-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, APXvJ0w06a/EJcbhxjK3gzulBJV/rPeGnlX1hG7xZWdG5DWhWeaQVIHKhO/IIpu2 58atcRSlDQO1Rny9zwETlw== 0000950152-96-006139.txt : 19961118 0000950152-96-006139.hdr.sgml : 19961118 ACCESSION NUMBER: 0000950152-96-006139 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19960927 FILED AS OF DATE: 19961114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN PRECISION INDUSTRIES INC CENTRAL INDEX KEY: 0000005657 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED PLATE WORK (BOILER SHOPS) [3443] IRS NUMBER: 161284388 STATE OF INCORPORATION: DE FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05601 FILM NUMBER: 96665043 BUSINESS ADDRESS: STREET 1: 2777 WALDEN AVE CITY: BUFFALO STATE: NY ZIP: 14225 BUSINESS PHONE: 7166849700 MAIL ADDRESS: STREET 1: 2777 WALDEN AVENUE CITY: BUFFALO STATE: NY ZIP: 14225 10-Q 1 AMERICAN PRECISION 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended September 27,1996 ----------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from __________ to __________ Commission file number 1-5601 AMERICAN PRECISION INDUSTRIES INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) DELAWARE 16-1284388 - ------------------------------- ---------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2777 WALDEN AVENUE, BUFFALO, NEW YORK 14225 - -------------------------------------- --------- (Address of principal executives offices) (Zip Code) (716) 684-9700 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . --- --- Number of shares of outstanding stock on November 7, 1996 7,223,088 This document contains pages 1 - 81 inclusive. 2 AMERICAN PRECISION INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS ---------------------------------- (Unaudited)
THIRD QUARTER ENDED NINE MONTHS ENDED ------------------------------------ ------------------------------------- 1996 1995 1996 1995 SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER ----------------- ----------------- ----------------- ------------------ NET SALES $ 31,599,000 $ 20,800,000 $ 84,978,000 $ 60,316,000 INVESTMENT INCOME 59,000 50,000 243,000 183,000 ----------------- ----------------- ----------------- ------------------ REVENUES 31,658,000 20,850,000 85,221,000 60,499,000 ----------------- ----------------- ----------------- ------------------ COSTS AND EXPENSES Cost of products sold 20,986,000 13,536,000 56,976,000 40,388,000 Selling and administrative 7,215,000 5,075,000 18,847,000 13,835,000 Research and product development 479,000 266,000 1,260,000 838,000 Interest and debt expense 379,000 54,000 901,000 171,000 ----------------- ----------------- ----------------- ------------------ 29,059,000 18,931,000 77,984,000 55,232,000 ----------------- ----------------- ----------------- ------------------ EARNINGS BEFORE INCOME TAXES 2,599,000 1,919,000 7,237,000 5,267,000 FEDERAL AND STATE INCOME TAXES 863,000 719,000 2,529,000 1,903,000 ----------------- ----------------- ----------------- ------------------ NET EARNINGS $ 1,736,000 $ 1,200,000 $ 4,708,000 $ 3,364,000 ================= ================= ================= ================== NET EARNINGS PER SHARE $0.24 $0.17 $0.66 $0.48 ================= ================= ================= ================== DIVIDENDS DECLARED PER SHARE $.0650 $.0650 $.195 $0.1925 ================= =============== =============== ================ AVERAGE SHARES OUTSTANDING 7,207,000 7,101,000 7,176,000 7,078,000 ================= ================= ================= ==================
3 AMERICAN PRECISION INDUSTRIES AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET - -------------------------- (Unaudited)
1996 1995 SEPTEMBER DECEMBER ----------- ----------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 372,000 $ 2,486,000 Accounts receivable less allowance for doubtful accounts of $496,000 and $264,000 19,656,000 12,691,000 Marketable securities 250,000 3,493,000 Inventories 16,723,000 10,589,000 Prepaid expenses 1,740,000 967,000 Deferred income tax benefit 1,403,000 1,389,000 Prepaid income taxes 144,000 -- ----------- ----------- TOTAL CURRENT ASSETS 40,288,000 31,615,000 ----------- ----------- INVESTMENTS 4,313,000 6,277,000 OTHER ASSETS Cost in excess of net assets acquired 4,440,000 2,153,000 Prepaid pension cost 2,140,000 2,140,000 Net cash value of life insurance 2,639,000 2,222,000 Other 903,000 1,115,000 ----------- ----------- 10,122,000 7,630,000 ----------- ----------- PROPERTY, PLANT AND EQUIPMENT Land 665,000 211,000 Buildings and improvements 10,266,000 6,183,000 Machinery, equipment and furniture 29,979,000 22,265,000 Construction in process 4,662,000 1,450,000 ----------- ----------- 45,572,000 30,109,000 Less accumulated depreciation 20,352,000 17,840,000 ----------- ----------- NET PROPERTY, PLANT AND EQUIPMENT 25,220,000 12,269,000 ----------- ----------- $79,943,000 $57,791,000 =========== ===========
4 AMERICAN PRECISION INDUSTRIES AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET - -------------------------- (Unaudited)
1996 1995 SEPTEMBER DECEMBER ----------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Short-term borrowings $ -- $ 2,602,000 Accounts payable 8,272,000 5,136,000 Accrued compensation and payroll taxes 4,945,000 3,566,000 Other accrued expenses 1,431,000 757,000 Dividends payable 469,000 463,000 Current portion of long-term obligations 1,252,000 628,000 ----------- ----------- TOTAL CURRENT LIABILITIES 16,369,000 13,152,000 ----------- ----------- DEFERRED INCOME TAXES 1,251,000 1,251,000 OTHER NONCURRENT LIABILITIES 568,000 413,000 LONG-TERM OBLIGATIONS, LESS CURRENT PORTION 23,400,000 8,628,000 SHAREHOLDERS' EQUITY Common stock, par value $.66 2/3 a share: Authorized - 10,000,000 shares Issued - 7,585,042 and 7,502,000 shares 5,057,000 5,001,000 Additional paid-in capital 10,134,000 9,532,000 Retained earnings 26,002,000 22,629,000 Net unrealized gain on marketable securities and investments -- 23,000 ----------- ----------- 41,193,000 37,185,000 Less cost of 374,262 treasury shares 2,838,000 2,838,000 ----------- ----------- TOTAL SHAREHOLDERS' EQUITY 38,355,000 34,347,000 ----------- ----------- $79,943,000 $57,791,000 =========== ===========
5 AMERICAN PRECISION INDUSTRIES AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS - ------------------------------------ (Unaudited)
NINE MONTHS ENDED --------------------------- 1996 1995 September September ------------ ----------- Cash Flows from Operating Activities Net Income $ 4,708,000 $ 3,364,000 Adjustments to reconcile net income to cash and and cash equivalents provided by operating activities: Depreciation and amortization 2,944,000 2,025,000 Gain on sale of investments and fixed assets (19,000) 10,000 Increase in supplemental benefit program 74,000 101,000 Recognition of pension income under FASB #87 -- (233,000) Stock compensation programs 166,000 -- Change in various allowance accounts 312,000 (66,000) Treasury stock issued as bonus -- 24,000 (Increase) Decrease in: Accounts receivable (2,224,000) (1,428,000) Inventories (2,216,000) (1,852,000) Prepaid expenses (585,000) 189,000 Prepaid income taxes (228,000) -- Net cash value of life insurance (417,000) (554,000) Other assets, net 12,000 (325,000) Increase (Decrease) in: Accounts payable 1,374,000 315,000 Accrued expenses (412,000) 120,000 Federal and state income taxes -- 173,000 Other noncurrent liabilities (11,000) (81,000) ------------ ----------- Net cash provided by Operating Activities 3,478,000 1,782,000 ------------ ----------- Cash Flows from Investing Activities Investments in Gettys and Ketema net of cash and cash equivalents acquired (17,292,000) -- Purchases of investments and marketable securities (94,000) -- Additions to property, plant and equipment (5,529,000) (3,098,000) Proceeds from investments 5,291,000 1,474,000 Proceeds from sale of fixed assets 49,000 20,000 ------------ ----------- Net cash (used) by Investing Activities (17,575,000) (1,604,000) ------------ ----------- Cash Flows from Financing Activities Exercise of stock options 658,000 389,000 Payment of long-term obligations, including current maturities (600,000) (274,000) Dividends paid (1,397,000) (1,343,000) Increase in long-term borrowings 15,924,000 -- (Decrease) in short-term borrowings (2,602,000) (835,000) ------------ ----------- Net cash provided (used) by Financing Activities 11,983,000 (2,063,000) ------------ ----------- Net (Decrease) in Cash and Cash Equivalents (2,114,000) (1,885,000) Cash and Cash Equivalents at Beginning of Year 2,486,000 2,135,000 ============ =========== Cash and Cash Equivalents at End of Period $ 372,000 $ 250,000 ============ ===========
6 AMERICAN PRECISION INDUSTRIES AND SUBSIDIARIES Notes to Consolidated Financial Statements Third Quarter Ended September 27, 1996 ------------------------------------------ Note A Consolidated Financial Statements - ------ --------------------------------- The Consolidated Balance Sheet as of September 27, 1996, the Consolidated Statement of Earnings, and the Consolidated Statement of Cash Flows for the periods ended September 27, 1996 and September 29, 1995 have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and changes in cash flow at September 27, 1996 and for all periods presented have been made. The Consolidated Balance Sheet as of September 27, 1996 includes the assets, liabilities, and resulting goodwill of API Ketema Inc. ("Ketema") and API Gettys Inc. ("Gettys") acquired as of April 1, 1996 and April 29, 1996, respectively. The Consolidated Statement of Earnings and Cash Flows for the period ended September 27, 1996 also includes the results of Ketema and Gettys since the dates of acquisition. Certain information and footnote disclosures normally included in financial statements prepared in accordance with Generally Accepted Accounting Principles have been condensed or omitted. It is suggested these condensed consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's December 29, 1995 Annual Report to Shareholders. NOTE B Inventories - ------ ----------- It is not practical to determine raw material, work in process, and finished goods inventories during interim periods. 7 Note C Long-Term Obligations - ------ ---------------------
September 27, 1996 ------------------------------------------------------------- Outstanding Current Long-Term ------------------------------------------------------------- Industrial Revenue $ 13,642,000 $ 1,075,000 $ 12,567,000 Bonds Supplemental Benefit 1,110,000 177,000 933,000 Program Revolving Credit Debt 9,900,000 -- 9,900,000 --------------- ---------------- --------------- $ 24,652,000 $ 1,252,000 $ 23,400,000 =============== ================ ===============
Note D Earnings Per Share - ------ ------------------ Earnings per share are based on the weighted average number of shares outstanding. 8 AMERICAN PRECISION INDUSTRIES AND SUBSIDIARIES Components of Consolidated Statement of Earnings Expressed as a Percentage of Revenues ------------------------------------------------
1996 1995 1996 1995 September September September September --------------- --------------- --------------- --------------- Revenues 100.0 100.0 100.0 100.0 Costs and Expenses Cost of products sold 66.3 64.9 66.9 66.8 Selling and administrative 22.8 24.3 22.1 22.9 Research and product development 1.5 1.3 1.5 1.4 Interest and debt expense 1.2 0.3 1.1 0.3 --------------- --------------- --------------- --------------- 91.8 90.8 91.6 91.4 --------------- --------------- --------------- --------------- Earnings before Income Taxes 8.2 9.2 8.4 8.6 Federal and State Income Taxes 2.7 3.4 2.7 3.1 --------------- --------------- --------------- --------------- Net Earnings 5.5 5.8 5.7 5.5 =============== =============== =============== =============== Federal and State Income Taxes as a percentage of earnings before income taxes 33.2 37.5 34.9 36.1 =============== =============== =============== ===============
9 MANAGEMENT'S DISCUSSION AND ANALYSIS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------------------------------------------------ REVENUES Consolidated revenues for the third quarter and nine months of 1996 increased 51.8% and 40.9%, respectively, as compared to the same periods of the preceding year. Sales within the Heat Transfer segment increased 71.3% and 53.3%, respectively, over the comparable quarter and nine months of 1995. This increase is attributable to higher sales of the extended surface heat transfer equipment, which continues to far surpass 1995 levels, as well as increased sales volume of our air-cooled product line to new and existing customers. The Motion Technologies segment sales increased 46.0% and 42.5%, respectively, over the comparable quarter and nine months of 1995. This increase is the direct result of increased sales volume of all the products offered by the Motion Technologies segment to both new and existing customers. Both the third quarter and nine months results of 1996 for the Heat Transfer and Motion Technologies segments were favorably impacted by sales and earnings from Ketema and Gettys, which were acquired by the Company as of April 1, 1996 and April 29, 1996, respectively. Sales within the Electronic Components segment for the third quarter of 1996 increased 1.2%, while sales for the nine months remained relatively consistent with the comparable period of 1995. Bookings of customer orders in the third quarter and nine months of 1996 were $32.7 million and $88.6 million, respectively, up 32.9% and 24.9% over bookings in the same periods last year. The backlog of customer orders at September 27, 1996 stood at $39.5 million, up 22.8% from $32.2 million on September 29, 1995. SELLING AND ADMINISTRATIVE EXPENSES Selling and administrative expenses, expressed as a percentage of net sales, declined for the third quarter and nine months of 1996 as compared with the comparable periods in 1995. The dollar increase is primarily the result of increased sales commissions and provisions made under the Company's incentive compensation program. INTEREST AND DEBT EXPENSE The increase in interest and debt expense is due to the combination of the industrial revenue bond financing obtained at the end of 1995 for the construction of the new Air Technologies facility as well as debt incurred for the acquisition of Ketema and Gettys. 10 RESEARCH AND PRODUCT DEVELOPMENT The increase in research and product development in the third quarter and nine months of 1996 of 80.1% and 50.4%, respectively, reflects the additional activity of Gettys acquired as of April 29, 1996, as well as the Company's commitment to the continued improvement of existing products and the design of new products. NET EARNINGS Net earnings increased 44.7% in the third quarter of 1996 and 40.0% for the nine month as compared to similar periods in 1995, which is primarily due to the increased level of sales discussed above, offset by higher interest and debt expense. 11 FINANCIAL POSITION On March 29, 1996, the Company concluded a Credit Agreement with Marine Midland Bank which provided a Revolving Credit facility of $20,000,000. The Revolving Credit matures on March 29, 1999, at which time the Company may convert the amount outstanding under the Revolving Credit to a term loan payable over four years. The interest rate on the Revolving Credit as of September 27, 1996, under the LIBOR Rate Option in the Credit Agreement, was 6.13%. On April 1, 1996, the Company borrowed $12,700,000 under the Credit Agreement in connection with the Ketema acquisition and borrowed an additional $4,000,000 on April 19, 1996 relating to the Gettys acquisition. Relative to the Ketema acquisition, the Company concluded a $6,000,000 15-year bond financing with the Grand Prairie Industrial Development Authority on August 7,1996. Substantially all the proceeds from this financing were applied to reduce the outstanding debt under the Revolving Credit. In connection with the bond financing, the Revolving Credit facility was reduced from $20,000,000 to $16,000,000. Concurrent with the closing of the aforementioned Credit Agreement, the Company reduced its short-term line of credit with Marine Midland Bank from $10 million to $5 million. The Company has utilized this short-term line of credit from time to time in amounts not exceeding $2,000,000 at any time during the nine months ended September 27, 1996. Comparative information on the Company's liquidity position follows ($000 omitted):
1996 1995 September September -------------------- -------------------- Net working capital $23,919 $18,463 Current ratio 2.46 2.40 Cash, cash equivalents and marketable securities $ 622 $ 5,979 For the nine months ended -------------------------------------------- 1996 1995 September September -------------------- -------------------- Cash flow from operations $ 3,478 $ 1,782 Capital expenditures $ 5,529 $ 3,098
Investments reflected in the Company's balance sheet at September 27, 1996 and December 29, 1995 represent the proceeds of a bond financing concluded on December 22, 1995 for the construction of the new Airtech Division facility. 12 PART II ------- OTHER INFORMATION ----------------- ITEM 5. Other Information On November 5, 1996, the Registrant entered into an agreement in principle to acquire all of the outstanding stock of Portescap SA, a manufacturer of motion technology products with its principal facilities in Switzerland, from Inter Scan Holding AG for a purchase price of approximately $37.8 million, consisting of convertible preferred stock of $23.2 million, an exchangeable note of $6.8 million, and cash of $7.8 million. Subject to approval by the Registrant's shareholders, the note will be exchangeable into additional shares of convertible preferred stock. The convertible preferred stock, including the stock issued in exchange for the note, would be convertible at approximately $17 per share into 1,775,000 shares of the Registrant's common stock. The Registrant and Inter Scan Holding AG are discussing the detailed terms of this proposed transaction. If final terms are agreed to, the Registrant anticipates closing the transaction in the early part of the first quarter of 1997. ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits 10 i. Form of Change in Control Agreement between American * Precision Industries Inc. and James W. Bingel, John M. Murray, Craig J. Van Tine, and Richard S. Warzala dated October 21, 1996. ii. Change in Control Agreement between American * Precision Industries Inc. and Kurt Wiedenhaupt dated July 1, 1996. iii. Amendment to and Restatement of Executive Employment * Agreement between American Precision Industries Inc. and Kurt Wiedenhaupt dated July 1, 1996.
