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FORM 10-K.-ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NUMBER: 0-25634
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 87-0365268
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
755 BOARDMAN-CANFIELD ROAD
SOUTH BRIDGE EXECUTIVE CENTER
BUILDING G-WEST
BOARDMAN, OHIO 44512
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (330) 965-9910
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past ninety (90) days. Yes [X] No [ ]
Indicate by check mark, if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes [ ] No [X]
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State the aggregate market value of the voting stock held by nonaffiliates of
the Registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within sixty (60) days prior to the date of
filing. (See definition of affiliate in Rule 405, 17 CFR 230.405).
$9,140,319 as of February 28, 1999
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE (5) YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Not Applicable
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the Registrant's classes of
Common Stock, as of the latest practicable date.
13,942,211 shares of Common Stock, $.001 par value, as of February 28, 1999.
There are no other classes of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933: Certain sections of the Company's Annual
Report to Shareholders for the year ended December 31, 1998 are incorporated
into Part II, Items 6, 7 and 8, of this Form 10-K.
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TABLE OF CONTENTS
PAGE
----
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Market for Registrant's Common Equity and Related Stockholders'
Matters 10
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Item 8. Financial Statements and Supplementary Data 11
Item 9. Changes In and Disagreements on Accounting and Financial Disclosure 11
Item 10. Directors and Executive Officers of the Registrant 12
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial Owners and Management 19
Item 13. Certain Relationships and Related Transactions 21
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 23
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PART I
ITEM 1. BUSINESS
BACKGROUND
American Architectural Products Corporation (the Company or AAPC) is
principally engaged in the business of manufacturing and distributing
residential, commercial and architectural windows and doors through its
wholly-owned subsidiaries Eagle & Taylor Company (ETC), Forte, Inc. (Forte),
Western Insulated Glass, Co. (Western), Thermetic Glass, Inc. (Thermetic),
Binnings Building Products, Inc. (Binnings), Danvid Window Company (Danvid),
Modern Window Corporation (Modern), American Glassmith Corporation (American
Glassmith), VinylSource, Inc. (VinylSource), Denver Window Corporation (Denver
Window) and American Weather-Seal Company (Weather-Seal).
American Architectural Products, Inc. (AAP) was incorporated on June
19, 1996 and had no significant operations or assets until it acquired Eagle
Window and Door, Inc. (Eagle) and Taylor Building Products Company (Taylor) on
August 29, 1996. Eagle is based in Dubuque, Iowa and manufactures and
distributes aluminum clad and all wood windows and doors. Taylor is based in
West Branch, Michigan and manufactures entry and garage doors. AAP subsequently
changed its name to Eagle & Taylor Company.
On June 25, 1996 AAP's ultimate controlling stockholder acquired
ownership of Mallyclad Corporation (Mallyclad) and Vyn-L Corporation (Vyn-L).
Mallyclad and Vyn-L, are based in Madison Heights, Michigan and process and
manufacture vinyl clad steel and aluminum coils and cut-to-length sheets. On
December 18, 1996, Mallyclad and Vyn-L were merged into AAP. Based on the
control maintained by this stockholder over AAP, Mallyclad and Vyn-L, the merger
was considered to be a transaction among companies under common control and was
accounted for at historical cost in a manner similar to a pooling of interests.
On December 18, 1996, pursuant to an Agreement and Plan of
Reorganization dated October 25, 1996 (Agreement) between Forte Computer Easy,
Inc. (FCEI) and AAP Holdings, Inc., FCEI acquired all of the issued and
outstanding shares of capital stock of AAP in exchange for 1,000,000 shares of
Series A Convertible Preferred Stock of FCEI (the Series A Preferred). Prior to
December 18, 1996, FCEI had a single wholly owned operating subsidiary, Forte
based in Youngstown, Ohio. Forte manufactures large contract commercial aluminum
windows and security screen windows and doors. Under the terms of the Agreement
and the Series A Preferred, AAP Holdings, Inc. obtained 60 percent of the voting
control of FCEI including options to purchase additional shares. Although FCEI
was the parent of AAP following the transaction, the transaction was accounted
for as a recapitalization of AAP and a purchase by AAP of FCEI because the
stockholders of AAP obtained a majority of the voting rights in FCEI as a result
of the transaction.
At a special shareholders' meeting held on April 1, 1997, the Company's
shareholders approved the reincorporation of the Company in Delaware.
Consequences of the reincorporation plan included the change of the Company's
name from FCEI to American Architectural Products Corporation to reflect its
operations and its emphasis on the fenestration industry; an increase in the
authorized common stock of the Company to 100,000,000 shares; a 1 for 10 reverse
stock split of the Company's common stock; and conversion of 1,000,000 shares of
Series A Preferred held by AAP Holdings, Inc. into 7,548,632 shares of common
stock. The reincorporation did not result in any substantive change to the
Company's business, assets, liabilities, net worth or operations, nor did it
result in any change in the ownership interest of any stockholder of the
Company.
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The Company has completed the following acquisitions during 1997 and
1998:
COMPANY
ACQUIRED DATE LOCATION PRODUCTS
- ------------- ---- -------- --------
Western March 14, 1997 Phoenix, AZ Residential aluminum
windows and doors
Thermetic July 18, 1997 Toluca, IL Residential vinyl
windows
Binnings December 10, 1997 Lexington, NC; Residential vinyl
Aventura, FL and aluminum windows
and storm doors
Danvid December 10, 1997 Carrollton, TX Residential aluminum
windows and doors and
vinyl windows
American December 10, 1997 Columbus, OH Decorative glass
Glassmith lites and laminated
glass
Modern December 10, 1997 Oak Park, MI Residential vinyl
windows and doors
VinylSource January 23, 1998 Austintown, OH Extruded vinyl window
and door profiles
Denver Window April 16, 1998 Denver, CO Residential specialty
wood windows
Weather-Seal June 12, 1998 Barberton, OH Wood and vinyl
Boardman, OH windows and patio
Norton, OH doors; aluminum and
Orrville, OH vinyl extrusions
Winesburg, OH
On December 10, 1997, the Company consummated the offering of
$125,000,000 of 11 3/4% Senior Notes due 2007 (the Notes). A portion of the
proceeds of the Notes was used to finance the cash portions of the December 10,
1997 acquisitions discussed above as well as part of the purchase price for the
1998 acquisitions.
In March 1998, the Company sold Mallyclad and Vyn-L a division of
Eagle & Taylor Company, to a related party for approximately $1.1 million. The
Company sold this division at its approximate book value, which approximates
its fair market value, and therefore, recognized no gain or loss on the
transaction.
In August 1998, the Company entered into definitive agreements to
acquire TSG Industries, Inc., Nu-Sash of Indianapolis, Jarar Window Systems,
Inc. and RC Aluminum Industries, Inc. These acquisitions (collectively, the
Pending Acquisitions) will be accounted for as purchases with the purchase
prices allocated among the assets acquired and liabilities assumed based on
their estimated fair market values. The purchase price of the Pending
Acquisitions is estimated to be $47.4 million. The cash portion of this purchase
price is estimated to be $41.9 million and is expected to be funded through a
financing transaction.
DESCRIPTION OF BUSINESS
American Architectural Products Corporation is a leading manufacturer
and distributor of a broadly diversified line of windows, doors and related
products (collectively, "fenestration products") designed to meet a variety of
consumer demands in both the new construction and replacement and remodeling
markets for both residential and commercial uses. The Company has been formed
through the consolidation of a number of well-established fenestration
companies, with varying manufacturing histories dating back to 1946.
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The Company's strategy is to continue to increase its market share and
geographic and product diversity through aggressive pursuit of strategic
acquisitions of complementary companies. The Company distributes its products
regionally throughout the United States under a number of well-established brand
names that are recognized for their quality, value engineering and customer
service, including "Eagle", "Taylor", "Perma-Door", "Modern-View", "Season-All
Commercial", "Sumiglass", "Vinyline", "VinylSource", "Arlington", "Excel",
"Binnings", "Danvid", "Western", "Encore" and "Weather-Seal". This brand name
recognition and reputation have enabled the Company to establish long-lasting
relationships with leading wholesalers, lumberyards, do-it-yourself home
centers, architects and building contractors.
DISTRIBUTION AND MARKETING
The Company uses multiple distribution channels and brand names to
maximize market penetration. The Company distributes its windows and doors
through (i) one-step distribution to major do-it-yourself home centers,
lumberyards and specialty window and door stores; (ii) two-step distribution to
wholesalers who resell to do-it-yourself home centers and lumberyards; and (iii)
direct sales to homebuilders, remodelers and contractors.
The Company markets its products on a national basis, in all 48
contiguous states, through a sales force consisting of salaried and commissioned
sales representatives. Divisional sales managers coordinate the marketing
activities of the sales representatives. The sales representatives concentrate
on serving the Company's one-step, two-step, and direct sales functions with
marketing, sales and service support.
PRODUCTS
The Company's multiple product lines can generally be separated into
the following product categories: (i) aluminum windows and doors; (ii) wood
windows and doors; (iii) vinyl windows and doors; (iv) steel entry doors; (v)
aluminum and vinyl extrusions and insulated glass; and (vi) other fenestration
products.
Aluminum Windows and Doors. The Company produces aluminum windows,
including single/double hung, horizontal rolling, fixed light and specialty
windows, at its Binnings and Danvid facilities. In addition, Western
manufactures a full line of aluminum products designed for the luxury home
market in Arizona, California and Nevada. Western's aluminum products include
horizontal rolling windows, casement windows, arched configurations, window
wall systems and sliding glass doors. Forte manufactures aluminum double-hung
windows, projection windows and casement windows at its Youngstown, Ohio plant,
which are primarily targeted for use in office buildings, schools and other
non-residential buildings in the upper Midwest and mid-Atlantic states.
Wood Windows and Doors. Eagle manufactures a full line of wood windows
and doors, including aluminum-clad windows and doors, its primary product line.
The Company's wood windows are preservative treated to withstand harsh weather
conditions and are targeted at the higher priced segment of the residential
window market. Eagle's products, which include casement and double hung windows,
picture windows and geometrically shaped windows, are generally purchased for
use in custom residential construction and renovation and for use in certain
commercial applications. The customer has the option of selecting from stained,
primed, painted or unfinished interior surfaces and from a number of
pre-finished exterior surfaces, certain of which are resistant to ultraviolet
(UV) ray degradation and salt spray. Eagle also produces wood patio doors and
French doors for use in high-end custom residential new construction and
renovation. Weather-Seal produces two types of exterior-clad wood windows. The
"Cierra Grande" line is clad with pre-finished extruded aluminum and the wood
interior is available unfinished or primed. Additionally, the Company has
developed a new line of vinyl/wood composite windows which are marketed under
the trade name "Arlington".
Vinyl Windows and Doors. Thermetic and Modern manufacture vinyl
replacement windows sold under the trade name "Vinyline" and vinyl windows and
doors for use in new construction under the trade name "Modern-View". Vinyl
windows manufactured by Binnings are sold throughout the Southeast as less
expensive alternatives to wood
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windows. Danvid also manufactures vinyl windows that are sold primarily in the
Southern and Southwestern U.S. Weather-Seal manufactures vinyl single-hung
windows for the new construction market as well as three lines of double-hung
windows, two targeted for the replacement and remodeling market under the trade
names "Excel" and "Nu-Sash" and one targeted for the new construction market
under the trade name "Astoria Pro". The Company's business strategy includes
continued emphasis on expanding its vinyl fenestration products business through
acquisitions and through internal growth.
Steel Entry Doors. Taylor designs and manufactures a complete line of
steel entry doors and advanced steel patio door systems. These products are sold
under the trade names "Taylor" and "Perma-Door". The Company also manufactures
and markets insulated steel garage door panels under the trade names "Encore"
and "Taylor".
Aluminum and Vinyl Extrusions and Insulated Glass. The Company produces
aluminum extrusions at the Aventura, Florida location of Binnings and the
Boardman and Norton locations of Weather-Seal and produces vinyl extrusions at
VinylSource. This business supplies a portion of the raw materials used in the
manufacture of windows by the Company. The Company believes that this in-house
extrusion capacity provides it with a low-cost, reliable source for component
raw materials and reduces working capital requirements. Weather-Seal produces
insulated glass units under a licensing agreement, using two fully automated
"Intercept" insulated glass manufacturing lines. All of the insulated glass
produced is used in the manufacture of other products.
Other Fenestration Products. The Company's other fenestration products
include security screens and security screen doors, aluminum storm windows and
storm doors and decorative glass lites. One of Forte's key products is a
unitized security screen and window combination, designed to be functional and
aesthetically pleasing, which it markets to schools, institutions and other
office buildings. American Glassmith designs, manufactures and assembles
decorative glass lites for a variety of residential applications, including
windows, doors, transoms, cabinets, and sidelites. The decorative glass lites
are primarily distributed in the northern United States. American Glassmith also
manufactures laminated glass which is sold under the Sumiglass trademark.
Sumiglass products are distributed nationally and are used in a variety of
applications, including doors, windows, sidelites, room partitions, office
dividers, skylights and glass handrails.
The Company's operating subsidiaries currently market their products
primarily in the continental United States. Although currently not significant,
the Company plans to explore opportunities to increase exports of products. The
Company as a consolidated unit is not dependent on any single customer or small
group of customers and does not expect to derive a substantial portion of its
sales from such customers.
SEGMENTS
The Company operates in three separate segments. Residential
fenestration products includes a variety of window and door products
manufactured for uses in homes and light commercial businesses. These products
consist of a full line of aluminum, vinyl, wood and aluminum-clad wood windows
and doors. Commercial fenestration products consist of aluminum windows and
doors manufactured for uses in large commercial buildings such as schools,
dormitories, hospitals, institutions, municipal buildings and military
buildings. Extrusion products consist of aluminum and vinyl extrusions used
primarily in the fenestration products industry.
