SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended February 24, 1995 Commission file number 0-230
AEL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1353403
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
305 Richardson Road, Lansdale, PA 19446
(Address of principal executive offices/Zip Code)
(Registrant's telephone number, including area code) (215) 822-2929
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Class A common stock Par Value $1.00 (nonvoting)
Class B common stock Par Value $1.00 (voting)
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. / /
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. $1,878,769
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. (May 5, 1995)
Class A common stock, par value $1.00 - 3,575,319
Class B common stock, par value $1.00 - 418,634
DOCUMENTS INCORPORATED BY REFERENCE
The following document is incorporated by reference into the Part of
the Form 10-K specified herein: Annual Report to Shareholders for fiscal
year 1995 furnished to the Commission pursuant to Rule 14a-3(b) under the
Securities Exchange Act of 1934 (but only to the extent set forth in Parts
I and II of this Annual Report).
PART I
ITEM 1. BUSINESS
AEL Industries, Inc. (the "Company" or "AEL") is principally engaged
in the Electronic Defense Products and Services business. This business
consists primarily of the design and manufacture of electronic
countermeasures systems, simulation systems, radar receivers, microwave
integrated circuits and other electronic equipment, and avionics installa-
tion and integration services for the United States and foreign governments
and their suppliers. The Company also provides other services to both the
commercial and governmental markets such as aircraft modification and
maintenance, calibration, product testing and technical publication.
In view of recent and significant developments and consolidations in
the defense industry, the Board of Directors ("Board") of the Company
appointed a committee of the Board known as the Long Range Planning
Committee ("LRPC") for the purpose of considering strategic alternatives
for the Company. The LRPC concluded negotiations on February 28, 1995 with
the Company's controlling shareholders, Dr. Leon Riebman and Claire E.
Riebman with the signing of agreements which provided the Board with
increased flexibility in exploring the possible sale of the Company. The
Board has authorized the LRPC to pursue such a sale and has engaged Dillon,
Read & Co. Inc. to assist in this matter.
The Company's registered office and principal administrative and
executive offices are located at 305 Richardson Road, Lansdale,
Pennsylvania 19446, approximately 28 miles north of Philadelphia, and the
telephone number is 215-822-2929.
Electronic Defense Products and Services
Products and Services
The Electronic Defense Products and Services business consists
primarily of the design, manufacture and servicing of products sold to U.S.
Government agencies and their suppliers. The Company also sells products
to foreign governments and their suppliers. Please refer to Note 10 of the
Notes to Consolidated Financial Statements for fiscal year 1995 for
industry segment information.
Revenues from aircraft avionics installation and integration programs
were approximately 37%, 33% and 29% of the Company's consolidated sales and
service revenues in fiscal years 1995, 1994 and 1993, respectively. The
ANVIS/HUD program, included in this group, accounted for 13%, 8% and 4% of
the Company's consolidated sales and service revenues in fiscal years 1995,
1994 and 1993, respectively. Avionics installation and integration
programs for fixed and rotary wing aircraft are of continued significance
to the Company. Through these programs the Company has installed
electronic systems in a wide variety of aircraft.
Another significant product group is electronic countermeasures
systems, which accounted for 23%, 22% and 24% of the Company's consolidated
sales and service revenues in fiscal years 1995, 1994 and 1993,
respectively. These systems include the Army's TACJAM-A program which
accounted for 14% of consolidated revenues in fiscal year 1995, 5% in
fiscal year 1994 and 11% in fiscal year 1993.
Sales of radar warning receivers (including the AN/ALR-67 and AN/APR-
39A programs) accounted for 13%, 10% and 8% of the Company's consolidated
sales and service revenues in fiscal years 1995, 1994 and 1993,
respectively.
Jamming simulator programs (including the AN/MLQ-T4, AN/FSQ-T22 and
Embedded Radar Environment Simulators), accounted for 5%, 11% and 10% of
the Company's consolidated sales and service revenues in fiscal years 1995,
1994 and 1993, respectively.
In the manufacture of its products, the Company uses raw materials
which generally are readily available from several sources. The Company
owns various registered trademarks. The Company relies principally upon
engineering and marketing skills to maintain and enhance its competitive
position in the electronic defense markets. Although most of the Company's
business is not dependent upon patent or similar protection, the Company's
research and development efforts have yielded patents in certain areas of
technology.
The U.S. Government is a customer of particular significance to the
Electronic Defense Products and Services business. Sales directly to the
U.S. Government comprised approximately 43%, 47% and 47% of the Company's
consolidated sales and service revenues in fiscal years 1995, 1994 and
1993, respectively. The majority of additional domestic revenues are
attributable to contracts with suppliers to the U.S. Government. Contracts
awarded to the Company by the U.S. Government and its suppliers are
generally complex and occasionally require significant technological
advances. The loss of direct U.S. Government business would have a
material adverse effect on the operations of this business and the Company.
Any major curtailment in Government spending or appropriations for
electronic defense products and services could also materially and
adversely affect the Company's operations by reducing the Company's
opportunities to contract with other U.S. Government suppliers.