13 iv. First Amendment to American Precision Industries * Inc. Grant of Restricted Stock and Bonus to Kurt Wiedenhaupt dated July 1, 1996. v. Executive Supplemental Retirement Plan (as restated) * between American Precision Industries Inc. and Kurt Wiedenhaupt dated July 1, 1996. vi. Amendment to Life Insurance Split-Dollar Agreement * between American Precision Industries Inc. and Kurt Wiedenhaupt dated as of July 1, 1994. vii. Life Insurance Split-Dollar Agreement (as restated) * between American Precision Industries Inc. and Kurt Wiedenhaupt dated July 1, 1996. 27 Financial Data Schedule * * Documents filed herewith
(b) Reports on Form 8-K There were no reports on Form 8-K for the three months ended September 27, 1996. 14 AMERICAN PRECISION INDUSTRIES AND SUBSIDIARIES * * * * * * SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES -------------------------------------------------- LITIGATION REFORM ACT OF 1995 ----------------------------- With the exception of historical factual information, the statements made in this Form 10-Q constitute forward-looking statements based upon current expectations and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve certain assumptions, risks and uncertainties that could cause actual results to differ materially from those included in or contemplated by the statements. These assumptions, risks and uncertainties include, but are not limited to, the possibility that the acquisition referred to may not occur. Registrant disclaims any obligation to update any forward-looking statements as a result of developments occurring after the filing of this Form 10-Q. * * * * * * Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN PRECISION INDUSTRIES INC. /s/ John M. Murray ------------------------------------ John M. Murray Vice President Finance and Treasurer /s/ Thomas M. Huebsch ------------------------------------ Thomas M. Huebsch Chief Accounting Officer November 13, 1996 15 EXHIBIT INDEX ------------- 10 i. Form of Change in Control Agreement between American Precision Industries Inc. and James W. Bingel, John M. Murray, Craig J. Van Tine, and Richard S. Warzala dated October 21, 1996. ii. Change in Control in Agreement between American Precision Industries Inc. and Kurt Wiedenhaupt dated July 1, 1996. iii. Amendment to and Restatement of Executive Employment Agreement between American Precision Industries Inc. and Kurt Wiedenhaupt dated July 1, 1996. iv. First Amendment to American Precision Industries Inc. Grant of Restricted Stock and Bonus to Kurt Wiedenhaupt dated July 1, 1996. v. Executive Supplemental Retirement Plan (as restated) between American Precision Industries Inc. and Kurt Wiedenhaupt dated July 1, 1996. vi. Amendment to Life Insurance Split-Dollar Agreement between American Precision Industries Inc. and Kurt Wiedenhaupt dated as of July 1, 1994. vii. Life Insurance Split-Dollar Agreement (as restated) between American Precision Industries Inc. and Kurt Wiedenhaupt dated July 1, 1996. 27 Financial Data Schedule EX-10.I 2 EXHIBIT 10(I) 1 EXHIBIT 10(i) CHANGE IN CONTROL AGREEMENT --------------------------- AGREEMENT by and between American Precision Industries Inc., a Delaware corporation (the "Company"), with offices at 2777 Walden Avenue, Buffalo, New York 14225 and____________________(the "Executive"), an individual residing at___________________________________________________, dated as of the 1st day of JULY, 1996. WHEREAS, the Company recognizes that the current business environment makes it difficult to attract and retain highly qualified executives unless a certain degree of security can be offered to such individuals against organizational and personnel changes which frequently follow changes in control of a corporation; and WHEREAS, even rumors of acquisitions or mergers may cause executives to consider major career changes in an effort to assure financial security for themselves and their families; and WHEREAS, the Company desires to assure fair treatment of its executives in the event of a Change in Control (as defined below) and to allow them to make critical career decisions without undue time pressure and financial uncertainty, thereby increasing their willingness to remain with the Company notwithstanding the outcome of a possible Change in Control transaction; and WHEREAS, the Company recognizes that its executives will be involved in evaluating or negotiating any offers, proposals or other transactions which could result in Changes in Control of the Company and believes that it is in the best interest of the Company and its stockholders for such executives to be in a position, free from personal financial and employment considerations, to be able to assess objectively and pursue aggressively the interests of the Company's stockholders in making these evaluations and carrying on such negotiations; and WHEREAS, the Board of Directors (the "Board") of the Company believes it is essential to provide the Executive with compensation arrangements upon a Change in Control which provide the Executive with individual financial security and which are competitive with those of other corporations, and in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW THEREFORE, the parties, for good and valuable consideration and intending to be legally bound, agree as follows: 1. OPERATION AND TERM OF AGREEMENT. This Agreement shall be effective immediately upon its execution. This Agreement may be terminated by the Company upon twenty-four (24) months' advance written notice to the Executive; PROVIDED, HOWEVER, that after a Change in Control of the Company during the term of this Agreement, this Agreement shall remain in effect until all of the obligations of the parties hereunder are - 1 - 2 satisfied and the Protection Period has expired. Prior to a Change in Control this Agreement shall immediately terminate upon termination of the Executive's employment or upon the Executive's ceasing to be an elected officer of the Company, except in the case of such termination under circumstances set forth in Section 2(e) below. 2. CERTAIN DEFINITIONS. For purposes of this Agreement, the following words and phrases shall have the following meanings: (a) "Cause" shall mean (i) the continued failure by the Executive to perform his material responsibilities and duties hereunder (other than any such failure resulting from the Executive's incapacity due to physical or mental illness), (ii) the engaging by the Executive in willful or reckless conduct which is demonstrably injurious to the Company monetarily or otherwise, (iii) the conviction of the Executive of a felony, or (iv) the commission or omission of any act by the Executive that is materially inimical to the best interests of the Company and that constitutes on the part of the Executive common law fraud or malfeasance, misfeasance or nonfeasance of duty; provided, however, that "cause" shall not include the Executive's lack of professional qualifications. For purposes of this Agreement, an act, or failure to act, on the Executive's part shall be considered "willful" or "reckless" only if done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. The Executive's employment shall not be deemed to have been terminated for "cause" unless the Company shall have given or delivered to the Executive (A) reasonable notice setting forth the reasons for the Company's intention to terminate the Executive's employment for "cause," (B) a reasonable opportunity, at any time during the thirty-day period after the Executive's receipt of such notice, for the Executive, together with his counsel, to be heard before the Board, and (C) a Notice of Termination (as defined in Section 9 below) stating that, in the good faith opinion of not less than a majority of the entire membership of the Board, the Executive was guilty of the conduct set forth in clauses (i), (ii), (iii) or (iv) of the first sentence of this Section 2(a). (b) "Change in Control" shall mean: (i) on or after the date of execution of this Agreement, any person (which, for all purposes hereof, shall include, without limitation, an individual, sole proprietorship, partnership, unincorporated association, unincorporated syndicate, unincorporated organization, trust, body corporate and a trustee, executor, administrator or other legal representative) (a "Person") or any group of two or more Persons acting in concert who or which becomes the beneficial owner, directly or indirectly, of securities of the Company representing, or acquires the right to control or direct, or to acquire through the conversion of securities or the exercise of warrants or other rights to acquire securities, 25% or more of the combined voting power of the Company's then outstanding securities; provided that for the purposes of this Agreement, (A) "voting power" means the right to vote for the election of directors, and (B) any determination of percentage combined voting power shall be made on the basis that (x) all securities beneficially owned by the Person or group or over which control or direction is exercised by the Person or group which are convertible - 2 - 3 into securities carrying voting rights have been converted (whether or not then convertible) and all options, warrants or other rights which may be exercised to acquire securities beneficially owned by the Person or group or over which control or direction is exercised by the Person or group have been exercised (whether or not then exercisable), and (y) no such convertible securities have been converted by any other Person and no such options, warrants or other rights have been exercised by any other Person; or (ii) at any time subsequent to the date of execution of this Agreement there shall be elected or appointed to the Board any director or directors whose appointment or election to the Board or nomination for election by the Company's stockholders was not approved by a vote of at least a majority of the directors then in office who were either directors on the date of execution of this Agreement or whose election or appointment or nomination for election was previously so approved; or (iii) a reorganization, merger, consolidation, combination, corporate restructuring or similar transaction (an "Event"), in each case, in respect of which the beneficial owners of the outstanding Company voting securities immediately prior to such Event do not, following such Event, beneficially own, directly or indirectly, more than 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the Company and any resulting Parent in substantially the same proportions as their ownership, immediately prior to such Event, of the outstanding Company voting securities; or (iv) an Event involving the Company as a result of which 33% or more of the members of the board of directors of the Parent or the Company are not persons who were members of the Board immediately prior to the earlier of (x) the Event, (y) execution of an agreement the consummation of which would result in the Event, or (z) announcement by the Company of an intention to effect the Event. (c) "Code" shall mean the Internal Revenue Code of 1986, as amended. (d) "Disability," for purposes of this Agreement, shall mean total disability as defined in any long-term disability plan sponsored by the Company in which the Executive participates, or, if there is no such plan or it does not define such term, then it shall mean the physical or mental incapacity of the Executive which prevents him from substantially performing the duties of the office or position to which he was elected or appointed by the Board for a period of at least 180 days and the incapacity is expected to be permanent and continuous through the Executive's 65th birthday. (e) The "Change in Control Date" shall be any date during the term of this Agreement on which a Change in Control occurs. Anything in this Agreement to the contrary notwithstanding, if the Executive's employment or status as an elected officer with the Company is terminated within six months prior to the date on which a Change in Control occurs, and it is reasonably demonstrated that such termination (i) was at the request of a - 3 - 4 third party who has taken steps reasonably calculated or intended to effect a Change in Control or (ii) otherwise arose in connection with or anticipation of a Change in Control, then for all purposes of this Agreement the "Change in Control Date" shall mean the date immediately prior to the date of such termination. (f) "Good Reason" means: (i) the assignment to the Executive within the Protection Period of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements, authority, duties or responsibilities), or any other action which results in a diminution in such position, authority, duties or responsibilities excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) a reduction by the Company in the Executive's base salary in effect immediately before the beginning of the Protection Period or as increased from time to time thereafter; (iii) a failure by the Company to maintain plans providing benefits at least as beneficial as those provided by any benefit or compensation plan (including, without limitation, any incentive compensation plan, bonus plan or program, retirement, pension or savings plan, life insurance plan, health and dental plan or disability plan) in which the Executive is participating immediately before the beginning of the Protection Period, or any action taken by the Company which would adversely affect the Executive's participation in or reduce the Executive's opportunity to benefit under any of such plans or deprive the Executive of any material fringe benefit enjoyed by him immediately before the beginning of the Protection Period; PROVIDED, HOWEVER, that a reduction in benefits under the Company's tax-qualified retirement, pension or savings plans or its life insurance plan, health and dental plan, disability plans or other insurance plans which reduction applies equally to all participants in the plans and has a DE MINIMIS effect on the Executive shall not constitute "Good Reason" for termination by the Executive; (iv) the Company's requiring the Executive, without the Executive's written consent, to be based at any office or location in excess of 50 miles from his office location immediately before the beginning of the Protection Period, except for travel reasonably required in the performance of the Executive's responsibilities; (v) any purported termination by the Company of the Executive's employment for Cause otherwise than as referred to in Section 9 of this Agreement; or (vi) any failure by the Company to obtain the assumption of the obligations contained in this Agreement by any successor as contemplated in Section 8(c) of this Agreement. - 4 - 5 (g) "Parent" means any entity which directly or indirectly through one or more other entities owns or controls more than 50% of the voting stock or common stock of the Company. (h) "Protection Period" means the period beginning on the Change in Control Date and ending on the last day of the thirty-sixth (36th) calendar month following the Change in Control Date. (i) "Subsidiary" means a company 50% or more of the voting securities of which are owned, directly or indirectly, by the Company. 3. BENEFITS UPON TERMINATION WITHIN A PROTECTION PERIOD. If, during a Protection Period, the Executive's employment is terminated by the Company other than for Cause or Disability or other than as a result of the Executive's death or the Executive terminates his employment for Good Reason, the Company shall pay to the Executive in a lump sum in cash within 10 days after the date of termination the aggregate of the following amounts and shall provide the following benefits: (a) The Executive's full base salary and vacation pay (for vacation not taken) accrued but unpaid through the date of termination at the rate in effect at the time of the termination plus an amount equal to the product of the Executive's normative bonus under the applicable bonus plan for the fiscal year including the date of termination and a fraction, the numerator of which is the number of days in such fiscal year through the date of termination and the denominator of which is 365; and (b) The amount in the "bonus bank" for the Executive under all bonus plans in which the Executive participates; and (c) A lump sum severance payment in an amount equal to 100% of the Executive's "Annual Compensation." For purposes of this Agreement, "Annual Compensation" shall be an amount equal to the aggregate of the Executive's annual base salary from the Company and its Subsidiaries as set by the Board and in effect immediately prior to the date of termination or Change in Control (whichever is greater) plus the highest bonus accrued by the Company for the Executive in any of the Company's three fiscal years preceding the date of termination or Change in Control (whichever is greater); and (d) Within 30 days of the date of termination, upon surrender by the Executive of his outstanding options to purchase common shares of the Company ("Common Shares") granted to the Executive by the Company (the "Outstanding Options") and any stock appreciation rights ("SARs"), an amount in respect of each Outstanding Option and SAR (whether vested or not) equal to the difference between the exercise price of such Outstanding Options and SARs and the higher of (x) the fair market value of the Common Shares at the time of such termination (but not less than the closing price for the Common Shares on the New York Stock Exchange, or such other national stock exchange on which such shares may be listed, on the last trading day such shares traded prior to the date of - 5 - 6 termination), and (y) the highest price paid for Common Shares or, in the cases of securities convertible into Common Shares or carrying a right to acquire Common Shares, the highest effective price (based on the prices paid for such securities) at which such securities are convertible into Common Shares or at which Common Shares may be acquired, by any person or group whose acquisition of voting securities has resulted in a Change in Control of the Company; PROVIDED, HOWEVER, that this Section 3(d) shall not apply to the surrender of any Outstanding Option that is an incentive stock option (within the meaning of Section 422 of the Code); and (e) A lump sum payment equal to 35% of the Executive's Annual Compensation, such payment representing an agreed substitute for three years' additional entitlement to (A) benefits and service credit for benefits (or similar payments) under any pension, savings, defined contribution and other deferred compensation plans maintained by the Company and (B) any medical insurance, life insurance, health and accident, disability and other employee benefit plans, programs and arrangements with the Company (including, without limitation, provision of, or payment in lieu of, an automobile); and (f) All of the Executive's benefits accrued under the supplemental retirement plans, excess retirement plans and deferred compensation plans maintained by the Company or any of its Subsidiaries shall become immediately vested in full; and (g) All of the Executive's Outstanding Options shall become immediately vested and exercisable in full. 4. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plans, practices, policies or programs provided by the Company or any of its Subsidiaries and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any stock option or other agreements with the Company or any of its Subsidiaries. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, practice, policy or program of the Company or any of its Subsidiaries at or subsequent to the date of termination shall be payable in accordance with such plan, practice, policy or program; PROVIDED, HOWEVER, that the Executive shall not be entitled to severance pay, or benefits similar to severance pay, under any plan, practice, policy, or program generally applicable to employees of the Company or any of its Subsidiaries. 5. FULL SETTLEMENT; NO OBLIGATION TO SEEK OTHER EMPLOYMENT; LEGAL EXPENSES. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement. The Company agrees to pay, upon written demand therefor by the Executive, all legal fees and expenses which the - 6 - 7 Executive may reasonably incur as a result of any dispute or contest (regardless of the outcome thereof) by or with the Company or others regarding the validity or enforceability of, or liability under, any provision of this Agreement. In any such action brought by the Executive for damages or to enforce any provisions of this Agreement, he shall be entitled to seek both legal and equitable relief and remedies, including, without limitation, specific performance of the Company's obligations hereunder, in his sole discretion. 6. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution made, or benefit provided (including, without limitation, the acceleration of any payment, distribution or benefit and the acceleration of exercisability of any stock option or stock appreciation right), by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 6) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code (or any similar excise tax) or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any Excise Tax, income tax or payroll tax) imposed upon the Gross-Up Payment and any interest or penalties imposed with respect to such taxes, the Executive retains from the Gross-Up Payment an amount equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 6(c), all determinations required to be made under this Section 6, including determination of whether a Gross-Up Payment is required and of the amount of any such Gross-Up Payment, shall be made by the independent public accounting firm which is then retained by the Company to audit its financial statements (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the date of termination, if applicable, or such earlier time as is requested by the Company, provided that any determination that an Excise Tax is payable by the Executive shall be made on the basis of substantial authority. The initial Gross-Up Payment, if any, as determined pursuant to this Section 6(b), shall be paid to the Executive within five business days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that he has substantial authority not to report any Excise Tax on his Federal income tax return. Any determination by the Accounting Firm meeting the requirements of this Section 6(b) shall be binding upon the Company and the Executive; subject only to payments pursuant to the following sentence based on a determination that additional Gross-Up Payments should have been made, consistent with the calculations required to be made hereunder (the amount of such additional payments, including any interest and penalties, are referred to herein as the "Gross-Up Underpayment"). In the event that the Company exhausts its remedies pursuant to Section 6(c) and the Executive thereafter is required to make a payment of any Excise - 7 - 8 Tax, the Accounting Firm shall determine the amount of the Gross-Up Underpayment that has occurred and any such Gross-Up Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. The fees and disbursements of the Accounting Firm shall be paid by the Company. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as soon as practicable but not later than ten business days after the Executive receives written notice of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which he gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim and that it will bear the costs and provide the indemnification as required by this sentence, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company and reasonably satisfactory to the Executive, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; PROVIDED, HOWEVER, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax, income tax or payroll tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 6(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; PROVIDED, HOWEVER, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the - 8 - 9 Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax, income tax or payroll tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance; AND FURTHER PROVIDED that any extension of the statute of limitations relating to the payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due shall be limited solely to such contested amount, unless the Executive agrees otherwise. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 6(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 6(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 6(c) a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then any obligation of the Executive to repay such advance shall be forgiven and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 7. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its Subsidiaries, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its Subsidiaries and which shall not be or become public knowledge (other than by acts of the Executive or his representatives in violation of this Agreement). After the date of termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 7 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 8. SUCCESSORS. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives or successor(s) in interest. The Executive may designate a successor (or successors) in interest to receive any and all - 9 - 10 amounts due the Executive in accordance with this Agreement should the Executive be deceased at any time of payment. Such designation of successor(s) in interest shall be made in writing and signed by the Executive, and delivered to the Company pursuant to Section 12(b) hereof. Any such designation may be made to any legal person, persons, trust or the Executive's estate as he shall determine in his sole discretion. In the event any designation shall be incomplete, or in the event the Executive shall fail to designate a successor in interest, his estate shall be deemed to be his successor in interest to receive such portion of all of the payments due hereunder. The Executive may amend, change or revoke any such designation at any time and from time to time, in the same manner. This Section 8(a) shall not supersede any designation of beneficiary or successor in interest made by the Executive, or separately covered, under any other plan, practice, policy or program of the Company. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company and any Parent of the Company or any successor and without regard to the form of transaction utilized to acquire the business or assets of the Company, to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or parentage had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid (and any Parent of the Company or any successor) which is required by this clause to assume and agree to perform this Agreement or which otherwise assumes and agrees to perform this Agreement. 9. NOTICE OF TERMINATION. Any termination of the Executive's employment by the Company for Cause or by the Executive for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the date of termination is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 15 days after the giving of such notice). The failure by the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing his rights hereunder. 10. REQUIREMENTS AND BENEFITS IF EXECUTIVE IS EMPLOYEE OF SUBSIDIARY OF COMPANY. If the Executive is an employee of any Subsidiary of the Company, he shall be entitled to all of the rights and benefits of this Agreement as though he were an employee of the Company and the term "Company" as used herein shall be deemed to include the - 10 - 11 Subsidiary by whom the Executive is employed. The Company hereby unconditionally and irrevocably guarantees the performance of its Subsidiary hereunder. 11. ARBITRATION. The Company and the Executive shall attempt to resolve between them any dispute which arises hereunder. If they cannot agree within ten (10) days after either party submits a demand for arbitration to the other party, then the issue shall be submitted to arbitration with each party having the right to appoint one (1) arbitrator and those two (2) arbitrators mutually selecting a third arbitrator. The rules of the American Arbitration Association for the arbitration of commercial disputes shall apply and the decision of 2 of the 3 arbitrators shall be final. The arbitrators must reach a decision within sixty (60) days after the selection of the third arbitrator. The arbitration shall take place in Buffalo, New York. The arbitrators shall apply Delaware law. 12. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, to the addresses for each party as first written above or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notices and communications to the Company shall be addressed to the attention of the Company's Corporate Secretary. Notice and communications shall be effective when actually received by the addressee. (c) Whenever reference is made herein to any specific plan or program of the Company, to the extent that the Executive is not a participant therein or has no benefit accrued thereunder, whether vested or contingent, as of the Change in Control Date, then such reference herein shall be null and void and of no effect, and the Executive shall acquire no additional benefit as a result of such reference. (d) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (e) The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. - 11 - 12 (f) The Executive's failure to insist upon strict compliance with any provision hereof shall not be deemed to be a waiver of such provision or any other provision thereof. (g) Except in the case of termination of employment or elected officer status under the circumstances set forth in Section 2(e) above, upon a termination of the Executive's employment or upon the Executive's ceasing to be an elected officer of the Company, in each case, prior to the Change in Control Date, there shall be no further rights under this Agreement. IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant to the authorization from the Board, the Company has caused this Agreement to be executed as of the day and year first above written. AMERICAN PRECISION INDUSTRIES INC. By /s/ Kurt Wiedenhaupt ------------------------------------ Kurt Wiedenhaupt President and Chief Executive Officer EXECUTIVE -------------------------------------- - 12 - EX-10.II 3 EXHIBIT 10(II) 1 EXHIBIT 10(ii) CHANGE IN CONTROL AGREEMENT --------------------------- AGREEMENT by and between American Precision Industries Inc., a Delaware corporation (the "Company"), with offices at 2777 Walden Avenue, Buffalo, New York 14225 and KURT WIEDENHAUPT (the "Executive"), an individual residing at 280 CARNOUSTIE ROAD, EAST AURORA, NEW YORK 14052, dated as of the 1st day of JULY, 1996. WHEREAS, the Company recognizes that the current business environment makes it difficult to attract and retain highly qualified executives unless a certain degree of security can be offered to such individuals against organizational and personnel changes which frequently follow changes in control of a corporation; and WHEREAS, even rumors of acquisitions or mergers may cause executives to consider major career changes in an effort to assure financial security for themselves and their families; and WHEREAS, the Company desires to assure fair treatment of its executives in the event of a Change in Control (as defined below) and to allow them to make critical career decisions without undue time pressure and financial uncertainty, thereby increasing their willingness to remain with the Company notwithstanding the outcome of a possible Change in Control transaction; and WHEREAS, the Company recognizes that its executives will be involved in evaluating or negotiating any offers, proposals or other transactions which could result in Changes in Control of the Company and believes that it is in the best interest of the Company and its stockholders for such executives to be in a position, free from personal financial and employment considerations, to be able to assess objectively and pursue aggressively the interests of the Company's stockholders in making these evaluations and carrying on such negotiations; and WHEREAS, the Board of Directors (the "Board") of the Company believes it is essential to provide the Executive with compensation arrangements upon a Change in Control which provide the Executive with individual financial security and which are competitive with those of other corporations, and in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW THEREFORE, the parties, for good and valuable consideration and intending to be legally bound, agree as follows: 1. OPERATION AND TERM OF AGREEMENT. This Agreement shall be effective immediately upon its execution. This Agreement may be terminated by the Company upon twenty-four (24) months' advance written notice to the Executive; PROVIDED, HOWEVER, that after a Change in Control of the Company during the term of this Agreement, this Agreement shall remain in effect until all of the obligations of the parties hereunder are - 1 - 2 satisfied and the Protection Period has expired. Prior to a Change in Control this Agreement shall immediately terminate upon termination of the Executive's employment or upon the Executive's ceasing to be an elected officer of the Company, except in the case of such termination under circumstances set forth in Section 2(e) below. 