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ITEM 2. PROPERTIES
The Company's principal manufacturing facilities and administrative
offices are located at the following sites:
PRODUCTS
OWNED/ MANUFACTURED/
LOCATION SIZE (FT 2) LEASED SERVICES PERFORMED
-------- ----------- ------ ------------------
Eagle
Dubuque, Iowa 320,000 Owned Wood windows and
doors and aluminum-
clad windows and
doors; administration
Taylor
West Branch, Michigan 210,000 Owned Custom insulated
steel entry
systems, steel
garage doors and
vinyl-clad doors;
administration
Forte
Youngstown, Ohio 156,000 Owned Aluminum windows and
security windows,
screens and doors;
administration
Western
Phoenix, Arizona 46,600 Leased Custom aluminum
windows and doors;
administration
Corporate Headquarters
Boardman, Ohio 6,400 Leased Executive offices;
administration
Thermetic
Toluca, Illinois 70,000 Owned Vinyl windows and
doors; administration
Danvid
Carrollton, Texas 169,000 Leased Aluminum windows
and doors; vinyl
windows;
administration
Binnings
Lexington, North Carolina 268,000 Owned Vinyl windows,
aluminum windows
and storm windows
and doors;
administration
Binnings
Aventura, Florida 158,000 Owned Aluminum windows;
patio doors;
aluminum extrusions;
distribution
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PRODUCTS
OWNED/ MANUFACTURED/
LOCATION SIZE (FT 2) LEASED SERVICES PERFORMED
-------- ----------- ------ ------------------
American Glassmith
Columbus, Ohio 60,000 Leased Decorative glass
lites and laminated
glass products;
administration
VinylSource
Austintown, Ohio 163,000 Leased Vinyl window and door
profiles; vinyl
extrusions;
administration
Weather-Seal
Barberton, Ohio 36,000 Owned Administration
Weather-Seal
Ottawa, Ohio 325,000 Owned Wood windows and
doors; warehouse
Weather-Seal
Norton, Ohio 150,000 Owned Aluminum extrusion;
painting and
fabrication
Weather-Seal
Boardman, Ohio 110,000 Owned Aluminum extrusion;
anodizing and
fabrication
Weather-Seal
Orrville, Ohio 96,000 Owned Vinyl windows;
administration
Weather-Seal
Orrville, Ohio 52,000 Owned Insulated glass
manufacturing
Weather-Seal
Orrville, Ohio 5,200 Owned Truck repair
Weather-Seal
Barberton, Ohio 34,000 Owned Vinyl extrusion
Weather-Seal
Winesburg, Ohio 110,000 Owned Vinyl windows and
------- doors
TOTAL 2,545,200
=========
The Company also operates eleven distribution centers in Florida and
one each in California, Colorado, Iowa and Michigan. Management believes the
Company's manufacturing, distribution and administrative facilities are
sufficient to meet its current needs.
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ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending or, to the knowledge of the
Company, threatened legal proceedings that it believes will have a material
impact on the Company's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of its security holders
during the fourth quarter of the fiscal year covered by this report.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS' MATTERS
The shares of common stock of the Company are not listed on any
exchange. The following table represents the range of high and low bid prices
for each quarter commencing January 1, 1996 through February 28, 1999 as
reported by the OTC Electronic Bulletin Board market. These quotations reflect
interdealer prices, without retail mark up, mark down or commission and may not
necessarily represent actual transactions.
PERIOD HIGH LOW
------ ---- ---
1996
1st Quarter $1.900 $0.310
2nd Quarter 1.560 0.310
3rd Quarter 8.750 0.660
4th Quarter 5.310 0.438
1997
1st Quarter $7.500 $3.430
2nd Quarter 5.750 5.310
3rd Quarter 3.875 2.438
4th Quarter 4.125 2.500
1998
1st Quarter $4.625 $2.750
2nd Quarter 5.750 3.750
3rd Quarter 7.625 3.813
4th Quarter 4.938 2.125
1999
1st Quarter (through February 28, 1999) $4.000 $2.063
The per share amounts above reflect a 1 for 10 reverse stock split
which was approved by the Company's Board of Directors in April 1997. There were
approximately 440 holders of record of the common shares of the Company as of
December 31, 1998. The Company has never paid dividends on its outstanding
common shares. The current Board of Directors of the Company does not presently
intend to implement a policy regarding the payment of regular cash dividends on
the common shares and it is unlikely that dividends will be paid on the common
shares in the immediate future. The Board of Directors will review this policy
from time to time depending on the financial condition of the Company and other
factors that the Board of Directors may consider appropriate in the
circumstances. In addition, the ability of the Company to pay dividends is
limited by the terms of the Company's bank credit facility and the Indenture
dated December 10, 1997 to which the Company and its subsidiaries are parties.
As of December 31, 1998, options and warrants to purchase a total of 2,669,494
shares of the Company's common stock were outstanding, including options issued
to AAP Holdings, Inc. (AAPH) to purchase up to 707,655 shares.
During 1998, the Board of Directors agreed to extend the expiration
date of various options and warrants to acquire Common Stock which are
beneficailly owned by certain directors and executive officers of the Company.
See "Item 13 - Certain Relationships and Related Transactions." Other than the
extended expiration date, all terms and conditions of these options and warrants
remained unchanged. The Company did not receive cash proceeds in connection with
any such extension. The beneficial owners of all such options and warrants are
executive officers or directors of the Company whom the Company believes
acquired such options and/or warrants for investment purposes and not with a
view to the distribution thereof or the distribution of the underlying
securities. To the extent the extension of any such options or warrants
constitutes an issuance of new securities under the Securities Act of 1933, as
amended (the "Securities Act"), such issuance was deemed to be exempt from
registration under the Securities Act pursuant to the exemption from
registration set forth in Section 3(a)(9) and Section 4(2) thereof or pursuant
to the provisions of Regulation D promulgated thereunder.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference to
the Company's Annual Report to Shareholders and is filed as an exhibit to this
Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is incorporated by reference to
the Company's Annual Report to Shareholders and is filed as an exhibit to this
Report.
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ITEM 7(a). QUALITATIVE AND QUANTITATIVE DISCLOSURES REGARDING MARKET RISK
The information required by this item is incorporated by reference to
the Company's Annual Report to Shareholders and is filed as an exhibit to this
Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required for the Company by this item is incorporated
by reference to the Company's Annual Report to Shareholders and is filed as an
exhibit to this Report. Also, see Item 14 for additional financial statements
included in this filing.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
As reported on Form 8-K ( the "Form 8-K") dated February 17, 1997, the
Company engaged BDO Seidman, LLP as its independent auditors to replace the firm
of Semple & Cooper, LLP, which was dismissed at the same time. The decision to
change accountants was approved by the Board of Directors of the Company. The
reports of Semple & Cooper, LLP on the Company's financial statements for the
past two fiscal years did not contain an adverse opinion or a disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles.
In connection with the audits of the Company's financial statements for
each of the two fiscal years ended December 31, 1994 and 1995, and in subsequent
interim periods, there were no disagreements with Semple & Cooper, LLP on any
matters of accounting principles or practices, financial statement disclosure or
auditing scope or procedures which, if not resolved to the satisfaction of
Semple & Cooper, LLP, would have caused Semple & Cooper, LLP to make reference
to the matters in their report.
The Company requested Semple & Cooper, LLP to furnish it a letter
addressed to the Securities and Exchange Commission stating whether it agrees
with the above statement. Semple & Cooper, LLP furnished the Company with a copy
of a letter dated February 20, 1997 containing such a statement, which was filed
as Exhibit 1 to Amendment No. 1 to the Company's current Report on Form 8-K
dated February 17, 1997.
As reported on Form 8-K dated December 23, 1998, BDO Seidman, LLP
resigned as the independent auditors of the Company. At the same time, the
Company engaged Ernst & Young LLP. The change in accountants was approved by the
Board of Directors of the Company. The reports of BDO Seidman, LLP on the
Company's financial statements for the past two fiscal years did not contain an
adverse opinion or a disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope or accounting principles.
In connection with the audits of the Company's financial statements for
each of the two fiscal years ended December 31, 1996 and 1997, and in subsequent
interim periods, there were no disagreements with BDO Seidman, LLP on any
matters of accounting principles or practices, financial statement disclosure or
auditing scope or procedures which, if not resolved to the satisfaction of BDO
Seidman, LLP, would have caused BDO Seidman, LLP to make reference to the
matters in their report.
The Company requested BDO Seidman, LLP to furnish it a letter addressed
to the Securities and Exchange Commission stating whether it agrees with the
above statement. BDO Seidman, LLP furnished the Company with a copy of a letter
dated December 22, 1998 containing such a statement, which was filed as Exhibit
1 to Amendment No. 1 to the Company's current Report on Form 8-K dated December
23, 1998.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, ages (as of December 31,
1998) and positions of directors and executive officers of the Company. The
Board of Directors of the Company currently consists of eight (8) members and
one vacancy. Directors hold office until the earlier of their resignation or
their successors have been duly elected and qualified. Officers are chosen by
and serve at the discretion of the Board of Directors. A summary of the
background and experience of each of these individuals is set forth after the
table.
NAME AGE POSITION
---- --- --------
George S. Hofmeister 47 Chairman of the Board
Frank J. Amedia 46 President, Chief Executive Officer and Director
Joseph Dominijanni 42 Director and Treasurer
Richard L. Kovach 36 Vice President and Chief Financial Officer
David J. McKelvey 46 Vice President -- Development
Jeffrey V. Miller 52 Vice President -- Operations
Donald E. Lambrix Jr. 57 Vice President -- Manufacturing
J. Larry Powell 56 Vice President -- Sales & Marketing
Jonathan K. Schoenike 38 General Counsel & Secretary
John J. Cafaro 47 Director
W.R. Jackson, Jr. 65 Director
Joseph C. Lawyer 53 Director
John Masternick 73 Director
Charles E. Trebilcock 72 Director
George S. Hofmeister has served as Chairman of the Board since December
1996. Mr. Hofmeister has served as Chief Executive Officer and Chairman of the
Board of American Commercial Holdings, Inc. ("ACH"), the parent company of AAPH,
since January 1996 and continues to serve in such roles. Mr. Hofmeister also
continues to serve as Vice Chairman of AP Automotive Systems, Inc. a
manufacturer of automobile exhaust systems. Mr. Hofmeister has held that
position since February 1996. From June 1991 until December 1995, Mr. Hofmeister
served as Chief Executive Officer and Chairman of the Board of EWI, Inc., a
manufacturer of automotive metal stampings.
Frank J. Amedia joined the Company's Board of Directors in June 1994
following the acquisition of Forte, Inc. by the Company, and has served as its
President and Chief Executive Officer since that date. From June 1994 until
December 1996, Mr. Amedia also served as the Chairman of the Board of Directors
of the Company. Prior to joining the Company, Mr. Amedia was President and Chief
Executive Officer of Forte, which he founded in 1989 in Youngstown, Ohio as a
welded aluminum security screen and storm door fabricator. Forte's products were
distributed through a manufacturers' representative distribution business
established by Mr. Amedia in 1986. Prior to founding the manufacturers'
representative business, Mr. Amedia served in various capacities for the
Youngstown Metropolitan Housing Authority.
Joseph Dominijanni has served as the Company's Treasurer since December
1996. Mr. Dominijanni has also served as the Vice President -- Finance of ETC
since its inception in June 1996. Mr. Dominijanni also currently serves as
Vice President -- Finance of ACH, the parent corporation of AAPH, and American
Commercial Industries, Inc., ("ACI"), which is principally engaged in the
manufacturing of automotive components. Mr. Dominijanni joined ACH and ACI in
May 1996. Mr. Dominijanni served as Vice President -- Finance of EWI, Inc. a
manufacturer of automotive metal stampings, from June 1991 until April 1996.
Prior to 1990, Mr. Dominijanni was with the accounting firm of Price Waterhouse.
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Richard L. Kovach joined the Company in January 1997 as its Vice
President and Chief Financial Officer. From 1991 until joining the Company, Mr.
Kovach assisted clients with finance and operations management issues in the
Financial Advisory Services and Management Consulting practice of Ernst & Young
LLP, most recently as a Senior Manager. From 1988 until 1991, Mr. Kovach was
the Manager of Financial Planning at Ferro Corporation. Prior to joining
Ferro Corporation, Mr. Kovach was with Arthur Andersen & Co.'s Small Business
Group.
David J. McKelvey joined the Company as Vice President--Development in
August 1995 and also served as Secretary from December 1996 through November
1997. From 1992 to 1995, Mr. McKelvey was employed by The Cafaro Company, a
major domestic shopping mall developer engaged in the ownership, operation and
management of enclosed regional shopping centers, as Executive Regional Director
of Real Estate and or Executive Vice President of Administration and Development
Jeffrey V. Miller joined the Company in May 1997 as Vice President --
Operations. From 1995 to 1997, Mr. Miller served as President of the North
American Window Division of Gentek Building Products. From 1992 through 1994,
Mr. Miller was Director of Vinyl Operations for SNE Corporation, a division of
Ply Gem Industries. Mr. Miller was general manager of the New Construction
Window Division and Vice President of Technology and Corporate Development for
Chelsea Building Products from 1989 to 1992.
Donald E. Lambrix, Jr. was appointed the Company's Vice President --
Manufacturing in December 1996 after serving as Vice President of Operations for
the Company's Forte subsidiary since 1990. Mr. Lambrix previously served as Vice
President of a multiple facility fenestration products manufacturer.
J. Larry Powell, the Company's Vice President - Sales & Marketing,
joined the Company in October 1996. Mr. Powell co-founded Blackhawk
Architectural Products, a manufacturer of steel security screen and storm door
products, in 1992 and served on its Board of Directors and as its Vice President
until 1996. From 1987 to 1991, Mr. Powell served as Vice President -- Marketing
and Sales for Sugarcreek Window & Door. Mr. Powell has been employed in the
fenestration industry since the early 1970s, principally in the marketing of
residential and commercial steel and aluminum window products and doors. In
addition, Mr. Powell founded and developed a nationwide marketing representative
group that sells a full range of fenestration products.