Approximately 65% of the Company's domestic revenues in fiscal year
1995 were derived from contracts awarded on a fixed-price basis, which
obligate the Company to deliver equipment or perform services at a fixed
price without regard to the cost incurred. Fixed-price contracts with the
U.S. Government and suppliers to the U.S. Government frequently include a
progress payment or milestone payment clause, which provides for payment to
the Company of a significant portion of the costs of performing a contract
as they are incurred. The remaining 35% of domestic revenues arose from
contracts awarded on a cost-plus or time-and-material basis, under which
the Company is reimbursed for the cost of performance (plus a fee or
profit) up to a negotiated ceiling amount. Contracts with the U.S.
Government and suppliers to the U.S. Government generally provide for
termination at any time for the convenience of the Government, and upon
such termination a contractor is entitled to receive payment for the work
performed plus a pro rata portion of the profit it would have earned but
for the termination.
Competition
A considerable number of companies are engaged in the sale of
electronic defense products and services. Competition has significantly
increased over the last few years as a result of decreased Government
spending and appropriations. Overall, there are fewer programs (especially
start-ups) on which to bid and, therefore, the Company faces greater
competition in its traditional product areas. In response to competitive
pressures, the Company sometimes agrees to invest its own funds in the
performance of a program to enhance the likelihood of receiving a contract
award. Competitors of the Company include large diversified corporations
and smaller, highly specialized firms. The Company's competitive position
ultimately depends on its technical expertise and the price and quality of
its products and services. Because of the variety of its activities, it is
impossible to state precisely the competitive position of the Company with
respect to each of its product groups. The Company does not have dominance
in the markets for its products.
Marketing
The products and services of this business are marketed primarily in
the United States to the U.S. Government and its suppliers. The Company
also markets its products overseas through its Systems International
Division. Sales are made on the basis of competitive bids or negotiated
contracts, primarily through direct contact between the Company's technical
and marketing employees and the technical and purchasing representatives of
its customers. The Company also generates sales through the use of trade
and catalog advertising.
Backlog
The backlog of firm orders was $106,558,000 at February 24, 1995 and
$121,478,000 at February 25, 1994. Approximately 7% of the backlog at
February 24, 1995 was firm but unfunded. Approximately 51% of the total
backlog consisted of orders from the U.S. Government and 13% from foreign
customers. As of February 24, 1995, approximately 25% of the backlog
consisted of orders for electronic countermeasures systems including 16%
for TACJAM-A; 40%, orders for avionics installation/integration programs,
including 28% for ANVIS/HUD; and 14%, orders for radar warning receivers,
including 11% for AN/APR-39A. Approximately 80% of the total backlog is
expected to be completed in fiscal year 1996.
Other Business Information
Research and Development
During fiscal years 1995, 1994 and 1993 the Company expended
approximately $2,206,000, $2,162,000 and $2,501,000, respectively, on
Company-sponsored research and development. In addition, there were
expenditures for customer-sponsored research and development which are not
readily identifiable since many contracts awarded to the Company have R&D
effort commingled with production effort. In customer-sponsored research
and development contracts, the proprietary rights to the development belong
to the customer; however, the Company generally obtains technical know-how
which it may be able to apply in other fields.
Fluctuations in company-sponsored R&D result from changes in the
allocation of available cash and technical resources, including personnel.
Company-sponsored R&D may lead to innovations which are attractive to
potential customers and which may then be adapted to the customer's needs
and incorporated into systems. The Company's R&D focus is to create
technological advantages which may be applied either to new government
system programs or to new commercial ventures. The Company is actively
pursuing commercial applications for its technologies for the CATV and
cellular industries.
As a result of its research and development efforts, the Company may
become one of a small number of suppliers of the items developed, which may
result in the award of production contracts to the Company. The Company is
significantly involved in the field of advanced electronics which entails a
high degree of technological obsolescence resulting from the rapid
advancements made both by the Company and others within the industry. It
is therefore extremely difficult to measure the useful life of any specific
product or service at the time of development.
Employees
At April 28, 1995 the Company had 1102 employees, 334 of whom are
engineers. The Company believes its relations with employees are generally
satisfactory. The Company's employees are not covered by collective
bargaining agreements.
Foreign Sales
The Company has no foreign operations. However, foreign sales
accounted for approximately 15%, 13% and 10% of consolidated sales and
service revenues in fiscal years 1995, 1994 and 1993, respectively. All
sales of military products to foreign customers must be approved by the
U.S. Government; such approvals are subject to revocation and may be
adversely affected by changes in U.S. Government export policy. There
exist certain risks inherent in foreign transactions which may not be
present in domestic transactions, including currency fluctuations, changes
in foreign government policies, differences in international laws and
difficulties in negotiating and litigating with foreign entities. The
Company has taken reasonable measures to reduce such risks by requiring in
appropriate cases payment in U.S. currency, letters of credit, advanced
deposits, and by retaining title to goods delivered until payment.
Environmental Matters - See Item 3 of this report.
ITEM 2. PROPERTIES
As of May 5, 1995, the Company owned or leased a total of
approximately 735,000 square feet of office and plant space with main
facilities in Pennsylvania, Illinois, Georgia, Virginia, New Jersey and
Ohio. The Company owns most of these facilities. The operations of the
Electronic Defense Products and Services business are carried on at all of
the Company's main facilities. No discussion of productive capacity and
extent of utilization is provided because the Company is not involved in a
traditional manufacturing business. Its products are principally custom
designed and sold in small quantities. The present facilities are
considered to be suitable, adequate, and well-equipped for the Company's
operations.