2. CERTAIN DEFINITIONS. For purposes of this Agreement, the following words and phrases shall have the following meanings: (a) "Cause" shall mean (i) the continued failure by the Executive to perform his material responsibilities and duties hereunder (other than any such failure resulting from the Executive's incapacity due to physical or mental illness), (ii) the engaging by the Executive in willful or reckless conduct which is demonstrably injurious to the Company monetarily or otherwise, (iii) the conviction of the Executive of a felony, or (iv) the commission or omission of any act by the Executive that is materially inimical to the best interests of the Company and that constitutes on the part of the Executive common law fraud or malfeasance, misfeasance or nonfeasance of duty; provided, however, that "cause" shall not include the Executive's lack of professional qualifications. For purposes of this Agreement, an act, or failure to act, on the Executive's part shall be considered "willful" or "reckless" only if done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. The Executive's employment shall not be deemed to have been terminated for "cause" unless the Company shall have given or delivered to the Executive (A) reasonable notice setting forth the reasons for the Company's intention to terminate the Executive's employment for "cause," (B) a reasonable opportunity, at any time during the thirty-day period after the Executive's receipt of such notice, for the Executive, together with his counsel, to be heard before the Board, and (C) a Notice of Termination (as defined in Section 9 below) stating that, in the good faith opinion of not less than a majority of the entire membership of the Board, the Executive was guilty of the conduct set forth in clauses (i), (ii), (iii) or (iv) of the first sentence of this Section 2(a). (b) "Change in Control" shall mean: (i) on or after the date of execution of this Agreement, any person (which, for all purposes hereof, shall include, without limitation, an individual, sole proprietorship, partnership, unincorporated association, unincorporated syndicate, unincorporated organization, trust, body corporate and a trustee, executor, administrator or other legal representative) (a "Person") or any group of two or more Persons acting in concert who or which becomes the beneficial owner, directly or indirectly, of securities of the Company representing, or acquires the right to control or direct, or to acquire through the conversion of securities or the exercise of warrants or other rights to acquire securities, 25% or more of the combined voting power of the Company's then outstanding securities; provided that for the purposes of this Agreement, (A) "voting power" means the right to vote for the election of directors, and (B) any determination of percentage combined voting power shall be made on the basis that (x) all securities beneficially owned by the Person or group or over which control or direction is exercised by the Person or group which are convertible - 2 - 3 into securities carrying voting rights have been converted (whether or not then convertible) and all options, warrants or other rights which may be exercised to acquire securities beneficially owned by the Person or group or over which control or direction is exercised by the Person or group have been exercised (whether or not then exercisable), and (y) no such convertible securities have been converted by any other Person and no such options, warrants or other rights have been exercised by any other Person; or (ii) at any time subsequent to the date of execution of this Agreement there shall be elected or appointed to the Board any director or directors whose appointment or election to the Board or nomination for election by the Company's stockholders was not approved by a vote of at least a majority of the directors then in office who were either directors on the date of execution of this Agreement or whose election or appointment or nomination for election was previously so approved; or (iii) a reorganization, merger, consolidation, combination, corporate restructuring or similar transaction (an "Event"), in each case, in respect of which the beneficial owners of the outstanding Company voting securities immediately prior to such Event do not, following such Event, beneficially own, directly or indirectly, more than 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the Company and any resulting Parent in substantially the same proportions as their ownership, immediately prior to such Event, of the outstanding Company voting securities; or (iv) an Event involving the Company as a result of which 33% or more of the members of the board of directors of the Parent or the Company are not persons who were members of the Board immediately prior to the earlier of (x) the Event, (y) execution of an agreement the consummation of which would result in the Event, or (z) announcement by the Company of an intention to effect the Event. (c) "Code" shall mean the Internal Revenue Code of 1986, as amended. (d) "Disability," for purposes of this Agreement, shall mean total disability as defined in any long-term disability plan sponsored by the Company in which the Executive participates, or, if there is no such plan or it does not define such term, then it shall mean the physical or mental incapacity of the Executive which prevents him from substantially performing the duties of the office or position to which he was elected or appointed by the Board for a period of at least 180 days and the incapacity is expected to be permanent and continuous through the Executive's 65th birthday. (e) The "Change in Control Date" shall be any date during the term of this Agreement on which a Change in Control occurs. Anything in this Agreement to the contrary notwithstanding, if the Executive's employment or status as an elected officer with the Company is terminated within six months prior to the date on which a Change in Control occurs, and it is reasonably demonstrated that such termination (i) was at the request of a - 3 - 4 third party who has taken steps reasonably calculated or intended to effect a Change in Control or (ii) otherwise arose in connection with or anticipation of a Change in Control, then for all purposes of this Agreement the "Change in Control Date" shall mean the date immediately prior to the date of such termination. (f) "Good Reason" means: (i) the assignment to the Executive within the Protection Period of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements, authority, duties or responsibilities), or any other action which results in a diminution in such position, authority, duties or responsibilities excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) a reduction by the Company in the Executive's base salary in effect immediately before the beginning of the Protection Period or as increased from time to time thereafter; (iii) a failure by the Company to maintain plans providing benefits at least as beneficial as those provided by any benefit or compensation plan (including, without limitation, any incentive compensation plan, bonus plan or program, retirement, pension or savings plan, life insurance plan, health and dental plan or disability plan) in which the Executive is participating immediately before the beginning of the Protection Period, or any action taken by the Company which would adversely affect the Executive's participation in or reduce the Executive's opportunity to benefit under any of such plans or deprive the Executive of any material fringe benefit enjoyed by him immediately before the beginning of the Protection Period; PROVIDED, HOWEVER, that a reduction in benefits under the Company's tax-qualified retirement, pension or savings plans or its life insurance plan, health and dental plan, disability plans or other insurance plans which reduction applies equally to all participants in the plans and has a DE MINIMIS effect on the Executive shall not constitute "Good Reason" for termination by the Executive; (iv) the Company's requiring the Executive, without the Executive's written consent, to be based at any office or location in excess of 50 miles from his office location immediately before the beginning of the Protection Period, except for travel reasonably required in the performance of the Executive's responsibilities; (v) any purported termination by the Company of the Executive's employment for Cause otherwise than as referred to in Section 9 of this Agreement; or (vi) any failure by the Company to obtain the assumption of the obligations contained in this Agreement by any successor as contemplated in Section 8(c) of this Agreement. - 4 - 5 (g) "Parent" means any entity which directly or indirectly through one or more other entities owns or controls more than 50% of the voting stock or common stock of the Company. (h) "Protection Period" means the period beginning on the Change in Control Date and ending on the last day of the thirty-sixth (36th) calendar month following the Change in Control Date. (i) "Subsidiary" means a company 50% or more of the voting securities of which are owned, directly or indirectly, by the Company. 3. BENEFITS UPON TERMINATION WITHIN A PROTECTION PERIOD. If, during a Protection Period, the Executive's employment is terminated by the Company other than for Cause or Disability or other than as a result of the Executive's death or the Executive terminates his employment for Good Reason, the Company shall pay to the Executive in a lump sum in cash within 10 days after the date of termination the aggregate of the following amounts and shall provide the following benefits: (a) The Executive's full base salary and vacation pay (for vacation not taken) accrued but unpaid through the date of termination at the rate in effect at the time of the termination plus an amount equal to the product of the Executive's normative bonus under the applicable bonus plan for the fiscal year including the date of termination and a fraction, the numerator of which is the number of days in such fiscal year through the date of termination and the denominator of which is 365; and (b) The amount in the "bonus bank" for the Executive under all bonus plans in which the Executive participates; and (c) A lump sum severance payment in an amount equal to 350% of the Executive's "Annual Compensation." For purposes of this Agreement, "Annual Compensation" shall be an amount equal to the aggregate of the Executive's annual base salary from the Company and its Subsidiaries as set by the Board and in effect immediately prior to the date of termination or Change in Control (whichever is greater) plus the highest bonus accrued by the Company for the Executive in any of the Company's three fiscal years preceding the date of termination or Change in Control (whichever is greater); and (d) Within 30 days of the date of termination, upon surrender by the Executive of his outstanding options to purchase common shares of the Company ("Common Shares") granted to the Executive by the Company (the "Outstanding Options") and any stock appreciation rights ("SARs"), an amount in respect of each Outstanding Option and SAR (whether vested or not) equal to the difference between the exercise price of such Outstanding Options and SARs and the higher of (x) the fair market value of the Common Shares at the time of such termination (but not less than the closing price for the Common Shares on the New York Stock Exchange, or such other national stock exchange on which such shares may be listed, on the last trading day such shares traded prior to the date of - 5 - 6 termination), and (y) the highest price paid for Common Shares or, in the cases of securities convertible into Common Shares or carrying a right to acquire Common Shares, the highest effective price (based on the prices paid for such securities) at which such securities are convertible into Common Shares or at which Common Shares may be acquired, by any person or group whose acquisition of voting securities has resulted in a Change in Control of the Company; PROVIDED, HOWEVER, that this Section 3(d) shall not apply to the surrender of any Outstanding Option that is an incentive stock option (within the meaning of Section 422 of the Code); and (e) A lump sum payment equal to 50% of the Executive's Annual Compensation, such payment representing an agreed substitute for three years' additional entitlement to (A) benefits and service credit for benefits (or similar payments) under any pension, savings, defined contribution and other deferred compensation plans maintained by the Company and (B) any medical insurance, life insurance, health and accident, disability and other employee benefit plans, programs and arrangements with the Company (including, without limitation, provision of, or payment in lieu of, an automobile); and (f) All of the Executive's benefits accrued under the supplemental retirement plans, excess retirement plans and deferred compensation plans maintained by the Company or any of its Subsidiaries shall become immediately vested in full; and (g) All of the Executive's Outstanding Options shall become immediately vested and exercisable in full. 4. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plans, practices, policies or programs provided by the Company or any of its Subsidiaries and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any stock option or other agreements with the Company or any of its Subsidiaries. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, practice, policy or program of the Company or any of its Subsidiaries at or subsequent to the date of termination shall be payable in accordance with such plan, practice, policy or program; PROVIDED, HOWEVER, that the Executive shall not be entitled to severance pay, or benefits similar to severance pay, under any plan, practice, policy, or program generally applicable to employees of the Company or any of its Subsidiaries. 5. FULL SETTLEMENT; NO OBLIGATION TO SEEK OTHER EMPLOYMENT; LEGAL EXPENSES. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement. The Company agrees to pay, upon written demand therefor by the Executive, all legal fees and expenses which the - 6 - 7 Executive may reasonably incur as a result of any dispute or contest (regardless of the outcome thereof) by or with the Company or others regarding the validity or enforceability of, or liability under, any provision of this Agreement. In any such action brought by the Executive for damages or to enforce any provisions of this Agreement, he shall be entitled to seek both legal and equitable relief and remedies, including, without limitation, specific performance of the Company's obligations hereunder, in his sole discretion. 6. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution made, or benefit provided (including, without limitation, the acceleration of any payment, distribution or benefit and the acceleration of exercisability of any stock option or stock appreciation right), by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 6) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code (or any similar excise tax) or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any Excise Tax, income tax or payroll tax) imposed upon the Gross-Up Payment and any interest or penalties imposed with respect to such taxes, the Executive retains from the Gross-Up Payment an amount equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 6(c), all determinations required to be made under this Section 6, including determination of whether a Gross-Up Payment is required and of the amount of any such Gross-Up Payment, shall be made by the independent public accounting firm which is then retained by the Company to audit its financial statements (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the date of termination, if applicable, or such earlier time as is requested by the Company, provided that any determination that an Excise Tax is payable by the Executive shall be made on the basis of substantial authority. The initial Gross-Up Payment, if any, as determined pursuant to this Section 6(b), shall be paid to the Executive within five business days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that he has substantial authority not to report any Excise Tax on his Federal income tax return. Any determination by the Accounting Firm meeting the requirements of this Section 6(b) shall be binding upon the Company and the Executive; subject only to payments pursuant to the following sentence based on a determination that additional Gross-Up Payments should have been made, consistent with the calculations required to be made hereunder (the amount of such additional payments, including any interest and penalties, are referred to herein as the "Gross-Up Underpayment"). In the event that the Company exhausts its remedies pursuant to Section 6(c) and the Executive thereafter is required to make a payment of any Excise - 7 - 8 Tax, the Accounting Firm shall determine the amount of the Gross-Up Underpayment that has occurred and any such Gross-Up Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. The fees and disbursements of the Accounting Firm shall be paid by the Company. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as soon as practicable but not later than ten business days after the Executive receives written notice of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which he gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim and that it will bear the costs and provide the indemnification as required by this sentence, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company and reasonably satisfactory to the Executive, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; PROVIDED, HOWEVER, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax, income tax or payroll tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 6(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; PROVIDED, HOWEVER, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the - 8 - 9 Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax, income tax or payroll tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance; AND FURTHER PROVIDED that any extension of the statute of limitations relating to the payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due shall be limited solely to such contested amount, unless the Executive agrees otherwise. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 6(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 6(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 6(c) a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then any obligation of the Executive to repay such advance shall be forgiven and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 7. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its Subsidiaries, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its Subsidiaries and which shall not be or become public knowledge (other than by acts of the Executive or his representatives in violation of this Agreement). After the date of termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 7 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 8. SUCCESSORS. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives or successor(s) in interest. The Executive may designate a successor (or successors) in interest to receive any and all - 9 - 10 amounts due the Executive in accordance with this Agreement should the Executive be deceased at any time of payment. Such designation of successor(s) in interest shall be made in writing and signed by the Executive, and delivered to the Company pursuant to Section 12(b) hereof. Any such designation may be made to any legal person, persons, trust or the Executive's estate as he shall determine in his sole discretion. In the event any designation shall be incomplete, or in the event the Executive shall fail to designate a successor in interest, his estate shall be deemed to be his successor in interest to receive such portion of all of the payments due hereunder. The Executive may amend, change or revoke any such designation at any time and from time to time, in the same manner. This Section 8(a) shall not supersede any designation of beneficiary or successor in interest made by the Executive, or separately covered, under any other plan, practice, policy or program of the Company. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company and any Parent of the Company or any successor and without regard to the form of transaction utilized to acquire the business or assets of the Company, to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or parentage had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid (and any Parent of the Company or any successor) which is required by this clause to assume and agree to perform this Agreement or which otherwise assumes and agrees to perform this Agreement. 9. NOTICE OF TERMINATION. Any termination of the Executive's employment by the Company for Cause or by the Executive for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the date of termination is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 15 days after the giving of such notice). The failure by the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing his rights hereunder. 10. REQUIREMENTS AND BENEFITS IF EXECUTIVE IS EMPLOYEE OF SUBSIDIARY OF COMPANY. If the Executive is an employee of any Subsidiary of the Company, he shall be entitled to all of the rights and benefits of this Agreement as though he were an employee of the Company and the term "Company" as used herein shall be deemed to include the - 10 - 11 Subsidiary by whom the Executive is employed. The Company hereby unconditionally and irrevocably guarantees the performance of its Subsidiary hereunder. 11. ARBITRATION. The Company and the Executive shall attempt to resolve between them any dispute which arises hereunder. If they cannot agree within ten (10) days after either party submits a demand for arbitration to the other party, then the issue shall be submitted to arbitration with each party having the right to appoint one (1) arbitrator and those two (2) arbitrators mutually selecting a third arbitrator. The rules of the American Arbitration Association for the arbitration of commercial disputes shall apply and the decision of 2 of the 3 arbitrators shall be final. The arbitrators must reach a decision within sixty (60) days after the selection of the third arbitrator. The arbitration shall take place in Buffalo, New York. The arbitrators shall apply Delaware law. 12. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, to the addresses for each party as first written above or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notices and communications to the Company shall be addressed to the attention of the Company's Corporate Secretary. Notice and communications shall be effective when actually received by the addressee. (c) Whenever reference is made herein to any specific plan or program of the Company, to the extent that the Executive is not a participant therein or has no benefit accrued thereunder, whether vested or contingent, as of the Change in Control Date, then such reference herein shall be null and void and of no effect, and the Executive shall acquire no additional benefit as a result of such reference. (d) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (e) The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. - 11 - 12 (f) The Executive's failure to insist upon strict compliance with any provision hereof shall not be deemed to be a waiver of such provision or any other provision thereof. (g) Except in the case of termination of employment or elected officer status under the circumstances set forth in Section 2(e) above, upon a termination of the Executive's employment or upon the Executive's ceasing to be an elected officer of the Company, in each case, prior to the Change in Control Date, there shall be no further rights under this Agreement. IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant to the authorization from the Board, the Company has caused this Agreement to be executed as of the day and year first above written. AMERICAN PRECISION INDUSTRIES INC. By /s/ John M. Murray ------------------------------------ John M. Murray, Vice President - Finance and Treasurer /s/ James J. Tanous ------------------------------------- James J. Tanous, Secretary EXECUTIVE /s/ Kurt Wiedenhaupt ------------------------------------- Kurt Wiedenhaupt - 12 - EX-10.III 4 EXHIBIT 10(III) 1 EXHIBIT 10(iii) AMENDMENT TO AND RESTATEMENT OF EXECUTIVE EMPLOYMENT AGREEMENT ------------------------------ This AGREEMENT, dated as of July 1, 1996, is by and between KURT WIEDENHAUPT, residing at 280 Carnoustie Road, East Aurora, New York 14052 (the "Executive") and AMERICAN PRECISION INDUSTRIES INC., a Delaware corporation with its principal office at 2777 Walden Avenue, Buffalo, New York 14225 (the "Company"). R E C I T A L S : - - - - - - - - - WHEREAS, the Executive and the Company are parties to an Executive Employment Agreement (the "Former Employment Agreement") whereby the Executive has been retained by the Company as its President and Chief Executive Officer since July 1, 1992; and WHEREAS, the Executive and the Company have entered into a Change in Control Agreement dated as of July 1, 1996 (the "Change in Control Agreement") whereby the Company has agreed to pay certain severance benefits to the Executive under certain conditions defined in that agreement; and WHEREAS, the Executive and the Company desire to amend the Former Employment Agreement to delete the provisions in that agreement which are either duplicative of or inconsistent with this Agreement, and to delete certain other provisions in the Former Employment Agreement which are no longer applicable. 2 NOW, THEREFORE, in consideration of the promises and the mutual agreements herein contained, the Company and the Executive agree as follows: AMENDMENT OF FORMER EMPLOYMENT AGREEMENT The Executive and the Company hereby amend the Former Employment Agreement to (i) delete all references to any severance payments under that agreement related to any "change in control," (ii) delete other provisions in the Former Employment Agreement which are no longer applicable, and (iii) add certain other provisions which are helpful in updating the parties' intentions as reflected in that agreement. The Former Employment Agreement, as hereby amended, is hereby restated in its entirety, and as restated shall supersede the Former Employment Agreement in its entirety: AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT This AGREEMENT, dated as of July 1, 1996, is by and between KURT WIEDENHAUPT (the "Executive") and AMERICAN PRECISION INDUSTRIES INC (the "Company"). 1. EMPLOYMENT. ----------- The Company agrees to employ the Executive, and the Executive agrees to remain in the employ of the Company, for the period and on the other terms and conditions set forth below. - 2 - 3 2. PERIOD OF EMPLOYMENT. --------------------- The period of employment under this Agreement shall continue until the close of business on June 30, 1997 (the "Period of Employment"). 3. POSITIONS AND RESPONSIBILITIES; PLACE OF PERFORMANCE. ----------------------------------------------------- (a) During the Period of Employment, the Executive agrees to serve the Company and the Company agrees to employ the Executive as its President and Chief Executive Officer, as such positions are defined in the Company's By-Laws as they may be amended from time to time. The Executive also agrees to serve during all or part of the Period of Employment, as requested by the Company, as a Director of the Company and as an officer and director of any of the Company's subsidiaries or affiliates, without any compensation therefor other than that specified in this Agreement. During the Period of Employment, the Executive shall devote all of his normal work week, attention, skill and efforts to the faithful performance of his duties hereunder. (b) In connection with his employment hereunder, the Executive shall be based at the principal office of the Company in Buffalo, New York. (c) The Executive shall be subject to the terms, conditions and benefits set out in the Company's Handbook for Salaried Employees and its policies relating to its employees, as - 3 - 4 amended from time to time, which are not inconsistent with the terms and conditions of this Agreement. (d) In the event the Company's Board of Directors determines that it is in the Company's best interest that the Executive become a citizen of the United States, the Executive shall use his best efforts to apply for and obtain United States citizenship. 4. REGULAR COMPENSATION. --------------------- (a) For the performance of his duties under this Agreement during the Period of Employment the Company shall pay the Executive a fixed annual salary of $300,000 ("Initial Annual Salary"). (b) The Executive's Initial Annual Salary shall be reviewed annually by the Compensation Committee of the Board of Directors of the Company, subject to approval by the Company's Board of Directors, but shall not be reduced without his written consent below the Initial Annual Salary during the Period of Employment. (c) The Executive's salary shall be payable in accordance with the Company's customary practice for its other executives. Notwithstanding the foregoing, the Executive shall be entitled to defer the receipt of his salary and/or bonus pursuant to procedures adopted or plans maintained by the Company. - 4 - 5 5. PARTICIPATION IN ECONOMIC VALUE ADDED BONUS PLAN. ------------------------------------------------- The Executive shall continue to participate in the Company's Economic Value Added Bonus Plan, as the same may be in effect from time to time. 6. PARTICIPATION IN SUPPLEMENTAL BENEFIT PLAN. ------------------------------------------- The Executive shall continue to participate in the Company's Executive Supplemental Death Benefit and Retirement Plan, as the same may be in effect from time to time (the "Supplemental Plan"). 7. ADDITIONAL BENEFITS. -------------------- (a) In addition to the benefits provided in paragraphs 5 and 6 above, the Executive shall be eligible to participate in and receive benefits under any incentive compensation plan or arrangement, any defined benefit retirement plan, defined contribution retirement plan, supplemental retirement plan, health and dental plan, disability plan, survivor income plan, and other employee benefit or compensation plan or arrangement (collectively, "Benefit Plans"), made available by the Company or a subsidiary or affiliate to all of its senior executives from time to time, subject to and on a basis consistent with the terms, conditions and overall administration of such Benefit Plans. (b) The Executive shall be entitled to four (4) weeks of paid vacation during each calendar year during the - 5 - 6 Period of Employment, plus all paid holidays given by the Company to its other senior executives. (c) The Company shall reimburse the Executive for the initiation fees and periodic dues and assessments paid by the Executive in connection with his membership in a country club and city club in the Buffalo, New York area, which clubs are approved by the Compensation Committee of the Board of Directors of the Company as suitable for Company-related entertaining and other functions. (d) The Company shall provide the Executive with an automobile approved by the Compensation Committee of the Board of Directors of the Company as suitable to his executive position. (e) The Company shall provide the Executive with disability insurance policies which shall cover 60% of his annual compensation (subject to maximum disability benefit payments imposed by the insurers) until he reaches age 65 in the event that he is totally disabled for more than 180 days. The Executive shall pay the premium applicable to the disability coverage offered by the Company to its other employees, and the Company shall pay the premium applicable to the disability coverage in excess of that coverage. (f) The Company shall promptly pay (or reimburse the Executive for) all reasonable expenses incurred by him in the performance of his duties hereunder, including business travel - 6 - 7 and entertainment expenses. The Executive shall furnish to the Company such receipts and records as the Company may require to verify the foregoing expenses. 8. TERMINATION PRIOR TO A CHANGE IN CONTROL; SEVERANCE BENEFITS. ------------------------------------------------------------- (a) Subject to the terms and conditions set forth in this paragraph 8, the Company or the Executive may terminate the employment of the Executive prior to a "change in control," as that term is defined in the Change in Control Agreement, and thereby end the Period of Employment, by giving at least thirty (30) days' written notice to the other. The date of termination of employment shall not be more than forty-five (45) days after the date of notice. Terminations of employment after a "change in control" shall be governed by the Change in Control Agreement. (b) If the employment of the Executive is terminated by the Company for any reason other than (i) for "cause" or (ii) as a result of the death of the Executive, or (iii) as a result of the total "disability" of the Executive, then the Executive shall be entitled to the following benefits: A. All unpaid salary for the balance of the Period of Employment, PLUS credit for any vacation earned but not taken, PLUS the amount of any bonus which has been awarded but not paid under any existing bonus plan (notwithstanding any provisions of any such plan to the contrary), PLUS an amount equal to - 7 - 8 one-sixth (1/6) of the total of the annual bonuses actually awarded to him during the three (3) years immediately preceding the year of termination, plus all benefits in which he is vested as of the date of termination under all Benefit Plans including the Supplemental Plan (notwithstanding any provisions of any such plans to the contrary), PLUS reimbursement for expenses not previously reimbursed through the date of termination. Except as set forth below, all of these payments will be paid on the dates that they would otherwise have been paid if the Executive's employment with the Company had not been terminated. At the Company's sole option, any amounts due under this subparagraph A may be paid in a lump sum rather than over a period of time, discounted at the prime rate of interest charged at that time by Marine Midland Bank, N.A. B. The Company shall maintain at its cost, for the balance of the Period of Employment but not beyond the time that the Executive secures other employment, any group health insurance and group term life insurance coverage which was in effect with respect to the Executive and his family on the date of termination of the Executive's employment hereunder, to the extent that such group coverage is available - 8 - 9 following the termination of the Executive's employment. (c) Upon the total "disability" of the Executive for a continuous period of 180 days, the Company may terminate the employment of the Executive, the term of employment shall end immediately, and the Company shall pay him his salary through the end of the month in which such termination occurs plus credit for any vacation earned but not taken and the amount of any bonus for the past year which has not been paid under any existing bonus plan together with reimbursement for expenses not previously reimbursed and the Company shall have no further obligations to the Executive under this Agreement. "Disability," as used herein, shall mean the physical or mental incapacity of the Executive which prevents him from substantially performing