Jonathan K. Schoenike joined the Company in August 1997 as General
Counsel and has served as Secretary since November 1997. Prior to joining the
Company, Mr. Schoenike served for over 5 years as Assistant Counsel for The
Cafaro Company.
John J. Cafaro joined the Board of Directors in December 1996. Mr.
Cafaro also serves as the Executive Vice President of The Cafaro Company and has
been a principal officer there for the past 20 years.
William R. Jackson, Jr. has served as a director of the Company since
December 1996. Mr. Jackson has also served since 1982 on the Board of Directors
of Pitt-Des Moines, Inc., a steel construction, engineering and metal products
manufacturer. Mr. Jackson was also President and Treasurer of Pitt-Des Moines,
Inc. from 1983-87.
Joseph C. Lawyer has been a member of the Board since April 1998. Mr.
Lawyer has served as President, Chief Executive Officer and Director of Chatwins
Group, Inc., a manufacturer of a broad range of fabricated and machined
industrial parts and products, since 1986. Prior to 1986, Mr. Lawyer served as
General Manager of the Specialty Steel Products Division of USX Corporation,
where he was employed for over 17 years. Mr. Lawyer has been a director of
Respironics, Inc., a company engaged in the design, manufacture and sale of home
and hospital respiratory medical products, since November 1994.
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John Masternick has been a director of the Company since June 1994. Mr.
Masternick is a practicing attorney in Girard, Ohio, and since prior to 1994
has been the Chairman of the Board of Directors of Omni Manor, Inc. and Windsor
House, Inc., owners and operators of skilled nursing and extended care
facilities in northeastern Ohio and western Pennsylvania.
Charles E. Trebilcock has been a director of the Company since June
1994. Since 1964, Mr. Trebilcock has served as Chairman of Liberty Industries,
Inc., an Ohio-based distributor of industrial lumber packaging products and
equipment. Mr. Trebilcock is also a partner in Kings Company, which is also a
distributor of industrial lumber packaging products and equipment.
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes all annual and long-term compensation
paid to the Company's Chief Executive Officer and the other most highly
compensated executive officers of the Company whose total annual salary and
bonus exceeded $100,000 during the fiscal year ending December 31, 1998
(collectively, the "Named Executive Officers") for services rendered in all
capacities to the Company and its subsidiaries during the fiscal years ended
December 31, 1998, 1997 and 1996.
Long Term
Compensation
---------------------
Annual Compensation (1) Awards (2)
--------------------------------------- --------------------- All
Securities Other
Name and Underlying Compensation ($)
Principal Position Year Salary Bonus Options/SARs (#) (3)
- ------------------------------------ -------- ----------- ------------ --------------------- ------------------
Frank J. Amedia 1998 350,000 329,990 50,000 6,258
President and 1997 266,807 250,000 100,000 --
Chief Executive Officer 1996 168,718 -- -- --
Jeffrey V. Miller 1998 143,750 15,000 55,000 5,000
Vice President- 1997 90,000 25,000 -- --
Operations
J. Larry Powell 1998 141,125 15,000 30,000 5,000
Vice President- 1997 114,167 25,000 25,000 --
Sales & Marketing
Richard L. Kovach 1998 138,750 15,000 30,000 3,369
Vice President and 1997 119,390 75,000 25,000 --
Chief Financial Officer
Jonathan K. Schoenike 1998 131,250 20,000 30,000 5,000
General Counsel 1997 35,245 10,000 25,000 --
(1) Other annual compensation to the Named Executive Officers did not exceed
$50,000 or 10% of total annual salary and bonus during any fiscal year.
(2) Represents awards of options to purchase shares of common stock under the
1996 Stock Option Plan.
(3) Amounts include Company matching contribution under the 401(k) plan for all
officers (in an amount equal to 50% of the officers contribution) and
$1,258 for insurance premiums paid by the Company for Mr. Amedia.
BOARD OF DIRECTORS' REPORT ON REPRICING OF OPTIONS
The Board of Directors believes that the value of AAPC is necessarily
dependent upon its ability to attract and retain qualified and competent
employees. The 1996 Stock Option Plan was expressly established to provide an
incentive to attract and retain quality officers and employees. In February
1998, the Board of Directors concluded that the value of some of the stock
options previously granted to key employees under the 1996 Stock Option Plan had
eroded to
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such an extent that the intended incentive to these employees had failed. As a
result, the Board of Directors concluded that it would be in the best interest
of the Company, and the best interest of the shareholders of the Company, to
regrant such options with an exercise price that reflected the market price of
the common stock at that time. The Board of Directors believes that by repricing
the options previously granted under the 1996 Stock Option Plan, we have
restored the incentive for these key employees. In each case, we granted options
in replacement of previously granted options at an exercise price equal to the
market price of the underlying common stock on the grant date. The number of
shares subject to exercise, the vesting periods and the other terms remain
unchanged by the replacement options.
Submitted by the Board of Directors
February 25, 1998
George S. Hofmeister, Chairman
Frank J. Amedia
Joseph Dominijanni
John J. Cafaro
W.R. Jackson, Jr.
Joseph C. Lawyer
John Masternick
Charles E. Trebilcock
The following table sets forth information concerning repricing of stock options
during the period beginning when AAPC first became a reporting company under the
Exchange Act and continuing through December 31, 1998.
10-YEAR OPTION/SAR REPRICINGS
Length of
Number of Original
Securities Market Price Option Term
Underlying of Stock at Exercise Remaining at
Options Time of Price at Time New Date of
Repriced or Repricing or of Repricing Exercise Repricing or
Name Date Amended Amendment or Amendment Price Amendment
- ----------------------------------- ----------- --------------- -------------- --------------- ------------- ---------------
Frank J. Amedia 2/25/98 100,000 $3.56 $6.19 $3.92(1) 108 months
Richard L. Kovach 2/25/98 25,000 $3.56 $5.63 $3.56 108 months
Donald E. Lambrix, Jr. 2/25/98 25,000 $3.56 $5.63 $3.56 108 months
David J. McKelvey 2/25/98 25,000 $3.56 $5.63 $3.56 108 months
J. Larry Powell 2/25/98 25,000 $3.56 $5.63 $3.56 108 months
(1) Options granted at 110% of market price.
OPTION GRANTS
No stock options, stock appreciation rights or restricted stock awards
were granted as compensation to any officers, directors or employees of the
Company or its subsidiaries during the period from June 19, 1996 (date of
inception) through December 31, 1996. The Company entered into definitive stock
option agreements with Mr. Amedia and Mr. Masternick dated December 18, 1996,
memorializing the terms of stock options granted to them in 1994 as shareholders
of Forte, Inc. in connection with the acquisition by the Company of Forte, Inc.
The Company issued options to purchase up to 424,000 and 857,500 shares of
common stock to various officers, directors and employees of the Company or its
subsidiaries during the fiscal years ended December 31, 1997 and 1998,
respectively. The following table sets forth certain information concerning
individual grants of stock options to each of the Named Executive Officers
during the year ended December 31, 1998.
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OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE
PERCENT ----------------- VALUE AT ASSUMED
NUMBER OF OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS/SARS STOCK PRICE
UNDERLYING GRANTED TO EXERCISE OR APPRECIATION
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION FOR OPTION TERM
NAME GRANTED(#) FISCAL YEAR ($/SH)(1) DATE 5%($) 10%($)
---- ---------- ------------ ------ ---- ----- ------
Frank J. Amedia 50,000 6% 3.92 2/28/08 54,000 120,000
Jeffrey V. Miller 40,000 5% 3.56 2/28/08 90,000 227,000
15,000 2% 3.88 7/23/08 37,000 93,000
J. Larry Powell 15,000 2% 3.56 2/28/08 34,000 85,000
15,000 2% 3.88 7/23/08 37,000 93,000
Richard L. Kovach 15,000 2% 3.56 2/28/08 34,000 85,000
15,000 2% 3.88 7/23/08 37,000 93,000
Jonathan K. Schoenike 15,000 2% 3.56 2/28/08 34,000 85,000
15,000 2% 3.88 7/23/08 37,000 93,000
(1) Represents market price at date of grant, except for Mr. Amedia, whose
options are granted at 110% of the market price at date of grant.
The following table sets forth certain information concerning each
exercise of stock options during the year ended December 31, 1998 by each of the
Named Executive Officers and the aggregated fiscal year-end value of the
unexercised options of each Named Executive Officer.
AGGREGATED OPTION EXERCISES IN FISCAL 1998 AND
OPTION VALUE AS OF DECEMBER 31, 1998
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS OPTIONS/SARS AT
ACQUIRED ON VALUE AT FISCAL YEAR END(#) FISCAL YEAR END($)(1)
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
Frank J. Amedia 0 0 446,244 130,000 0 0
Jeffrey V. Miller 0 0 0 55,000 0 0
J. Larry Powell 0 0 5,000 50,000 0 0
Richard L. Kovach 0 0 5,000 50,000 0 0
Jonathan K. Schoenike 0 0 5,000 50,000 0 0
(1) Based on the average of reported bid and asked prices for the Common Stock
on December 31, 1998.
EMPLOYMENT AGREEMENTS
On November 17, 1997, the Company entered into an employment agreement
with Frank J. Amedia for services as President and Chief Executive Officer. This
agreement requires Mr. Amedia to devote his full time to the Company during
normal business hours in exchange for a base annual salary of $350,000, subject
to annual increases at the discretion of the Board of Directors. In addition,
Mr. Amedia is entitled to receive bonuses at the discretion of the Board of
Directors in accordance with the Company's bonus plans in effect from time to
time, and the Company will pay certain life and disability insurance premiums on
behalf of Mr. Amedia. The agreement has an initial three-year term and provides
that Mr. Amedia may not compete with the Company anywhere in the United States
while he is employed by the Company and for a two-year period following the
termination of Mr. Amedia's employment. In addition, the Board of Directors has
approved the payment to Mr. Amedia of a bonus equal to 0.39% of the total
consideration paid by the Company for each acquisition transaction consummated
during 1998. The amount of this bonus paid in 1998 was $230,000. In December
1998, the Board of Directors increased this acquisition bonus percentage to
0.56% of total consideration paid for acquisitions completed in 1999.
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In addition, in 1998 the Company entered into employment agreements
with Jonathan K. Schoenike, J. Larry Powell, Richard L. Kovach and Jeffrey V.
Miller for services as General Counsel, Vice President - Sales & Marketing, Vice
President - Chief Financial Officer and Vice President - Operations,
respectively. The agreements require Messrs. Schoenike, Powell, Kovach and
Miller to devote their full time to the Company in exchange for annual base
salaries of $160,000, $159,500, $160,000 and $160,000, respectively, subject to
annual increases. In addition, Messrs. Schoenike, Powell, Kovach and Miller
are entitled to receive bonuses at the discretion of the Board of Directors in
accordance with the Company's bonus plans in effect from time to time, and the
Company will pay certain life insurance premiums and other benefits. The
agreements have an initial three-year term. The Company has also entered into
employment agreements with certain other officers and key employees.
EMPLOYEE STOCK OPTION PLANS
1992 Incentive Stock Option Plan. In May 1992, the Board of Directors
of the Company adopted an Employee Incentive Stock Option Plan (the "Option
Plan"). Options to purchase an aggregate of up to 500,000 shares of the
Company's common stock are authorized under the Option Plan. Options granted
under the Option Plan have a maximum duration of ten years from the date of
grant.
1996 Stock Option Plan. The Company's 1996 Stock Option Plan (the "1996
Plan"), which was approved by the shareholders of the Company, authorizes the
Board to grant options to Directors and employees of the Company to purchase in
the aggregate an amount of shares of common stock equal to 10% of the shares of
common stock issued and outstanding from time to time, but which aggregate
amount shall in no event exceed 10,000,000 shares of common stock. On July 23,
1998, the Board of Directors approved an increase in the number of shares
issuable under the 1996 Plan to 15% of the shares of Common Stock issued and
outstanding, which is being submitted for shareholder approval at the Company's
1999 Annual Meeting. Directors, officers and other employees of the Company who,
in the opinion of the Board of Directors, are responsible for the continued
growth and development and the financial success of the Company are eligible to
be granted options under the 1996 Plan. Options may be nonqualified options,
incentive stock options, or any combination of the foregoing. In general,
options granted under the 1996 Plan are not transferable and expire ten (10)
years after the date of grant. The per share exercise price of an incentive
stock option granted under the 1996 Plan may not be less than the fair market
value of the common stock on the date of grant. Incentive stock options granted
to persons who have voting control over 10% or more of the Company's common
stock are granted at 110% of the fair market value of the underlying shares on
the date of grant and expire five years after the date of grant. No option may
be granted after December 19, 2006.
The 1996 Plan provides the Board of Directors with the discretion to
determine when options granted thereunder will become exercisable. Generally,
such options may be exercised after a period of time specified by the Board of
Directors at any time prior to expiration, so long as the optionee remains
employed by the Company. No option granted under the 1996 Plan is transferable
by the optionee other than by will or the laws of descent and distribution, and
each option is exercisable during the lifetime of the optionee only by the
optionee.
As of December 31, 1998, options to purchase a total of 2,584,425
shares of the Company's common stock were outstanding, including options to
purchase 707,655 shares issued to AAP Holdings, Inc. on December 18, 1996, with
an exercise price of $3.75 per share, options to purchase 471,770 shares issued
to Mr. Amedia and Mr. Masternick (issued in connection with the acquisition of
Forte, Inc.) with an exercise price of $3.75 per share, options issued pursuant
to the Company's stock option plans described above and other options issued
outside of the described stock option plans.