ITEM 3. LEGAL PROCEEDINGS
The Company has provided documents relating to the AN/MLQ-T4 Ground
Jammer program to the Department of Defense pursuant to a subpoena issued
by its Inspector General in 1992. At this time the Company cannot
determine when the Government will complete its investigation or whether it
will seek remedies in connection with this investigation.
In 1989 the United States Environmental Protection Agency ("EPA")
placed a site that includes the Company's Richardson Road property on the
National Priorities List for detailed study and cleanup of alleged
environmental contamination. A revised Remedial Investigation/Feasibility
Study Work Plan, written under the direction of the Company and other
potentially responsible parties and under the overall guidance of the EPA,
was submitted to the EPA in 1993. The Company continues to cooperate with
the EPA in the study of this site. The cost of performing the Study
defined in the Plan and the eventual remediation, if required, is not
expected to have a material adverse impact on the Company's financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter ended February 24, 1995.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information concerning the executive
officers of the Company. Officers serve at the discretion of the Board of
Directors.
Name Age Position
Dr. Leon Riebman 75 Chairman of the Board, President
and Chief Executive Officer
George King 57 Executive Vice President and Chief
Financial Officer
Dr. Riebman is a founder of the Company and has served as a director and
Chief Executive Officer since the Company's organization in 1950, and as
Chairman of the Board of Directors since 1987. In 1993 he reassumed the
role of President, a position he had held from 1950 to 1983. Dr. Riebman
is also a director of Ampal Corp. (New York, NY) and Bank & Trust Co. of
Old York Road (Willow Grove, PA).
Mr. King joined the Company as Vice President in 1975 and was named
Senior Vice President in 1985 and Executive Vice President in 1992.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Class A common stock of the Company is traded in the over-the-counter
market and is listed in the National Market System maintained by the
National Association of Securities Dealers under the symbol AELNA. The
Class B common stock trades only sporadically in the over-the-counter
market, which does not constitute an established public trading market. On
May 5, 1995 there were 1456 record holders of Class A common stock and 81
record holders of Class B common stock. The following table sets forth for
the periods shown the high and low closing prices for the Company's Class A
common stock as furnished by NASDAQ.
Fiscal Year High Low
1994
First Quarter.................. 7-1/4 5-3/4
Second Quarter................. 7-1/4 5
Third Quarter.................. 8-1/4 6-1/2
Fourth Quarter................. 10-1/4 7-1/4
1995
First Quarter.................. 9-1/4 7-1/2
Second Quarter................. 10 7
Third Quarter.................. 9-1/4 8
Fourth Quarter................. 16-1/4 8-5/8
The Company has never paid, and there are no present plans to pay, a cash
dividend on its common stock. Future dividend policy will be determined by
the Board of Directors in light of the prevailing financial needs and
earnings of the Company and other relevant factors.
ITEM 6. SELECTED FINANCIAL DATA
The information appearing under the caption "Selected Financial Data"
contained in the Company's Annual Report to Shareholders for fiscal year
1995 is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information appearing under the caption "Management's Discussion and
Analysis of Results of Operations and Financial Condition" contained in the
Company's Annual Report to Shareholders for fiscal year 1995 is incorpor-
ated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information listed below appears in the Company's Annual Report to
Shareholders for fiscal year 1995 and is incorporated herein by reference.
Report of Independent Auditors
Consolidated Balance Sheets at February 24, 1995 and February 25, 1994
Consolidated Statements of Operations for the three years ended February
24, 1995
Consolidated Statements of Cash Flows for the three years ended February
24, 1995
Consolidated Statements of Shareholders' Equity for the three years ended
February 24, 1995
Notes to Consolidated Financial Statements
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
A Board of seven Directors is currently serving until the next annual
meeting of shareholders or until their respective successors shall have
been duly elected and qualified.
Present Principal
Occupation or Director
Name Employment Age Since
Francis J. Dunleavy(a) Private investor 80 April 1982
Frederick R. Einsidler(b) Private investor 69 July 1988
Conrad J. Fowler(c) Private investor 73 Dec. 1950
Leeam Lowin(d) Private investor 49 July 1992
Lloyd W. Moffit(e) Consultant-informa- 70 Nov. 1977
tion systems
Dr. Leon Riebman(f) Chairman of the 75 Dec. 1950
Board and President
of the Company (Chief
Executive Officer)
Robert Riebman(g) Software Consultant 43 April 1995
(a) Prior to his retirement in 1980, Mr. Dunleavy was Vice Chairman of the
Board of International Telephone and Telegraph Corporation, a tele-
communications company. Mr. Dunleavy is a director of the following
companies whose securities are publicly traded: Quaker Chemical
Corp.; Crown Cork and Seal Co. Inc.; Bird, Inc.; and Selas Corporation
of America.
(b) Prior to his retirement in 1987, Mr. Einsidler was Chairman and Chief
Executive Officer of Butler International, Inc., whose principal
business was aviation services, engineering services and
telecommunications services.
(c) Mr. Fowler retired from the Company in 1986. He was formerly
Executive Vice President of the Company and was Chairman of the Board
of Directors from 1959 to 1987.