his duties as President and Chief Executive Officer of the Company for a period of at least 180 days and the incapacity is expected to be permanent and continuous through the Executive's 65th birthday. (d) Upon the death of the Executive, the Period of Employment shall end immediately. (e) If the employment of the Executive is terminated by the Company for "cause," the Executive's salary (at the rate most recently determined) together with reimbursement for expenses not previously reimbursed shall be paid through the - 9 - 10 date of termination of employment, and the Company shall have no further obligation to the Executive under this Agreement. (f) "Cause" means (i) the continued failure by the Executive to perform his material responsibilities and duties hereunder (other than any such failure resulting from the Executive's incapacity due to physical or mental illness), (ii) the engaging by the Executive in willful or reckless conduct which is demonstrably injurious to the Company monetarily or otherwise, (iii) the conviction of the Executive of a felony, or (iv) the commission or omission of any act by the Executive that is materially inimical to the best interests of the Company and that constitutes on the part of the Executive common law fraud or malfeasance, misfeasance or nonfeasance of duty; provided, however, that "cause" shall not include the Executive's lack of professional qualifications. For purposes of this subparagraph 8(f), an act, or failure to act, on the Executive's part shall be considered "willful" or "reckless" only if done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. The Executive's employment shall not be deemed to have been terminated for "cause" unless the Company shall have given or delivered to the Executive (A) reasonable notice setting forth the reasons for the Company's intention to terminate the Executive's employment for "cause," (B) a reasonable opportunity, at any time during the thirty-day period after the Executive's receipt of such notice, for the Executive, together with his - 10 - 11 counsel, to be heard before the Board of Directors of the Company, and (C) a Notice of Termination (as defined below) stating that, in the good faith opinion of not less than a majority of the entire membership of the Board, the Executive was guilty of the conduct set forth in clauses (i), (ii), (iii) or (iv) of the first sentence of this subparagraph 8(f). (g) Any termination by the Company for "cause" shall be communicated by Notice of Termination to the Executive given in accordance with paragraph 12 of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision of this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) specifies the termination date (which date shall, except as otherwise expressly provided herein, be not more than fifteen (15) days after the giving of such notice). In the event of a termination by the Company for "cause," the Notice of Termination shall not be effective unless delivered in accordance with requirements set forth in the last sentence of subparagraph 8(f). 9. DISCLOSURE OF INFORMATION. -------------------------- (a) The Executive will not at any time use or disclose to any third party any confidential information or trade secrets relating to the business of the Company, including - 11 - 12 business methods and techniques, patents, copyrights, trade secrets, manufacturing know-how, research data, marketing and sales information, customer lists, vendor lists, investment strategies, compensation plans, pricing data, and any other information concerning the business of the Company, its manner of operation, its plans, or other information not disclosed to the general public or known in the industry in which the Company is engaged (hereinafter collectively referred to as "Confidential Information"), except for disclosure necessary for the Executive to perform his duties hereunder and carry on the work of the Company, or disclosure required by any law, rule, regulation or court order, or disclosure which the Executive reasonably believes would subject him or the Company to liability if not made. This covenant will survive the termination of this Agreement. (b) The Executive agrees to deliver promptly to the Company on termination of his employment with the Company for any reason or at any time the Company may so request all memoranda, notes, records, reports, manuals, financial reports and documents relating to Confidential Information and the Company's business which he may then possess or have under his control. 10. COVENANT NOT TO COMPETE. ------------------------ (a) The Executive will not, directly or indirectly, own, manage, operate, control, or participate in the - 12 - 13 ownership, management, operation, or control of, or be connected as an officer, employee, partner, director, consultant, or otherwise with, or have any financial interest in, or aid or assist anyone else in the conduct of, any business that is in substantial competition with any business conducted by the Company or any of its subsidiaries or affiliates during the period of the Executive's employment with the Company or within sixty (60) days thereafter. Ownership of one percent (1%) or less of the voting stock of any publicly held corporation shall not constitute a violation of this paragraph. (b) The Executive's covenant set forth in paragraph 10(a) shall apply (i) during the Period of Employment, (ii) for a period of one (1) year after the end of the Period of Employment or the termination of the Executive's employment if the Executive terminates his employment other than for "good reason" following a "change in control," as such terms are defined in the Change in Control Agreement, or the Company terminates his employment for "cause," or (iii) for a period of six (6) months after the termination of the Executive's employment by the Company for other than "cause." 11. ENTIRE AGREEMENT. ----------------- The terms and provisions of this Agreement constitute the entire agreement between the parties and supersede any previous oral or written communications, representations, or agreements with respect to the subject matter hereof. - 13 - 14 12. NOTICE. ------- Any notices given hereunder shall be in writing and shall be given by personal delivery or by certified or registered mail, return receipt requested, addressed to: If to the Company: American Precision Industries Inc. 2777 Walden Avenue Buffalo, New York 14225 Attention: Chairman of the Compensation Committee of the Board of Directors If to the Executive: Mr. Kurt Wiedenhaupt 280 Carnoustie Road East Aurora, New York 14052 13. EXECUTIVE ASSIGNMENT. --------------------- No interest of the Executive or his spouse or any other beneficiary under this Agreement, or any right to receive any payments or distributions hereunder, shall be subject in any manner to sale, transfer, assignment, pledge, attachment, garnishment, or other alienation or encumbrance of any kind, nor may such interest or right to receive a payment or distribution be taken, voluntarily or involuntarily, for the satisfaction of the obligations or debts of, or other claims against, the Executive or his spouse or other beneficiary, including claims for alimony, support, separate maintenance, and claims in bankruptcy proceedings. - 14 - 15 14. WAIVER. ------- No waiver by any party at any time of any breach by another party of, or compliance with, any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of any other provisions or conditions at the same time or at any prior or subsequent time. 15. PAYMENTS IN EVENT OF DEATH. --------------------------- Upon the death of the Executive all amounts payable hereunder to the Executive shall be paid to the person or persons designated by him as his beneficiary or beneficiaries hereunder, or if no such person is designated then to his devisee, legatee or other designee, or in their absence to his estate. 16. APPLICABLE LAW. --------------- This Agreement shall be construed and interpreted in accordance with the internal substantive laws of the State of Delaware without taking into account its laws on the conflict of law. 17. ARBITRATION. ------------ The Company and the Executive shall attempt to resolve between them any dispute which arises hereunder. If they cannot agree within ten (10) days after either party submits a demand for arbitration to the other party, then the issue shall - 15 - 16 be submitted to arbitration with each party having the right to appoint one (1) arbitrator and those two (2) arbitrators mutually selecting a third arbitrator. The rules of the American Arbitration Association for the arbitration of commercial disputes shall apply and the decision of 2 of the 3 arbitrators shall be final. The arbitration shall take place in Buffalo, New York. The arbitrators shall apply Delaware law. 18. NO PAYMENTS WHILE IN DEFAULT. ----------------------------- The Company shall not be required to make any payments to the Executive otherwise required under this Agreement if prior to or at the time such payment is due the Executive is in breach of his obligations under paragraphs 9 or 10 of this Agreement. 19. DEFINITION OF AFFILIATE. ------------------------ An "affiliate" of, or person "affiliated" with a specified person, as used in this Agreement, shall mean a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified. 20. AMENDMENT. ---------- This Agreement shall be amended only by a written document signed by each party hereto. - 16 - 17 21. REDUCTION OF PARACHUTE PAYMENTS AND EXCESSIVE EMPLOYEE REMUNERATION. -------------------------------------------------------------------- (a) In the event that a determination is made by the independent firm of public accountants regularly employed by the Company that (i) the Executive would, except for this paragraph 21, be subject to the excise tax provisions of Section 4999 of the Internal Revenue Code of 1986 (the "Code"), or any successor sections thereof, as a result of a "parachute payment" (as defined in Section 280G(b)(2)(A) of the Code) made by the Company to the Executive pursuant to this Agreement or any other agreement, plan or arrangement, or (2) a federal income tax deduction would not be allowed to the Company for all or a part of such payments by reason of Section 280G(a) of the Code (or any successor provision), the payments to which the Executive would otherwise be entitled hereunder shall be reduced, eliminated, or postponed in such amounts as are required to reduce the aggregate "present value" (as defined in Section 280G(d)(4) of the Code) of such payments to one dollar less than an amount equal to three times the Executive's "base amount" (as defined in Sections 280G(b)(3)(A) and 280G(d)(1) and (2) of the Code), to the end that the Executive is not subject to tax pursuant to such Section 4999 and no deduction is disallowed by reason of such Section 280G(a). To achieve such reduction in aggregate present value, the Executive shall determine which item or items payable hereunder shall be reduced, eliminated, or postponed, the amount of each such reduction, elimination, or postponement, and the period of each postponement. The Company shall direct its - 17 - 18 independent public accountants to review the payments made to the Executive and shall provide to the Executive such information as is reasonably necessary for the Executive to make the determinations contemplated in this paragraph. (b) In the event that a determination is made by the independent firm of public accountants regularly employed by the Company that the Company would not be allowed to deduct remuneration payable to the Executive as a result of the limits imposed by Section 162(m) of the Code, or any successor sections thereof, the payments to which the Executive would otherwise be entitled hereunder shall be reduced, eliminated, or postponed in such amounts as are required to avoid the limits imposed by Section 162(m). The procedures set forth in subparagraph 21(a) to accomplish such reduction, elimination or postponement shall apply to this subparagraph 21(b). 22. INCONSISTENT PROVISIONS. ------------------------ In the event that there is any inconsistency or conflict between the terms, provisions or conditions of this Agreement and the Change in Control Agreement, the terms, provisions or conditions in the Change in Control Agreement shall control. - 18 - 19 IN WITNESS WHEREOF, the parties have executed this Amendment to and Restatement of Executive Employment Agreement on the dates set opposite their signatures below. THE EXECUTIVE: Dated: October 4, 1996 /s/ KURT WIEDENHAUPT --------------------------------- KURT WIEDENHAUPT AMERICAN PRECISION INDUSTRIES INC. Dated: October 4, 1996 By /s/ JOHN M. MURRAY ------------------------------- JOHN M. MURRAY Vice President - Finance and Treasurer Dated: October 4, 1996 By /s/ JAMES J. TANOUS ------------------------------- JAMES J. TANOUS Secretary - 19 - EX-10.IV 5 EXHIBIT 10(IV) 1 EXHIBIT 10(iv) FIRST AMENDMENT TO AMERICAN PRECISION INDUSTRIES INC. GRANT OF RESTRICTED STOCK AND BONUS TO KURT WIEDENHAUPT This AGREEMENT, entered into as of July 1, 1996, is by and between American Precision Industries Inc. (the "Corporation") and Kurt Wiedenhaupt (the "Executive"). R E C I T A L S - - - - - - - - A. The Corporation granted 4,000 shares of the common stock, $.66-2/3 par value per share, of the Corporation to the Executive under the terms of an Agreement entered into by and between the Corporation and the Executive dated as of May 1, 1995 (the "Agreement"). B. The Board of Directors of the Corporation and the Executive have determined that the Agreement's definition of certain terms by reference to the Executive's employment agreement should be changed to refer to the Change in Control Agreement entered into by and between the Corporation and the Executive dated as of July 1, 1996 (the "Change in Control Agreement") and that other references to the employment agreement should be deleted from the Agreement. NOW, THEREFORE, the Corporation and the Executive agree to amend the Agreement as follows, effective as of July 1, 1996: 1. Paragraph 7 of the Agreement is amended to read as follows: (a) During the "Restricted Period" as defined below, none of the Restricted Shares may be sold, exchanged, transferred, assigned, pledged, hypothecated, or otherwise disposed of. The "Restricted Period" is the period beginning on the Date of Grant and ending on the earliest to occur of the following: (i) April 30, 2000, (ii) the death of the Executive, or (iii) the termination of the Executive's employment with the Corporation (A) by the Corporation for a reason other than "Cause," (B) on account of the "Disability" of the Executive, or (C) by the Executive for "Good Reason" following a "Change in Control," as such terms are, or may be, defined in the Change in Control Agreement. 2 (b) If the Executive's employment with the Corporation is terminated during the Restricted Period under any circumstances other than those described under clause (ii) or (iii) of paragraph 7(a), the Executive shall forfeit the Restricted Shares on the date of the termination of his employment. In such a case, the Executive shall assign the certificate or certificates for the Restricted Shares to the Corporation as soon as practicable following the termination of his employment. 2. Paragraph 10 of the Agreement is amended to read as follows: 10. Compensation realized or recognized by the Executive in connection with this Agreement including, but not limited to, compensation that may be realized upon the grant of the Restricted Shares, the payment of the cash bonus, the payment of dividends or other distributions with respect to the Restricted Shares, and the expiration of the Restricted Period, shall not be considered compensation for the purposes of any employee benefit plan of the Corporation (including but not limited to any supplemental plan), except as the Corporation may determine in its sole discretion. IN WITNESS WHEREOF, this Agreement has been executed as of the date first written above. AMERICAN PRECISION INDUSTRIES INC. By /s/ John M. Murray ------------------------------------------- John M. Murray, Vice President-Finance and Treasurer By /s/ James J. Tanous ------------------------------------------- James J. Tanous, Secretary /s/ Kurt Wiedenhaupt --------------------------------------------- Kurt Wiedenhaupt, individually - 2 - EX-10.V 6 EXHIBIT 10(V) 1 EXHIBIT 10(v) EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN (as restated) AGREEMENT by and between AMERICAN PRECISION INDUSTRIES INC. (the "Company"), a Delaware corporation with its principal office at 2777 Walden Avenue, Buffalo, New York 14225, and KURT WIEDENHAUPT ("Employee"), residing at 280 Carnoustie Road, East Aurora, New York 14052, first dated as of July 1, 1992, as amended and restated as of July 1, 1996. W I T N E S S E T H : - - - - - - - - - - - WHEREAS, the Employee is currently employed by the Company in the capacities of President and Chief Executive Officer; and WHEREAS, the Company desires to continue to provide the Employee with additional incentive in connection with his employment by the Company; and WHEREAS, the Employee is a member of a select management group of the Company; NOW, THEREFORE, the parties agree as follows: 1. Conditions. ----------- (a) The payment of benefits to the Employee or designated beneficiaries under this Agreement is conditioned upon the Employee's compliance with the terms of this Agreement. (b) The Company shall withhold Federal, state, and local taxes from all payments under this Agreement to the extent required by law at the time such payments are made. 2. Normal Retirement. ------------------ (a) If the Employee's employment with the Company ceases on or after his sixty-fifth birthday because of normal retirement or if the Employee becomes totally and permanently disabled while employed by the Company, the Company shall pay to the Employee the amount specified under paragraph I in Schedule A to this Agreement (the "Normal Retirement Benefit"). (b) Subject to Sections 6 and 7, such amount shall be paid in 180 equal monthly installments, the first of which shall be paid within thirty days after the Employee ceases to be employed by the Company, and the balance of which shall be paid on or about the first business day of each month thereafter for 179 months. 2 (c) In the event that the Employee dies before all of the payments provided for have been made, the unpaid balance of the payments due shall continue to be paid by the Company to the designated beneficiaries. 3. Involuntary Termination. ------------------------ (a) If the Employee's employment is terminated involuntarily (that is, by the Company) before age sixty-five, he will receive that percentage of the Normal Retirement Benefit determined in accordance with the following vesting schedule:
