------------- ---------------------
$2,500,000 March 31, 1999
$3,800,000 June 30, 1999
$3,400,000 September 30, 1999
$1,850,000 December 31, 1999
2. CONDITIONS PRECEDENT. This Amendment shall become effective
as of the date above written, if, and only if, the Agent has received duly
executed originals of this Amendment from the Borrowers, the Required Lenders
and the Agent.
3. REPRESENTATIONS AND WARRANTIES OF THE BORROWERS. The
Borrowers hereby represent and warrant as follows:
(a) This Amendment and the Credit Agreement, as amended
hereby, constitute legal, valid and binding obligations of the Borrowers and are
enforceable against the Borrowers in accordance with their terms.
(b) Upon the effectiveness of this Amendment, the Borrowers
hereby reaffirm all representations and warranties made in the Credit Agreement,
and to the extent the same are not amended hereby, agree that all such
representations and warranties shall be deemed to have been remade as of the
date of delivery of this Amendment, unless and to the extent that any such
representation and warranty is stated
<PAGE> 4
to relate solely to an earlier date, in which case such representation and
warranty shall be true and correct as of such earlier date.
4. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT.
(a) Upon the effectiveness of Section 1 hereof, on and after
the date hereof, each reference in the Credit Agreement to "this Credit
Agreement," "hereunder," "hereof," "herein" or words of like import shall mean
and be a reference to the Credit Agreement as amended hereby.
(b) The Credit Agreement, as amended hereby, and all other
documents, instruments and agreements executed and/or delivered in connection
therewith, shall remain in full force and effect, and are hereby ratified and
confirmed.
(c) Except as expressly provided herein, the execution,
delivery and effectiveness of this Amendment shall not operate as a waiver of
any right, power or remedy of the Agent or the Lenders, nor constitute a waiver
of any provision of the Credit Agreement or any other documents, instruments and
agreements executed and/or delivered in connection therewith.
5. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the internal laws (as opposed to the conflict of
law provisions) of the State of Illinois.
6. HEADINGS. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
7. COUNTERPARTS. This Amendment may be executed by one or more
of the parties to the Amendment on any number of separate counterparts and all
of said counterparts taken together shall be deemed to constitute one and the
same instrument.
<PAGE> 5
IN WITNESS WHEREOF, this Amendment has been duly executed and
delivered on the date first above written.
AMERICAN ARCHITECTURAL BANKBOSTON, N.A.,
PRODUCTS CORPORATION individually and as Agent
By: /s/ W. J. Sherald
EAGLE AND TAYLOR COMPANY -----------------------
Name: W. J. Sherald
FORTE, INC. Title: Vice President
WESTERN INSULATED GLASS, CO.
THERMETIC GLASS, INC.
BINNINGS BUILDING PRODUCTS, INC.
DANVID WINDOW COMPANY
MODERN WINDOW ACQUISITION
CORPORATION
AMERICAN GLASSMITH ACQUISITION
CORPORATION
VINYLSOURCE, INC.
WEATHER-SEAL ACQUISITION
CORPORATION
EAGLE WINDOW & DOOR CENTER, INC.
DENVER WINDOW ACQUISITION
CORPORATION
AAPC ONE ACQUISITION CORPORATION
AAPC TWO ACQUISITION CORPORATION
By: /s/ Richard L. Kovach
--------------------------------
(on behalf of the above-listed parties)
Name: Richard L. Kovach
Title: Chief Financial Officer
<PAGE> 1
Exhibit 10.14
THIS NOTE IS SUBJECT TO A PROHIBITION ON TRANSFER
SUBORDINATED PROMISSORY NOTE
Cleveland, Ohio
$7,500,000 June 12, 1998
FOR VALUE RECEIVED, the undersigned, American Architectural
Products Corporation, a Delaware corporation ("AAPC"), promises to pay to the
order of Louisiana-Pacific Corporation, a Delaware corporation, ("L-P"), the
principal amount of SEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($7,500,000),
together with interest (calculated on the basis of a year of 360 days and based
upon the number of days actually elapsed) on the daily unpaid principal balance
hereof from the date hereof at a rate per annum equal to the average LIBOR rate
over the term of the Note as reported in the daily edition of the Wall Street
Journal plus 1.5%. Interest shall accrue from the date hereof and the principal
balance hereof and all accrued but unpaid interest thereon shall be due and
payable within three (3) days of the closing of the first to occur of (i) an
AAPC common stock offering in an amount equal to or greater than 15,000,000, or
(ii) an AAPC high yield debt offering in an amount equal to or greater than
50,000,000, or in any event, no later than June 30, 1999. AAPC shall have the
right to prepay the principal amount of this Subordinated Promissory Note (this
"Note") with then accrued interest, in whole or in part, at any time, without
premium or penalty.
This Note is being delivered in accordance with SUBSECTIONS
3.1.2 and 4.3.1 of the Asset Purchase Agreement between L-P and Weather-Seal
Acquisition Corporation ("WAC"), dated as of June 5, 1998 (the "Purchase
Agreement"), and is subject to the terms and conditions of the Purchase
Agreement, including, without limitation, SECTION 10.8 of the Purchase
Agreement, which provides that neither AAPC nor WAC shall have any right to set
off Damages (as defined in the Purchase Agreement) against payments due under
this Note, and SECTION 10.1 of the Purchase Agreement which provides, among
other things, that WAC (as guaranteed by AAPC) shall indemnify L-P for any
Damages L-P may incur due to (i) any breach by AAPC of the terms of this Note,
or (ii) the collection of amounts owed under, or the enforcement of the terms
of, this Note.
If any amount of principal or interest payable hereunder is
not paid when due (whether at stated maturity, by acceleration or otherwise),
then the entire outstanding principal balance hereof, together with all overdue
interest, shall at the L-P's option (exercised then or thereafter) automatically
and immediately accrue interest until such default is cured, payable on demand,
at a rate per annum equal to the greater of (i) 5% per annum above the interest
rate otherwise in effect, or (ii) twelve (12)% per annum.
1
<PAGE> 2
No delay or omission on the part of L-P in exercising any
right or remedy hereunder or in connection herewith shall operate as a waiver of
such right or remedy or of any other right or remedy hereunder or in connection
herewith. Any waiver of L-P's rights or remedies hereunder or in connection
herewith must be in writing and signed by L-P. A waiver on any one occasion
shall not be construed as a bar to or waiver of any such right or remedy on a
future occasion.
AAPC represents that (i) it has legal power and right to
execute and deliver this Note and to perform and observe the provisions of this
Note; (ii) by executing and delivering this Note and by performing and observing
the provisions of this Note, AAPC will not violate any existing provision of its
certificate of incorporation or bylaws or any applicable law or violate or
otherwise become in default under any existing contract, including any
agreements for borrowed money or otherwise evidencing or relating to any
Indebtedness, or other obligations binding upon AAPC; (iii) the officer or
officers executing and delivering this Note on behalf of AAPC have been duly
authorized to do so; and (iv) this Note, when executed, is legally binding upon
AAPC in every respect. For purposed of this Note "Indebtedness" shall mean (i)
all obligations to repay borrowed money, direct or indirect, incurred, assumed,
or guaranteed, (ii) all obligations for the deferred purchase price of capital
assets excluding trade payables, (iii) all obligations under conditional sales
or other title retention agreements, and (iv) and all lease obligations which
have been or should be capitalized on the books of any person, corporation,
association, limited liability company, partnership, joint venture, or political
entity or subdivision.
AAPC shall be in default under this Note upon the occurrence
of any of the following events of default ("Events of Default"):
(a) AAPC shall fail to pay any principal of , or interest on,
this Note when the same becomes due and payable; or
(b) any representation or warranty made by AAPC (or any of its
officers) in the Purchase Agreement or in this Note shall prove to have been
incorrect in any material respect when made; or
(c) AAPC shall fail to perform or observe any term, covenant
or agreement contained in this Note on its part to be performed or observed; or
(d) AAPC shall fail to pay any principal of or premium or
interest on any Indebtedness which is outstanding in a principal amount of at
least $1,000,000 (or its equivalent, if in any other currency) in the aggregate
of AAPC when the same becomes due and payable (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise), and such failure shall
continue after the applicable grace period, if any, specified in the agreement,
instrument or document relating to such Indebtedness; or any other event shall
occur or condition shall exist under any agreement, instrument or document
relating to any such Indebtedness and shall continue after the applicable grace
period, if any, specified in such agreement, instrument or document, if the
effect of such event or condition is to accelerate, or to permit the
acceleration of, the maturity of such Indebtedness; or any such Indebtedness
shall be declared to be due and payable, or required to be prepaid (other than
by a regularly scheduled required prepayment), redeemed, purchased or defeased,
or an offer to prepay, redeem, purchase or defease such Indebtedness shall be
required to be made, in each case prior to the stated maturity thereof; or
2
<PAGE> 3
(e) AAPC shall generally not pay its debts as such debts
become due, or shall admit in writing its inability to pay its debts generally,
or shall make a general assignment of the benefit of creditors; or any
proceeding shall be instituted by or against AAPC seeking to adjudicate it a
bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of a
receiver, trustee, custodian or other similar official for it or for any
substantial part of its property an, in the case of any such proceeding
instituted against it (but not instituted by it), either such proceeding shall
remain undismissed or unstayed for a period of 30 days, or any of the actions
sought in such proceeding (including, without limitation, the entry of an order
for relief against, or the appointment of a receiver, trustee, custodian or
other similar official for, it or for any substantial part of its property)
shall occur; or AAPC shall take any corporate action to authorize any of the
actions set for the in this subsection (e); or
(f) any judgment or order for the payment of money in excess
of $500,000 (or its equivalent, if in any other currency) shall be rendered
against AAPC and either (i) enforcement proceedings shall have been commenced by
any creditor upon such judgment or order or (ii) there shall be any period of 30
consecutive days during which a stay of enforcement of such judgment or order,
by reason of a pending appeal or otherwise, shall not be in effect; or
(g) AAPC shall incur or suffer to exist any Indebtedness other
than the Senior Debt (as defined below); or
(h) AAPC shall transfer or attempt to transfer this Note in
contravention of the terms of this Note;
then, and in any such event, the L-P may, by notice to AAPC, declare this Note,
all interest theron and all other amounts payable under this Note to be
forthwith due and payable, whereupon this Note, all such interest and all such
amounts shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by AAPC; provided, however, that in the event of an actual or deemed
entry of an order for relief with respect to AAPC of the nature referred to in
clause (e) above, this Note, all such interest and all such amounts shall
automatically become and be due and payable, without presentment, demand,
protest or any notice of any kind, all of which ware hereby expressly waived by
AAPC.
By its acceptance of this Note, L-P agrees that the payment of
the principal, interest and other sums due or to become due on this Note is
hereby expressly subordinated in right of payment to the prior payment in full
of (i) all amounts loaned to AAPC by Bank Boston, NA pursuant to that certain
Credit Agreement, dated June 9, 1998; and (ii) the Indebtedness represented by
AAPC's 11-3/4% Senior Notes due 2007 in the aggregate principal amount of
$125,000,000 (collectively, the "Senior Debt"). If an event occurs and is
continuing which is a default or an event of default, or which with notice or
lapse of time, or both, would become a default or event of default either in
payment of principal of, or interest on, Senior Debt when due, or which under
any agreement relating to Senior Debt would permit the holder thereof to cause
any part of such Senior Debt to become due prior to its stated maturity, whether
by prepayment, acceleration or otherwise, or in the event of any distribution of
the assets of AAPC
3
<PAGE> 4
upon any dissolution, winding up, total liquidation or reorganization of AAPC,
no payments of any kind may be made by AAPC with respect to any Indebtedness due
under this Note unless all amounts due on the Senior Debt shall have been paid
or provided for.
This Note shall bind AAPC and its successors and assigns, and
the benefits hereof shall inure to the benefit of L-P and its successors and
assigns. All references herein to the "AAPC" and "L-P" shall be deemed to apply
to AAPC and L-P, respectively, and to their respective successors and assigns.
THIS NOTE IS NOT TRANSFERABLE AND ANY PURPORTED TRANSFER IN
VIOLATION OF THIS PROVISION SHALL BE OF NO FORCE OR EFFECT.
AAPC waived presentment, demand, notice, protest, and all
other demands and notices in connection with delivery, acceptance, performance,
default, or enforcement of this Note. This Note is subject to and shall be
governed by and according to the laws of the State of Ohio.
AAPC hereby irrevocably and unconditionally (i) submits for
itself and its property in any legal action or proceeding relating to this Note,
or for recognition and enforcement of any judgment in respect therefor, to the
non-exclusive general jurisdiction of the courts of the State of Ohio, the
courts of the United States of America for the Northern District of Ohio and
appellate courts from any thereof; (ii) consents that any such action or
proceeding may be brought in such courts, and waives any objection that it may
now or hereafter have to the venue of any such action or proceeding in any such
court or that such action or proceeding was brought in an inconvenient court and
agrees not to plead or claim the same; (iii) agrees that service of process in
any such action or proceeding may be effected by mailing a copy thereof by
registered or certified mail (or any substantially similar form of mail),
postage prepaid, to AAPC at its address specified in the Purchase Agreement; and
(iv) agrees that nothing herein shall affect the right to effect service of
process in any other manner permitted by law or shall limit the right to sue in
any other jurisdiction.
AAPC, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY RIGHT TO HAVE
A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT,
OR OTHERWISE, BETWEEN L-P AND AAPC ARISING OUT OF, IN CONNECTION WITH, RELATED
TO, OR INCIDENTAL TO THE RALATIONSHIP ESTABLISHED BETWEEN AAPC AND L-P IN
CONNECTION WITH THIS NOTE.
IN WITNESS WHEREOF, AAPC has duly executed and delivered this
Note on the date first above written.