(d) Mr. Lowin has been a private investor and investment manager, as well
as a financial and business consultant, for more than 25 years. He
has been instrumental in founding, financing and managing companies in
the medical electronics and data communications fields.
(e) Prior to his retirement in 1975, Lloyd W. Moffit was an Admiral in the
U.S. Navy and Deputy Operations Director (Reconnaissance and
Electronic Warfare) for the Chairman of the Joint Chiefs of Staff.
(f) Dr. Riebman is also a director of Ampal Corp. and Bank & Trust Co. of
Old York Road.
(g) Mr. Riebman is Dr. Riebman's son. As a software engineer and computer
consultant, he has worked for such companies as Siemens Medical
Service, Motorola and Digital Equipment Corporation.
Each of the directors has had the same principal occupation or
employment for at least the past five years.
Through inadvertence, Dr. Riebman and Claire E. Riebman, his wife,
each failed to timely file a Form 4 to report the change in status of
certain individually held shares to tenants by the entirety. All required
filings have now been made and there remain no known delinquencies.
ITEM 11. EXECUTIVE COMPENSATION.
The following table presents information detailing the compensation paid to the Company's
Executive Officers for the last three (3) fiscal years.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
Name Other Securities All Other
and Annual Underlying Compen-
Principal Fiscal Compensa- Options/ sation(3)
Position Year(1) Salary($) Bonus($) tion(2) ($) SARs (#) ($)
LEON RIEBMAN 1995 359,208 52,500 2,344 2,500 7,976
Chief Execu- 1994 349,002 0 0 0 6,112
tive Officer 1993 344,618 86,000 0 2,500 5,805
GEORGE KING 1995 184,940 21,624 1,455 1,500 6,936
Executive Vice 1994 178,258 0 0 1,500 4,629
President- 1993 178,092 41,746 0 1,500 4,279
Chief Financial
Officer
<FN>
(1) The Company's fiscal year ends on the last Friday in February.
(2) Amount represents reimbursement by Company of 25% of tax liability for gain realized as a result of stock option
exercise in accordance with the terms of Company's Nonqualified Stock Option Plan.
(3) Fiscal year 1995 amount includes Company contribution to 401(k) Savings Plan for Dr. Riebman and Mr. King and
patent bonus of $1000 paid to Dr. Riebman.
</FN>
/TABLE
OPTION GRANTS
The table below illustrates the number and value of stock option grants awarded to the
Company's Executive Officers in fiscal year 1995. Options are not exercisable until two years after
the date of award and expire at the end of five years from the award date.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Appreciation for Option
Individual Grants Term
Number of
Securities
Underlying
Options/ % of Total Op- Exercise
SARS tions/SARS Granted or Base
Granted to Employees in Price Expiration
Name (#) Fiscal Year ($/Share) Date 5% 10%
Leon Riebman 2,500 4.0% $8.50 4/20/99 $5,875 $12,975
George King 1,500 2.4% $10.25 1/18/00 $4,245 $9,390
OPTION EXERCISES
The following table shows the number of shares acquired by the Executive Officers through the
exercise of options during fiscal year 1995 and the value realized at the time of exercise. This
table also shows the number of securities underlying outstanding options and their realizable value
at the end of the fiscal year based on a market price on February 24, 1995 of $15.00 per share.
Aggregated Option/SAR Exercises In Last Fiscal Year and Fiscal Year-End Option/SAR Table
Number of Securities Value of Unexercised In-
Underlying Unexercised The-Money Options/SARs at
Options/SARs at Fiscal Fiscal Year-End ($)
Year-End (#)
Shares
Acquired Value
On Exercise Realized Exercisable / Exercisable /
Name (#) ($) Unexercisable Unexercisable
__________________________________________________________________________________________
Leon Riebman 2,500 $9,375 7,500/2,500 $69,600/$16,250
George King 1,500 $5,820 10,500/12,000 $72,555/$62,625
/TABLE
COMPENSATION OF DIRECTORS
As adjusted effective September 1994, Directors who are not employees
of the Company receive a retainer of $8,000 per year, a fee of $1,000 for
each directors' meeting attended, and a fee of $660 ($760 for the
Committtee Chairman) for each committee meeting attended, and are
reimbursed for travel and other expenses of attending meetings. For
committee meetings that occur other than on a day adjacent to the regular
Board meeting, fees are $860 for the Committee Chairman and $760 for the
other members.
The Board of Directors appointed a Long Range Planning Committee for
the purpose of considering strategic alternatives for the Company. Due to
the nature of their activities, the members of the Long Range Planning
Committee were paid a flat fee of $3,000 each for the period November 1994
to February 1995 in lieu of payment in accordance with the above schedule
for committee meetings.
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total
shareholder return on the Company's Class A common stock against the
cumulative total return of the S&P 500 Stock Index and a peer group index
prepared by the University of Chicago's Center for Research in Security
Prices for the period of five fiscal years commencing February 23, 1990 and
ending February 24, 1995. The companies included in the peer group index
below are the same as those included in the 1994 performance graph except
for Ketema Inc. which is no longer active.