Full Years of Service Percentage Vested --------------------- ----------------- Five years or less 50 Six years 60 Seven years 70 Eight years 80 Nine years 90 Ten years or more 100
(b) Subject to Sections 6 and 7, the amount so determined shall be paid in 180 equal monthly installments, the first of which shall be paid within thirty days after the Employee ceases to be employed by the Company, and the balance of which shall be paid on or about the first business day of each month thereafter for 179 months. (c) In the event that the Employee dies before all of the payments provided for have been made, the unpaid balance of the payments due shall continue to be paid by the Company to the designated beneficiaries. 4. Voluntary Termination. ---------------------- (a) If the Employee quits before age sixty-five he will have ten percent of the Normal Retirement Benefit for each full year of service with the Company. (b) Subject to Sections 6 and 7, the amount so determined shall be paid in 180 equal monthly installments, the first of which shall be paid within thirty days after the Employee ceases to be employed by the Company, and the balance of which shall be paid on or about the first business day of each month thereafter for 179 months. (c) In the event that the Employee dies before all of the payments provided for have been made, the unpaid balance of the payments due shall continue to be paid by the Company to the designated beneficiaries. - 2 - 3 5. Change in Control. ------------------ (a) As used in this Section 5, the terms "Change in Control", "Protection Period", "Company", "Cause", and "Good Reason" shall have the meanings given to them in the Change in Control Agreement entered into by and between the Company and the Employee as of July 1, 1996. (b) If, during a Protection Period, the Employee's employment is terminated by the Company other than for Cause or the Employee terminates his employment for Good Reason, then the Company shall pay to the Employee the amount of the Normal Retirement Benefit under the provisions of this Section 5, notwithstanding any conflicting provisions of Section 2, 3, or 4. (c) Subject to Sections 6 and 7, such amount shall be paid in 180 equal monthly installments, the first of which shall be paid within thirty days after the Employee ceases to be employed by the Company and the balance of which shall be paid on or about the first business day of each month thereafter for 179 months. (d) In the event that the Employee dies before all the payments provided for have been made, the unpaid balance of the payments due shall continue to be paid by the Company to the designated beneficiaries. 6. Reduction of Benefits. ---------------------- (a) The Company and the Employee have entered into a Life Insurance Split-Dollar Agreement dated as of August 26, 1992, pursuant to which the Employee's designated beneficiaries may receive a death benefit in the event of the Employee's death while employed by the Company and the Employee may own an interest in the cash surrender value of a life insurance policy (the "Policy") at the time his employment with the Company terminates by retirement or otherwise. Therefore, notwithstanding any other provision of this Agreement to the contrary, the benefits that the Company is obligated to pay to the Employee pursuant to Sections 2, 3, 4 and 5 shall be reduced in the manner provided in Paragraph (b) below by the amount of the Employee's interest in the cash surrender value of the Policy at the date of the Employee's retirement, termination, or total and permanent disability, whichever first occurs. (b) The reduction under Paragraph (a) above shall be calculated as follows as of the date on which the Employee ceases to be employed by the Company: (i) Calculate the monthly benefit under Section 2, 3, 4, or 5, as the case may be. - 3 - 4 (ii) Convert the monthly benefit (from (i) above) into an after-tax monthly benefit, using the after-tax rate specified under paragraph II in Schedule A to this Agreement (the "After-Tax Rate"). (iii) Calculate the monthly annuity amount that would be payable to the Employee monthly for 180 months if an amount equal to the Employee's interest in the cash surrender value of the Policy were converted into an annuity with a term certain of 180 months using an interest rate equal to the applicable annual interest rate specified under paragraph III in Schedule A to this Agreement (the "Applicable Annual Rate"). (iv) Convert the monthly annuity amount (from (iii) above) into an after-tax monthly annuity amount, using the After-Tax Rate, but applying the After-Tax Rate only to that part of the monthly annuity amount that would not represent the return of the Employee's investment in the policy. (v) Subtract the after-tax monthly annuity amounts (from (iv) above) from the after-tax monthly benefit (from (ii) above). Divide the remainder, if any, by the After-Tax Rate; the quotient is, notwithstanding the provisions of Sections 2, 3, 4, and 5, the monthly benefit payable for 180 months in accordance with the terms of the relevant section of this Agreement. 7. Acceleration of Payments; Frequency of Payments. ------------------------------------------------ At the Company's option or, should amounts become payable pursuant to Section 5 of this Agreement, at the Employee's option, amounts that become payable under this Agreement may be paid in a lump sum rather than over a period of years, discounted at the Applicable Annual Rate in effect as of the date the Employee ceases to be employed by the Company. Should the Employee exercise the foregoing option, the Company shall make the lump sum payment to Employee within thirty days after he gives notice of the exercise of said option to the Company. The Company may, at its option, but subject to the preceding paragraph of this Section 7, divide any amount due under this Agreement in any month into two or more installments to be paid during that month at times corresponding to the Company's regular pay dates for executive employees. The Company's exercise of the foregoing option shall not be cause for an adjustment of the amount otherwise payable under this Agreement. - 4 - 5 8. Administrator and Claims Procedure. ----------------------------------- (a) The Administrator for purposes of the claims procedure under this Agreement is the Vice President of Finance of the Company. The business address and telephone number of the Administrator is: 2777 Walden Avenue, Buffalo, New York 14225; telephone: (716) 684-9700. (b) The Company shall have the right to change the Administrator. The Company shall also have the right to change the address and telephone number of the Administrator. The Company shall give the Employee written notice of any of the foregoing changes. (c) Benefits shall be paid in accordance with the provisions of this Agreement. (d) The Administrator shall present any disputed claim for benefits to the Compensation Committee for review. The Compensation Committee in conjunction with the Board of Directors shall determine the disposition of the disputed claim. (e) If the claim is denied, either wholly or partially, notice of the decision shall be mailed to the Claimant within ninety days after the receipt of the claim by the Administrator. (f) The Administrator shall provide a written notice to any Claimant who is denied a claim for benefits under this Agreement. The notice shall set forth the following information: (i) the specific reasons for the denial; (ii) the specific reference to pertinent provisions of the Agreement on which the denial is based; (iii) a description of any additional material or information necessary for the Claimant to perfect the claim and an explanation of why such material or information is necessary; and (iv) appropriate information and an explanation of the claims procedure under this Agreement to permit the Claimant to submit his claim for review. All of this information shall be set forth in the notice in a manner calculated to be understood by the Claimant. - 5 - 6 (g) The claims procedure under this Agreement shall allow the Claimant a reasonable opportunity to appeal a denied claim and to get a full and fair review of that decision from the Administrator. The Claimant shall exercise his right of appeal by submitting a written request for a review of the denied claim to the Administrator. This written request for review must be submitted to the Administrator within sixty days after receipt by the Claimant of the written notice of denial. The Claimant shall have the following rights under this appeal procedure: (i) to request a review upon written application to the Administrator; (ii) to review pertinent documents with regard to this Agreement; (iii) to submit issues and comments in writing; (iv) to request an extension of time to make a written submission of issues and comments; and (v) to request that a hearing be held to consider Claimant's appeal. (h) The Administrator shall notify the Claimant in writing of the decision on review of the denied claim within 60 days after the receipt of the request for review if no hearing was held, or within 120 days after the receipt of the request for review, if an extension of time is necessary in order to hold a hearing. If an extension of time is necessary in order to hold a hearing, the Administrator shall give the Claimant written notice of the extension of time and of the hearing. This notice shall be given prior to any extension. The written notice of extension shall indicate that an extension of time will occur in order to hold a hearing on the Claimant's appeal. The notice shall also specify the place, date, and time of that hearing and the Claimant's opportunity to participate in the hearing. It may also include any other information the Administrator believes may be important or useful to the Claimant in connection with the appeal. (i) The decision to hold a hearing to consider the Claimant's appeal of the denied claim shall be within the sole discretion of the Administrator, whether or not the Claimant requests such a hearing. (j) The written decision on review required by Paragraph (h) above shall contain the following information: - 6 - 7 (i) the decisions; (ii) the reasons for the decisions; and (iii) specific references to the provisions of the Agreement on which the decisions are based. All of this information shall be written in a manner calculated to be understood by the Claimant. (k) The Administrator shall be entitled to retain and rely on the advice of experts (including without limitation attorneys and accountants retained by the Company) in taking or refraining from taking any action or making any decision pursuant to this Section 8. All fees and expenses of such experts shall be paid by the Company. 9. Nature of Company's Obligation. ------------------------------- The Company's obligation under this Agreement shall be an unfunded and unsecured promise to pay. Any assets which the Company may acquire to help cover its financial liabilities are and remain general assets of the Company subject to the claims of its creditors. The Company does not give, nor does this Agreement create nor the Employee receive, any beneficial ownership interest in any asset of the Company. The Employee understands and agrees that his participation in the acquisition of any general asset which the Company may acquire or use to help support its financial obligations under this Agreement shall not constitute a representation to the Employee, his designated beneficiary, or any person claiming through the Employee that any of them has a special or beneficial interest in such general asset. 10. No Employment Rights. --------------------- This Agreement shall not be deemed to constitute a contract of employment between the Company and Employee. Nothing contained in this Agreement shall be deemed to give to Employee the right to be retained in the employ of the Company or to interfere with the right of the Company to discharge the Employee, nor shall it be determined to give to the Company the right to require the Employee to remain in its employ nor shall it interfere with Employee's right to terminate his employment. 11. Independence of Benefits. ------------------------- The benefits payable under this Agreement shall be independent of, and in addition to, any other benefits or compensation, whether by salary, or bonus or otherwise, payable under any other employment agreements that now exist or may hereafter exist from - 7 - 8 time to time between the Company and the Employee. This Agreement between the Company and the Employee does not involve a reduction in salary or foregoing of an increase in future salary by the Employee. Nor does the Agreement in any way affect or reduce the existing and future compensation and other benefits of the Employee. 12. Assignability. -------------- Except insofar as this provision may be contrary to applicable law, no sale, transfer, alienation, assignment, pledge, collateralization, or attachment of any benefits under this Agreement shall be valid or recognized by the Company. 13. Payment Due Incompetents. Minors. Etc. -------------------------------------- If it shall be found that any person to whom a payment is due hereunder is unable to care for his affairs because of physical or mental disability, or that such person is a minor, the Company shall have the authority to cause the payments becoming due to such person to be made to the spouse, brother, sister, or other individual with whom the person to whom the payment is due is living, or any other individual deemed by the Company to have incurred expense for such person otherwise entitled to payment (unless prior claim shall have been made by a duly qualified guardian or other legal representative), without responsibility of the Company to see to the application of such payments. Payments made pursuant to such power shall, to the extent thereof, operate as a complete discharge of the obligation of the Company hereunder. 14. Employee Waiver. ---------------- The Employee acknowledges and agrees that if the Agreement and the benefits described in the Agreement constitute an employee benefit plan or part of an employee benefit plan for purposes of Title I of the Employee Retirement Income Security Act, as amended ("ERISA"), (i) such plan is an unfunded plan, (ii) the Employee belongs to a select group of management or highly compensated employees, and, therefore, (iii) such plan is exempt from the participation, vesting, benefit accrual, joint and survivor and preretirement survivor annuity, minimum funding, fiduciary responsibility, and other requirements of Title I of ERISA. The Employee further agrees that, should the Agreement and the benefits described in the Agreement be construed as a funded plan or part of a funded plan for purposes of Title I of ERISA, the Employee irrevocably waives on behalf of himself and any spouse to whom he may now or in the future be married, any rights and claims the Employee or his spouse or both of them may have now or in the future under Title I of ERISA with respect to such plan. The Employee acknowledges that he has had sufficient opportunity to review this waiver with counsel. - 8 - 9 15. Amendment. ---------- During the lifetime of the Employee, this Agreement may be amended or terminated at any time, in whole or in part, by the mutual written agreement of the parties; provided, however, that this Agreement may not be amended in a manner which would materially increase the cost to the Company without the approval of the Board of Directors. 