AMERICAN ARCHITECTURAL PRODUCTS
CORPORATION
By: /s/ Joseph Dominijanni
----------------------------------------
Name: Joseph Dominijanni
Title: Treasurer
4
<PAGE> 1
Exhibit 10.14a
Pursuant to a letter agreement dated February 16, 1999, the promissory note in
the original principal amount of $7,500,000 issued by the Company to
Louisiana-Pacific Corporation (the "Promissory Note") was amended to: (i) extend
the maturity date of the Promissory Note to January 1, 2000; (ii) commencing
June 30, 1999 through the maturity date of the Promissory Note, increase the
interest rate on amounts outstanding under the Promissory Note to a rate per
annum equal to the average LIBOR rate over such period as reported in The Wall
Street Journal plus 4.5%. No other terms of the Promissory Note were affected by
such amendment.
<PAGE> 1
Exhibit 13
ANNUAL REPORT ON FORM 10-K
ITEM 6. Selected Financial Data of the Company
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
ITEM 7(a). Qualitative and Quantitative Disclosures Regarding Market Risk
ITEM 8. Financial Statements and Supplementary Data
<PAGE> 2
ITEM 6.
SELECTED FINANCIAL DATA OF THE COMPANY
The following table sets forth selected historical financial data of the Company
and its Predecessors for the five years ended December 31, 1998. The selected
financial data for the Company for 1996, 1997 and 1998 were derived from the
audited consolidated financial statements of the Company for the period from
June 19, 1996 (inception) through December 31, 1996 and for the years ended
December 31, 1997 and 1998, included elsewhere in this Report. The selected
financial data for the Predecessors for 1996 were derived from the audited
combined financial statements of Eagle Window & Door, Inc. and Subsidiaries and
Taylor Building Products Company and the audited combined financial statements
of Mallyclad Corporation and Vyn-L Corporation included in the Company's Annual
Report on Form 10-K, filed with the Securities and Exchange Commission. The
historical financial data for the Predecessors for 1994 and 1995 were derived
from the audited combined financial statements of Eagle Window & Door, Inc. and
Subsidiaries and Taylor Building Products Company and the audited combined
financial statements of Mallyclad Corporation and Vyn-L Corporation.
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical financial statements along with the notes thereto
of the Company included elsewhere in this Report, and in the historical
financial statements along with the notes thereto of Eagle Window & Door, Inc.
and Subsidiaries and Taylor Building Products Company, and Mallyclad Corporation
and Vyn-L Corporation.
<TABLE>
<CAPTION>
Predecessors (1) The Company (2), (3)
----------------------------------- --------------------------------------------
1994 1995 1996 1996 1997 1998
----------- ----------- ----------- ------------- -------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales $97,209 $76,955 $41,887 $25,249 $94,252 $257,264
Cost of sales 87,181 71,164 35,430 19,027 74,304 203,781
----------- ----------- ----------- ------------- -------------- ---------------
Gross profit 10,028 5,791 6,457 6,222 19,948 53,483
Selling, general & administrative
expenses 14,929 12,983 7,440 4,060 17,178 45,052
Restructuring charge -- 840 -- -- -- --
----------- ----------- ----------- ------------- -------------- ---------------
Income (loss) from operations (4,901) (8,032) (983) 2,162 2,770 8,431
Interest expense, net 2,040 1,755 1,143 756 3,928 15,977
Other (income) expense (93) 299 480 5 (3) 1,298
----------- ----------- ----------- ------------- -------------- ---------------
Income (loss) before income taxes (6,848) (10,086) (2,606) 1,401 (1,155) (8,844)
Income tax provision (benefit) (2,508) (3,578) (908) 640 (390) --
----------- ----------- ----------- ------------- -------------- ---------------
Income (loss) before extraordinary
item (4,340) (6,508) (1,698) 761 (765) (8,844)
Extraordinary item, net of income
tax benefit of $282,000 -- -- -- -- (494) --
----------- ----------- ----------- ------------- -------------- ---------------
Net income (loss) $(4,340) $(6,508) $(1,698) $761 $ (1,259) $(8,844)
Basic income (loss) per common
share before extraordinary item $0.10 $ (0.06) $(0.64)
Extraordinary item -- (0.04) --
------------- -------------- ---------------
Basic income (loss) per common
share $0.10 $ (0.10) $(0.64)
Weighted average common shares
outstanding, basic 7,884,000 12,982,000 13,785,000
Diluted income (loss) per common
share before extraordinary item $0.09 $ (0.06) $(0.64)
Extraordinary item -- (0.04) --
------------- -------------- ---------------
Diluted income (loss) per common
share $0.09 $ (0.10) $(0.64)
Weighted average common shares
outstanding, diluted 8,160,000 12,982,000 13,785,000
OTHER DATA:
Depreciation & amortization $3,976 $3,392 $2,698 $442 $2,680 $9,510
Capital expenditures 1,993 2,621 1,683 429 1,548 7,946
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Predecessors (1) The Company (2), (3)
------------------------ -----------------------------------
1994 1995 1996 1997 1998
------------- ---------- --------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents $288 $861 $964 $40,132 $88
Total assets 39,440 26,629 42,744 158,324 187,059
Working capital (deficit) (5,276) (9,736) 176 61,472 14,955
Long-term debt and capital leases (4)
-- -- 17,533 126,518 134,155
Stockholders' equity (deficit) 2,540 (3,969) 4,277 5,581 (1,429)
</TABLE>
(1) Selected financial data for the Predecessors for 1994 and 1995 were derived
from the audited combined financial statements of Eagle and Taylor for 1994
and 1995 and the audited combined financial statements of Mallyclad and
Vyn-L for the years ended November 30, 1994 and 1995. Selected financial
data for the predecessors for 1996 were derived from the audited combined
financial statements of Eagle and Taylor for the period January 1, 1996
through August 29, 1996, and the audited combined financial statements of
Mallyclad and Vyn-L for the period December 1, 1995 through June 30, 1996.
Mallyclad and Vyn-L reported net sales of $4.6 million, $4.0 million and
$1.9 million for 1994, 1995 and the period December 1, 1995 through June
30, 1996, respectively; Mallyclad and Vyn-L reported net income (loss) of
$99,000, $(120,000) and $(12,000) for those same periods. Because the
operating results and financial position of Mallyclad and Vyn-L do not
materially impact the financial data of the Predecessors on a combined
basis, financial data of Mallyclad and Vyn-L have not been presented
separately in the above table.
(2) For financial reporting purposes, the Company represents AAPC after giving
effect to the series of transactions described below.
ETC was formed in June 1996. Effective June 25, 1996, ETC's ultimate
controlling shareholder acquired Mallyclad and Vyn-L. Subsequently, on
December 18, 1996, Mallyclad and Vyn-L were merged into ETC. Based on the
control maintained by this shareholder, the merger was considered a
transaction among companies under common control and, accordingly,
accounted for at the shareholder's historical cost and included in the
accounts of ETC effective June 25, 1996.
<PAGE> 4
Effective August 29, 1996, ETC acquired Eagle and Taylor. The acquisition
was accounted for as a purchase with the assets acquired and the
liabilities assumed recorded at estimated fair values and the results of
operations included in ETC's financial statements from the date of
acquisition.
Effective December 18, 1996, ETC acquired and combined with FCEI. The
acquisition was accounted for as a purchase and, accordingly, the assets
acquired and liabilities assumed by ETC were recorded at their estimated
fair values and the results of FCEI's operations and included in the
financial statements of ETC from the date of the acquisition. The merged
entity subsequently changed its name to American Architectural Products
Corporation (AAPC).
For the purposes of presenting the selected financial data, Eagle and
Taylor, and Mallyclad and Vyn-L are considered to be the Predecessors and
their financial data are presented on a combined basis. Because the
operating results and financial position of Mallyclad and Vyn-L do not
materially impact the financial data of the Predecessors on a combined
basis, financial data of Mallyclad and Vyn-L have not been presented
separately in the above table. The financial data for the period after the
acquisitions are presented on different cost bases than the financial data
before the acquisitions and, therefore, are not comparable.
(3) Selected financial data for the Company for 1996, 1997 and 1998 were
derived from the audited financial statements of the Company for the period
from June 19, 1996 (inception) through December 31, 1996, and the audited
financial statements for the years ended December 31, 1997 and 1998. The
1996, 1997 and 1998 financial statements include the operations of acquired
businesses from the respective dates of acquisition as detailed in Item 7.
- Management's Discussion and Analysis of Financial Analysis of Financial
Condition and Results of Operations.
(4) Includes current and long term portion of long term debt and capitalized
leases, excludes revolving lines of credit.
<PAGE> 5
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BACKGROUND
In August 1996, Eagle and Taylor were acquired by Eagle & Taylor
Company (ETC) as the foundation for the consolidation of a series of
acquisitions in the fenestration industry. In December 1996, ETC acquired and
combined with Forte Computer Easy, Inc. (FCEI), a publicly held company whose
wholly owned subsidiary, Forte Inc., is a manufacturer of commercial aluminum
windows. Subsequent to this transaction, the newly combined entity changed its
name to American Architectural Products Corporation. As a result, ETC and Forte
became wholly-owned subsidiaries of the Company.
ETC was incorporated on June 19, 1996 and had no significant operations
or assets until it acquired two companies, Eagle and Taylor, on August 29, 1996.
The acquisitions of Eagle and Taylor were accounted for as a purchase, with the
assets acquired and the liabilities assumed recorded at estimated fair market
values and the results of the Eagle and Taylor operations included in ETC's
consolidated financial statements from the date of acquisition.
ETC's ultimate controlling stockholder acquired 100% ownership of two
other companies, Mallyclad and Vyn-L, in June 1996. On December 18, 1996,
Mallyclad and Vyn-L collectively were merged into ETC concurrently with the FCEI
combination described below. The merger was accounted for at historic cost in a
manner similar to a pooling of interests. The operating results of Mallyclad and
Vyn-L from the date of its acquisition by ETC's ultimate controlling stockholder
are included in the consolidated financial statements. Eagle, Taylor, Mallyclad
and Vyn-L, are considered predecessors of ETC for financial reporting purposes.
The Company has consummated the following acquisitions since December
1996:
<TABLE>
<CAPTION>
Company Date
----------------------------------------------------------------------------------------
<S> <C>
Western March 1997
Thermetic July 1997
Binnings, Danvid, American Glassmith and Modern December 1997
Vinyl extrusion division of Easco, Inc. (VinylSource) and
Blackhawk January 1998
Denver April 1998
Weather-Seal division of Louisiana-Pacific June 1998
</TABLE>
The above acquisitions were accounted for as purchases, with the
purchase prices allocated among the assets acquired and liabilities assumed
based on their estimated fair market values, and the results of their operations
were included in the consolidated financial statements of the Company from the
respective dates of acquisition.
<PAGE> 6
BASIS OF PRESENTATION
The following table sets forth operations for the Company and its
Predecessors -- Eagle, Taylor, Mallyclad and Vyn-L -- for 1996, 1997 and 1998.
As a result of the acquisitions discussed above, and the related differences in
cost bases of the assets and liabilities of the Company after the acquisitions
and the cost bases of the Predecessors, the results of operations for the
periods presented are not comparable. Such lack of comparability is explained in
the discussion below. The following financial data should be read in conjunction
with the historical financial statements along with notes thereto of the
Company, Eagle Window & Door, Inc. and Subsidiaries and Taylor Building Products
Company, and Mallyclad Corporation and Vyn-L Corporation.
<TABLE>
<CAPTION>
Company
Predecessors ---------------------------------------------------
1996(1) 1996 (2) 1997 (3) 1998 (3)
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $ 41,887 $ 25,249 $ 94,252 $ 257,264
Cost of Sales 35,430 19,027 74,304 203,781
---------- -------- -------- ----------
Gross Profit 6,457 6,222 19,948 53,483
15.4% 24.6% 21.2% 20.8%
Selling, General & Administrative expenses (4) 7,440 4,060 17,178 45,052
---------- -------- -------- ----------
Income (loss) from operations (983) 2,162 2,770 8,431
(2.3)% 8.6% 2.9% 3.3%
Interest expense, net (4) 1,143 756 3,928 15,977
Other (income) expense 480 5 (3) 1,298
---------- -------- --------- ----------
Income (loss) before income taxes (2,606) 1,401 (1,155) (8,844)
Income tax expense (benefit) (908) 640 (390) --
----------- -------- --------- ----------
Income (loss) before extraordinary item
(1,698) 761 (765) (8,844)
Extraordinary item, net of income tax benefit of $282
-- -- (494) --
---------- -------- --------- ----------
Net income (loss) $ (1,698) $ 761 $ (1,259) $ (8,844)
=========== ======== ========= ===========
</TABLE>
(1) Financial data of the Predecessors for 1996 was derived from the audited
combined financial statements of Eagle and Taylor for the period from
January 1, 1996 to August 28, 1996 and from the audited combined financial
statements of Mallyclad and Vyn-L for the period from December 1, 1995 to
June 24, 1996. Mallyclad and Vyn-L reported $1.9 million of net sales and a
$12,000 net loss for the period ended June 24,1996 (pre-acquisition
period). Because the operations of Mallyclad and Vyn-L for the
pre-acquisition period do not materially impact the financial data of the
Predecessors on a combined basis, Mallyclad and Vyn-L have not been
presented separately in the above table. Because the financial data of the
Predecessors is presented on different cost bases from that of the Company
after acquisitions, the financial data of the Predecessors is not
comparable to the 1996, 1997 and 1998 financial data of the Company.
(2) Financial data for the Company for 1996 were derived from the audited
consolidated financial statements of the Company for the period from June
19, 1996 (inception) through December 31, 1996. These financial statements
include the operations of Mallyclad and Vyn-L from June 25, 1996 and the
operations of Eagle and Taylor from August 29, 1996.
(3) Financial data for 1997 and 1998 were derived from the consolidated
financial statements of the Company. Because the financial data of the
Company for 1997 and 1998 are presented for full year periods and on
different cost bases from the financial data for the Predecessors for 1996,
such data are not comparable to the financial data for 1996.