Comparison of Five-Year Cumulative Total Return*
AEL INDUSTRIES, INC., S & P 500 INDEX & PEER GROUP INDEX1
The points represented on the Performance Graph are as follows:
02/23/90 02/22/91 02/28/92 02/26/93 02/25/94 02/24/95
AEL Industries,
Inc. 100.0 86.4 145.5 118.2 154.5 272.7
S&P 500 Index 100.0 117.0 136.3 150.7 162.4 175.0
Peer Group
Index 100.0 118.6 134.5 159.7 201.1 222.0
* Assumes $100 invested in the Company and each index on February 23, 1990,
and that all dividends are reinvested.
1 Members of the Peer Group are Litton Industries, E-Systems, Watkins-
Johnson, General Motors (Class H), Raytheon, ESCO Electronics, EG&G, Cubic,
JMAR Industries, Moog, Whitehall, Loral, Tech Sym, Sparton, Canadian Marconi,
Edo, and Diagnostic Retrieval Systems.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND
CHANGE-IN-CONTROL ARRANGEMENTS
On February 28, 1995, the Company's controlling shareholders, Dr. Leon
Riebman and Claire E. Riebman, transferred all of their Class A nonvoting
and Class B voting common stock into a voting trust controlled by four
voting trustees, who are independent directors of the Company, to provide
the Company's Board of Directors with increased flexibility in exploring
the possible sale of the Company. The voting trust has an initial term of
nine months with an extension period of up to one additional year, subject
to certain conditions. The voting trustees have full power to vote the
Riebmans' stock with regard to any proposed transaction for the sale of the
Company. Any proposal for the sale of the Company, and the agreements with
the Riebmans referred to below, are subject to ratification by the Class A
and Class B shareholders, each voting as a separate class. Ratification of
a proposal for the sale of the Company and ratification of the agreements
with the Riebmans must be voted upon by the shareholders as a single
proposition.
In consideration of the controlling shareholders entering the voting
trust agreement, transferring their shares to the voting trust, and
agreeing to accept the same per share price for their voting stock as other
shareholders receive for their stock in the event of a sale of the Company,
the Company issued 180,947 shares of Class A nonvoting stock to the
Riebmans on February 28, 1995. These shares have also been transferred
into the voting trust and will be returned to the Company for cancellation
without any payment to the Riebmans if a sale of the Company does not occur
while the voting trust is in effect.
Under separate agreements also entered into on February 28, 1995, the
Company has agreed to make the following payments to Dr. Riebman if the
Company is sold while the voting trust is in effect: payments totalling
$675,000 for consulting services to be provided by Dr. Riebman for a three-
year period after the sale of the Company, commencing with his employment
termination; a change-in-control payment of $500,000 if Dr. Riebman's
employment terminates after the sale of the Company; and a noncompetition
payment of up to $1,900,000. Dr. Riebman, for his part, has agreed not to
voluntarily retire while these agreements remain in force. During this
period, his compensation and fringe benefits will continue to be determined
by the Board of Directors.
In 1982, the Company entered into an Employment and Retirement
Agreement with Dr. Riebman. Although one of the February 1995 agreements
served to supplement this Agreement, the amendments did not change the
amount of retirement benefits or death benefits. In accordance with the
Employment and Retirement Agreement, upon his retirement, Dr. Riebman will
receive, for ten years, annual retirement payments which are generally
equal to 50% of his average salary and bonus during his last three years of
full time employment (adjusted for changes in the cost of living), reduced
by the $41,032 annuity value of the vested benefits paid to Dr. Riebman
pursuant to the termination of the Company's pension plan. As of February
24, 1995, Dr. Riebman's accrued retirement benefits under the agreement
totaled $1,335,000.
In the event of Dr. Riebman's death, his employment and retirement
payments will terminate and in lieu thereof his wife, if living, will
receive an annual death benefit for a period of six years after his death
(but not beyond the tenth anniversary of Dr. Riebman's retirement, or the
date of her death, whichever is sooner) in an amount equal to the salary or
retirement payments Dr. Riebman would have received in such years.
In 1986 the Company entered into a stock repurchase agreement with Dr.
Riebman whereby upon the death of Dr. Riebman, his Estate has the right,
exercisable by sending written purchase notice(s) to the Company at any
time within one year after the date of death, to require the Company to
purchase from the Estate the number and class of shares designated in the
purchase notice and owned by the Estate on the date of death. Shares of
stock owned jointly by Dr. Riebman and his wife would, for purposes of the
agreement, be deemed owned by the Estate. The purchase price per share is
determined by a formula designed to result in a price per share slightly
below the market price for the Class A shares on the date the Company
receives the purchase notice. The total amount required to be expended by
the Company pursuant to all purchase notices cannot exceed $250,000. The
initial term of the agreement was five years and the agreement will
continue to be renewed automatically for successive five year periods
unless the Company provides six months' prior notice of termination.
In 1988 the Company entered into several agreements with George King,
Executive Vice President. The Change of Control Agreement provides that
if, within 24 months after a change of control, Mr. King's employment is
terminated by the Company or he resigns following a reduction in his
salary, responsibilities or duties, then he or his surviving spouse will
become entitled to receive certain payments (the "change of control
benefit"). A change of control of the Company is deemed to have occurred
when Dr. Leon Riebman and/or his wife own, in the aggregate, less than 50%
of the outstanding Class B common stock of the Company (or, if no Class B
common stock is outstanding, less than 15% of the outstanding Class A
common stock, and another person owns more than 15%) and Dr. Riebman ceases
to be Chief Executive Officer of the Company. Mr. King or his surviving
spouse will also be entitled to receive such payments if his employment is
terminated without cause within twelve months prior to a change of control.