16. Plan Administrator. ------------------- The plan administrator shall be the Compensation Committee of the Board of Directors of the Company. The plan administrator shall administer this Agreement, construe its terms, and make all determinations necessary under this Agreement and shall have complete discretion in doing so. 17. Notices. -------- All notices, requests, demands and other communications which are required or permitted to be given under this Agreement shall be in writing and shall be deemed duly given upon the delivery or mailing thereof, as the case may be, if delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid: (a) If to the Company, to: American Precision Industries Inc. 2777 Walden Avenue Buffalo, New York 14225 Attention: Chairman, Compensation Committee (b) If to the Administrator, to: American Precision Industries Inc. 2777 Walden Avenue Buffalo, New York 14225 Attention: Vice President of Finance (c) If to the Employee or Claimant, to: Mr. Kurt Wiedenhaupt 280 Carnoustie Road East Aurora, New York 14052 - 9 - 10 or to such other address as any of the foregoing shall have specified by notice given in said manner to each of the others. 18. Miscellaneous. -------------- This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof. This Agreement shall be governed by the laws of the State of New York, except to the extent that Federal law supersedes. This Agreement is solely between the Company and the Employee. However, it shall be binding upon the designated recipients, beneficiaries, heirs, executors and administrators of the Employee and upon the successors and assigns of the Company. Headings in this Agreement are for reference purposes only and shall not be deemed to have any substantive effect. IN WITNESS WHEREOF, the Executive has executed this Agreement, and the Company, pursuant to the authorization of its Board of Directors, has caused this Agreement to be executed, as of the day and year first above written. AMERICAN PRECISION INDUSTRIES INC. By /s/ John M. Murray ---------------------------------------- John M. Murray, Vice President - Finance and Treasurer By /s/ James J. Tanous ---------------------------------------- James J. Tanous, Secretary /s/ Kurt Wiedenhaupt ------------------------------------------ Kurt Wiedenhaupt - 10 - 11 SCHEDULE A Effective as of July 1, 1996 I. Normal Retirement Benefit ------------------------- The Normal Retirement Benefit as in effect on July 1, 1996, is $1,676,534. The Normal Retirement Benefit shall be adjusted automatically as of July 1 of each year after 1996 to reflect changes in the cost of living, using the following procedure: The Normal Retirement Benefit in effect as of the immediately preceding July 1 shall be increased or decreased by a factor derived from the Consumer Price Index for All Urban Consumers (1982-84 = 100) published by the United States Bureau of Labor Statistics for the month of June preceding the date as of which the adjustment is being made. The Normal Retirement Benefit to be used as the basis for the calculation of any benefit payable under this Agreement is the Normal Retirement Benefit in effect as of the July 1 preceding (or, if applicable coincident with) the date the Employee ceases to be employed by the Company. II. After-Tax Rate -------------- The After-Tax Rate is the percentage that is the remainder after the subtraction from (i) 100 percent of (ii) the effective marginal tax rate applicable to the Employee on the date as of which a calculation is being made. The Company shall determine the effective marginal tax rate applicable to the Employee as of the calculation date, taking into account federal, state, and local income tax rates; the hospital insurance tax rate under the Federal Insurance Contribution Act; the deduction (for income tax purposes) for state and local income taxes; and no income other than income attributable to the Company. An amount shall be converted to an after-tax amount by multiplying it by the After-Tax Rate in effect for the calculation date. III. Applicable Annual Rate ---------------------- The Applicable Annual Rate is the annual rate of interest determined for a given calendar year as follows: For each calendar year, the Company shall obtain quotes from the Guardian Life Insurance Company and two other A+ rated life insurance companies on the single premium that would be required in January of that year to purchase an immediate annuity policy paying a fixed monthly benefit for a term certain of 180 months. The premiums quoted shall be translated into discount rates. The highest of the three discount rates shall be the Applicable Annual Rate in effect for calculations made as of any date during the given calendar year. EX-10.VI 7 EXHIBIT 10(VI) 1 EXHIBIT 10(vi) AMENDMENT TO LIFE INSURANCE SPLIT-DOLLAR AGREEMENT AGREEMENT by and between AMERICAN PRECISION INDUSTRIES INC., a Delaware corporation with its principal office at 2777 Walden Avenue, Buffalo, New York 14225 (the "Company"), and KURT WIEDENHAUPT ("Executive"), residing at 280 Carnoustie Road, East Aurora, New York 14052, dated as of July 1, 1994. W I T N E S S E T H - - - - - - - - - - WHEREAS, the Company and the Executive enter into an agreement entitled the Life Insurance Split-Dollar Agreement, dated as of August 26, 1992; and WHEREAS, the Board of Directors of the Company has authorized the following amendment to the Life Insurance Split-Dollar Agreement, and the Executive has agreed to the amendment NOW, THEREFORE, the Life Insurance Split-Dollar Agreement is amended as follows, effective July 1, 1994: 1. Paragraph 3 of the Life Insurance Split-Dollar Agreement is amended to read as follows: 3. PAYMENT OF PREMIUMS. On or before the due date of each annual premium on the Policy, or within the grace period allowed by the Policy or the Insurer for the payment of such annual premium, and for so long as the Executive is employed by the Company before attaining the age of 65, the Company shall pay a portion of the annual premium on the Policy. The portion of each such annual premium to be paid by the Company shall be determined by the Company in its discretion from year to year. The Executive shall pay the balance of each such annual premium, on or before its due date or within the grace period allowed by the Policy or the Insurer for the payment of such annual premium. IN WITNESS WHEREOF, the Executive had executed this Agreement, and the Company pursuant to the authorization of its Board of Directors, has caused this Agreement to be executed, as of the day and year first above written. AMERICAN PRECISION INDUSTRIES INC. By /s/ John M. Murray ----------------------------------------------- John M. Murray, Vice President - Finance and Treasurer By /s/ James J. Tanous ----------------------------------------------- James J. Tanous, Secretary /s/ Kurt Wiedenhaupt ------------------------------------------------- Kurt Wiedenhaupt, individually EX-10.VII 8 EXHIBIT 10(VII) 1 EXHIBIT 10(vii) LIFE INSURANCE SPLIT-DOLLAR AGREEMENT (as restated) AGREEMENT by and between AMERICAN PRECISION INDUSTRIES INC., a Delaware corporation with its principal office at 2777 Walden Avenue, Buffalo, New York 14225 (the "Company"), and KURT WIEDENHAUPT ("Executive"), residing at 280 Carnoustie Road, East Aurora, New York 14052, first dated as of August 26, 1992, as amended and restated as of July 1, 1996. W I T N E S S E T H - - - - - - - - - - WHEREAS, the Executive is currently serving as President and Chief Executive Officer of the Company; and WHEREAS, the Company desires to continue to assist the Executive in providing protection for the Executive's family (or other beneficiaries) in the event of the Executive's death while employed by the Company and in augmenting his assets at the time of his retirement or other termination of employment; and WHEREAS, the Company has determined that this assistance can best be provided under a "split-dollar" arrangement; and WHEREAS, the Executive has applied for and has taken delivery of Insurance Policy No. 3705278 issued by Guardian Life Insurance Company (the "Insurer") in the original face amount of $1,583,240.00 on the life of the Executive (the "Policy"); NOW, THEREFORE, the parties agree as follows: 1. OWNERSHIP OF POLICY. The Executive will continue to be the owner of the Policy in accordance with the terms and provisions of this Agreement. 2. ASSIGNMENT. The Executive has executed a collateral assignment (the "Assignment") of a partial interest in the Policy to the Company in accordance with the terms of Paragraph of this Agreement. The "Assignee's Interest" to which the Assignment refers means the Company's interests in the Policy's death benefit and cash surrender value as described in Paragraph of this Agreement. The Assignment shall terminate upon the termination of this Agreement in accordance with the terms of Paragraph of this Agreement. 3. PAYMENT OF PREMIUMS. On or before the due date of each annual premium on the Policy, or within the grace period allowed by the Policy or the Insurer for the payment of such annual premium, and for so long as the Executive is employed by the Company before attaining the age of 65, the Company shall pay a portion of the annual premium on the Policy. The portion of each such annual premium to be paid by the 2 Company shall be determined by the Company in its discretion from year to year. The Executive shall pay the balance of each such annual premium, on or before its due date or within the grace period allowed by the Policy or the Insurer for the payment of such annual premium. 4. ADDITIONAL COMPENSATION. The Company shall pay to the Executive as additional compensation an amount equal to (i) the portion of each annual premium to be paid by the Executive pursuant to Paragraph 3 of this Agreement plus (ii) an amount such that, after payment of taxes at the marginal rate (as defined in Schedule A to this Agreement) on the entire additional compensation payment, the Executive would have left an amount equal to the portion of the annual premium payment to be paid by the Executive. The Company shall pay such additional compensation to the Executive, subject to any applicable payroll tax withholding, by the end of the grace period allowed by the Policy or the Insurer for the payment of the annual premium. 5. ALLOCATION OF POLICY VALUES. During the term of this Agreement, the Executive shall retain a death benefit from the Policy equal to the amount specified in Schedule A to this Agreement. The remaining proceeds payable from the Policy upon the death of the Executive shall be payable to the Company under the Assignment. During the term of this Agreement, the Company's interest in the cash surrender value of the Policy pursuant to the Assignment shall be equal to the lesser of the sum of premiums paid by the Company on the Policy or the cash surrender value of the Policy. The Company's interest in the cash surrender value shall be payable to the Company upon the termination of the Executive's employment with the Company other than by reason of death. The Company shall furnish to the Executive a schedule after each anniversary of the Policy showing the relative allocations of the cash surrender value of the Policy. 6. DESIGNATION OF BENEFICIARY. The Executive shall have the right to name the beneficiary or beneficiaries of the Policy, who, upon the death of the Executive shall receive the proceeds of the Executive's interest in the death benefit of the Policy in accordance with Paragraph below. If the Executive elects to name someone other than his spouse as beneficiary, a written consent from the spouse will be required. 7. DEATH CLAIMS. In the event of the Executive's death, the Executive's personal representative and the Company will promptly take all steps necessary to cause the death benefits provided under the Policy to be paid by the Insurer. The Policy shall provide by endorsement or otherwise that in the event of the death of the Executive while the Policy is in full force and effect during the term of this Agreement, there shall be paid to the beneficiary or beneficiaries designated by the Executive as provided in Paragraph of this Agreement, that portion of the death benefit retained by the Executive as provided in Paragraph of this Agreement, and the remaining proceeds from the Policy shall be paid directly to the Company. - 2 - 3 8. POLICY LOANS. While this Agreement is in effect and except as provided in Paragraph of this Agreement, there shall be no loans made to the Company or the Executive secured by the Policy. 9. TERMINATION OF POLICY. The Executive agrees that while this Agreement is in full force and effect, he will not, without the consent of the Company, sell, transfer, surrender, assign, or otherwise terminate the Policy. 10. TERMINATION OF EMPLOYMENT. Upon the termination of the Executive's employment with the Company, the Executive shall pay to the Company (through a loan secured by the Policy or from other funds) an amount equal to the Company's interest in the cash surrender value of the Policy (as specified in Paragraph of this Agreement). Upon such payment no other amount will be due to the Company under this Agreement and the Company shall release the Assignment. The Executive will thereafter own the Policy free from the terms of this Agreement. 11. TERMINATION OF AGREEMENT. This Agreement shall terminate upon the termination of the Executive's employment with the Company and the satisfaction of the Company's interest in the Policy under the Assignment as provided in Paragraph of this Agreement. 12. EXECUTIVE WAIVER. The Executive acknowledges and agrees that if the Agreement and the benefits described in the Agreement constitute an employee benefit plan or part of an employee benefit plan for purposes of Title I of the Employee Retirement Income Security Act, as amended ("ERISA"), (i) the plan is a welfare plan and not a pension plan and, therefore, is exempt from the participation, vesting, benefit accrual, joint and survivor and preretirement survivor annuity, and other requirements of Title I of ERISA, and (ii) the Executive irrevocably waives, on behalf of himself and any spouse to whom he may now or in the future be married, any rights and claims the Executive or his spouse or both of them may have now or in the future under Title I of ERISA with respect to such plan, even if it should be construed as a pension plan. The Executive has had sufficient opportunity to review this waiver with counsel. The Company shall administer this Agreement, construe its terms, and make all determinations necessary under this Agreement and shall have complete discretion in doing so. 13. AMENDMENT OF AGREEMENT. This Agreement shall not be modified or amended except by a written amendment signed by the Company and the Executive. This Agreement shall be binding on the beneficiaries, heirs, and personal representatives of the Executive and the successors and assigns of the Company. 14. STATE LAW. This Agreement shall be subject to and shall be construed under the laws of the State of New York. - 3 - 4 15. PARAGRAPH READINGS. Paragraph headings as to contents of particular paragraphs of this Agreement are inserted only for convenience and are in no way to be construed as part of the provisions of this Agreement or as a limitation on the scope of particular paragraphs to which they refer. 16. EFFECTIVE DATE OF RESTATEMENT. The amendment of the Agreement as set forth in this document is effective as of July 1, 1996. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. AMERICAN PRECISION INDUSTRIES INC. By /s/ John M. Murray ----------------------------------------------- John M. Murray, Vice President - Finance and Treasurer By /s/ James J. Tanous ----------------------------------------------- James J. Tanous, Secretary /s/ Kurt Wiedenhaupt ------------------------------------------------- Kurt Wiedenhaupt, individually - 4 - 5 SCHEDULE A Effective as of July 1, 1996 I. Marginal Tax Rate ----------------- The marginal tax rate is the marginal tax rate applicable to the Employee on the date as of which a premium payment is made, as determined by the Company. The Company shall determine the marginal tax rate applicable to the Employee as of the premium payment date, taking into account federal, state, and local income tax rates; the hospital insurance tax rate under the Federal Insurance Contribution Act; the deduction (for income tax purposes) for state and local income taxes; and no income other than income attributable to the Company. II. Death Benefit ------------- The death benefit as in effect on July 1, 1996, is $1,676,534. The death benefit shall be adjusted automatically as of July 1 of each year after 1996 to reflect changes in the cost of living, using the following procedure: The death benefit in effect as of the immediately preceding July 1 shall be increased or decreased by a factor derived from the Consumer Price Index for All Urban Consumers (1982-84 = 100) published by the United States Bureau of Labor Statistics for the month of June preceding the date as of which the adjustment is being made. EX-27 9 EXHIBIT 27
5 0000005657 AMERICAN PRECISION INDUSTRIES INC. 9-MOS JAN-03-1997 SEP-29-1996 372,000 250,000 19,656,000 496,000 16,723,000 40,288,000 45,572,000 20,352,000 79,943,000 16,369,000 0 0 0 5,057,000 33,298,000 79,943,000 31,599,000 31,658,000 20,986,000 29,059,000 7,694,000 0 379,000 2,599,000 863,000 0 0 0 0 1,736,000 .24 0
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