<PAGE> 7
(4) In addition to comparability issues relating to differences in asset and
liability bases described in notes (1) through (3) above, other factors
affect the comparability of the Predecessors' and Company's financial data
from year to year. The former parent of Eagle and Taylor provided treasury
functions and allocated various general and administrative expenses.
Interest expense allocated by the former parent of Eagle and Taylor
approximated $1.1 million for the eight months ended August 29, 1996 and
was treated as contributed capital of Eagle and Taylor by the former
parent. A management fee based on budgeted sales was charged by the former
parent to Eagle and Taylor, approximating $1.0 million for the eight months
ended August 29, 1996. Other expenses charged to Eagle and Taylor by the
former parent that were specifically incurred for those companies for items
such as general insurance, health insurance and workers compensation
insurance approximated $1.7 million the eight months ended August 29, 1996.
In addition, Eagle and Taylor filed their tax returns on a consolidated
basis with their former parent and all provisions for federal and state
income taxes, including provisions for deferred taxes, were provided
through intercompany accounts. Because these charges to Eagle and Taylor
from their former parent may differ from such charges for those entities as
part of the Company, comparison of the Predecessors' pre-acquisition 1996
results and the Company's post acquisition 1996, 1997 and 1998 results may
not be meaningful.
RESULTS OF OPERATIONS
COMPARISON OF YEAR ENDED DECEMBER 31, 1998 TO YEAR ENDED DECEMBER 31, 1997
Net Sales. Net sales increased by $163.0 million to $257.3 million in
1998 as compared to $94.3 million in 1997. The increase is primarily the result
of the inclusion of $154.8 million of net sales for acquisitions not included
for a comparable period of 1997. Growth in the Company's existing residential
businesses accounted for a significant portion of the remaining $8.2 million
increase, as a result of higher volumes generated by stronger customer
relationships, new customer additions and an improved product offering mix. The
Company's commercial business had increased revenues of $0.9 million over 1997,
resulting primarily from new contracts. The extrusion business had no
significant revenues until the acquisition of Binnings in December 1997 and
VinylSource in January 1998.
Cost of Sales. Cost of sales increased to $203.8 million, representing
79.2% of net sales, from $74.3 million, or 78.8% of net sales, in 1997. The
increase principally results from $124.9 million in additional costs associated
with the acquisitions which were not included for a comparable period of 1997.
The remaining increase of $4.6 million related primarily to the residential
sales volume increases.
Gross Profit. Gross profit for the year ended December 31, 1998 was
$53.5 million, representing an increase of $33.5 million from 1997. Gross profit
attributable to the inclusion of the acquisitions not included for a comparable
period of 1997 amounted to $29.9 million. The remaining $3.6 million increase in
gross profit resulted from the Company's residential business sales increases
offset slightly by a decline in the Company's commercial contract business. The
decline in its gross profit margin from 21.2% in 1997 to 20.8% in 1998 reflects
the lower margins associated with the 1998 acquisitions. Although the Company
has achieved improved margins for the 1998 acquisitions in post-acquisition
operations, their margins have not yet reached the margins of the Company's core
businesses.
Selling, General and Administrative Expenses. SG&A expenses increased
to $45.1 million in 1998 from $17.2 in 1997. Amounts related to the inclusion of
the acquisitions not included for a comparable period of 1997 amounted to $21.6
million. Additionally, a non-cash charge of $1.8 million was recorded in 1998
related to stock based compensation. The remainder of the $27.9 million increase
is attributable to the Company's volume increases in its residential business
and increased costs associated with the larger corporate structure of the
Company.
<PAGE> 8
Income from Operations. Income from operations increased $5.6 million
to $8.4 million from $2.8 million in 1997. The increase is attributable to
income from the acquired companies not included for a comparable period of 1997
and increases in the residential business offset in part by increased corporate
costs.
Interest Expense. Interest expense for the years ended December 31,
1998 and 1997 was $16.7 million and $3.9 million, respectively. The increased
interest expense reflects higher levels of debt required to support the
acquisitions and is due to a full year of interest on the Senior Notes, interest
related to the $25 million line of credit facility and interest related to the
$7.5 million note issued by the Company in connection with the Weather-Seal
acquisition. Prior to the issuance of the Senior Notes in December 1997, the
Company had approximately $34 million in debt bearing interest at a weighted
average rate of approximately 9.7%.
Other (Income) Expense. Other expense was $1.3 million in 1998. The
increase over the prior year was primarily the result of writing off costs
associated with unconsummated acquisition and financing transactions.
Income Taxes. The Company established a full valuation allowance on its
tax benefit in 1998. The Company recorded a tax benefit of $0.4 million in 1997
on a net loss before extraordinary items of $1.2 million, resulting in a tax
benefit at an effective tax rate of 33.8%.
Net Loss. The Company's consolidated net loss increased $7.5 million to
$8.8 million in 1998 from $1.3 million in 1997. The factors cited above were
responsible for the increase in net loss.
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO PERIOD FROM INCEPTION (JUNE 19,
1996) TO DECEMBER 31, 1996
Net Sales. Net Sales increased by $69.1 million to $94.3 million in
1997 as compared to $25.2 million in the period from June 19, 1996 through
December 31, 1996. The increase was primarily the result of the inclusion of
$68.0 million of net sales for acquisitions not included for a comparable period
of 1996. The remaining increase was primarily due to the Company's residential
business and was generated by stabilized customer relationships, new customer
additions and an improved product mix.
Cost of Sales. Cost of sales increased to $74.3 million, or 78.8% of
net sales, for the year ended December 31, 1997 from $19.0 million, or 75.4% of
net sales, for the period from June 19, 1996 through December 31, 1996. The
$55.3 million increase in cost of sales included $54.1 million from acquired
companies not included for a comparable period of 1996 and $1.2 million in costs
related to overall sales volume increases in the residential business.
Gross Profit. Gross Profit for the year ended December 31, 1997 was
$19.9 million, representing an increase of $13.7 million from the period from
June 19, 1996 through December 31, 1996. Gross profit attributable to the
inclusion of acquisitions not included in a comparable period of 1996 amounted
to $14.0 million. This was offset by a slightly decreased margin for the
companies owned in 1996. Gross profit as a percentage of sales decreased from
24.6% in the 1996 period to 21.2% in 1997. The decrease in the margin represents
a combination of both a lower margin on the companies acquired in 1997 and a
decline in the margin of the Company's commercial business.
<PAGE> 9
Selling, General, and Administrative Expenses. SG&A expenses increased
$13.1 million to $17.2 million in 1997 as compared to $4.1 million in the period
from June 19, 1996 through December 31, 1996. The increase between years was
primarily the result of the inclusion of $10.5 million of costs of the acquired
companies not included in a comparable period in 1996 and administrative costs
related to the addition of a corporate headquarters and corporate management for
1997.
Income from Operations. Income from operations increased $0.6 million
from $2.2 million in the period from June 19, 1996 through December 31, 1996
to $2.8 million for 1997. The increase is primarily attributable to additional
operating income of $3.5 million from the inclusion of acquired companies for a
period not included in 1996 and offset by an increase in SG&A expenses of the
Company over the comparable period of 1996.
Interest Expense. Interest expense for the year ended December 31, 1997
and the period from June 19, 1996 through December 31, 1996 was $3.9 million and
$0.8 million, respectively. The $3.1 million increase primarily reflects
increased borrowings due to acquisitions and the Senior Notes issued in December
1997.
Income Taxes. The Company recorded a tax benefit of $0.4 million at
December 31, 1997 on a net loss before extraordinary items of $1.2 million,
resulting in a tax benefit at an effective tax rate of 33.8%. The Company
recorded taxes of $0.6 million in 1996 on its income of $1.4 million.
Extraordinary Loss. In 1997, the Company recorded an extraordinary
item, loss on extinguishment of debt of $0.5 million, net of related tax benefit
of $0.3 million, relating to a prepayment penalty and deferred financing costs
charged to expense on the retirement of existing debt with a portion of proceeds
of the Notes.
Net Income (Loss). The Company's consolidated net loss increased to
$1.3 million in 1997 compared to net income of $0.8 million in the 1996 period.
The factors cited above were responsible for the decreased profitability.
The future operations of the Company will depend on a number of
factors, including the successful integration of the acquired companies to take
advantage of increased purchasing power, distribution capabilities and product
lines; continued improvements in manufacturing processes, including greater
vertical integration; establishment of company-wide management information
systems; increased penetration of fast growing markets, both product (such as
vinyl) and geographic; continued growth in the new home and replacement and
remodeling markets; stability in raw material prices; continuation of key
customer and distributor relationships; and other factors.
LIQUIDITY AND CAPITAL RESOURCES
During the period from June 19, 1996 through December 31, 1996 and the
years ended December 31, 1997 and 1998, the Company's principal sources of funds
consisted of cash generated from operations and various financings. The Company
financed the majority of its acquisitions through secured senior debt facilities
and subordinated debt. In December 1997, the Company issued from the offering
of $125,000,000 of 11.75% Senior Notes (the Notes), due 2007. The net proceeds
of the Notes of approximately $118.5 million were used to extinguish existing
debt, finance acquisitions, provide working capital and fund general corporate
expenses.
Approximately $33.8 million of the net proceeds of the Notes were used
to repay indebtedness under existing debt agreements, including prepayment
penalties. The weighted average interest rate of the indebtedness repaid on
December 10, 1997 was 9.7%. In addition, the Company used approximately $47.8
million, $13.3 million and $15.9 million of the net proceeds to pay the cash
portions of the purchase price for the acquisitions consummated on December 10,
1997, the acquisition of VinylSource in January 1998 and the acquisition of
Weather-Seal in June, 1998, respectively. In June 1998, the Company secured a
revolving credit facility of $25 million to complete the acquisition of
Weather-Seal, fund working capital needs and finance future acquisitions. At
December 31, 1998, the Company had $12.6 million available under this facility.
<PAGE> 10
The Company's principal liquidity requirements are for debt service
requirements under the Notes, the note issued in connection with the
Weather-Seal acquisition and revolving credit facility and for working capital
needs and capital expenditures. The Company's annual debt service requirements,
including capital lease obligations, increased from $6.4 million in 1997 to
$16.7 million in 1998 due to the increased debt of the Company.
Cash provided by operations was $5.3 million, $1.5 million and $6.5
million for the period from June 19, 1996 through December 31, 1996 and for the
years ended December 31, 1997 and 1998, respectively. The increase in cash from
operations in 1998 over the prior year reflects net decreases in the Company's
working capital accounts. The Company's working capital requirements for
inventory and accounts receivable are impacted by changes in raw material costs,
the availability of raw materials, growth of the Company's business and
seasonality. As a result, such requirements may fluctuate significantly.
Capital expenditures for the period from June 19, 1996 through December
31, 1996 and for the years ended December 31, 1997 and 1998 were $0.4 million,
$1.5 million and $7.9 million, respectively. Capital outlays included
manufacturing equipment and computer software and hardware. Management expects
that its capital expenditure program will continue at a sufficient level to
support the strategic and operating needs of the Company's operating
subsidiaries. This level of expenditure may be higher than historical levels.
Future capital expenditures are expected to be funded from internally generated
funds, leasing programs and the Company's current and future credit facilities.
The Company made cash payments of $50.1 million relating to
acquisitions in 1998. This compares to $52.9 million and $12.8 million in 1997
and 1996, respectively. In March 1998, the Company sold its Mallyclad division
to a related party for $1.1 million.
Cash payments on long term debt and capital lease obligations were $1.1
million for the period from June 19, 1996 through December 31, 1996 and $23.6
million and $0.9 million for the years ended December 31, 1997 and 1998,
respectively. Net activity on the Company's lines of credit resulted in sources
of cash of $12.4 million in 1998 and uses of cash of $5.9 million in 1997. The
Company generated gross proceeds of $125.0 million from the issuance of the
Notes in December 1997. In addition, the Company paid approximately $6.0 million
in 1997 and an additional $2.0 million in 1998 in related fees and expenses
associated with debt financing. The Company expects to pursue additional
financing opportunities to fund its growth strategy.
The Company believes that cash flow from operations, together with the
revolving credit facility and other financing arrangements will be sufficient to
permit the Company to meet its expected operating needs, planned capital
expenditures and debt service requirements. However, there can be no assurance
that sufficient funds will be available from operations or under future
revolving credit or other borrowing arrangements to meet the Company's cash
needs. Future acquisitions may require additional financing and there can be no
assurance that such funds would be available on terms satisfactory to the
Company, if at all. Furthermore, the Company is limited in obtaining future
financing under the terms of the Notes. In addition, the Company's future
operating performance and ability to meet its financial obligations will be
subject to future economic conditions and to financial, business and other
factors, many of which will be beyond the Company's control.
<PAGE> 11
In August 1998, the Company entered into definitive agreements to acquire TSG
Industries, Inc., Nu-Sash of Indianapolis, Jarar Window Systems, Inc. and RC
Aluminum Industries, Inc. These Pending Acquisitions will be accounted for as
purchases with the purchase price allocated among the assets acquired and
liabilities assumed based on their estimated fair market values. The total
purchase price of the Pending Acquisitions is estimated to be $47.4 million. The
cash portion of this purchase price is estimated to approximate $41.9 million
and is expected to be funded through a financing transaction.
SEASONALITY
The Company's business is seasonal since its primary revenues are
driven by residential construction. Inclement weather during the winter months,
particularly in the northeast and midwest regions of the United States, usually
reduces the level of building and remodeling activity in both the home
improvement and new construction markets and, accordingly, has an adverse impact
on the demand for fenestration products. Traditionally, the Company's lowest
sales levels usually occur during the first and fourth quarters. The Company
believes that its 1997 acquisitions in the southwestern and southeastern United
States will minimize the risk to the Company for potentially unusual inclement
weather conditions in the midwest and the northeast. Because a high percentage
of the Company's manufacturing overhead and operating expenses are relatively
fixed throughout the year, operating income has historically been lower in
quarters with lower sales. Working capital requirements are usually at their
highest level during the second and third quarters.
CYCLICALITY
Demand in the fenestration industry is influenced by new home
construction activity and the demand for replacement products. Trends in the
housing sector directly impact the financial performance of the Company.
Accordingly, the strength of the U.S. economy, the age of existing home stock,
job growth, consumer confidence, consumer credit, interest rates and migration
of the inter/intra U.S. population have a direct impact on the Company. Any
declines in new housing starts and/or demand for replacement products may
adversely impact the Company and there can be no assurance that any such adverse
effects would not be material.
INFLATION AND RAW MATERIAL COSTS
During the past several years, the rate of inflation has been
relatively low and has not had a significant impact on the Company's operations.
However, the Company purchases raw materials, such as aluminum, wood, vinyl and
glass, that are subject to fluctuations in price that may not reflect the
general rate of inflation, and are more closely tied to the supply of and demand
for the particular commodity. Specifically, there have been periods of
significant and rapid changes in aluminum prices, with a concurrent short-term
impact on the Company's operating margins. In some cases, generally where the
increases have been modest, the Company has been able to mitigate the effect of
these price increases over the long-term by passing them on to customers.
YEAR 2000
Many existing computer programs use only two digits to identify to a
year. These programs were designed and developed without considering the impact
of the upcoming century change. Moreover, these programs often process financial
and other data that, based on the programs' inability to distinguish between the
Year 2000 and other century-end dates, could misreport or misinterpret and
report resulting in significant errors. If not corrected, many computer
applications could fail when processing data related to the Year 2000.
The Company's analysis of the Year 2000 implications includes (i) the
Company's information technology (IT) systems such as software, hardware,
operating systems, voice and data communication, (ii) the Company's
non-information technology (non-IT) systems or embedded technology such as
microprocessors contained in various equipment, safety systems, facilities and
utilities and (iii) the readiness of key third-party suppliers.
<PAGE> 12
The Company is continually assessing the impact of the Year 2000 issue
and has or intends to modify portions of its hardware and software so that its
computer systems will function properly with respect to dates in the year 2000
and thereafter. The Company has reviewed and will continue to review each
operating unit for the appropriate information system enhancements, with respect
to both the Year 2000 issue as well as strategic systems upgrades. For acquired
businesses, this assessment begins during the acquisition process as part of the
company's due diligence analysis.
The Company's Year 2000 program is being implemented in four phases.
(1) Inventory - identification and validation of all systems both IT
and non-IT that contain microprocessors and could be affected by the Year 2000.
This process was started in May 1998 and the most significant systems are
expected to be completed in early 1999.
(2) Evaluation - This phase consisted of determining what systems were
"mission critical" and have the potential for business disruption if lost, and
what systems were Year 2000 compliant. This phase also consisted of key customer
and supplier contact. Survey letters and Year 2000 strategy requests are being
distributed to "mission critical" suppliers with over 60% of the Company's
purchasing base targeted for contact. Once all of the survey responses are
returned assessments will be made as to which suppliers are potentially "at
risk". This information will be used during the development of a contingency
plan for each business unit and is expected to be completed by mid-1999.
(3) Remediation, Implementation and Testing - The Company is making
modifications to those systems which have a Year 2000 issue. The remediation for
these select systems is not significant to the overall operations of the
Company. In addition to the Year 2000 compliance issue and to allow the Company
to achieve its overall operating strategy, management intends to enhance
information technology by implementing an enterprise resource planning (ERP)
system for those operating units that require significant upgrades. Each
operating unit that is targeted for this strategic upgrade was prioritized for
implementation. This prioritized list of operating units was then segregated
into multiple installation phases, with each implementation phase having a
specific implementation timeline. The Company believes that the first phase of
implementation, including Year 2000 remediation and testing, will be finished by
September, 1999. The total cost of the ERP system is expected to be
approximately $2.7 million. In addition to addressing the Year 2000 issue, this
management information system is expected to provide additional benefits well
beyond Year 2000 compliance including the enhancement of the Company's overall
information technology capabilities. As a result of the new ERP installation,
certain modules of the present systems are being modified as a precaution to the
installation. The cost of this modification is not significant to the operations
of the Company and is expected to be approximately $110,000.
(4) Contingency planning - Contingency planning will be developed
following receipt by the Company of its business partners' surveys and Year
2000 strategy requests. These plans may include, but are not limited to
increases in inventory of finished-goods, raw material or both, backup regional
suppliers and secondary trucking companies. The Company will undertake
reasonable efforts to determine the readiness of its business partners;
however, no assurance can be given to the validity or reliability of the
information obtained.
The Company believes the worst case scenario for suppliers would be
that of some localized disruption of services could affect certain operating
units for a short period. While the Company's contingency plan is still being
formulated, management believes that the response will be flexible, real-time
and responsive to specific problems as they arise at specific operations.
The total incremental spending by AAPC relating to the Year 2000 issue
is not expected to be material to the Company's operations, liquidity or capital
resources. To date, AAPC has incurred approximately $80,000 during 1998 and
estimates to expense an additional $200,000 during 1999 for the Year 2000
issues. The Company did not incur any expenditures related to the Year 2000
issue before 1998. This amount is exclusive of the Company's expenditures
related to the aforementioned ERP system. These costs are also exclusive of any
costs associated with any contingency plans. Implementation of the Company's
Year 2000 program is an ongoing process. Consequently, the costs estimated above
and completion dates for the various components of the plan are subject to
change.
Developments may occur that could affect the Company's estimates of the
amount of time and costs necessary to modify and test its systems for Year 2000
compliance. These developments include, but are not limited to (i) the
availability and cost of personnel trained in this area, (ii) the ability to
locate and correct all relevant computer codes and equipment and (iii) the Year
2000 compliance success of key suppliers.
<PAGE> 13
While the Company believes its planning efforts are adequate to address
its Year 2000 concerns, there is still the uncertainty about the broader scope
of the Year 2000 issue as it may affect the Company and third parties that are
critical to AAPC's operations. For example, the lack of readiness by electrical
and water utilities, financial institutions, government agencies or other
providers of general infrastructure could in some geographic areas pose
impediments to our ability to carry on normal operations in the area or areas so
affected.
The Company believes that its on-going review is adequate to address
its Year 2000 concerns and that the cost of its Year 2000 initiatives has not
had, and is not expected to have, a material adverse effect on the Company's
operating results or financial condition. However, there can be no assurance
that the Company's systems nor the systems of other companies with whom the
Company conducts business will be Year 2000 compliant prior to December 31, 1999
or that the failure of any such system will not have a material adverse effect
on the Company's business, operating results and financial condition.
FORWARD LOOKING STATEMENTS
With the exception of the historical information, the matters
discussed herein may include forward-looking statements that involve risks and
uncertainties. While forward-looking statements are sometimes presented with
numerical specificity, they are based on a variety of assumptions made by
management regarding future circumstances over which the Company has little or
no control. A number of important factors, including those identified in this
section as well as factors discussed elsewhere herein, could cause the Company's
actual results to differ materially from forward-looking statements or financial
information. Actual results may differ from forward-looking results for a number
of reasons, including the following:
i) changes in economic conditions which include, but are not limited to,
the potential instability of governments and legal systems in countries
in which the Company conducts business, significant changes in currency
values, recessionary environments and Year 2000 compliance issues
relating to the Company's programs and external parties, including
suppliers and customers;
ii) changes in customer demand as they affect sales and product mix which
include, but are not limited to, the impact of trends related to
remodeling and replacement markets and new housing starts;
iii) competitive factors which include, but are not limited to, changes in
market penetration and the introduction of new products by existing and
new competitors;
iv) changes in operating costs which include, but are not limited to, the
effects of changes in the Company's manufacturing process, changes in
costs associated with varying levels of operations, changes resulting
from different levels of customer demand, the effect of unplanned work
stoppages, changes in the costs of labor and benefits and the cost and
availability of raw materials and energy;
v) the success of the Company's operating plan, including its ability to
achieve the benefits from its ongoing continuous improvement and
rationalization programs, its ability to find and integrate
acquisitions into Company operations and the ability of recently
acquired companies to achieve satisfactory operating results;
vi) unanticipated litigation, claims or assessments which includes, but is
not limited to, claims or problems related to product warranty and
environmental issues; and
vii) changes in worldwide financial markets to the extent they affect the
Company's ability or costs to raise capital.
<PAGE> 14
ITEM 7(a). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's earnings are affected by changes in short term interest
rates related to its line of credit facility and promissory note to former
parent. If the market rates for short-term borrowings increased by 1%, the
impact would be an interest expense increase of $0.2 million with the
corresponding decrease of income before taxes of the same amount. The amount was
determined by considering the impact of hypothetical interest rates on the
Company's borrowing cost and year-end debt balances by category.
<PAGE> 15
Report of Independent Auditors
The Board of Directors and Shareholders
American Architectural Products Corporation
We have audited the accompanying consolidated balance sheet of American
Architectural Products Corporation as of December 31, 1998 and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit. The consolidated financial
statements for the period June 19, 1996 (inception) through December 31, 1996,
and for the year ended December 31, 1997 were audited by other auditors whose
report dated February 26, 1998, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1998 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
Architectural Products Corporation at December 31, 1998, and the consolidated
results of its operations and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
March 10, 1999
Akron, Ohio
<PAGE> 16
<TABLE>
<CAPTION>
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
1997 1998
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 40,132,000 $ 88,000
Accounts receivable, less allowance
for doubtful accounts of $839,000 and $1,005,000 18,603,000 28,501,000
Advances to affiliates 135,000 --
Inventories 21,458,000 32,587,000
Prepaid expenses and other current assets 1,620,000 1,078,000
------------ ------------
TOTAL CURRENT ASSETS 81,948,000 62,254,000
------------ ------------
PROPERTY AND EQUIPMENT
Land and improvements 3,284,000 5,313,000
Buildings and improvements 15,254,000 24,959,000
Machinery, tools and equipment 18,351,000 52,758,000
Computers and office equipment 4,611,000 8,026,000
------------ ------------
41,500,000 91,056,000
Less accumulated depreciation (3,552,000) (10,503,000)
------------ ------------
NET PROPERTY AND EQUIPMENT 37,948,000 80,553,000
------------ ------------
OTHER
Cost in excess of net assets acquired, net
of accumulated amortization of $464,000
and $1,860,000 29,847,000 31,362,000
Deferred financing costs, net of accumulated
amortization of $0 and $729,000 5,985,000 6,485,000
Other 2,596,000 6,405,000
------------ ------------
TOTAL OTHER ASSETS 38,428,000 44,252,000
------------ ------------
$158,324,000 $187,059,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 17
<TABLE>
<CAPTION>
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31
1997 1998
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Revolving line-of-credit $ -- $ 12,447,000
Accounts payable -- trade 9,352,000 17,394,000
Payable to seller for purchase price adjustment -- 1,972,000
Accrued Expenses
Compensation and related benefits 3,522,000 5,604,000
Current portion of warranty obligations 1,992,000 2,804,000
Other 4,976,000 6,256,000
Current portion of capital lease
obligations 573,000 822,000
Current maturities of long-term debt 61,000 --
------------ ------------
TOTAL CURRENT LIABILITIES 20,476,000 47,299,000
Long-term debt, less current maturities 125,114,000 132,500,000
Long-term capital lease obligations,
less current portion 770,000 833,000
Accrued warranty obligations, less current portion 2,834,000 3,337,000
Other 3,549,000 4,519,000
------------ ------------
TOTAL LIABILITIES 152,743,000 188,488,000
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock,
20,000,000 shares authorized; no shares
outstanding -- --
Common stock, $.001 par, 100,000,000 shares
authorized; 13,458,479 and 13,533,004
shares outstanding 13,000 14,000
Additional paid-in capital 6,311,000 8,144,000
Retained earnings (deficit) (743,000) (9,587,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 5,581,000 (1,429,000)
------------ ------------
$158,324,000 $187,059,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 18
<TABLE>
<CAPTION>
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FROM DATE
OF INCEPTION
(JUNE 19, 1996)
TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Net Sales $25,249,000 $94,252,000 $257,264,000
Cost of Sales 19,027,000 74,304,000 203,781,000
----------- ----------- ------------
GROSS PROFIT 6,222,000 19,948,000 53,483,000
Selling Expense 1,909,000 6,849,000 22,519,000
Special - Non-cash Stock Compensation -- 68,000 1,833,000
General and Administrative Expenses 2,151,000 10,261,000 20,700,000
----------- ----------- ------------
INCOME FROM OPERATIONS 2,162,000 2,770,000 8,431,000
----------- ----------- ------------
Other Income (Expense)
Interest expense (756,000) (3,928,000) (16,677,000)
Interest income -- -- 700,000
Special - Acquisition and Financing Costs -- -- (1,087,000)
Miscellaneous (5,000) 3,000 (211,000)
----------- ----------- ------------
Total Other Income (Expense) (761,000) (3,925,000) (17,275,000)
----------- ----------- ------------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 1,401,000 (1,155,000) (8,844,000)
Income Taxes (Benefit) 640,000 (390,000) --
----------- ----------- ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 761,000 (765,000) (8,844,000)
Extraordinary Item - Loss on extinguishment
of debt, net of income tax benefit of $282,000 -- (494,000) --
----------- ----------- ------------
NET INCOME (LOSS) $ 761,000 $(1,259,000) $ (8,844,000)
=========== =========== ============
BASIC INCOME (LOSS) PER COMMON SHARE
Income (loss) before extraordinary item $ .10 $ (.06) $ (.64)
Extraordinary item -- (.04) --
=========== =========== ============
BASIC NET INCOME (LOSS) PER COMMON SHARE $ .10 $ (.10) $ (.64)
=========== =========== ============
DILUTED INCOME (LOSS) PER COMMON SHARE
Income (loss) before extraordinary item $ .09 $ (.06) $ (.64)
Extraordinary item -- (.04) --
=========== =========== ============
DILUTED NET INCOME (LOSS) PER COMMON SHARE $ .09 $ (.10) $ (.64)
=========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 19
<TABLE>
<CAPTION>
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM DATE OF INCEPTION (JUNE 19, 1996) TO DECEMBER 31, 1996
AND YEARS ENDED DECEMBER 31, 1997 AND 1998
PREFERRED STOCK PREFERRED
SERIES A SERIES B
-------- --------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Capital contribution in connection with
acquisition of Mallyclad and Vyn-L -- $ -- -- $ --
Distribution to stockholder of Mallyclad -- -- -- --
Issuance of common stock for cash -- -- -- --
Recapitalization 1,000,000 1,000 -- --
Issuance of shares in reverse acquisition -- -- -- --
Net income for the period -- -- -- --
---------- ---------- ---------- ----------
Balance, December 31, 1996 1,000,000 1,000 -- --
Conversion of preferred stock, Series A
to common stock (1,000,000) (1,000) -- --
Issuance of shares to an officer -- -- -- --
Issuance of preferred stock, Series B -- -- 4,250 --
Issuance of warrants to purchase common -- -- -- --
stock
Conversion of preferred stock, Series B
to common stock -- -- (4,250) --
Issuance of common stock options in
exchange for services -- -- --
Issuance of shares in connection with
acquisitions -- -- -- --
Discount on conversion of Series B
Preferred, treated as dividends -- -- -- --
Net loss for the year -- -- -- --
---------- ---------- ---------- ----------
Balance, December 31, 1997 -- -- -- --
NON-CASH STOCK COMPENSATION -- -- -- --
CONVERSION OF OPTIONS AND WARRANTS
TO COMMON STOCK -- -- -- --
NET LOSS FOR THE YEAR -- -- -- --
========== ========== ========== ==========
BALANCE, DECEMBER 31, 1998 -- $ -- -- $ --
========== ========== ========== ==========
<CAPTION>
ADDITIONAL RETAINED TOTAL
COMMON STOCK PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY (DEFICIT)
------ ------ ------- --------- ----------------
<S> <C> <C> <C> <C> <C>
Capital contribution in connection with
acquisition of Mallyclad and Vyn-L -- $ -- $ 77,000 $ -- $ 77,000
Distribution to stockholder of Mallyclad -- -- -- (170,000) (170,000)
Issuance of common stock for cash 10 -- 605,000 -- 605,000
Recapitalization (10) -- (1,000) -- --
Issuance of shares in reverse acquisition 4,860,580 5,000 2,998,000 -- 3,003,000
Net income for the period -- -- -- 761,000 761,000
----------- ----------- ---------- ----------- -----------
Balance, December 31, 1996 4,860,580 5,000 3,679,000 591,000 4,276,000
Conversion of preferred stock, Series A
to common stock 7,548,632 7,000 (6,000) -- --
Issuance of shares to an officer 171,842 -- -- -- --
Issuance of preferred stock, Series B -- -- 500,000 -- 500,000
Issuance of warrants to purchase common
stock -- -- 121,000 -- 121,000
Conversion of preferred stock, Series B
to common stock 108,810 -- -- -- --
Issuance of common stock options in
exchange for services -- -- 68,000 -- 68,000
Issuance of shares in connection with
acquisitions 768,615 1,000 1,949,000 -- 1,950,000
Discount on conversion of Series B
Preferred, treated as dividends -- -- -- (75,000) (75,000)
Net loss for the year -- -- -- (1,259,000) (1,259,000)
----------- ----------- ---------- ----------- -----------
Balance, December 31, 1997 13,458,479 13,000 6,311,000 (743,000) 5,581,000
NON-CASH STOCK COMPENSATION -- -- 1,833,000 -- 1,833,000
CONVERSION OF OPTIONS AND WARRANTS
TO COMMON STOCK 74,525 1,000 -- -- 1,000
NET LOSS FOR THE YEAR -- -- -- (8,844,000) (8,844,000)
----------- ----------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1998 13,533,004 $ 14,000 $ 8,144,000 $ (9,587,000) $ (1,429,000)
=========== =========== =========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 20
<TABLE>
<CAPTION>
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FROM DATE
OF INCEPTION
(JUNE 19, 1996)
TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997 1998
------------ ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 761,000 $ (1,259,000) $ (8,844,000)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities
Extraordinary loss on extinguishment debt -- 416,000 --
Depreciation 325,000 2,102,000 7,152,000
Amortization 117,000 578,000 2,358,000
(Gain) loss on sale of equipment (29,000) (45,000) 308,000
Special - loss on acquisition and financing costs -- -- 1,087,000
Special - noncash stock compensation -- 68,000 1,833,000
Deferred income taxes 311,000 (672,000) --
Changes in assets and liabilities
Accounts receivable 1,771,000 (1,229,000) (4,945,000)
Advances to affiliates (464,000) 329,000 135,000
Inventories (793,000) 1,172,000 1,097,000
Prepaid and other current assets (87,000) 100,000 526,000
Other assets (7,000) 5,000 (861,000)
Accounts payable 2,313,000 (1,904,000) 6,855,000
Accrued expenses and other liabilities 1,032,000 1,791,000 (163,000)
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,250,000 1,452,000 6,538,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of equipment 98,000 131,000 853,000
Purchase of property and equipment (429,000) (1,548,000) (7,946,000)
Proceeds from the sale of business -- -- 1,084,000
Acquisitions of businesses, net of cash acquired (12,781,000) (52,900,000) (50,087,000)
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (13,112,000) (54,317,000) (56,096,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) on revolving
lines-of-credit 5,477,000 (5,937,000) 12,447,000
Proceeds from long-term debt 4,213,000 127,095,000 --
Payments for debt issue costs (425,000) (6,053,000) (2,069,000)
Payments on long-term debt and capital lease
obligations (1,121,000) (23,568,000) (864,000)
Issuance of common and preferred
stock and capital contributions 682,000 496,000 --
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 8,826,000 92,033,000 9,514,000
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 964,000 39,168,000 (40,044,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD -- 964,000 40,132,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 964,000 $ 40,132,000 $ 88,000
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 21
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Business and Basis of Presentation
American Architectural Products Corporation (AAPC or the Company) is
principally engaged in the business of manufacturing residential, commercial and
architectural windows and doors through its wholly-owned subsidiaries, Eagle &
Taylor Company (Eagle & Taylor - formerly known as American Architectural
Products, Inc., AAP), Forte, Inc. (Forte), Western Insulated Glass, Co.
(Western), Thermetic Glass, Inc. (Thermetic), Binnings Building Products, Inc.
(Binnings), Danvid Window Company (Danvid), Modern Window Corporation (Modern),
American Glassmith Corporation (American Glassmith), VinylSource, Inc.
(VinylSource), Denver Window Corporation (Denver) and American Weather-Seal
Company (Weather-Seal).
AAP was incorporated on June 19, 1996 and had no significant operations
or assets until it acquired Eagle Window and Door, Inc. (Eagle) and Taylor
Building Products Company (Taylor) on August 29, 1996 (see Note 2). The accounts
of Eagle and Taylor are included in the consolidated financial statements from
the August 29, 1996 acquisition date. AAP subsequently changed its name to Eagle
& Taylor Company.
On June 25, 1996, Eagle & Taylor's ultimate controlling stockholder
acquired ownership of Mallyclad Corp. (Mallyclad) and Vyn-L Corporation (Vyn-L).
On December 18, 1996, Mallyclad and Vyn-L were merged into Eagle & Taylor. The
merger was considered to be a transaction among companies under common control
and was accounted for at historical cost in a manner similar to a pooling of
interests. Accordingly, the accounts of Mallyclad and Vyn-L are included in the
consolidated financial statements from the June 25, 1996 acquisition date.
Prior to December 18, 1996, Forte Computer Easy, Inc. (FCEI) had a
single wholly-owned operating subsidiary, Forte, based in Youngstown, Ohio.
Forte manufactures large contract commercial aluminum windows and security
screen windows and doors. On December 18, 1996, pursuant to an Agreement and
Plan of Reorganization dated October 25, 1996 between FCEI and AAP Holdings,
Inc. (the Agreement), FCEI acquired all of the issued and outstanding shares of
capital stock of Eagle & Taylor in exchange for 1,000,000 shares of Series A
Convertible Preferred Stock of FCEI (the Series A Preferred). Under the terms of
the Agreement and the Series A Preferred, AAP Holdings, Inc. obtained 60 percent
of the voting control of FCEI. Although FCEI is the parent of Eagle & Taylor
following the transaction, the transaction was accounted for as a
recapitalization of Eagle & Taylor and a purchase by Eagle & Taylor of FCEI
because the stockholders of Eagle & Taylor obtained a majority of the voting
rights in FCEI as a result of the transaction (see Note 2). The 1996
consolidated financial statements include the accounts of Eagle & Taylor for the
period from its inception (June 19, 1996), and the accounts of FCEI from
December 18, 1996, the effective date of the acquisition.
At a special stockholders' meeting held on April 1, 1997, FCEI
stockholders approved the reincorporation of FCEI in Delaware. Consequences of
the reincorporation plan included the change of FCEI's name to American
Architectural Products Corporation; an increase in the authorized common stock
of the Company to 100,000,000 shares; a 1 for 10 reverse stock split of the
Company's common stock; the conversion of 1,000,000 shares of Series A Preferred
held by AAP Holdings, Inc. into 7,548,632 shares of common stock; and the
issuance of 171,842 shares of common stock to an officer to satisfy a commitment
of the Company. The reincorporation did not result in any substantive change to
the Company's business, assets, liabilities, net worth or operations, nor did it
result in any change in the ownership interest of any stockholder of the
Company. The number of shares and per share amounts give retroactive recognition
to the changes in capital structure for all periods presented.
Principles of Consolidation
The consolidated financial statements include the accounts of AAPC and
its wholly-owned subsidiaries. All significant intercompany transactions and
accounts have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management 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 these estimates.
<PAGE> 22
Fair Values of Financial Instruments
The carrying amounts of accounts receivable, payables and accrued
expenses approximate fair value because of the short maturity of these items.
The carrying amounts of the revolving credit facility and the subordinated
seller note approximate fair value as both bear interest at variable rates. The
fair value of the senior notes approximated $95,000,000 at December 31, 1998,
which was estimated based on quoted market prices.
Revenue Recognition
The Company operates in three industry segments: residential
fenestration products, commercial fenestration products and extrusion products.
Revenues from the residential and extrusion businesses are recorded upon the
shipment of product to the customer. Revenues from the commercial business are
recognized using the percentage-of-completion method of accounting in the
proportion that costs bear to total estimated costs at completion. Revisions of
estimated costs or potential contract losses are recognized in the period in
which they are determined. Costs in excess of billings, billings in excess of
costs and retainages recorded were not material as of December 31, 1997 and
1998.
Cash Equivalents
Cash equivalents are highly liquid investments with original maturity
of three months or less when purchased.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
significant concentrations of credit risk consist principally of trade accounts
receivable.
The Company is principally engaged in the business of manufacturing
residential and commercial windows and doors. Therefore, its customer base is
concentrated in the construction business. Concentrations of credit risk with
respect to trade accounts receivable are limited due to the large number of
customers and their dispersion across many geographic areas. The Company grants
credit to customers based on an evaluation of their financial condition and
generally does not require collateral. Provisions for losses from credit sales
have been recognized in the financial statements.
Bargaining Agreements
At December 31, 1998, approximately 200 of the Company's 2,800
employees are covered under collective bargaining agreements that expire in
March 2000, January 2002 and February 2002. At December 31, 1998 an additional
180 of the Company's union employees were currently operating without a
collective bargaining agreement.
Inventories
Inventories are stated at the lower of cost, determined by the
first-in, first-out method, or market.
Property and Equipment
Property and equipment are stated at cost. The Company provides for
depreciation using the straight-line method over the following estimated useful
lives in years:
Buildings and improvements 20-25
Machinery and equipment 7-10
Computers and office equipment 3-7
Tools, dies and fixtures 3-7
Expenditures for renewals and betterments are capitalized. Expenditures
for maintenance and repairs are charged against income as incurred. Leased
property meeting certain criteria is capitalized and the present value of the
related lease payments is recorded as a liability. Amortization of capitalized
leased assets is computed on the straight-line method over the term of the
lease, which approximates the useful life of the underlying asset, and is
included with depreciation expense.
<PAGE> 23
Long-Lived Assets
The Company reviews the carrying values of its long-lived assets for
possible impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable. No such impairments
have been identified.
Costs in Excess of Net Assets Acquired
Costs in excess of net assets acquired is being amortized over 25 years
using the straight-line method. The Company evaluates the realizability of costs
in excess of net assets acquired based on the undiscounted cash flows of the
applicable business acquired over the remaining amortization period. The
Company's carrying value is reduced to fair value if the review indicates that
costs in excess of net assets acquired is not recoverable. No such impairments
have been identified.
Deferred Financing Costs
Costs to obtain financing have been capitalized and are being amortized
using the straight-line method over the term of the underlying debt, ranging
from three to ten years.
Warranty Obligations
Certain of the Company's subsidiaries sell their products with limited
warranties generally ranging from one to ten years. Accrued warranty obligations
are estimated based on claims experience and levels of production. Warranty
obligations estimated to be satisfied within one year are classified as current
liabilities in the accompanying consolidated balance sheets.
Income Taxes
The income tax provision is computed using the liability method.
Deferred taxes are recorded for the expected future tax consequences of
temporary differences between the financial reporting and the tax bases of the
Company's assets and liabilities.
Advertising
The cost of advertising is charged against income as incurred.
Advertising expense was $263,000 for the period from inception to December 31,
1996 and $948,000 and $1,931,000 for the years ended December 31, 1997 and 1998,
respectively.
Comprehensive Income
On January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income (SFAS No.
130), which establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. The adoption of SFAS No. 130
had no impact on the Company since the only form of comprehensive income the
Company has is net income.
Segment Reporting
Effective January 1, 1998, the Company adopted SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, which
supersedes SFAS No. 14, Financial Reporting for Segments of a Business
Enterprise. SFAS No. 131 establishes standards for reporting by a public
business enterprise of selected information about operating segments in its
annual and interim financial statements and its products and services,
geographic areas and major customers. The adoption of SFAS No. 131 did not
affect results of operations or financial position, but did affect the
disclosure of segment information (see Note 13).
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. This
Statement provides a comprehensive and consistent standard for the recognition
and measurement of derivatives and hedging activities. This Statement is
effective for years beginning after June 15, 1999. Because of the Company's
minimal use of derivative instruments or hedging activities, management does not
anticipate the adoption of the new Statement will have a significant effect on
the results of operations or the financial position of the Company.
<PAGE> 24
Reclassifications
Certain amounts reported in the 1997 financial statements have been
reclassified to conform with the 1998 presentation.
2. RECAPITALIZATION, ACQUISITIONS AND DIVESTITURE
Recapitalization and Acquisition of FCEI
Effective December 18, 1996, FCEI acquired the stock of Eagle & Taylor
in a reverse acquisition in which Eagle & Taylor's stockholders acquired voting
control of FCEI. The acquisition was accomplished through the exchange of stock
in which FCEI exchanged 1,000,000 shares of Series A Preferred and options to
purchase 879,834 shares of FCEI common stock for 100% of the outstanding stock
of Eagle & Taylor. Upon completing the transaction, the stockholders of Eagle &
Taylor controlled 60% of the voting rights of the combined Company.
For financial reporting purposes, Eagle & Taylor is deemed to be the
acquiring entity. The merger has been reflected in the accompanying consolidated
financial statements as the recapitalization of Eagle & Taylor as discussed
above, and reflects Eagle & Taylor as having issued 4,860,580 shares of common
stock, committed itself to issue an additional 171,842 shares of common stock
and to have issued 586,556 stock options to FCEI stockholders (see Note 9). The
estimated fair value assigned to the securities issued was $3,003,000, which was
determined based on the estimated fair value of the securities of Eagle & Taylor
which were obtained by FCEI stockholders in the reverse acquisition, an
assessment of the trading prices of FCEI stock preceding the reverse acquisition
and the appraised value of the FCEI assets acquired.
The acquisition was accounted for as a purchase, and accordingly, the
consideration of $3,100,000, including transaction costs, was allocated to the
FCEI net assets acquired based on estimated fair market values including current
assets of $1,871,000, property and equipment of $7,516,000, long-term debt of
$4,030,000 and current liabilities of $2,257,000. The results of FCEI's
operations are included in the accompanying consolidated financial statements
from the date of acquisition.
Acquisition of Eagle and Taylor
In August 1996, AAP acquired the stock and certain assets and
liabilities of Eagle and Taylor. Eagle is based in Dubuque, Iowa and
manufactures and distributes aluminum clad and all wood windows and doors.
Taylor is based in West Branch, Michigan and manufactures entry and garage
doors. The acquisition was accounted for as a purchase. The purchase price
approximated $22,202,000 and was allocated to the net assets acquired based on
estimated fair values including current assets of $17,089,000, property and
equipment of $6,805,000, accrued warranty obligations of $4,600,000, and current
and other liabilities of $4,362,000. Cost in excess of net assets acquired of
$6,550,000 was recorded and is being amortized over 25 years. The results of
Eagle and Taylor operations are included in the accompanying consolidated
financial statements from the acquisition date.
Acquisition of Mallyclad and VYN-L
The June 1996 acquisition of Mallyclad and Vyn-L was accounted for as a
purchase. Mallyclad and Vyn-L are based in Madison Heights, Michigan and process
and manufacture vinyl clad steel and aluminum coils and cut-to-length sheets.
The purchase price approximated $1,009,000 and was allocated to net assets
acquired based on estimated fair values including current assets of $900,000,
property and equipment of $205,000, other assets of $170,000, and current
liabilities of $266,000. The accounts of Mallyclad and Vyn-L are included in the
accompanying consolidated financial statements from the acquisition date.
Acquisition of Western
In March 1997, the Company acquired all of the stock of Western.
Western is based in Phoenix, Arizona and manufactures custom residential
aluminum windows and doors. The acquisition was accounted for as a purchase. The
purchase price approximated $2,400,000 and was allocated to net assets acquired
based on estimated fair values including current assets of $1,976,000, property
and equipment of $961,000, and current liabilities of $735,000. Costs in excess
of net assets acquired of $198,000 was recorded and is being amortized over 25
years. The accounts of Western are included in the accompanying consolidated
financial statements from the acquisition date.
<PAGE> 25
Acquisition of Thermetic
In July 1997, the Company acquired all of the stock of Thermetic, a
Toluca, Illinois manufacturer of residential vinyl windows. The acquisition was
accounted for as a purchase. The purchase price approximated $4,500,000 and was
allocated to net assets acquired based on estimated fair values including
current assets of $1,700,000, property and equipment of $2,100,000, current
liabilities of $1,400,000 and long-term liabilities of $2,100,000. Costs in
excess of net assets acquired of $4,200,000 was recorded and is being amortized
over 25 years. The accounts of Thermetic are included in the accompanying
consolidated financial statements from the acquisition date.
In connection with this acquisition, the Company issued 384,000 shares
of its common stock and committed itself to issue an aggregate number of
additional shares of common stock eighteen months after closing having a market
value of $1,000,000 when issued.
Acquisitions of Binnings, Danvid, American Glassmith and Modern
In December 1997, the Company acquired all of the outstanding stock of
Binnings, and substantially all of the assets of Danvid, American Glassmith, and
Modern, collectively the "Acquisitions." Binnings, located in Lexington, North
Carolina, manufactures residential vinyl windows and aluminum windows and storm
doors. Danvid, located in Carrollton, Texas, manufacturers and installs
residential aluminum windows and doors and vinyl windows. American Glassmith,
located in Columbus, Ohio, manufactures decorative glass lites and laminated
glass. Modern, located in Oak Park, Michigan, manufactures residential vinyl
windows and doors. Each of these acquisitions was accounted for as a purchase.
The purchase prices and allocation of these purchase prices are as follows:
<TABLE>
<CAPTION>
MODERN &
AMERICAN
BINNINGS DANVID GLASSMITH
-------- ------ ---------
<S> <C> <C> <C>
PURCHASE PRICE $26,934,000 $19,375,000 $5,630,000
=========== =========== ==========
ALLOCATION
Current assets $12,846,000 $ 5,343,000 $2,526,000
Property and equipment 14,569,000 1,949,000 2,765,000
Other assets 157,000 2,151,000 50,000
Current liabilities 4,498,000 3,048,000 907,000
Long-term liabilities 1,313,000 2,151,000 342,000
----------- ----------- ----------
NET ASSETS ACQUIRED $21,761,000 $ 4,244,000 $4,092,000
=========== =========== ==========
EXCESS OF PURCHASE PRICE OVER
FAIR VALUE OF NET ASSETS ACQUIRED $ 5,173,000 $15,131,000 $ 1,538,000
=========== =========== ===========
</TABLE>
The accounts of the Acquisitions were included in the Company's
consolidated financial statements from the acquisition date. The Acquisitions
were financed primarily with a portion of the proceeds from the issuance of
$125,000,000 of 11 3/4% Senior Notes due on December 1, 2007 (see Note 5).
Acquisition of VinylSource
In January 1998, the Company acquired, for cash, substantially all of
the assets of the vinyl division of Easco Corporation, an Austintown, Ohio
manufacturer of vinyl extrusions for the fenestration industry. The Company
operates the facility through its wholly-owned subsidiary VinylSource. The
purchase price approximated $13,420,000 and was allocated to net assets acquired
based on estimated fair market values including current assets of $4,654,000,
property and equipment of $9,762,000, other assets of $111,000 and current
liabilities of $1,107,000. The accounts of VinylSource are included in the
Company's consolidated financial statements from the acquisition date.
Divestiture of Mallyclad
In March 1998, the Company sold Mallyclad, a division of Eagle &
Taylor, to a related party for approximately $1,100,000. The Company sold this
division, at its approximate basis and, therefore, recognized no gain or loss
on the transaction.
Acquisitions of Blackhawk & Denver
In January and April 1998, respectively, the Company acquired, for
cash, substantially all of the assets of Blackhawk and Denver. The acquisitions
were accounted for as purchases. The purchase prices approximated $621,000 and
were allocated to net assets acquired based on estimated fair values including
current assets of $355,000, property and equipment of $211,000 and current
liabilities of $242,000. Costs in excess of net assets acquired of $297,000 was
recorded and is being amortized over 25 years. The accounts of Blackhawk and
Denver are included in the Company's consolidated financial statements from the
acquisition dates.
<PAGE> 26
Acquisition of American Weather-Seal
In June 1998, the Company acquired substantially all of the assets of
the Weather-Seal division of Louisiana-Pacific Corporation. The acquisition was
accounted for as a purchase with the purchase price of $40,800,000 allocated to
net assets acquired based on estimated fair market values including current
assets of $13,800,000, property and equipment of $31,400,000, current
liabilities of $3,500,000 and long-term liability of $900,000. The acquisition
was financed with $16,600,000 in borrowings from the Company's line-of-credit
facility, $7,500,000 in a subordinated seller note and the remainder with cash.
The accounts of Weather-Seal are included in the Company's consolidated
financial statements from the acquisition date.
Certain of the Company's purchase price allocations are preliminary,
principally with respect to the finalization of working capital adjustments
pursuant to the purchase agreements and the allocations of fair values to
property and equipment acquired based on final appraisals.
Pro Forma Financial Information
The following unaudited pro forma information has been prepared
assuming that the acquisitions of Western, Thermetic, Binnings, Danvid, American
Glassmith, Modern, VinylSource, Denver and Weather-Seal (collectively, the
Completed Acquisitions) and the divestiture of Mallyclad had occurred on the
first day of the respective years. The pro forma information includes
adjustments for interest expense relating to the $125,000,000 11 3/4% Senior
Notes due December, 2007 and other financing associated with the above noted
acquisitions, as well as, adjustments to selling, general and administrative
expenses for decreases in compensation expense for certain officers and members
of Board of Directors of the Completed Acquisitions, adjustments to depreciation
expense based on the estimated fair market value of the property and equipment
acquired, amortization of cost in excess of net assets acquired arising from the
acquisitions, and adjustments for income taxes. The pro-forma results of
operations are not indicative of the actual results of operations that would
have occurred had the acquisitions been made on the dates indicated or the
results that may be obtained in the future.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997 1998
-------------- --------------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
Net sales $259,943,000 $279,727,000
Income from operations 7,527,000 6,006,000
Loss before taxes and extraordinary items (9,863,000) (12,869,000)
Loss before extraordinary items (9,223,000) (12,869,000)
Net loss (9,717,000) (12,869,000)
Basic and diluted net loss per common share, before extraordinary items (.68) (.93)
Basic and diluted net loss per common share (.72) (.93)
</TABLE>
Pending Acquisitions
In August 1998, the Company entered into definitive agreements to
acquire TSG Industries, Inc., Nu-Sash of Indianapolis, Jarar Window Systems,
Inc. and RC Aluminum Industries, Inc. These acquisitions (collectively, the
Pending Acquisitions) will be accounted for as purchases with the purchase
prices allocated among the assets acquired and liabilities assumed based on
their estimated fair market values.
The total purchase price of the Pending Acquisitions is estimated to be
$47.4 million. The cash portion of this purchase price is estimated to
approximate $41.9 million and is expected to be funded through a financing
transaction. Other assets include $3,250,000 of deposits made toward the
purchase of two of the Company's targeted acquisitions.
<PAGE> 27
In connection with certain of the Pending Acquisitions, the Company has
agreed to make contingent payments, if earned, to former owners over periods up
to 5 years based on their respective acquisition agreements. Amounts earned
under the terms of the agreements will be recorded as additional goodwill and
amortized over the remaining amortization period.
3. INVENTORIES:
Inventories consisted of the following:
DECEMBER 31,
1997 1998
----------- -----------
Raw materials $12,980,000 $17,368,000
Work-in-process 3,071,000 3,495,000
Finished goods 5,407,000 11,724,000
----------- -----------
$21,458,000 $32,587,000
=========== ===========
4. REVOLVING LINE-OF-CREDIT:
In June 1998, the Company secured a revolving credit facility of up to
$25 million. The facility has a three year term, is secured by substantially all
of the assets of the Company and bears interest based on the Company's election
of either a LIBOR based rate or an alternative rate based on the bank's rate in
effect. In addition, the bank charges a 3/8% commitment fee on the unused
portion of the revolving credit facility. The level of revolving loans is
limited by the provisions of the agreement to a percentage of eligible accounts
receivable and inventories. At December 31, 1998, the Company had $12.6 million
available under the facility, which has certain restrictive covenants, the most
significant of which pertain to fixed charge coverage and minimum net worth. The
interest rate charged on borrowings was 8.0% at December 31, 1998.
5. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1998
------------ -----------
<S> <C> <C>
11-3/4% senior notes, due 2007 $125,000,000 $125,000,000
Subordinated unsecured promissory note to
former parent of acquired business, extended
in February 1999 to be due January 1, 2000
with interest payable semi-annually at LIBOR
plus 1.5% to 4.5% (6.6% at December 31, 1998
based on LIBOR plus 1.5%) -- 7,500,000
Other 175,000 --
------------ ------------
125,175,000 132,500,000
Less current portion 61,000 --
------------ ------------
$125,114,000 $132,500,000
============ ============
</TABLE>
In December 1997, the Company issued $125,000,000 of 11 3/4% Senior
Notes (the "Notes"). The Notes are senior unsecured obligations of the Company
and will mature on December 1, 2007. Interest on the Notes is payable
semi-annually on June 1 and December 1 of each year, commencing June 1, 1998.
The Notes are unconditionally guaranteed by each of the Company's subsidiaries
and by each subsidiary acquired thereafter.
Except as set forth below, the Company may not redeem the Notes prior
to December 1, 2002. On or after December 1, 2002, the Company may redeem the
Notes, in whole or in part, at any time, at redemption prices declining from
105% of the principal amount in 2002 to 100% of the principal amount in 2005 and
thereafter, together with accrued and unpaid interest, if any, to the date of
redemption. In addition, at any time prior to December 1, 2000, the Company may
use the cash proceeds of one or more public equity offerings, subject to certain
requirements, to redeem up to 35% of the aggregate principal amount of the Notes
at a redemption price equal to 110% of the principal amount to be redeemed,
together with accrued and unpaid interest.
<PAGE> 28
The provisions of the Notes limit the Company and its subsidiaries from
incurring additional indebtedness unless the Company meets certain consolidated
coverage ratios as defined in the Notes. Notwithstanding this restriction, the
Company was permitted to incur secured indebtedness of $25 million (See Note 4).
Other covenants of the Notes include, but are not limited to, limitations on
restricted payments, as defined, such as payment of dividends, repurchase of the
Company's capital stock, redemption of subordinated obligations, certain
investments, in addition to limitations on sale/leaseback transactions,
affiliate transactions and mergers or consolidations.
The approximate maturities of long-term debt are as follows: 1999 --
$0; 2000 -- $7,500,000; 2001 -- $0; 2002 -- $0, 2003 -- $0 and thereafter
- -$125,000,000.
In connection with the repayment of existing indebtedness from the
proceeds of the Notes in 1997, the Company recognized as expense deferred
financing costs related to the existing indebtedness and incurred a prepayment
penalty resulting in an extraordinary loss of $494,000 ($.04 per share), net of
related income tax benefits of $282,000.
6. COMMITMENTS AND CONTINGENCIES:
Lease Commitments
Certain leased assets are capitalized and consist of computer equipment
and delivery equipment with a cost of $1,931,000 and $2,818,000 at December 31,
1997 and 1998, respectively. Accumulated amortization related to these leased
assets was $388,000 and $852,000 at December 31, 1997 and 1998, respectively.
The Company also leases buildings and equipment under operating leases.
At December 31, 1998, the future minimum lease payments under operating
and capital leases are as follows:
OPERATING CAPITAL
LEASES LEASES
----------- ----------
1999 $ 2,963,000 $ 984,000
2000 2,039,000 525,000
2001 1,911,000 409,000
2002 1,666,000 6,000
2003 1,345,000 --
Thereafter 172,000 --
----------- ----------
Total $10,096,000 1,924,000
===========
Less amount representing interest 269,000
----------
Net present value 1,655,000
Less current portion 822,000
----------
Long-Term Capital Lease Obligations $ 833,000
==========
Rental expense incurred for operating leases was $217,000, $844,000 and
$2,848,000, for the period from inception to December 31, 1996 and for the years
ended December 31, 1997 and 1998, respectively.
Litigation
The Company is involved from time to time in litigation arising in the
ordinary course of business, none of which is currently expected to have a
material effect on its business, results of operations or financial condition.
<PAGE> 29
7. BENEFIT PLANS:
All eligible nonunion employees of the Company participate in 401(k)
plans which include provisions for Company matching contributions. Additionally,
union employees at a subsidiary participate in a multiemployer pension plan into
which that subsidiary contributes $0.22 per hour worked. Expenses incurred
relating to these plans were $89,000, $399,000 and $2,263,000 for the period
from inception to December 31, 1996 and for the years ended December 31, 1997
and 1998, respectively.
8. STOCKHOLDERS' EQUITY:
Series A Preferred Stock
The Series A Preferred is voting preferred stock and has the same
number of votes as the number of shares of common stock into which the Series A
Preferred would be convertible if converted in full on the record date.
No dividends may be paid with respect to the common stock unless a
dividend is paid to the holders of the Series A Preferred. Any dividends paid
are required to be allocated pro rata among the holders of the common stock and
Series A Preferred as though the Series A Preferred had been converted in full
to common stock on the dividend payment date.
Series B Preferred Stock
In 1997, the Company received proceeds of $425,000 from the private
placement of 4,250 shares of Series B Cumulative Redeemable Convertible
Preferred Stock (the Series B Preferred). The Series B Preferred accrues
cumulative dividends at the annual rate of $8.00 per share commencing July 1,
1998, payable either in cash or common stock at the election of the Company.
Each share of Series B Preferred is convertible, at the option of the holder,
into shares of common stock. The redemption price of $100 per share of Series B
Preferred plus any cumulative unpaid dividends can be used to purchase shares of
common stock at market value. However, a discount from the quoted market price
of common stock was applicable for holders exercising conversion rights prior to
August 31, 1997 and the discounts are accounted for as dividends to the holders.
During 1997, all of the Series B preferred shares issued were converted to
common stock.
The Series B Preferred is voting preferred stock and each share of
Series B Preferred Stock entitles the holder to one vote. The Series B Preferred
will be entitled to vote as a separate class with respect to all matters that
would adversely affect the powers, preferences or rights of Series B Preferred
Stock.
Stock Warrants
In April and June 1997, the Company issued promissory notes with
detachable stock warrants to accredited investors for proceeds totaling
$450,000. The warrants, which were to expire in one year, granted the note
holders the right to purchase 128,571 shares of the Company's common stock at
$3.50 per share. The fair value attributable to these warrants has been
recognized as additional paid in capital and the resulting discount was
amortized over the term of the notes which ended in December 1997. Furthermore,
in connection with an additional series of financing transactions, the Company
issued warrants to purchase 27,926 shares of common stock at an exercise price
of $3.50 per share, expiring on September 1, 1998. In 1998, the expiration date
of those warrants not yet exercised was extended until January 15, 2000.
Non-cash stock compensation expense of $128,000 was recorded by the Company in
1998 relating to the extension of these warrants. Warrants to purchase 71,428
shares of common stock were exercised in 1998. At December 31, 1998, warrants to
purchase 85,069 shares of common stock remain exercisable.
9. STOCK OPTIONS:
As part of the consideration paid in the acquisition of FCEI in
December 1996, the Company is deemed to have issued to certain FCEI stockholders
options to purchase an aggregate of 586,556 shares of the Company's common stock
at prices ranging from $2.50 to $5.00 per share (FCEI Options). The FCEI Options
were deemed to have been issued in exchange for previously outstanding options
granted under the FCEI Employee Incentive Stock Option Plan.
As part of the recapitalization of Eagle & Taylor that occurred in
connection with the acquisition of FCEI (see Note 2), AAP Holdings, Inc.
received options to purchase 879,834 shares of common stock of the Company (AAPH
Options). The AAPH Options are equivalent to 1.5 times the number of shares of
the Company's common stock subject to the 586,556 FCEI Options. The AAPH Options
are identical in price and exercise terms to the FCEI Options and are
exercisable only to the extent that the FCEI Options are exercised.
<PAGE> 30
At December 31, 1998, 471,770 FCEI Options and 707,655 AAPH Options
were outstanding. These exercisable options have an option price of $3.75. In
1998, the expiration date of these options was extended until January 2000.
Non-cash stock compensation expense of $1,474,000 was recorded by the Company in
1998 relating to the extension of these options.
In 1996, the Company adopted the American Architectural Products
Corporation Stock Option Plan (the Plan) whereby 10,000,000 shares of the
Company's common stock have been authorized for issuance under the Plan. Shares
of common stock have been made available for grant to directors, officers, key
employees and certain non-employees at the discretion of the Board of Directors.
The exercise price of stock options granted to employees and non-employee
directors equals the market price or 110% of the market price of the Company's
common stock at the date of grant. The stock options issued to employees have a
ten year term and vest in 20% increments over five years. Stock options issued
to non-employee directors have a ten year term and vest within one year.
Certain options have been granted to non-employees based on negotiated
terms. Stock options issued to non-employees are recorded at fair value with a
related charge against income.
A summary of activity related to stock options for the Company's plan
from the date of inception to December 31, 1996 and for the years ended December
31, 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
1996 1997 1998 (a)
-------------------------- --------------------------- ---------------------------
Weighted Weighted WEIGHTED
Average Average AVERAGE
Exercise Exercise EXERCISE
Options Price Options Price OPTIONS PRICE
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of the period -- $ -- 6,000 $4.69 540,000 $4.08 (a)
Granted 6,000 4.69 534,000 5.31 1,012,500 3.78
Forfeited -- -- -- -- (147,500) 2.86
----- ------ ------- ----- --------- -----
Outstanding, end
of the period 6,000 $ 4.69 540,000 $5.30 1,405,000 $3.99
===== ====== ======= ===== ========= =====
</TABLE>
(a) The weighted-average exercise price of the options outstanding at the
beginning of the year reflects the repricing of options to purchase 309,000
shares of common stock from a weighted-average price of $5.81 to $3.68.
The weighted-average remaining contractual life on options outstanding
is 8.3 years. Options to purchase 279,000 shares are currently exercisable with
a weighted-average exercise price of $4.77 per share.
The Company applies the intrinsic value method in accounting for its
stock options issued to employees. Accordingly, no compensation cost has been
recognized for stock options issued to employees. The following table sets forth
the Company's net income (loss) and net income (loss) available per common share
on a pro forma basis had compensation expense for the Company's stock options
issued to employees been determined based on the fair value using the
Black-Scholes model at the grant dates:
<PAGE> 31
<TABLE>
<CAPTION>
FROM DATE
OF INCEPTION
(JUNE 19, 1996)
TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997 1998
------------------ ---------------- ---------------
<S> <C> <C> <C>
NET INCOME (LOSS)
As reported $ 761,000 $ (1,259,000) $ (8,844,000)
Pro forma $ 761,000 $ (1,329,000) $ (9,101,000)
BASIC NET INCOME (LOSS) PER COMMON SHARE
As reported $ .10 $ (.10) $(.64)
Pro forma $ .10 $ (.10) $(.66)
DILUTED NET INCOME (LOSS) PER COMMON SHARE
As reported $ .09 $ (.10) $(.64)
Pro forma $ .09 $ (.10) $(.66)
</TABLE>
The fair value for these stock options was estimated at the dates of
grant using a Black-Scholes option pricing model with the following weighted --
average assumptions: a risk-free interest rate of 6.5%, a dividend yield
percentage of 0%, common stock volatility of 0.35 and an expected life of the
options of 5 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
The weighted-average fair value of the options granted during the
periods ended December 31, 1996, 1997 and 1998 were $1.97, $1.87 and $1.57,
respectively.
Collectively, 2,657,000 shares of common stock are reserved at December
31, 1998 for granting of awards under the Company's stock option plans and
warrant agreements.
10. INCOME TAXES:
The provision for income taxes (income tax benefit) for the period from
the date of inception to December 31, 1996 and for the years ended December 31,
1997 and 1998 consists of the following:
FROM DATE OF
INCEPTION TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997 1998
--------- ----------- ------------
CURRENT
Federal $ 269,000 $ -- $ --
State 60,000 -- --
--------- --------- ------------
329,000 -- --
DEFERRED 311,000 (390,000) --
--------- --------- ------------
$ 640,000 $(390,000) $ --
========= ========= ============
<PAGE> 32
Significant components of deferred tax assets and liabilities as of
December 31, 1997 and 1998 are as follows:
DECEMBER 31,
1997 1998
---------- -----------
DEFERRED TAX ASSETS
Net operating loss carryforwards $3,940,000 $ 5,686,000
Allowance for doubtful accounts 280,000 325,000
Accrued warranty obligations 1,660,000 2,018,000
Accrued postretirement benefits 150,000 153,000
Other accruals 730,000 1,741,000
Other 170,000 661,000
---------- -----------
6,930,000 10,584,000
---------- -----------
DEFERRED TAX LIABILITIES
Depreciation 6,220,000 7,194,000
Other 480,000 586,000
---------- -----------
6,700,000 7,780,000
---------- -----------
NET DEFERRED TAX ASSETS 230,000 2,804,000
VALUATION ALLOWANCE FOR DEFERRED TAX ASSETS (230,000) (2,804,000)
---------- -----------
NET DEFERRED TAXES $ -- $ --
========== ===========
In recording certain acquisitions, the Company established a valuation
allowance against the entire net deferred tax assets acquired, based on
uncertainties surrounding the expected realization of these assets. In 1996 and
1997, the Company reversed the valuation allowances by $311,000 and $685,000,
respectively, and accordingly reduced costs in excess of net assets acquired.
The actual income tax expense (income tax benefit) attributable to
earnings (loss) for the period from inception to December 31, 1996 and for the
years ended December 31, 1997 and 1998 differed from the amounts computed by
applying the U.S. federal tax rate of 34 percent to pretax earnings as a result
of the following:
<TABLE>
<CAPTION>
FROM DATE OF
INCEPTION TO YEAR ENDED
DECEMBER 31 DECEMBER 31
1996 1997 1998
---------------------------------------------
<S> <C> <C> <C>
Tax at U.S. federal statutory rate $470,000 $(390,000) $(3,418,000)
Expenses not deductible for tax purposes 40,000 240,000 836,000
Valuation allowance adjustment 100,000 (240,000) 2,582,000
State income taxes, net of federal income tax benefit 40,000 -- --
Other (10,000) -- --
-------- --------- -----------
PROVISION (BENEFIT) FOR INCOME TAXES $640,000 $(390,000) $ --
======== ========= ===========
</TABLE>
At December 31, 1998, the Company and its subsidiaries had net
operating loss carryforwards of approximately $20,428,000 for income tax
purposes which expire between 1999 and 2019. Due to changes in ownership,
utilization of approximately $14,142,000 of the net operating loss carryforwards
is limited to approximately $550,000 per year. The remaining $6,286,000 may be
utilized without limitation. A valuation allowance has been established against
the Company's net deferred tax assets due to uncertainty relating to their
realization.