The value of the change of control benefit (paid over a 36-month period)
will be approximately three times Mr. King's average annual salary, bonus
and other taxable income from the Company for his last five years of
employment, reduced by amounts paid contemporaneously pursuant to the
Supplemental Benefits Agreement described below. The value of the change
of control benefit is also reduced by the present value of all other
amounts paid under any other agreement, including property transferred,
which are contingent upon a change of control. The change of control
benefit is expected to be a business expense deductible by the Company
under the Internal Revenue Code. The Change of Control Agreement
terminates automatically upon the death or total disability of Mr. King, or
upon his voluntary resignation (except as noted above) or termination for
cause, and may be terminated at any time by the Company or Mr. King on 18
months' notice.
The Supplemental Benefits Agreement provides that Mr. King will retire
from active employment with the Company at age 65, unless the Board of
Directors requests that he continue in his position. If Mr. King retires
at age 65 (or later if he continues his employment at the request of the
Board) he or his surviving spouse will receive for ten years after
retirement, as a supplemental retirement benefit, monthly payments equal to
25% of average monthly earnings (salary plus bonus) for his highest paid
three consecutive years of service with the Company. If he leaves the
Company prior to attaining age 65 he will be entitled to receive a reduced
benefit (the amount of which depends on his age at the time his employment
terminates) payable for ten years commencing when the Executive attains age
62. However, if he becomes completely and permanently disabled while
employed by the Company he will receive the full 25% benefit. If Mr. King
dies while employed by the Company, or after terminating employment but
before payments commence, his surviving spouse will receive, in lieu of the
supplemental retirement benefit, a death benefit consisting of monthly
payments equal to 25% of his average monthly earnings for his highest paid
three consecutive years of service. Death benefit payments will commence
when Mr. King would have attained age 65 and will continue for ten years or
until his surviving spouse's death, whichever occurs sooner.
Pursuant to the agreements, Mr. King received an option to purchase
15,000 shares of Class A common stock of the Company. The exercise price
of each option is equal to the market price on the date of issuance. Mr.
King's option expires on December 31, 2002. The option was initially
exercisable for 10% of the total number of shares. Additional increments
become exercisable approximately at five-year intervals, so that the option
will be fully exercisable when Mr. King attains age 65. The option also
becomes fully exercisable if, within 24 months after a change of control,
Mr. King's employment is terminated by the Company or he resigns following
a reduction in his salary, responsibilities or duties. To the extent
unexercised, the stock option terminates upon voluntary resignation (except
in the circumstances mentioned in the preceding sentence, in which case the
option terminates three months after resignation) and three months after
the termination of employment other than by voluntary resignation. Mr.
King's personal representative may exercise the option within three months
after his death to the extent that he could have exercised it on the date
of his death.
No special or separate fund is provided for the payment of any of the
foregoing benefits but the Company is permitted to fund the same with
insurance on the individual's life if it so desires. All payments are
subject to the individual's compliance with certain confidentiality, non-
competition and other provisions. Mr. King has waived any age
discrimination claim related to his agreement to retire at age 65.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
All voting rights are vested in the Company's Class B common stock,
except that the Class A common stock votes as a class on any matter
directly affecting the rights and privileges of such class or as otherwise
required by law. Dr. Leon Riebman and Conrad J. Fowler each beneficially
own more than 5% of the Class B common stock. Dr. Riebman is an executive
officer and both are directors of the Company and their mailing address is
305 Richardson Road, Lansdale, Pennsylvania 19446-1429.
On February 28, 1995 Dr. Riebman and his wife, Claire E. Riebman (the
"Riebmans") transferred all of their AEL stock into a Voting Trust
established pursuant to a Voting Trust Agreement between the Company and
the Riebmans. The Voting Trust is controlled by Francis J. Dunleavy,
Frederick R. Einsidler, Conrad J. Fowler and Leeam Lowin, the four
independent directors who comprise the Long Range Planning Committee of the
Board of Directors, in their capacity as Voting Trustees. The Voting
Trustees have full power to vote the Riebmans' stock in any proposed
transaction for the sale of the Company.
The following table shows all equity securities of the Company
beneficially owned (a), directly or indirectly, as of May 5, 1995, by each
director and executive officer and by all directors and executive officers
as a group:
Class A Percent Class B Percent
Common of Common of
Name Stock(b) Class(b) Stock Class
Francis J. Dunleavy... 1,900 * 0 0
Frederick R. Einsidler 627 * 0 0
Conrad J. Fowler...... 143(c) * 76,874(c) 18%
Leeam Lowin........... 1,075,700(d) 30% 0 0
Lloyd W. Moffit....... 400 * 0 0
Dr. Leon Riebman...... 199,093(e) 6% 241,262(e) 58%
Robert Riebman........ 4,500 * 0 0
George King........... 15,441(f) * 297(f) *
All Directors and 1,297,804 36% 318,433 76%
Executive Officers as
a group
________________
*less than 1%
(a)The securities "beneficially owned" are determined in accordance with
the definitions of "beneficial ownership" as set forth in the releases of
the Securities and Exchange Commission applicable as of the date hereof, and,
accordingly, may include securities owned by or for, among others,
spouses and/or minor children of the individual and other relatives who
have the same home as such individual as well as other securities as to
which the individual has or shares voting or investment power or has the
right to acquire under outstanding stock options within 60 days after May
5, 1995. Beneficial ownership may be disclaimed as to certain of the
securities.