EMPLOYEE STOCK PURCHASE PLAN
On February 26, 1998, the Board of Directors adopted the 1998 Employee
Stock Purchase Plan (the "1998 Purchase Plan") and reserved 1,200,000 shares of
common stock for issuance thereunder. At the Company's annual meeting, the 1998
Purchase Plan was approved by the stockholders. In general, the 1998 Purchase
Plan is designed to encourage common stock ownership by the Company's employees
through payroll deductions. If qualified in accordance with Section 423 of the
Code, the 1998 Purchase Plan will enable the Company to sell shares of common
stock to its employees at a price discount of up to 15% of market price, applied
to the lower of the price of the common stock at the beginning or end of the
option period.
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401(k) PLAN
Eligible employees of the Company may direct that a portion of their
compensation, up to a legally established maximum, be withheld by the Company
and contributed to a 401(k) plan. All 401(k) plan contributions are placed in a
trust fund to be invested by the 401(k) plan's trustee, except that the 401(k)
plan permits participants to direct the investment of their account balances
among mutual or investment funds available under the Plan. The 401(k) plan
provides a matching contribution of 50% of a participant's contributions up to a
maximum of seven percent of the participant's annual salary. Amounts contributed
to participant accounts under the 401(k) plan and any earnings or interest
accrued on the participant accounts are generally not subject to federal income
tax until distributed to the participant and may not be withdrawn until death,
retirement or termination of employment.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Audit Committee, which is comprised of William R.
Jackson, Jr., Charles E. Trebilcock and Joseph Dominijanni, is responsible for
reviewing and making recommendations regarding the Company's employment of
independent auditors, the annual audit of the Company's financial statements and
the Company's internal accounting controls, practices and policies. The Audit
Committee met twice during the year.
The Compensation Committee did not meet during the year. The Company's
Compensation Committee is responsible for making recommendations to the Board of
Directors regarding compensation arrangements for executive officers of the
Company, including annual bonus compensation, and consults with management of
the Company regarding compensation policies and practices. The Compensation
Committee also makes recommendations concerning the adoption of any compensation
plans in which management is eligible to participate, including the granting of
stock options and other benefits under such plans. The Compensation Committee is
comprised of George S. Hofmeister, Frank J. Amedia, and John Masternick.
Since the Compensation Committee did not meet during 1998, the entire
Board of Directors performed the functions of this committee. The Board of
Directors considered the input of the Chief Executive Officer in making
executive officer compensation determinations. The Chief Executive Officer made
recommendations to the entire Board of Directors as to compensation levels for
all of the Company's executive officers. The entire Board of Directors, with
the exception of Mr. Amedia who is also an executive officer, then considered
and discussed these recommendations and made compensation determinations for
all executive officers. None of the Company's executive officers, including Mr.
Amedia, participated in the Board of Director's discussion of executive officer
compensation.
DIRECTORS' TERMS AND COMPENSATION
The Company's Board of Directors is currently comprised of eight
members, and one additional Board position which is currently vacant. Each
Director is elected for a period of one year at the Company's annual meeting of
shareholders and serves until the earlier of his or her resignation or until his
or her successor is duly elected and qualified. During the fiscal year ended
December 31, 1998, the Board of Directors of the Company met nine times. All
other actions taken by the Board of Directors during the fiscal year ended
December 31, 1998 were accomplished by means of unanimous written consent.
During the period in which they served as directors, Messrs. Cafaro and Lawyer
attended fewer than 75% of the meetings of the Board of Directors. All other
Directors attended 75% or more of the meetings of the Board of Directors and of
the meetings held by committees of the Board on which they served.
During the fiscal year ended December 31, 1998, members of the Board of
Directors who were not employees of the Company or of ACH or its affiliates
("non-employee directors") received a fee of $1,000 for each meeting of the
Board of Directors attended in person and were reimbursed for expenses incurred
in connection with their attendance at meetings of the Board. Pursuant to a
resolution of the Board, each non-employee director serving on December 31, 1998
who attended at least four of the regularly scheduled meetings of the Board and
at least 75% of all meetings of the Board during 1998 was granted options to
purchase 2,000 shares of the Company's common stock at an exercise price equal
to the average of the reported closing bid and asked prices on the date of
grant, vesting in full upon issuance. Such options are exercisable for a period
of five years following the vesting date and were issued pursuant to the
Company's 1996 Stock Option Plan. For the fiscal year ending December 31, 1999,
each non-employee director of the Company will receive $1,000 for every Board
of Directors meeting attended and $500 for every committee meeting attended and
2,000 shares of the Company's common stock if the Director attends 75% of all
meetings of the Board.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of February 28,
1999, concerning the beneficial ownership of the Company's common stock by (i)
each beneficial owner of more than 5% of the Company's common stock, (ii) each
Director and Named Executive Officer of the Company, and (iii) all Directors and
Executive Officers of the Company as a group. To the knowledge of the Company,
all persons listed below have sole voting and investment power with respect to
their shares, except to the extent that authority is shared by their respective
spouses under applicable law.
SHARES
BENEFICIALLY OWNED
------------------
NAME OF BENEFICIAL OWNER(1) NUMBER PERCENT
- --------------------------- ------ -------
AAP Holdings, Inc. 7,548,633(2) 54.2%
George S. Hofmeister 7,551,133(3) 54.1%
Frank J. Amedia 3,429,326(4) 23.8%
Amedia Family Limited Partnership 1,500,000 10.8%
John Masternick 371,680(5) 2.7%
William R. Jackson, Jr. 73,287(6) *
Charles E. Trebilcock 40,513(7) *
Joseph Dominijanni 27,000(8) *
Joseph C. Lawyer 4,000 *
Richard L. Kovach 13,000(9) *
J. Larry Powell 23,412(9) *
Jeffrey V. Miller 8,000(10) *
Jonathan K. Schoenike 9,000(10) *
All directors and executive officers
of the Company as a group (15 persons) 11,576,351(11) 79.2%
* Less than 1%
(1) The address of AAP Holdings, Inc. and George S. Hofmeister is 6500
Brooktree Road, Suite 202, Wexford, Pennsylvania 15090. The address of all
other beneficial owners is c/o American Architectural Products Corporation,
755 Boardman-Canfield Road, Building G West, Boardman, Ohio 44512.
(2) Does not include 707,655 shares of common stock which are subject to
unexercised options that are exercisable only upon the occurrence of
certain contingencies.
(3) Includes shares of common stock held by AAP Holdings, Inc. George S.
Hofmeister, the Chairman of the Board of Directors of the Company, is the
controlling shareholder of the corporate parent of AAP Holdings, Inc.
(4) Includes 476,244 shares of common stock which are subject to unexercised
options that were exercisable on February 28, 1999 or within sixty days
thereafter. Also includes 1,500,000 shares of common stock owned by the
Amedia Family Limited Partnership, in which Mr. Amedia and his spouse are
the general partners and each holds 48% of the partnership interests.
(5) Includes 47,526 shares of common stock which are subject to unexercised
options that were exercisable on February 28, 1999 or within sixty days
thereafter.
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(6) Includes 57,143 shares of common stock which are subject to unexercised
warrants that were exercisable on February 28, 1999 or within sixty days
thereafter.
(7) Includes 13,513 shares of common stock owned individually and 25,000 shares
held by a custodian for the benefit of an individual retirement account of
Mr. Trebilcock. Also includes 2,000 shares of common stock which are
subject to unexercised options that were exercisable on February 28, 1999
or within sixty days thereafter.
(8) Includes 25,000 shares of common stock which are subject to unexercised
options that were exercisable on February 28, 1999 or within sixty days
thereafter.
(9) Includes 13,000 shares of common stock which are subject to unexercised
options that were exercisable on February 28, 1999 or within sixty days
thereafter.
(10) Includes 8,000 shares of common stock which are subject to unexercised
options that were exercisable on February 28, 1999 or within sixty days
thereafter.
(11) Includes 675,913 shares of common stock which are subject to unexercised
options and warrants that were exercisable on February 28, 1999 or within
sixty days thereafter as described above.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. George S. Hofmeister, Chairman of the Board of Directors of the
Company, is the controlling shareholder of the corporate parent of AAPH. The
Company has agreed to pay AAPH an acquisition consulting fee of 1.0% for 1997
and 1998, increased to 1.44% for 1999, of the transaction price of each
acquisition transaction consummated by the Company with respect to which AAPH or
its affiliates provides acquisition consulting services. For purposes of
calculating the acquisition fee, the transaction price means the aggregate
amount of consideration paid by the Company or its affiliates for the
acquisition in the form of cash, stock, stock options, warrants, debt
instruments and other assumed liabilities. Acquisition consulting fees in 1997
and 1998 approximated $835,000 and $590,000, respectively. In addition, the
Company paid AAPH fees of $821,000 and $345,000 for management and other
transaction services provided in 1997 and 1998, respectively. AAPH charges
the Company on an hourly basis at competitive rates based on time incurred. The
Company expects to continue to use these services charged at rates comparable
to prior rates.
The Company contracts for air charter services with a company
affiliated with AAPH and Mr. Amedia. The Company paid approximately $450,000 and
$530,000 to this company for air charter services in 1997 and 1998,
respectively. The Company pays for these services at rates comparable to those
charged to unaffiliated parties. The Company expects to continue to use these
services at levels similar to prior years.
In November 1990, the U.S. Small Business Administration loaned
$409,000 to Forte, Inc. (the "SBA Loan"). The SBA Loan was payable in monthly
installments and the final installment was scheduled to be due on January 1,
2001. Mr. Amedia and his wife were personally liable on the SBA Loan. As of
December 31, 1997, the balance owed on the SBA Loan were approximately $172,000.
The Company repaid this loan in January 1998.
The Company acquired all of the issued and outstanding common stock of
Forte from Frank Amedia and John Masternick on June 8, 1994, in exchange for
3,311,010 shares of the Company's common stock and options to acquire 475,770
shares of the Company's common stock. Through a series of extensions approved by
the Board of Directors, the options are currently scheduled to expire in
January 2000.
Pursuant to reorganization of the Company and AAP on December 18, 1996
(the "Reorganization") the Company issued 1,000,000 shares of Series A Preferred
Stock in exchange for all of the issued and outstanding stock of AAP. In April
1997, AAPH converted the Series A Preferred Stock pursuant to its terms into
7,548,633 shares of common stock of the Company. In addition, the Company issued
to AAPH options to purchase 879,834 shares of common stock, of which options to
purchase 172,179 shares have subsequently terminated. Through a series of
extension approved by the Board of Directors, these options are currently
scheduled to expire in January 2000. Such options are identical in price and
exercise terms to certain options held by Messrs. Amedia and Masternick and are
exercisable only upon the exercise of the options held by Mr. Amedia and Mr.
Masternick.
Profile Extrusion Company ("PEC") loaned the Company $92,537 on May 19,
1997 and an additional $5,203 on September 28, 1997. This combined indebtedness
had an interest rate of 15% per annum and was payable in full on or before
December 31, 1997. In connection therewith, the Company issued to PEC warrants
to purchase a total of 27,926 shares of common stock at an exercise price of
$3.50 per share, expiring on September 1, 1998. The Company repaid this loan on
December 10, 1997. PEC is a wholly-owned subsidiary of American Commercial
Holdings, Inc., of which George Hofmeister is the controlling shareholder. These
warrants were extended to and expired unexercised on January 15, 1999.
In June 1997, Mr. Amedia pledged 133,333 shares of common stock to
secure the repayment of a short-term debt incurred by the Company in the
original principal amount of $250,000. The Company agreed to issue shares of
common stock to Mr. Amedia to replace any shares as to which the lender
exercises its security interest. The Company repaid this loan on January 16,
1998.
In September 1997, William R. Jackson, Jr., a director of the Company,
loaned the Company $200,000. This indebtedness had an interest rate of 15% per
annum and was payable in full in December 1997. In connection therewith, the
Company issued to Mr. Jackson warrants to purchase a total of 57,143 shares of
common stock at an exercise price of $3.50 per share, expiring in September
1998. The Company repaid this loan on December 10, 1997. Through a series of
extensions in 1998, the warrants are currently scheduled to expire in January
2000.
In January 1998, the Company purchased substantially all of the assets
of Blackhawk Architectural Products (Blackhawk) for approximately $400,000. The
assets were purchased at their approximate book value, which approximated fair
value, as approved by the Board of Directors. J. Larry Powell, an officer of
the Company, co-founded and owned a 20% equity interest in Blackhawk at the
time of this transaction.
In March, 1998, the Company sold Mallyclad, a division of Eagle &
Taylor Company, to a company controlled by one of its shareholders for
approximately $1.1 million. The Company sold this division at its book value,
which approximated fair market value as approved by the Board of Directors,
therefore, no gain or loss was recognized on this transaction.
21
23
In July 1998, the Company sold windows in the amount of $160,000 to
Hughes O'Neill, a company owned by the wife of J. Larry Powell. These windows
were sold at normal market prices.
In October 1998, the Company entered into an operating lease at market
rates with a company affiliated with AAPH. Amounts paid under this lease were
$75,000 for the year ended December 31, 1998. The Company is committed to future
minimum lease payments of $225,000 in 1999 under this lease.
During the last quarter of 1998 and first quarter of 1999, the Company
sold, at cost, approximately $100,000 of windows to Mr. Hofmeister. This
transaction was approved by the Board of Directors.
22
24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The following financial statements of AAPC and the auditor's report
thereon, are included in the Financial Review section of AAPC's 1998 Annual
Report to Shareholders and are incorporated herein by reference:
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
Report of Independent Auditors
Consolidated Balance Sheets at December 31, 1997 and 1998
Consolidated Statements of Operations for the period from June 19, 1996 (date
of inception) to December 31, 1996 and the years ended
December 31, 1997 and 1998
Consolidated Statements of Stockholders' Equity for the period from
June 19, 1996 (date of inception) to December 31, 1996 and the years
ended December 31, 1997 and 1998
Consolidated Statements of Cash Flows for the period from June 19,
1996 (date of inception) to December 31, 1996 and the years ended
December 31, 1997 and 1998
Notes to Consolidated Financial Statements
The following financial statements of the Predecessors and
Weather-Seal (a division of Louisiana-Pacific Corporation) and the auditors'
reports thereon are included as a separate section of this Form 10-K:
EAGLE WINDOW AND DOOR, INC. AND SUBSIDIARIES AND TAYLOR BUILDING
PRODUCTS COMPANY
Independent Auditors' Report
Combined Balance Sheet at August 29, 1996
Combined Statement of Operations and Accumulated Deficit for the
eight months ended August 29, 1996
Combined Statement of Cash Flows for the eight months ended August 29, 1996
Notes to Combined Financial Statements
MALLYCLAD CORPORATION AND VYN-L CORPORATION
Report of Independent Certified Public Accountants
Combined Balance Sheet at June 30, 1996
Combined Statement of Operations and Retained Earnings
for the seven months ended June 30, 1996
Combined Statement of Cash Flows for the seven months ended June 30, 1996
Notes to Combined Financial Statements
WEATHER-SEAL (A DIVISION OF LOUISIANA-PACIFIC CORPORATION)
Report of Independent Auditors
Balance Sheet at June 12, 1998
Statement of Operations for the period from January 1, 1998 through
June 12, 1998
Statement of Cash Flows for the period from January 1, 1998 through
June 12, 1998
Notes to Financial Statements
(a)(2) FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statement schedules of AAPC
are included in a separate section of this Form 10-K:
23
25
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
All other financial statement schedules for AAPC and its predecessors
have been included in the consolidated financial statements or the related
footnotes, or they are either inapplicable or not required.
(a)(3) EXHIBITS
The exhibits are set forth on the Exhibit Index included herein.
(b) REPORTS ON FORM 8-K
The Company filed one report on Form 8-K during the fourth quarter of
1998. The current report, dated December 23,1998, reported the resignation of
BDO Seidman, LLP as the Company's independent auditors and the engagement of
Ernst & Young LLP.
24
26
EXHIBIT INDEX
2.1 Agreement and Plan of Merger, dated as of November 10, 1997,
by and among American Architectural Products Corporation,
BBPI Acquisition Corporation and Binnings Building Products,
Inc. D
2.2 Asset Purchase Agreement, dated as of November 10, 1997, by
and among DCI/DWC Acquisition Corporation, Danvid Company,
Inc. and Danvid Window Company. D
2.3 Shareholders Agreement in Support of Asset Purchase
Agreement, dated as of November 10, 1997, by and among
Daniel Crawford, Karen Crawford, David Crawford, Paul Comer
and DCI/DWC Acquisition Corporation. D
2.4 Asset Purchase Agreement, dated as of December 10, 1997, by
and among American Architectural Products Corporation,
American Glassmith Acquisition Corporation and American
Glassmith, Inc. D
2.5 Agreement, dated as of December 10, 1997, by and among
American Architectural Products Corporation, Modern Window
Acquisition Corporation and Modern Window Corporation. D
2.6 Agreement and Plan of Reorganization, dated October 25,
1996, between Forte Computer Easy, Inc. and AAP Holdings,
Inc. B
2.7 Share Purchase Agreement dated March 14, 1997 among Marcella
M. Egly Turner, as sole Trustee of the Egly Family Trust U/A
dated May 31, 1997, Western Insulated Glass, Co., Benny J.
Ellis and Forte Computer Easy, Inc. I
2.8 Asset Purchase Agreement, dated June 5, 1998, by and among,
Weather-Seal Acquisition Corporation and Louisiana-Pacific
Corporation. J
3.1 Certificate of Incorporation of American Architectural
Products Corporation. C
3.2 Bylaws of American Architectural Products Corporation. C
3.3 Certificate of Incorporation of American Glassmith
Acquisition Corporation. F
3.4 Bylaws of American Glassmith Acquisition Corporation. F
3.5 Amended and Restated Certificate of Incorporation of
Binnings Building Products, Inc. F
3.6 Bylaws of Binnings Building Products, Inc. F
3.7 Certificate of Incorporation of Danvid Window Company, as amended F
3.8 Bylaws of Danvid Window Company. F
3.9 Certificate of Incorporation of Eagle & Taylor Company, as
amended. F
3.10 Bylaws of Eagle & Taylor Company. F
3.11 Articles of Incorporation of Forte, Inc. F
3.12 Code of Regulations of Forte, Inc. F
3.13 Certificate of Incorporation of Modern Window Acquisition
Corporation. F
3.14 Bylaws of Modern Window Acquisition Corporation. F
3.15 Certificate of Incorporation of Thermetic Glass, Inc., as
amended. F
3.16 Bylaws of Thermetic Glass, Inc. F
3.17 Articles of Incorporation of Western Insulated Glass, Co. F
3.18 Bylaws of Western Insulated Glass, Co. F
3.19 Certificate of Incorporation of VinylSource, Inc., as amended. G
3.20 Bylaws of VinylSource, Inc. G
3.21 Certificate of Incorporation of AAPC One Acquisition Corporation. G
3.22 Bylaws of AAPC One Acquisition Corporation. G
3.23 Certificate of Incorporation of AAPC Two Acquisition Corporation. G
3.24 Bylaws of AAPC Two Acquisition Corporation. G
3.25 Certificate of Incorporation of Denver Window Acquisition
Corporation. G
3.26 Bylaws of Denver Window Acquisition Corporation. G
3.26 Certificate of Incorporation of Eagle Window & Door Center,
Inc., as amended. G
3.28 Bylaws of Eagle Window & Door Center, Inc. G
3.29 Certificate of Incorporation of Weather-Seal Acquisition
Corporation. G
25
27
3.30 Bylaws of Weather-Seal Acquisition Corporation. G
4.1 Form of American Architectural Products Corporation Common
Stock Certificate. E
4.2 Indenture dated as of December 10, 1997 with respect to
11 3/4% Senior Notes due 2007 among American Architectural
Products Corporation, as issuer, American Glassmith
Acquisition Corporation, BBPI Acquisition Corporation, DCI/DWC
Acquisition Corporation, Eagle & Taylor Company, Forte, Inc.,
Modern Window Acquisition Corporation, Thermetic Glass, Inc.,
and Western Insulated Glass, Co., as subsidiary guarantors,
and United States Trust Company of
New York, as trustee. D
4.3 Amendment No. 1, dated as of April 15, 1998, to the Indenture
dated as of December 10, 1997 with respect to 11 3/4% Senior
Notes due 2007. H
4.4 First Supplemental Indenture, dated as of April 15, 1998, by
and among American Architectural Products Corporation, Eagle &
Taylor Company. Forte, Inc., Western Insulated Glass, Co.,
Thermetic Glass, Inc., Binnings Buildings Products, Inc.,
Danvid Window Company, American Glassmith Acquisition
Corporation, Modern Window Acquisition Corporation,
VinylSource, Inc., AAPC One Acquisitions Corporation, AAPC Two
Acquisition Corporation, Eagle Window & Door Center, Inc.,
Weather-Seal Acquisition Corporation and United States Trust
Company of New
York. H
10.1 1992 Incentive Stock Option Plan. A
10.2 1996 Stock Option Plan. C
10.3 Employment Agreement, dated November 17, 1997, between Frank
J. Amedia and American Architectural Products
Corporation. F
10.3a Employment Agreement, dated September 30, 1998, between
Richard L. Kovach and American Architectural Products
Corporation. *
10.3b Employment Agreement, dated September 30,1998, between
Jeffrey V. Miller and American Architectural Products
Corporation. *
10.3c Employment Agreement, dated September 30, 1998, between J.
Larry Powell and American Architectural Products Corporation. *
10.3d Employment Agreement, dated September 30, 1998, between
Jonathan K. Schoenike and American Architectural Products
Corporation. *
10.4a Lease Agreement, dated December 1989, between Centre
Consolidated Properties, Ltd. and Danvid Company, Inc. F
10.4b Lease Extension Agreement to Industrial Lease Agreement
between Beltline Business Center Limited Partnership and
Danvid Company, Inc. F
10.6a Lease Agreement, dated November 28, 1990, between J.M.J.
Partnership and The New Edgehill Co, Inc. F
10.6b Lease Modification No. 1, dated October 19, 1992, between
J.M.J. Partnership and The American Glassmith, Inc., f/k/a
The New Edgehill Co., Inc. F
10.6c Lease Modification No. 2, dated June 8, 1993, between J.M.J.
Partnership and The American Glassmith, Inc. F
10.6d Lease Modification No. 3, dated January 31, 1995, between
J.M.J. Partnership and American Glassmith, Inc. F
10.6e Lease Modification No. 4, dated as of March 31, 1995,
between J.M.J. Partnership and American Glassmith, Inc. F
10.6f Lease Modification No. 5, dated as of August 31, 1995,
between J.M.J. Partnership and American Glassmith, Inc. F
10.6g Lease Modification No. 6, dated June 19, 1996, between
J.M.J. Partnership and American Glassmith, Inc. F
10.7 Lease Agreement, dated March 14, 1997, by and among Benny J.
Ellis and Linda M. Ellis and Western Insulated Glass,
Co. F
10.8 Purchase Agreement, dated as of December 4, 1997, by and
among American Architectural Products Corporation, NatWest
Capital Markets Limited and McDonald & Company Securities,
Inc. D
26
28
10.9 Exchange and Registration Rights Agreement, dated as of
December 10, 1997, by and among American Architectural
Products Corporation, American Glassmith Acquisition
Corporation, BBPI Acquisition Corporation, DCI/DWC Acquisition
Corporation, Eagle & Taylor Company, Forte, Inc., Modern
Window Acquisition Corporation, Thermetic Glass, Inc., Western
Insulated Glass, Co., NatWest Capital
Markets Limited and McDonald & Company Securities, Inc. D
10.10 Registration Rights Agreement, dated as of July 31, 1998, by
and between American Architectural Products Corporation and
Frank J. Amedia +
10.11 Registration Rights Agreement, dated as of July 31, 1998, by
and between American Architectural Products Corporation and
Miller Capital Group +
10.12 Credit Agreement, dated as of June 12, 1998, by and among
American Architectural Products Corporation, Eagle & Taylor
Company, Forte, Inc., Western Insulated Glass, Co. Thermetic
Glass, Inc., Binnings Building Products, Inc., Danvid Window
Company, Modern Window Acquisition Corporation, American
Glassmith Acquisition Corporation, Vinyl Source, Inc.
Weather-Seal Acquisition Corporation, Eagle Window & Door
Center, Inc., Denver Window Acquisition Corporation, AAPC One
Acquisition Corporation, AAPC Two Acquisition Corporation and
the Institutions from time to time party hereto as Lenders and
BankBoston, N.A. as Agent. K
10.12a Amendment No. 1 to Credit Agreement, dated as of September 15,
1998, by and among American Architectural Products
Corporation, Eagle & Taylor Company, Forte, Inc., Western
Insulated Glass, Co. Thermetic Glass, Inc., Binnings Building
Products, Inc., Danvid Window Company, Modern Window
Acquisition Corporation, American Glassmith Acquisition
Corporation, Vinyl Source, Inc. Weather-Seal Acquisition
Corporation, Eagle Window & Door Center, Inc., Denver Window
Acquisition Corporation, AAPC One Acquisition Corporation,
AAPC Two Acquisition Corporation and the Institutions from
time to time party hereto as Lenders and BankBoston, N.A.
as Agent. *
10.12b Amendment No. 2 to Credit Agreement, dated as of September 30,
1998, by and among American Architectural Products
Corporation, Eagle & Taylor Company, Forte, Inc., Western
Insulated Glass, Co. Thermetic Glass, Inc., Binnings Building
Products, Inc., Danvid Window Company, Modern Window
Acquisition Corporation, American Glassmith Acquisition
Corporation, Vinyl Source, Inc. Weather-Seal Acquisition
Corporation, Eagle Window & Door Center, Inc., Denver Window
Acquisition Corporation, AAPC One Acquisition Corporation,
AAPC Two Acquisition Corporation and the Institutions from
time to time party hereto as Lenders and BankBoston, N.A.
as Agent. L
10.12c Amendment No. 3 to Credit Agreement, dated as of December 31,
1998, by and among American Architectural Products
Corporation, Eagle & Taylor Company, Forte, Inc., Western
Insulated Glass, Co. Thermetic Glass, Inc., Binnings Building
Products, Inc., Danvid Window Company, Modern Window
Acquisition Corporation, American Glassmith Acqusition
Corporation, Vinyl Source, Inc. Weather-Seal Acquisition
Corporation, Eagle Window & Door Center, Inc., Denver Window
Acquisition Corporation, AAPC One Acquisition Corporation,
AAPC Two Acquisition Corporation and the Institutions from
time to time party hereto as Lenders and BankBoston, N.A. as
Agent. *
10.13 1998 Employee Stock Purchase Plan M
10.14 Subordinated Promissory Note, dated June 12, 1998 between
American Architectural Products Corporation and Louisiana-
Pacific Corporation *
10.14a Letter Agreement, dated February 16, 1999, between American
Architectural Products Corporation and Louisiana-Pacific
Corporation. *
13 Annual Report *
21 Subsidiaries of American Architectural Products Corporation *
23.1 Consent of Ernst & Young LLP *
23.2 Consent of BDO Seidman, LLP *
23.3 Consent of Semple & Cooper *
27 Financial Data Schedules *
* Filed herewith.
+ Previously filed.
A Incorporated by reference to Amendment No. 1 to the Company's Registration
Statement on Form 10-SB filed November 22, 1996.
B Incorporated by reference to the Company's Current Report on Form 8-K dated
October 25, 1996.
C Incorporated by reference to the Company's definitive Information Statement
relating to the special meeting of shareholders held on April 1, 1997.
D Incorporated by reference to the Company's Current Report on Form 8-K dated
December 10, 1997.
E Incorporated by reference to Amendment No. 2 to the Company's Registration
Statement on Form 10-SB filed April 17, 1997.
F Incorporated by reference to the Company's Registration Statement on Form
S-4 filed January 15, 1998.
G Incorporated by reference to Amendment No. 1 to the Company's Registration
Statement on Form S-4 filed April 7, 1998.
H Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1998 filed May 15, 1998.
I Incorporated by reference to the Company's Current Report on Form 8-K dated
March 31, 1997.
J Incorporated by reference to the Company's Current Report on Form 8-K dated
June 29, 1998.
K Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 1998, filed August 14, 1998.
L Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1998, filed November 16, 1998.
M Incorporated by reference to the Company's definitive Information Statement
relating to the Annual Shareholders Meeting held on April 30, 1998.
27
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMERICAN ARCHITECTURAL PRODUCTS CORP.
March 30, 1999 By: /s/ Frank J. Amedia
-------------------------------------
Frank J. Amedia
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report on Form 10-K has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
Chairman of the Board of Directors March 30, 1999
- ------------------------------------
George S. Hofmeister
/s/ Frank J. Amedia
- ------------------------------------ President (Principal Executive March 30, 1999
Frank J. Amedia Officer) and Director
/s/ Richard L. Kovach Chief Financial Officer (Principal March 30, 1999
- ------------------------------------
Richard L. Kovach Financial Officer)
/s/Joseph Dominijanni
- ------------------------------------ Treasurer and Director March 30, 1999
Joseph Dominijanni
/s/ John J. Cafaro
- ------------------------------------ Director March 30, 1999
John J. Cafaro
/s/ W. R. Jackson, Jr.
- ------------------------------------ Director March 30, 1999
W. R. Jackson, Jr.
/s/ Joseph C. Lawyer
- ------------------------------------ Director March 30, 1999
Joseph C. Lawyer
- ------------------------------------ Director March 30, 1999
John Masternick
/s/ Charles E. Trebilcock
- ------------------------------------ Director March 30, 1999
Charles E. Trebilcock
28
30
ITEM 8.
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
INDEX TO FINANCIAL STATEMENTS
PAGE
----
EAGLE WINDOW AND DOOR, INC. AND SUBSIDIARIES AND TAYLOR
BUILDING PRODUCTS COMPANY
Independent Auditors' Report F-2
Combined Balance Sheet at August 29, 1996 F-3
Combined Statement of Operations and Accumulated Deficit
for the eight months ended August 29, 1996 F-4
Combined Statement of Cash Flows for the eight months ended
August 29, 1996 F-5
Notes to Combined Financial Statements F-6
MALLYCLAD CORPORATION AND VYN-L CORPORATION
Report of Independent Certified Public Accountants F-11
Combined Balance Sheet at June 30, 1996 F-12
Combined Statement of Operations and Retained Earnings
for the seven months ended June 30, 1996 F-13
Combined Statement of Cash Flows for the seven months ended
June 30, 1996 F-14
Notes to Combined Financial Statements F-15
WEATHER-SEAL (A DIVISION OF LOUISIANA-PACIFIC CORPORATION)
Report of Independent Auditors F-18
Balance Sheet at June 12, 1998 F-19
Statement of Operations for the period from January 1, 1998 through
June 12, 1998 F-21
Statement of Cash Flows for the period from January 1, 1998 through
June 12, 1998 F-22
Notes to Financial Statements F-23
INDEX TO FINANCIAL STATEMENT SCHEDULES
PAGE
----
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
Report of Independent Certified Public Accountants S-1
Schedule II - Valuation and Qualifying Accounts S-2
EAGLE WINDOW AND DOOR, INC. AND SUBSIDIARIES AND TAYLOR
BUILDING PRODUCTS COMPANY
Report of Independent Public Accountants on Schedule II S-3
Schedule II - Valuation and Qualifying Accounts S-4
F-1
31
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Eagle Window & Door, Inc. and Subsidiaries and
Taylor Building Products Company (Wholly-Owned Subsidiaries)
We have audited the accompanying combined balance sheet of Eagle Window
& Door, Inc. and Subsidiaries and Taylor Building Products Company (Wholly-Owned
Subsidiaries), as of August 29, 1996, and the related combined statements of
operations and accumulated deficit, and cash flows for the eight months ended
August 29, 1996. These combined financial statements are the responsibility of
the Companies' management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined financial position of
Eagle Window & Door, Inc. and Subsidiaries and Taylor Building Products Company
(Wholly-Owned Subsidiaries) as of August 29, 1996, and the results of their
combined operations and cash flows for the eight months ended August 29, 1996 in
conformity with generally accepted accounting principles.
SEMPLE & COOPER, P.L.C.
Phoenix, Arizona
January 31, 1997
F-2
32
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (WHOLLY-OWNED SUBSIDIARIES)
COMBINED BALANCE SHEET
AUGUST 29,
1996
----
ASSETS
Current Assets:
Cash (Note 2) $ 395,859
Accounts receivable, net (Note 1) 7,736,517
Inventory (Notes 1 and 3) 8,483,224
Prepaids and other 314,240
-----------
Total Current Assets 16,929,840
-----------
Property, Plant and Equipment, Net (Notes 1 and 4) 6,966,340
-----------
Deposits and Other Assets 93,376
-----------
Total Assets $23,989,556
===========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current Liabilities:
Accounts payable $ 2,429,053
Accrued wages and payroll taxes 453,459
Payable to affiliates (Note 8) 19,441,656
Other accrued expenses 2,346,756
Accrued warranty reserve--short-term portion
(Note 7) 1,479,000
-----------
Total Current Liabilities 26,149,924
-----------
Long-Term Liabilities:
Accrued warranty reserve--long-term portion
(Note 7) 3,148,412
-----------
Commitments and Contingencies: (Note 5) --
Stockholder's Deficit: (Note 6)
Common stock 211,851
Additional paid-in capital 27,224,456
Accumulated deficit (32,745,087)
-----------
Total Stockholder's Deficit (5,308,780)
-----------
Total Liabilities and Stockholder's Deficit $23,989,556
===========
The accompanying notes are an integral part
of the combined financial statements.
F-3
33
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (WHOLLY-OWNED SUBSIDIARIES)
COMBINED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE
EIGHT
MONTHS ENDED
AUGUST 29,
1996
----
Sales $ 39,971,058
Cost of Sales 33,832,799
------------
Gross Profit 6,138,259
Selling Expense 3,948,778
General and Administrative Expenses 3,141,852
------------
Loss from Operations (952,371)
------------
Other Income (Expense):
Interest expense (Note 8) (1,142,519)
Loss on sale of assets (773,866)
Other 274,661
------------
(1,641,724)
------------
Loss before Income Tax Benefit (2,594,095)
Income Tax Benefit (Note 1) 907,933
------------
Net Loss (1,686,162)
Accumulated Deficit, Beginning of Period (31,058,925)
------------
Accumulated Deficit, End of Period $(32,745,087)
============
The accompanying notes are an integral part
of the combined financial statements.
F-4
34
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (WHOLLY-OWNED SUBSIDIARIES)
COMBINED STATEMENT OF CASH FLOWS
FOR THE
EIGHT
MONTHS ENDED
AUGUST 29,
1996
----
Cash Flows from Operating Activities:
Cash received from customers $ 39,462,693
Cash paid to suppliers and employees (38,177,166)
Interest received 1,340
------------
Net cash provided by operating activities 1,286,867
------------
Cash Flows from Investing Activities:
Cash received from sale of equipment 37,289
Purchase of equipment (1,678,658)
------------
Net cash used by investing activities (1,641,369)
Net decrease in cash (354,502)
Cash at beginning of period 750,361
------------
Cash at end of period $ 395,859
============
Reconciliation of Net Loss to Net Cash Provided by
Operating Activities:
Net Loss $ (1,686,162)
------------
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operating Activities:
Depreciation 2,661,961
Loss on sale of assets 773,866
Interest expense contributed to capital by Parent
Company 1,142,519
Changes in Assets and Liabilities:
Accounts receivable (781,687)
Inventory (152,631)
Prepaids and other 134,186
Deposits and other (38,005)
Accounts payable (430,203)
Accrued wages and payroll taxes 72,539
Other accrued expenses 828,870
Payable to affiliates (1,040,998)
Accrued warranty reserve (197,388)
------------
2,973,029
------------
Net cash provided by operating activities $ 1,286,867
============
The accompanying notes are an integral part
of the combined financial statements.
F-5
35
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (WHOLLY-OWNED SUBSIDIARIES)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND USE OF ESTIMATES:
Basis of Presentation:
The combined financial statements include the financial position,
results of operations and cash flows of Eagle Window & Door, Inc. and
Subsidiaries and Taylor Building Products Company (the Companies). All material
intercompany transactions, accounts and balances have been eliminated.
Each Company is a wholly-owned subsidiary of MascoTech, Inc. Because of
these relationships, the financial statements of the Companies have been
prepared on a combined format as if they were a single entity. In addition,
MascoTech, Inc. performed the Companies' treasury function, and allocated
expenses for various services it provided (See Note 8).
Eagle Window & Door, Inc. and Subsidiaries (Eagle) are engaged in the
manufacture of aluminum clad and all wood windows and doors. Eagle's primary
market is the construction industry. Products are marketed through various
distributors located throughout the United States and Pacific Rim. Eagle's
wholly-owned subsidiaries, Eagle Window & Door of Bellevue, Inc. and Eagle
Service Company are engaged in the sale and distribution of windows and doors
throughout the United States.
The accompanying combined financial statements include the consolidated
accounts of Eagle Window & Door, Inc. and its wholly-owned subsidiaries, Eagle
Window & Door of Bellevue, Inc. and Eagle Service Company. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Taylor Building Products Company (Taylor) is engaged in the manufacture
of entry and garage doors. The Company markets entry doors under the brand names
of Perma Door and Taylor Door. The Perma Door brand is primarily marketed
through millwork distributors and the Taylor Door brand is primarily marketed
through installing dealers. The Company markets garage doors under the Taylor
Door brand name throughout the United States.
Pervasiveness of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Earnings Per Share:
Historical earnings per share data has not been presented in the
accompanying financial statements due to the subsequent acquisition of the two
Companies by American Architectural Products, Inc. and its reverse merger with a
public reporting company (See Note 11).
Accounts Receivable:
As of August 29, 1996, an allowance has been established for
potentially uncollectible accounts receivable in the amount of $791,521.
F-6
36
Inventory:
Inventory is stated at the lower of cost (first-in, first-out method)
or market. Inventories are reviewed periodically for obsolescence, and an
allowance established to record potentially obsolete inventory at net realizable
value (See Note 3).
Property, Plant and Equipment:
Property, plant and equipment are stated at cost. Depreciation is
provided for using the straight-line method over the estimated useful lives of
the assets. Maintenance and repairs that neither materially add to the value of
the property nor appreciably prolong its life are charged to expense as
incurred. Betterments or renewals are capitalized when incurred. Depreciation
expense for the eight months ended August 29, 1996, was $2,661,961. Assets are
being depreciated over their estimated useful lives, as follows:
YEARS
-----
Buildings and improvements 40
Machinery and equipment 6-15
Computer and office equipment 10
Tools, dies and fixtures 3
Income Taxes:
The Companies file their income tax returns on a consolidated basis
with their parent company. All provisions for federal and state income taxes,
including provisions for deferred income taxes, are provided for through the
intercompany accounts.
Advertising:
The cost of advertising is expensed as incurred. Advertising expense
was $479,300 for the eight months ended August 29, 1996.
2. CONCENTRATION OF CREDIT RISK:
The combined Companies maintain cash balances at various financial
institutions. At August 29, 1996, the combined Companies have uninsured cash in
the approximate amount of $230,000.
3. INVENTORY:
As of August 29, 1996, inventory consisted of the following:
AUGUST 29,
1996
----
Raw materials $6,118,026
Work in process 1,366,212
Finished goods 1,473,501
----------
8,957,739
Less: provision for obsolete inventory (474,515)
----------
$8,483,224
==========
F-7
37
4. PROPERTY, PLANT AND EQUIPMENT:
As of August 29, 1996, property, plant and equipment consisted of the
following:
AUGUST 29,
1996
----
Land and improvements $ 408,934
Buildings and improvements 7,698,252
Machinery and equipment 11,276,992
Computer and office equipment 2,223,089
Tools, dies and fixtures 3,698,385
------------
25,305,652
Less: accumulated depreciation (18,339,312)
------------
$ 6,966,340
============
5. COMMITMENTS AND CONTINGENCIES:
Commitments:
The Companies are currently leasing certain office and manufacturing
space in Dubuque, Iowa and West Branch, Michigan under non-cancellable operating
lease agreements which expire through July, 1997. The terms of the leases
provide for combined monthly payments totalling approximately $12,000. The lease
terms also require the Companies to pay common area maintenance, taxes,
insurance and other costs. The Companies are also leasing equipment under
various non-cancellable operating lease agreements which expire through July,
2000. Rent expense under the operating lease agreements was $477,761 for the
eight months ended August 29, 1996.
A schedule of future minimum lease payments due under the
non-cancellable operating lease agreements, is as follows:
YEAR ENDED
AUGUST 31, AMOUNT
------------ ------
1997 $ 382,862
1998 176,427
1999 88,472
2000 7,092
----------
$ 654,853
==========
Contingencies:
Environmental Issue:
Based on an evaluation of Eagle's operating facility,
asbestos-containing materials were located in various sections of the facility.
No provision or accrual has been made to provide for any potential future costs
for abatement because, in management's opinion, they should not have a material
adverse effect upon the combined financial position of the Companies. In
connection with the sale of the Companies to American Architectural Products,
Inc. (See Note 11), the former parent of the Companies agreed to bear certain
abatement costs relating to this matter.
Litigation:
At August 29, 1996, the Companies are a party to several lawsuits. The
Companies believe that the lawsuits are without merit and intend to vigorously
defend their position. A provision has been charged to operations in the
accompanying financial statements for the eight months ended August 29, 1996 for
approximately $100,000 for a lawsuit involving product performance issues.
F-8
38
6. STOCKHOLDERS' EQUITY:
The stock of Taylor Building Products Company consists of 1,000 shares
of $1 par value common stock authorized, issued and outstanding. The stock of
Eagle Window & Door, Inc. consists of 500,000 shares of $1 par value common
stock authorized, 210,851 shares issued and outstanding.
7. WARRANTY RESERVE:
The Companies sell the majority of their products with limited
warranties of two to 25 years. At August 29, 1996, the accompanying financial
statements include a reserve of $4,627,412 for estimated warranty claims based
on the Companies' historical claims experience.
8. RELATED PARTY TRANSACTIONS:
As of August 29, 1996, the Companies had amounts payable to affiliates
of $19,441,656. These affiliates represent primarily the parent company and
subsidiaries of the parent company. Various shared expenses were charged to the
Companies through the payable to affiliate account. These expenses included
items such as general insurance, health insurance, and workers compensation
insurance, which were charged based on specific identification of the expense.
For the eight months ended August 29, 1996, total expenses charged to the
Companies through specific identification was $1,613,407.
In addition, MascoTech, Inc., the parent company, charged the Companies
a management fee based on budgeted sales for the various operating subsidiaries.
For the eight months ended August 29, 1996, total management fees charged to the
Companies were $951,000.
MascoTech, Inc. also provided cash management services for the
Companies. For the eight months ended August 29, 1996, the Companies had
recorded interest expense relating to the amounts payable to affiliates of
$1,142,519. Interest expense for the eight month period ended August 29, 1996
was treated as contributed to capital by the Parent Company.
9. BENEFIT PLANS:
401K Profit Sharing Plan and Pension Plan:
The Companies' former parent sponsored the MascoTech, Inc. Salaried
Savings Plan. All salaried employees of the Company with three months of
service, were eligible to participate in the Plan. The Plan operated as a 401K
Savings Plan. The Plan did not provide for a discretionary matching or profit
sharing contribution. As such, no expense has been recorded for contributions in
the accompanying financial statements.
The Companies' former parent sponsored the MascoTech, Inc. Master
Hourly Employees' Pension Plan. All hourly employees of the Companies were
eligible to participate in the Plan with participation commencing on the date of
hire. Benefits in the Plan were vested and based on the number of years of
credited service.
Pursuant to the pending sale of the Companies to American Architectural
Products, Inc., in August, 1996, and in accordance with the Stock Purchase
Agreement, coverage under these plans ceased. The seller agreed to fully vest
all participants and pay benefits in the normal course of the plans. As such, no
liability has been reported in the accompanying combined financial statements
for any potential unfunded liabilities.
F-9
39
Post-Retirement Benefits:
Taylor Building Products Company sponsors a post-retirement health
benefit program pursuant to its collective bargaining contract. Under the
principal terms of the contract, the Company will pay a retired employee with a
minimum of ten years service, a benefit of $100 per month after retirement at
age 62. As of the date of the financial statements, no material post-retirement
benefit obligation has been incurred.
Labor Force:
Most of the hourly employees of Taylor Building Products Company,
comprising approximately 85 percent of the Taylor labor force, are covered under
a collective bargaining agreement. The contract expired in February, 1997, and
was renegotiated for an additional five years.
10. ECONOMIC DEPENDENCY:
For the eight month period ended August 29, 1996, Eagle purchased
approximately 15 percent of their materials from one supplier. At August 29,
1996, amounts due to the supplier was $332,179.
For the eight month period ended August 29, 1996, Taylor Building
Products Company purchased approximately 20 percent, of their materials from one
supplier. At August 29, 1996, amounts due to the supplier were approximately
$362,000.
11. SUBSEQUENT EVENT:
Acquisition:
Effective August 29, 1996, the Companies were acquired by American
Architectural Products, Inc. (AAP). On December 18, 1996, American Architectural
Products Holdings, Inc. (AAPH, parent of AAP) consummated transactions
contemplated under an Agreement and Plan of Reorganization dated October 25,
1996. Under terms of this Agreement, all of the capital stock of AAP was
exchanged by AAPH for a 60 percent interest in Forte Computer Easy, Inc. The
financial statements do not give effect to these transactions.
F-10
40
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Mallyclad Corporation and Vyn-L Corporation
We have audited the accompanying combined balance sheet of Mallyclad
Corporation and Vyn-L Corporation as of June 30, 1996, and the related combined
statements of operations and retained earnings, and cash flows for the seven
months ended June 30, 1996. These combined financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined financial position of
Mallyclad Corporation and Vyn-L Corporation as of June 30, 1996, and the results
of their combined operations and their combined cash flows for the seven months
ended June 30, 1996 in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Troy, Michigan
April 28, 1997
F-11
41
MALLYCLAD CORPORATION
AND VYN-L CORPORATION
COMBINED BALANCE SHEET
JUNE 30,
1996
----
ASSETS (Note 3)
CURRENT ASSETS
Cash and equivalents $ 229,615
Accounts receivable, less allowance for doubtful
accounts of $7,000 358,731
Refundable income taxes 26,160
Inventories (Note 2) 285,635
Prepaid expenses 18,736
-----------
TOTAL CURRENT ASSETS 918,877
-----------
PROPERTY AND EQUIPMENT
Leasehold improvements 128,391
Machinery and equipment 2,205,604
Computers and office equipment 87,420
-----------
2,421,415
Less accumulated depreciation (2,304,178)
-----------
NET PROPERTY AND EQUIPMENT 117,237
-----------
OTHER ASSETS 32,896
-----------
$ 1,069,010
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 158,039
Accruals
Product claims 46,101
Commissions 20,150
Compensation 8,647
Other 52,103
-----------
TOTAL CURRENT LIABILITIES 285,040
-----------
COMMITMENTS (Note 5)
STOCKHOLDERS' EQUITY
Common stock, $1 par, authorized 50,000 shares;
Outstanding 50,000 shares - Mallyclad Corporation 50,000
Common stock, $1 par, authorized 50,000 shares;
outstanding 38,000 shares--Vyn-L Corporation 38,000
Retained earnings 695,970
-----------
TOTAL STOCKHOLDERS' EQUITY 783,970
-----------
$ 1,069,010
===========
See accompanying notes to combined financial statements.
F-12
42
MALLYCLAD CORPORATION
AND VYN-L CORPORATION
COMBINED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
SEVEN
MONTHS ENDED
JUNE 30,
1996
----
Net Sales $1,915,620
Cost of Goods Sold 1,596,753
----------
Gross Profit 318,867
Selling, General and Administrative Expenses 349,671
----------
Loss from Operations (30,804)
Other Income--Net 19,133
----------
Loss Before Taxes on Income (11,671)
Tax Benefits (Note 6) --
----------
Net Loss (11,671)
Retained Earnings, beginning of period 707,641
----------
Retained Earnings, end of period $ 695,970
==========
See accompanying notes to combined financial statements.
F-13
43
MALLYCLAD CORPORATION
AND VYN-L CORPORATION
COMBINED STATEMENT OF CASH FLOWS
SEVEN
MONTHS
ENDED
JUNE 30,
1996
----
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (11,671)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 35,800
Changes in operating assets and liabilities:
Receivables 171,679
Inventories 145,267
Prepaid expenses 4,117
Other assets 26,585
Accounts payable (122,698)
Accruals (26,091)
---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 222,988
CASH FLOWS USED IN INVESTING ACTIVITIES
Additions to property and equipment (3,972)
CASH FLOWS USED IN FINANCING ACTIVITIES
Net repayments under line of credit
arrangements (100,000)
---------
NET INCREASE IN CASH AND EQUIVALENTS 119,016
CASH AND EQUIVALENTS, at beginning of period 110,599
---------
CASH AND EQUIVALENTS, at end of period $ 229,615
=========
See accompanying notes to combined financial statements.
F-14
44
MALLYCLAD CORPORATION
AND VYN-L CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business and Basis of Presentation
Mallyclad Corporation (Mallyclad) manufactures vinyl clad steel and
aluminum cut to length sheets, primarily for the construction, appliance and
automotive industries. Vyn-L Corporation (Vyn-L) is a steel and aluminum
processor, performing shearing and forming functions for its customers.
Mallyclad and Vyn-L ("the Companies") were under common control and
because of these relationships, the financial statements of the Companies have
been prepared on a combined basis as if they were a single entity. All material
intercompany transactions, accounts and balances have been eliminated.
Use Of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Fair Value of Financial Instruments
The carrying amounts of receivables, payables and accrued expenses
approximate fair value because of the short maturity of these items.
Cash Equivalents
Cash equivalents are short-term, highly liquid investments consisting
of money market funds.
Inventories
Inventories are stated at the lower of cost or market value determined
on the first-in, first-out (FIFO) basis.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided for
using accelerated methods over the following estimated useful lives:
YEARS
-----
Leasehold improvements 7-31
Machinery and equipment 7-15
Computers and office equipment 5-7
Depreciation expense for the seven months ended June 30, 1996, was
$35,800.
Expenditures for renewals and betterments are capitalized. Expenditures
for maintenance and repairs are charged against income as incurred.
F-15
45
Revenue Recognition
Revenues from sales and the corresponding receivables are recorded upon
the shipment of product to the customer.
Income Taxes
The income tax provision is computed using the liability method.
Deferred taxes are recorded for the expected future tax consequences of
temporary differences between the financial reporting and the tax bases of the
Companies' assets and liabilities.
2. INVENTORIES
Inventories consisted of the following:
JUNE 30,
1996
----
Raw materials $198,605
Finished goods 87,030
--------
$285,635
========
3. REVOLVING LINE OF CREDIT
Mallyclad had a $400,000 revolving line of credit secured by
substantially all of the assets of Mallyclad. There were no outstanding
borrowings on the line as of June 30, 1996. The interest rate on the line was
prime plus 1/2 percent. Interest expense was $2,110 for the period ended June
30, 1996. The revolving line of credit was terminated in connection with the
acquisition of the Company's common stock (see Note 8).
4. RETIREMENT PLAN
Mallyclad sponsors a defined contribution retirement plan for salaried
employees. Employees are eligible to participate in the Plan one year after
employment. Company contributions are required in the amount of 4.3 percent of
the participant's total compensation plus 4.3 percent of the participant's
compensation in excess of $30,000. Contributions were $17,500 for the period
ended June 30, 1996.
5. COMMITMENTS
The Companies leased their facilities from a related party under
non-cancellable operating lease agreements which commenced January 1, 1994. The
operating lease agreements are for a term of five years and provide for total
monthly payments of $16,168. Rent expense under the operating lease agreements
for the period ended June 30, 1996 was $95,000.
6. TAXES ON INCOME
Income taxes, including current and deferred, amounted to zero in 1996.
F-16
46
Significant components of deferred taxes consist of deferred tax assets
arising from accrued expenses, allowance for doubtful accounts and depreciation.
Management has recorded a full valuation allowance against these deferred tax
assets at June 30, 1996.
7. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest approximated interest expense.
Cash paid for taxes on income for the period June 30, 1996 was $-0-.
8. SUBSEQUENT EVENT
On June 25, 1996, all of the outstanding stock of the Companies was
purchased by an individual. On December 18, 1996 Mallyclad and Vyn-L were merged
into American Architectural Products, Inc. (AAP), a Company controlled by this
same individual. These financial statements do not give effect to these
transactions.
F-17
47
Report of Independent Auditors
The Board of Directors and Shareholders
American Architectural Products Corporation
We have audited the accompanying balance sheet of Weather-Seal (a division of
Louisiana-Pacific Corporation) as of June 12, 1998, and the related statements
of operations and cash flows for the period from January 1 1998 through June 12,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Weather-Seal (a division of
Louisiana-Pacific Corporation) at June 12, 1998, and the results of its
operations and its cash flows for the period from January 1, 1998 through June
12, 1998, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
March 12, 1999
Akron, Ohio
F-18
48
Weather-Seal (a division of
Louisiana-Pacific Corporation)
Balance Sheet
June 12, 1998
ASSETS
Current assets:
Cash $ 215,306
Accounts receivable, less allowance for
doubtful accounts of $158,800 4,369,012
Inventories 9,255,692
Prepaid expenses 6,184
Deferred income taxes 767,000
------------
Total current assets 14,613,194
Property and equipment:
Land and improvements 638,683
Buildings 8,480,224
Machinery, equipment and furniture and
fixtures 24,218,262
Construction-in-progress 1,835,292
------------
35,172,461
Less accumulated depreciation (18,050,405)
------------
17,122,056
Other assets 118,983
------------
Total assets $ 31,854,233
============
F-19
49
LIABILITIES AND EQUITY
Current liabilities:
Bank overdraft $ 546,260
Accounts payable 968,039
Accrued expenses:
Compensation and employee benefits 1,143,719
Current portion of warranty obligations 600,000
Workers' compensation 357,233
Other 524,548
-----------
2,625,500
-----------
Total current liabilities 4,139,799
Accrued warranty obligations, less current portion 900,000
Deferred income taxes 1,526,000
-----------
Total liabilities 6,565,799
Divisional equity 25,288,434
-----------
Total liabilities and equity $31,854,233
===========
See accompanying notes.