11. RELATED PARTY TRANSACTIONS:
The Company paid management fees to its majority stockholder of
approximately $120,000, $250,000 and $85,000 for the period from inception to
December 31, 1996 and for the years ended December 31, 1997 and 1998,
respectively. Additionally, the Company paid its majority stockholder $835,000
and $590,000 for acquisition services and $571,000 and $260,000 for other
transaction services in 1997 and 1998, respectively. In 1997 and 1998, the
Company paid $450,000 and $530,000, respectively, to a Company affiliated with
its majority shareholder and an officer for air charter services.
<PAGE> 33
In January 1998, the Company purchased for approximately $400,000
substantially all of the assets of Blackhawk (See Note 2), which was owned in
part, by an officer of the Company.
In March 1998, the Company sold Mallyclad, a division of Eagle & Taylor
Company, to a company controlled by its majority shareholder for approximately
$1.1 million. The Company sold this division at its basis, therefore, no gain or
loss was recognized on this transaction.
In October 1998, the Company entered into an operating lease with a
company controlled by its majority shareholder. Amounts paid under this lease
were $75,000 for the year ended December 31, 1998. The Company is committed to
future minimum lease payments of $225,000 in 1999 under this lease.
12. NET INCOME (LOSS) PER COMMON SHARE:
Net income (loss) per common share amounts have been computed in
accordance with Statement of Financial Accounting Standards No. 128, Earnings
Per Share. Basic net income (loss) per common share amounts were computed by
dividing net income (loss) less preferred stock dividends by the
weighted-average number of common shares outstanding. Diluted income (loss) per
share amounts give effect to dilutive common stock equivalents outstanding.
The weighted-average number of common shares outstanding for 1996
includes the 7,548,632 common shares issued upon the conversion of all of the
Series A Preferred (which based on its terms, the Company believed was common
stock in substance) and the 171,842 shares issued by the Company in 1997 to
fulfill an obligation to an officer.
The weighted-average number of common shares outstanding for 1997 and
1998 includes approximately 300,000 additional common shares issued in January
1999 in connection with the Thermetic acquisition based on the average market
price.
<TABLE>
<CAPTION>
DATE OF INCEPTION
(JUNE 16, 1996) YEAR ENDED
TO
DECEMBER 31, DECEMBER 31,
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
EARNINGS
Income (loss) before extraordinary items $ 761,000 $ (765,000) $(8,844,000)
Dividends on preferred shares -- (75,000) --
---------- ----------- -----------
$ 761,000 $ (840,000) $(8,844,000)
========== =========== ===========
Weighted-average shares - basic 7,884,000 12,982,000 13,785,000
========== =========== ===========
Effect of dilutive shares:
Stock options 276,000 -- --
---------- ----------- -----------
Weighted-average shares - diluted 8,160,000 12,982,000 13,785,000
========== =========== ===========
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS PER SHARE
Basic $ .10 $ (.06) $ (.64)
========== =========== ===========
Diluted $ .09 $ (.06) $ (.64)
========== =========== ===========
</TABLE>
13. SEGMENT INFORMATION:
The Company manufactures a broadly diversified line of windows, doors
and related products designed to meet a variety of residential and
non-residential consumer demands in both the new construction and remodeling and
replacement markets. The Company is generally managed through three principal
businesses: residential fenestration products, commercial fenestration products
and extrusion products. Though the Company has defined its reportable segments
primarily based on the nature of its products, it has also considered the type
of customers, and production processes related to each of its businesses.
<PAGE> 34
Residential fenestration products consist of a variety of window and
door products manufactured for uses in homes and light commercial businesses.
These products consist of a full line of aluminum, vinyl, wood and aluminum-clad
wood windows and doors. This business manufactures single hung, double hung,
sliding, casement, picture and geometrically shaped windows and french, patio,
screened storm, sliding doors and steel entry doors. These fenestration products
are sold throughout the United States and are sold one of three ways: directly
to an end user (remodeler, contractor or homeowner); to a retailer who then
sells to the end user or to a wholesaler who sells to a retailer. These products
are produced and shipped on a by order basis in relatively small quantities.
Commercial fenestration products consist of aluminum windows and doors,
security screens and security screen doors manufactured for uses in large
commercial buildings such as schools, dormitories, hospitals, institutions,
municipal buildings and military buildings. These products are currently sold in
the central and northeastern parts of the United States and are normally sold
directly to the end user on a contract basis. Contracts for products in this
business are for long-term large order quantities.
Extrusion products consist of aluminum and vinyl extrusions used
primarily in the fenestration products industry. This business supplies a
portion of the raw materials used in the manufacture of windows by the Company.
These products are sold throughout the United States and are marketed directly
to manufacturers primarily in the window and door industry.
The Company generally measures its businesses based on operating
income, which includes the effects of incentive compensation for each business.
Intersegment transfers are not material. The following represents certain
financial data of the Company by segment as of and for the years ended December
31, 1998 and 1997 and for the period from date of inception to December 31,
1996:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
CORPORATE &
RESIDENTIAL COMMERCIAL EXTRUSION ELIMINATIONS TOTAL
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES - OUTSIDE $226,517,000 $ 2,970,000 $27,777,000 $ -- $257,264,000
REVENUES - INTERCOMPANY 2,916,000 463,000 838,000 (4,217,000) --
DEPRECIATION 4,601,000 773,000 1,721,000 57,000 7,152,000
AMORTIZATION 1,607,000 13,000 9,000 729,000 2,358,000
OPERATING PROFIT (LOSS) 17,840,000 (2,168,000) 834,000 (8,075,000) 8,431,000
INTEREST EXPENSE 11,917,000 1,392,000 2,818,000 550,000 16,677,000
INCOME TAX EXPENSE (BENEFIT) 3,023,000 (684,000) (414,000) (1,925,000) --
TOTAL ASSETS 138,222,000 12,514,000 28,684,000 7,639,000 187,059,000
CAPITAL EXPENDITURES 4,239,000 600,000 2,650,000 457,000 7,946,000
<CAPTION>
Year Ended December 31, 1997
CORPORATE &
RESIDENTIAL COMMERCIAL EXTRUSION ELIMINATIONS TOTAL
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues - outside $91,614,000 $ 2,558,000 $ 80,000 $ 94,252,000
Revenues - intercompany -- -- -- --
Depreciation 1,435,000 666,000 1,000 -- 2,102,000
Amortization 438,000 5,000 -- $ 135,000 578,000
Operating profit (loss) 7,252,000 (1,554,000) 3,000 (2,931,000) 2,770,000
Interest expense 2,203,000 558,000 -- 1,167,000 3,928,000
Income tax expense (benefit) 2,067,000 (735,000) -- (1,722,000) (390,000)
Extraordinary loss 33,000 10,000 -- 451,000 494,000
Total assets 104,182,000 10,694,000 1,041,000 42,407,000 158,324,000
Capital expenditures 1,499,000 -- -- 49,000 1,548,000
</TABLE>
<PAGE> 35
<TABLE>
<CAPTION>
From Date of Inception to December 31, 1996
CORPORATE &
RESIDENTIAL COMMERCIAL EXTRUSION ELIMINATIONS TOTAL
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues - outside $25,249,000 $25,249,000
Revenues - intercompany 57,000 $ (57,000) -
Depreciation 325,000 -- 325,000
Amortization 74,000 43,000 117,000
Operating profit (loss) 2,247,000 (85,000) 2,162,000
Interest expense 746,000 10,000 756,000
Income tax expense 690,000 (50,000) 640,000
Total assets 31,659,000 $8,755,000 2,330,000 42,744,000
Capital expenditures 429,000 -- -- 429,000
</TABLE>
The operating loss in corporate & eliminations as reported pertains to the
operation of a Corporate function and includes general and administration
expenses. In 1998, the Corporate operating loss includes charges totaling $2.9
million relating to non-cash stock compensation (see notes 8 and 9) and the
write-off of deferred costs relating to terminated acquisitions and financing
transactions. The extraordinary loss reported in 1997 relates to the early
extinguishment of debt (See Note 5).
No one customer constituted more than ten percent of the Company's consolidated
net sales in the period ended December 31, 1996 or the years ended December 31,
1997 and 1998.
14. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
FROM DATE
OF INCEPTION
(JUNE 19, 1996) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997 1998
---------------------------------------------
<S> <C> <C> <C>
CASH PAID DURING THE PERIOD FOR
Interest $ 620,000 $ 3,017,000 $14,994,000
Income taxes 70,000 228,000 --
NONCASH INVESTING AND FINANCING ACTIVITIES
Common stock and debt issued and liabilities
assumed in acquisitions $27,981,000 $22,465,000 $13,251,000
Capital lease obligations 1,578,000 -- 1,044,000
Distribution to stockholder 170,000 -- --
</TABLE>
<PAGE> 36
SELECTED QUARTERLY DATA OF THE COMPANY
<TABLE>
<CAPTION>
1997 1998 (1)
-----------------------------------------------------------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $16,641 $22,968 $25,410 $29,234 $45,608 $61,638 $77,419 $72,599
Gross profit 3,118 5,478 5,446 5,906 9,114 14,588 15,828 13,953
Income (loss) before
extraordinary item (515) 595 303 (1,148) (2,609) (2,737) (900) (2,598)
Net income (515) 595 303 (1,642) (2,609) (2,737) (900) (2,598)
Income (loss) per share,
before extraordinary item:
Basic $(0.04) $0.05 $0.02 $ (0.09) $(0.19) $(0.20) $(0.07) $(0.18)
Diluted (0.04) 0.05 0.02 (0.09) (0.19) (0.20) (0.07) (0.18)
Net income (loss) per share:
Basic $(0.04) $0.05 $0.02 $ (0.12) $(0.19) $(0.20) $(0.07) $(0.18)
Diluted (0.04) 0.05 0.02 (.012) (0.19) (0.20) (0.07) (0.18)
</TABLE>
(1) The Company's quarterly data has been restated to properly reflect non-cash
stock compensation and income tax adjustments in the second and third
quarters of 1998.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
AAPC One Acquisition Corporation
AAPC Two Acquisition Corporation
AAPC Three Acquisitions Corporation
American Glassmith, Inc.
American Weather-Seal Company
Binnings Building Products, Inc.
Danvid Window Company
Denver Window Company
Eagle & Taylor Company
Eagle Window & Door Center, Inc.
Forte, Inc.
Modern Window Corporation
Thermetic Glass, Inc.
VinylSource, Inc.
Western Insulated Glass, Co.
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of American Architectural Products Corporation of our report dated March 10,
1999, included in the 1998 Annual Report to Shareholders of American
Architectural Products Corporations.
Our audit also included the financial statements schedule of American
Architectural Products Corporation for the year ended December 31, 1998, listed
in Item 14(a). This schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audit. In our opinion,
the financial statement schedule referred to above, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein for the year ended December
31, 1998.
We also consent to the incorporation by reference in the Registration Statements
(Form S-4/A No. 333-44275) and related Prospectus of American Architectural
Products Corporations of (i) our report dated March 10, 1999 with respect to the
consolidated financial statements of American Architectural Products Corporation
incorporated herein by reference; (ii) and our report dated March 12, 1999 with
respect to financial statements of Weather-Seal (a division of Louisiana-Pacific
Corporation) included herein; and (iii) our report included in the preceding
paragraph with respect to the financial statement schedule included in this
Annual Report (Form 10-K) of American Architectural Products Corporation.
ERNST & YOUNG LLP
Akron, Ohio
March 25, 1999
<PAGE> 1
EXHIBIT 23.2
Consent of Independent Certified Public Accountants
American Architectural Products Corporation
Boardman, Ohio
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of the Form S-4 Registration Statement of our reports dated
February 26, 1998, relating to the 1996 and 1997 consolidated financial
statements and schedules of American Architectural Products Corporation and our
report dated April 28, 1997 relating to the combined financial statements of
Mallyclad Corporation and Vyn-L Corporation appearing in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
We also consent to the reference to us under the caption "Independent Auditors"
and "Changes In and Disagreements with Accountants on Accounting and Financial
Disclosure" in the prospectus.
BDO SEIDMAN, LLP
Troy, Michigan
March 25, 1999
<PAGE> 1
EXHIBIT 23.3
Consent of Independent Certified Public Accountants
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation by reference in the Prospectus constituting a part of the Form S-4
Registration Statement of our report dated January 31, 1997, on the combined
financial statements and schedule of Eagle Window & Door, Inc. and Subsidiaries
and Taylor Building Products Company (wholly-owned subsidiaries) for the eight
month period ended August 29, 1996 appearing in the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.
We also consent to the reference to us under the caption "Independent Auditors"
and "Changes In and Disagreements with Accountants on Accounting and Financial
Disclosure" in the Prospectus.
Certified Public Accountants Semple & Cooper, LLP
Phoenix, Arizona
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 88,000
<SECURITIES> 0
<RECEIVABLES> 28,501,000
<ALLOWANCES> 1,005,000
<INVENTORY> 32,587,000
<CURRENT-ASSETS> 62,254,000
<PP&E> 91,056,000
<DEPRECIATION> 10,503,000
<TOTAL-ASSETS> 187,059,000
<CURRENT-LIABILITIES> 47,299,000
<BONDS> 133,333,000
0
0
<COMMON> 14,000
<OTHER-SE> (1,429,000)
<TOTAL-LIABILITY-AND-EQUITY> 187,059,000
<SALES> 257,264,000
<TOTAL-REVENUES> 257,264,000
<CGS> 203,781,000
<TOTAL-COSTS> 203,781,000
<OTHER-EXPENSES> 45,052,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,677,000
<INCOME-PRETAX> (8,844,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,844,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,844,000)
<EPS-PRIMARY> (0.64)
<EPS-DILUTED> (0.64)
</TABLE>