(b) Each share of Class B common stock is convertible, at the option of
the holder, into one share of Class A common stock. The figures in
these columns do not reflect the additional shares of Class A common
stock acquirable upon conversion of Class B common stock.
(c) The sole voting and investment power of the Class A shares
belongs to Mr. Fowler's wife, who also has sole voting and investment
power with respect to 32,789 Class B shares. Mr. Fowler has sole
voting and investment power as to the remaining Class B shares.
(d) Mr. Lowin has sole voting and investment power with respect to 583,000
shares and shared investment power with respect to 475,700 shares.
The sole voting power with respect to these 475,700 shares rests with
other persons. The sole voting and investment power of an additional
17,000 shares belongs to Mr. Lowin's wife.
(e) Dr. Riebman and Mrs. Riebman share voting and investment power with
respect to 191,593 Class A shares with Francis J. Dunleavy, Frederick
R. Einsidler, Conrad J. Fowler and Leeam Lowin, Voting Trustees Under
Voting Trust Agreement dated as of February 28, 1995. The remaining
Class A shares are in the form of options exercisable within 60 days
after May 5, 1995, are held solely by Dr. Riebman, and are required to
be deposited in the Voting Trust upon acquisition. Dr. and Mrs.
Riebman also share voting and investment power with respect to 241,262
Class B shares with Francis J. Dunleavy, Frederick R. Einsidler,
Conrad J. Fowler and Leeam Lowin, Voting Trustees Under Voting Trust
Agreement dated as of February 28, 1995. The Voting Trustees are not
benefical owners of any of these Class A or Class B shares in their
individual capacities.
(f) Mr. King and his wife share voting and investment power with respect
to 4,941 Class A shares and 297 Class B shares. The remaining shares
are in the form of options exercisable within 60 days after May 5,
1995 and are held solely by Mr. King.
As of May 5, 1995, Raymond S. Markowitz, a Vice President of the
Company owned less than 1% of the Company's Class A common stock and 24,963
shares of Class B common stock (6% of the class). His mailing address is
305 Richardson Road, Lansdale, PA 19446-1429. He is not an executive
officer of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
No reportable transactions, except as previously described under the
heading "Employment Contracts and Termination of Employment and Change-In-
Control Arrangements", in Item 11 of this Report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) List of documents filed as part of this report.
1. Financial statements and Financial Statement Schedules.
a. The financial statements of the Company set forth under Item
8 of this report.
b. The Financial Statement Schedule II - Valuation and
Qualifying Accounts - as required by Regulation S-X. All
other schedules are omitted since the required information
is not present or is not present in amounts sufficient to
require submission of the schedule, or because the
information required is included in the financial
statements and notes thereto.
2. Exhibits
The exhibits listed in the accompanying index to exhibits
are filed as part of this annual report. EXHIBITS 10A
THROUGH 10N IN THE ACCOMPANYING INDEX TO EXHIBITS, LISTING
THE COMPANY'S EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
ARE FILED PURSUANT TO ITEM 14(C) OF THIS REPORT.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of
fiscal year 1995.
AEL INDUSTRIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED FEBRUARY 24, 1995
(Dollars in Thousands)
Balance at Charged Balance at
beginning to costs & end of
Description of period expenses Deductions period
- ----------------------- --------- --------- --------- ---------
February 26, 1993:
Allowance for contract losses $7,571 $6,494 $9,656 (a) $4,409
========= ========= ========= =========
Inventory allowance . . . . . .$1,273 $465 $714 (b) $1,024
========= ========= ========= =========
Allowance for bad debts . . . . $201 $7 $7 (c) $201
========= ========= ========= =========
February 25, 1994:
Allowance for contract losses $4,409 $6,650 $7,195 (a) $3,864
========= ========= ========= =========
Inventory allowance . . . . . .$1,024 $245 $311 (b) $958
========= ========= ========= ========
Allowance for bad debts . . . . $201 $9 $26 (c) $184
========= ========= ========= =========
February 24, 1995:
Allowance for contract losses $3,864 $8,585 $8,839 (a) $3,610
========= ========= ========= =========
Inventory allowance . . . . . . $958 $201 (b) $757
========= ========= ========= =========
Allowance for bad debts . . . . $184 $16 $0 (c) $200
========= ========= ========= =========
(a) Deductions are a result of allowance usage over the terms of the
related contracts.
(b) Deductions are a result of physical disposal of inventory for which
allowances were previously provided.
(c) Deductions are a result of write-offs of uncollectible accounts
receivable for which allowances were previously provided.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
AEL INDUSTRIES, INC.