F-20
50
Weather-Seal (a division of
Louisiana-Pacific Corporation)
Statement of Operations
Period from January 1, 1998 through June 12, 1998
Net sales $22,344,752
Cost of sales 21,289,276
-----------
Gross profit 1,055,476
Selling, general and administrative expenses 3,807,560
-----------
Operating loss (2,752,084)
Other income, net 9,100
-----------
Loss before income tax benefit (2,742,984)
Income tax benefit 890,000
-----------
Net loss $(1,852,984)
===========
See accompanying notes.
F-21
51
Weather-Seal (a division of
Louisiana-Pacific Corporation)
Statement of Cash Flows
Period from January 1, 1998 through June 12, 1998
OPERATING ACTIVITIES
Net loss $(1,852,984)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 935,416
Deferred income taxes (106,000)
Loss on disposition of property and equipment 5,250
Changes in assets and liabilities:
Increase in receivables and other assets (2,173,938)
Decrease in prepaid expenses 259,975
Decrease in inventories 64,244
Increase in accounts payable and bank overdraft 810,281
Decrease in accrued expenses (35,782)
-----------
Net cash used in operating activities (2,093,538)
INVESTING ACTIVITIES
Purchase of property and equipment (1,289,898)
Proceeds from sales of property and equipment 26,840
-----------
Net cash used in investing activities (1,263,058)
FINANCING ACTIVITIES
Net increase in intercompany advances from Louisiana-
Pacific Corporation included in divisional equity 3,341,517
-----------
Net decrease in cash (15,079)
Cash at beginning of period 230,385
-----------
Cash at end of period $ 215,306
===========
See accompanying notes.
F-22
52
Weather-Seal (a division of
Louisiana-Pacific Corporation)
Notes to Financial Statements
June 12, 1998
1. SUMMARY OF ACCOUNTING POLICIES
NATURE OF BUSINESS AND BASIS OF PRESENTATION
Weather-Seal (the "Company"), a division of Louisiana-Pacific Corporation
("LP"), is engaged principally in the manufacture and distribution of vinyl and
wood windows, patio doors and aluminum and vinyl extrusions to customers located
primarily in the mid-west United States.
The accompanying financial statements present the historical financial position,
results of operations and cash flows of the Company. The statement of operations
reflects all costs incurred by LP directly related to the Company as well as
allocations of certain corporate costs and expenses from LP.
Divisional equity included in the accompanying balance sheet represents 1) LP's
original investment in Weather-Seal, 2) cumulative income or loss since the
acquisition of Weather-Seal by LP and 3) net advances from LP. Management has
not segregated divisional equity into its component parts.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts of accounts receivable, payables and accrued expenses
approximate fair value because of the short maturity of these items.
F-23
53
Weather-Seal (a division of
Louisiana-Pacific Corporation)
Notes to Financial Statements
June 12, 1998
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of accounts receivable. Due to the nature of the
Company's business, its customer base is concentrated in the construction
industry. The Company does not generally require collateral and attempts to
minimize its credit risk by reviewing customers' credit history before extending
credit and by monitoring customers' credit exposure on a continuing basis. The
Company establishes an allowance for possible losses on accounts receivable,
when necessary, based upon factors surrounding the credit risk of specific
customers, historical trends and other information.
Sales to one customer amounted to 17% of total net sales during the period from
January 1, 1998 through June 12, 1998 and 12% of total accounts receivable at
June 12, 1998.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined using
an average cost method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The Company uses the units of
production method of depreciation for most machinery and equipment which
amortizes the cost of equipment over the estimated units that will be produced
during its useful life. Provisions for depreciation of buildings, improvements,
furniture and fixtures and the remaining machinery and equipment have been
computed using the straight-line method over the following estimated useful
lives:
Buildings and improvements 20 years
Machinery, equipment and furniture and fixtures 3-10 years
Expenditures for renewals and betterments are capitalized. Expenditures for
maintenance and repairs are charged to operations as incurred.
F-24
54
Weather-Seal (a division of
Louisiana-Pacific Corporation)
Notes to Financial Statements
June 12, 1998
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
EMPLOYEE STOCK OWNERSHIP PLAN
Substantially all non-union Company employees participate in LP's employee stock
ownership plan ("ESOP"). The statement of operations includes an allocation of
$380,000 from LP for the costs associated with Company employees who participate
in the ESOP.
WARRANTY OBLIGATIONS
The Company sells their products with warranties ranging generally from two to
ten years. Accrued warranty obligations are estimated based on claims experience
and levels of sales. Warranty obligations estimated to be satisfied within one
year are classified as current liabilities in the accompanying balance sheets.
REVENUE RECOGNITION
Revenues are recorded upon the shipment of product to the customer.
INCOME TAXES
The Company is a division of LP and will be included in LP's consolidated
federal income tax return. The provision for income taxes included in the
financial statements has been calculated as if the Company had filed a separate
income tax return and any current income tax payable of income tax receivable is
recorded against the intercompany payable or receivable to LP.
Deferred income taxes have been provided to reflect the temporary differences
between the carrying amounts of the assets and liabilities for financial
statement purposes and the amounts used for income tax purposes.
ADVERTISING
Advertising costs are expensed as incurred. Advertising costs for the period
from January 1, 1998 through June 12, 1998 were $ 344,100.
F-25
55
Weather-Seal (a division of
Louisiana-Pacific Corporation)
Notes to Financial Statements
June 12, 1998
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS
Long-lived assets, such as property and equipment, are evaluated for impairment
when events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable through the estimated undiscounted future cash
flows from the use of these assets. When any such impairment exists, the related
assets will be written down to fair value. Management believes no material
impairment exists at June 12, 1998. No impairment charges were recorded by the
Company during the period January 1, 1998 through June 12, 1998.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
130), which establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS 130 requires
that all items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS 130 is effective for financial statements for periods beginning
after December 15, 1997 and requires comparative information for earlier years
to be restated.
Additionally, in June 1997, the Financial Accounting Standards Board issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
(SFAS 131) which supersedes SFAS 14, "Financial Reporting for Segments of a
Business Enterprise." SFAS 131 establishes standards for the reporting by public
companies of information about operating segments in annual financial statements
and requires reporting of selected information about operating segments in
interim financial statements. It also establishes standards for disclosures
regarding products and services, geographic areas and major customers. SFAS 131
is effective for financial statements for periods beginning after December 15,
1997 and requires comparative information for earlier years to be restated.
F-26
56
Weather-Seal (a division of
Louisiana-Pacific Corporation)
Notes to Financial Statements
June 12, 1998
In February 1998, the Financial Accounting Standards Board issued SFAS No. 132,
"Employers' Disclosures about Pensions and Other Post-retirement Benefits" (SFAS
132), which revises employers' disclosures about pension and other
post-retirement benefit plans. SFAS 132 does not change the measurement or
recognition of those plans and is effective for fiscal years beginning after
December 15, 1997.
Management believes these standards will not have a material impact on the
Company's financial statement disclosures. Results of operations and financial
position are unaffected by implementation of these standards.
2. RELATED PARTY TRANSACTIONS
In the statements of operations, selling, general and administrative expenses
include allocations of certain LP corporate expenses totaling $110,000 for the
period from January 1, 1998 through June 12, 1998.
Expenses which are allocated by LP to Weather-Seal are based on LP's estimated
incremental costs associated with managing Weather-Seal. Management believes
that such allocated corporate expenses have been calculated using reasonable
methods.
The advances from LP are non-interest bearing. A reconciliation of the
divisional equity included in the accompanying balance sheets is as follows:
Balance at beginning of period $23,799,901
Advances from LP 3,341,517
Repayment of advances from LP --
Net loss for the period (1,852,984)
-----------
Balance at end of period $25,288,434
===========
F-27
57
Weather-Seal (a division of
Louisiana-Pacific Corporation)
Notes to Financial Statements
June 12, 1998
3. INVENTORIES
Inventories consist of the following:
Raw materials $4,353,302
Work in process 832,741
Finished goods 4,069,649
----------
$9,255,692
==========
4. ACCRUED COMPENSATION AND EMPLOYEE BENEFITS
Accrued compensation and employee benefits consist of the following:
Accrued ESOP contributions $ 230,000
Accrued vacation pay 766,938
Accrued salary and wages 20,997
Accrued other 125,784
----------
$1,143,719
==========
5. BENEFIT PLANS
Substantially all of the Company's salaried and non-union hourly employees
participate in LP's ESOP. The Company contributes 10% of eligible compensation
to the plan on behalf of the employees. The Company recognized $ 380,000 expense
for the period from January 1, 1998 through June 12, 1998.
In addition, the Company sponsors various defined contribution plans with
certain unionized hourly employees. The Company contributes amounts ranging from
$0.70 to $2.45 per hour worked. The expense related to these plans was
approximately $ 170,300 for the period from January 1, 1998 through June 12,
1998.
At June 12, 1998 approximately 10% of the Company's employees are covered under
collective bargaining agreements that expire in June 1998 and February 1999. At
June 12, 1998, an additional 20% of the Company's unionized employees are
currently operating without a collective bargaining agreement.
F-28
58
Weather-Seal (a division of
Louisiana-Pacific Corporation)
Notes to Financial Statements
June 12, 1998
The Company sponsors a defined benefit health care plan that provides certain
postretirement medical, vision and dental benefits to eligible retirees. The net
periodic postretirement benefit cost for the period from January 1, 1998 through
June 12, 1998 was $12,000, and the accumulated benefit obligation at June 12,
1998 was $174,400.
6. INCOME TAXES
The income tax benefits included in the statement of operations is made up of
the following components:
Current:
Federal $ 784,000
Deferred 106,000
-----------
$ 890,000
===========
Significant components of deferred tax assets and liabilities as of June 12,
1998 are as follows:
DEFERRED TAX LIABILITIES
Depreciation $ 1,832,000
DEFERRED TAX ASSETS
Accrued warranty obligations 510,000
Other 563,000
-----------
1,073,000
-----------
NET DEFERRED TAX LIABILITIES $ (759,000)
===========
Current deferred taxes $ 767,000
Long-term deferred taxes, net (1,526,000)
-----------
NET DEFERRED TAX LIABILITIES $ (759,000)
===========
F-29
59
Weather-Seal (a division of
Louisiana-Pacific Corporation)
Notes to Financial Statements
June 12, 1998
6. INCOME TAXES (CONTINUED)
The actual income tax benefit attributable to the loss for the period ended June
12, 1998 differed from the amounts computed by applying the U.S. federal tax
rate of 34 percent to pre-tax loss as a result of the following:
Tax benefit at U.S. federal statutory rate $899,000
Expenses not deductible for tax purposes (9,000)
--------
INCOME TAX BENEFIT $890,000
========
7. LITIGATION
The Company is involved from time to time in litigation arising in the ordinary
course of business, none of which is currently expected to have a material
effect on its business, results of operations or financial condition.
8. SUBSEQUENT EVENT
At the close of business on June 12, 1998, LP sold substantially all of the
assets of the Company to American Architectural Products Corporation. The
accompanying financial statements do not give effect to this transaction.
F-30
60
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
American Architectural Products Corporation
The audits referred to in our report dated February 26, 1998 relating
to the consolidated financial statements of American Architectural Products
Corporation, which is contained in Item 8 of this Form 10-K included the audits
of Schedule II - Valuation and Qualifying Accounts for the period from the date
of inception (June 19, 1996) to December 31, 1996 and for the year ended
December 31, 1997. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based upon our audits.
In our opinion, such financial statement schedule presents fairly, in
all material respects, the information set forth therein.
BDO SEIDMAN, LLP
Troy, Michigan
February 26, 1998
S-1
61
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FROM DATE OF INCEPTION (JUNE 19, 1996) TO DECEMBER 31, 1996
AND YEARS ENDED DECEMBER 31, 1997 AND 1998
ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- --------- -------- -------- ---------- ------
ALLOWANCE FOR DOUBTFUL
ACCOUNTS
From date of inception
(June 19, 1996) to
December 31, 1996 $ -- $ 12,546 $ 914,552(1) $ 487,894(2) $ 439,204
Year ended December 31, 1997 439,204 (17,102) 491,864(1) 74,825(2) 839,141
Year ended December 31, 1998 (3) 839,141 745,229 68,721 648,353(2) 1,004,738
WARRANTY OBLIGATIONS
From date of inception
(June 19, 1996) to
December 31, 1996 -- 369,324 4,627,412(1) 615,657 4,381,079
Year ended December 31, 1997 4,381,079 1,470,320 491,544(1) 1,517,216 4,825,727
Year ended December 31, 1998 (3) 4,825,727 1,676,616 1,574,172(1) 1,935,425 6,141,090
(1) Purchased in business acquisitions
(2) Accounts deemed to be uncollectible
(3) Report of Independent Auditors on year ended December 31, 1998 information
is included on the Consent of Independent Auditors included in Exhibit 23.1
S-2
62
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE II
To the Shareholders and Board of Directors of
Eagle Window & Door, Inc. and Subsidiaries and
Taylor Building Products Company (Wholly-Owned Subsidiaries)
We have audited in accordance with generally accepted auditing
standards, the August 29, 1996 financial statements included in this
registration statement, and have issued our reports thereon dated January 31,
1997. Our audits were made for the purpose of forming an opinion on those
statements taken as a whole. Schedule II is presented for purposes of complying
with the Securities and Exchange Commission's rules and is the responsibility of
the company's management. It is not part of the basic financial statements. The
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
SEMPLE & COOPER, L.L.P.
Phoenix, Arizona
June 23, 1997
S-3
63
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES
AND TAYLOR BUILDING PRODUCTS COMPANY
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END OF
PERIOD ENDED DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ------------ ----------- --------- -------- -------- ---------- ------
August 29, 1996 Allowance for
doubtful $ 445,418 $425,595 $-- $ 79,492 $ 791,521
accounts
August 29, 1996 Provision for
obsolete $1,623,500 $ 70,000 $-- $1,218,985 $ 474,515
inventory
August 29, 1996 Accrued
warranty $4,824,800 $801,073 $-- $ 998,461 $4,627,412
obligations
S-4