Attest:
/s/John R. Cox By: /s/George King
John R. Cox George King, Executive Vice
Secretary President and Chief Financial
Officer
Date: May 17, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
(i) Principal Executive
Officer
/s/ Leon Riebman Chairman of the Board May 17, 1995
Leon Riebman
(ii) Principal Financial
Officer
/s/ George King Executive Vice President May 17, 1995
George King and Chief Financial Officer
(iii) Principal Accounting
Officer
/s/ John F. Sharkey Vice President, Finance May 17, 1995
John F. Sharkey
Signature Title Date
(iv) A Majority of the Board
of Directors
/s/ Francis J. Dunleavy Director May 17, 1995
Francis J. Dunleavy
/s/ Frederick R. Einsidler Director May 17, 1995
Frederick R. Einsidler
/s/ Conrad J. Fowler Director May 17, 1995
Conrad J. Fowler
/s/ Leeam Lowin Director May 17, 1995
Leeam Lowin
/s/ Lloyd W. Moffit Director May 17, 1995
Lloyd W. Moffit
/s/ Leon Riebman Director May 17, 1995
Leon Riebman
/s/ Robert Riebman Director May 17, 1995
Robert Riebman
INDEX TO EXHIBITS
3A Articles of Incorporation as amended and
restated through April 2, 1993 (Incorporated
by reference to Exhibit 3A in the Company's
Form 10K Report for the fiscal year ended
February 26, 1993)
3B Bylaws as amended through February 28, 1995.
9 Voting Trust Agreement dated February 28,
1995 between AEL Industries, Inc., Dr. Leon
Riebman and Claire E. Riebman, and Francis J.
Dunleavy, Frederick R. Einsidler, Conrad J.
Fowler and Leeam Lowin, as voting trustees
(Incorporated by reference to Exhibit B in
the Company's Form 8-K Report dated February
28, 1995)
10A Incentive Stock Option Plan effective January
1, 1992 (Incorporated by reference to Exhibit
10A in the Company's Form 10-K Report for the
fiscal year ended February 28, 1992)
10B Nonqualified Stock Option Plan as amended
through April 10, 1991 (Incorporated by
reference to Exhibit 10B in the Company's
Form 10-K Report for the fiscal year ended
February 22, 1991)
10C AEL Bonus Plan for Senior Employees amended
and restated as of February 28, 1992
(Incorporated by reference to Exhibit 10C in
the Company's Form 10-K Report for the fiscal
year ended February 28, 1992)
10D Stock Repurchase Agreement dated April 16,
1986 between AEL Industries, Inc. and Leon
Riebman (Incorporated by reference to Exhibit
10G in the Company's Form 10-K Report for the
fiscal year ended February 28, 1986)
10E Employment and Retirement Agreement dated
January 9, 1982 between AEL Industries, Inc.
and Leon Riebman (Incorporated by reference
to Exhibit 10A in the Company's Form 10-K
Report for the fiscal year ended February 26,
1982)
10F Amendment No. 1 dated November 14, 1991 to
Employment and Retirement Agreement dated
January 9, 1982 between AEL Industries, Inc.
and Leon Riebman (Incorporated by reference
to Exhibit 10F in the Company's Form 10-K
Report for the fiscal year ended February 28,
1992)
10G Employment and Retirement Agreement dated
October 15, 1980 between AEL Industries, Inc.
and Conrad J. Fowler (Incorporated by
reference to Company's S-1 Registration
Statement No. 2-71264, Amendment No. 2, dated
May 15, 1981)
10H Supplemental Benefits Agreement dated April
25, 1988, between AEL Industries, Inc. and
Mark H. Ronald (Incorporated by reference to
Exhibit 10I in the Company's Form 10-K Report
for the fiscal year ended February 24, 1989)
10I Change of Control, Nonqualified Stock Option
and Supplemental Benefits Agreements dated
May 16, 1988, between AEL Industries, Inc.
and George King (Incorporated by reference to
Exhibit 10I in the Company's Form 10-K Report
for the fiscal year ended February 24, 1989)
10J Amendment No. 1 dated as of September 1, 1994
to Agreements between AEL Industries, Inc.
and Senior Executives dated as of August 1,
1993. (Basic Agreement incorporated by
reference to Exhibit 10J in the Company's 10-
K Report for the fiscal year ended February
25, 1994)
10K Agreement between AEL Industries, Inc. and
Teachers Insurance and Annuity Association of
America dated March 30, 1988 (Incorporated by
reference to Exhibit 10M in the Company's
Form 10-K Report for the fiscal year ended
February 24, 1989)
10L Agreement between AEL Industries, Inc. and
Leon Riebman and Claire E. Riebman dated
February 28, 1995 (Incorporated by reference
to Exhibit A in the Company's Form 8-K Report
dated February 28, 1995)
10M 1995 Agreement between AEL Industries, Inc.
and Leon Riebman dated February 28, 1995,
amending Exhibit 10E Employment and
Retirement Agreement, (Incorporated by
reference to Exhibit C in the Company's Form
8-K Report dated February 28, 1995)
10N Participation Rights Agreement between AEL
Industries, Inc. and Leon Riebman dated
February 28, 1995 (Incorporated by reference
to Exhibit D in the Company's Form 8-K Report
dated February 28, 1995)
11 Statement re computation of per share
earnings (or loss)
13 Portions of 1995 Annual Report to
Shareholders specifically incorporated by
reference elsewhere in this report.
22 List of Subsidiaries
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule