<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 10, 1996
REGISTRATION NO. 333-08397
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CII TECHNOLOGIES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3625 56-1828272
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
----------------
1396 CHARLOTTE HIGHWAY
FAIRVIEW, NORTH CAROLINA 28730
(704) 628-1711
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
RAMZI A. DABBAGH
CHIEF EXECUTIVE OFFICER
CII TECHNOLOGIES INC.
1396 CHARLOTTE HIGHWAY
FAIRVIEW, NORTH CAROLINA 28730
(704) 628-1711
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
COPIES TO:
WILSON S. NEELY, ESQ. GLENN W. REED, ESQ.
SIMPSON THACHER & BARTLETT GARDNER, CARTON & DOUGLAS
425 LEXINGTON AVENUE 321 NORTH CLARK STREET
NEW YORK, NEW YORK 10017 CHICAGO, ILLINOIS
(212) 455-2000 (312) 245-8446
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 of the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 10, 1996.
PROSPECTUS
3,500,000 SHARES
[LOGO]CII TECHNOLOGIES (TM)
COMMON STOCK
All of the shares of Common Stock offered hereby (the "Offering") are being
issued and sold by CII Technologies Inc. (the "Company"). Prior to the
Offering, there has been no public market for the Common Stock. It is currently
anticipated that the initial public offering price will be between $9.00 and
$11.00 per share. See "Underwriting" for information relating to the
determination of the initial offering price.
Application is being made to include the Common Stock in the Nasdaq National
Market under the symbol "CIIT."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON
STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share...................... $ $ $
Total(3)....................... $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be $ .
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 525,000 additional shares of Common Stock solely to cover over-
allotments, if any. If such option is exercised in full, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $ , $
and $ , respectively. See "Underwriting."
The Common Stock is being offered by the several Underwriters when, as and if
delivered to and accepted by them and subject to their right to reject orders
in whole or in part. It is expected that delivery of certificates for the
shares of Common Stock will be made on or about , 1996.
WILLIAM BLAIR & COMPANY FURMAN SELZ
The date of this Prospectus is , 1996
<PAGE>
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information and financial statements, including the notes thereto,
contained elsewhere in this Prospectus. Unless otherwise indicated, all
information in this Prospectus (i) gives effect to a 2.5-for-1 stock split of
each share of the Company's Common Stock to be effected prior to consummation
of the Offering; (ii) assumes the Kilovac Share Exchange (as described under
"Certain Relationships and Related Transactions--Kilovac Acquisition") has been
completed; and (iii) assumes the Underwriters' over-allotment option is not
exercised. See "Underwriting." Unless otherwise indicated, all amounts and
statistical information presented herein for fiscal 1995, other than financial
statement information and information contained in "Management's Discussion and
Analysis of Financial Condition and Results of Operations," is presented on a
pro forma basis after giving effect to the acquisitions of Kilovac Corporation
("Kilovac") and the Hartman Electrical Manufacturing Division (the "Hartman
Division" or "Hartman") of Figgie International, Inc. ("Figgie"). Unless the
context otherwise specifically requires, references to the "Company" include
CII Technologies Inc. and its consolidated operating subsidiaries, together
with the historical business and operations undertaken by Communications
Instruments, Inc. (the "Predecessor").
THE COMPANY
The Company is a leading designer, manufacturer and marketer of a broad line
of high performance electromechanical and electronic products and solenoids for
customers in the commercial/industrial equipment, commercial airframe,
defense/aerospace, communications, automatic test equipment and automotive
industries. The Company's relays are used to control current or signals in
electrical and electronic circuits and are technological building blocks for a
wide range of products. While the Company is a broad-based supplier of general
and special purpose relays and solenoids, it has focused on manufacturing high
performance relay products and targeting customized applications of these
products to meet the needs of the markets it serves. The Company's high
performance relays are sophisticated, complex devices that have been engineered
for highly reliable performance over substantial periods of time, often in
adverse operating environments. The Company sells its products to more than
2,100 customers, including Boeing, AT&T, Rockwell, Hewlett Packard, McDonnell
Douglas and General Motors.
To further penetrate and expand the size and number of markets that it
serves, the Company seeks to leverage its broad product offering, its
reputation for quality, innovation and technological leadership, its diverse
and efficient manufacturing capabilities and its wide and diversified customer
base. In addition, the Company's successful implementation of its acquisition
strategy and integration of acquired companies and product lines into its
operations have produced significant growth in the Company's revenues. Since
its inception in 1980, the Company has completed 13 acquisitions for an
aggregate consideration of approximately $36.0 million. In October 1995 the
Company acquired Kilovac (the "Kilovac Acquisition") and in July 1996 the
Company completed the acquisition of the Hartman Division (the "Hartman
Acquisition"). Net sales of Kilovac and Hartman for 1995 represented 21.5% and
25.5%, respectively, of the Company's pro forma net sales for 1995.
The Company believes that these acquisitions have enabled it to become one of
the five largest relay manufacturers in North America. The Company plans to
enhance its growth by strategically acquiring product lines and manufacturing
operations to obtain new product capabilities and technologies, to further
increase market penetration with both existing and new customers, and to expand
manufacturing and assembly capabilities.
Electromechanical and electronic products (which are used to direct and
control electrical currents and signal transmissions) and solenoids (which are
used to convert electrical energy into mechanical motion) have a myriad of
commercial and industrial applications. The Company currently manufactures and
assembles more than 750 types of relays and solenoids and believes that it has
one of the largest and most diverse product portfolios of any manufacturer in
its industry. The Company believes that its sales as a sole source supplier of
high performance relays and solenoids represented approximately 53% of its net
sales for 1995.
3
<PAGE>
The Company currently manufactures high performance relays at its four
facilities in the United States and general purpose relays at its facility in
Mexico. The Company also maintains several subcontracting relationships with
manufacturers in the People's Republic of China, and the Company has entered
into a joint venture in India which has recently commenced construction of a
manufacturing facility. The Company believes that its domestic and
international manufacturing capabilities allow it to provide to its customers
high quality products at globally competitive prices.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by
the Company............ 3,500,000 shares
Common Stock to be
Outstanding After the
Offering............... 6,500,000 shares (1)
Use of Proceeds......... Repayment of indebtedness and redemption of preferred
stock. See "Use of Proceeds."
Proposed Nasdaq National
Market Symbol.......... CIIT
</TABLE>
- --------
(1) Includes 450,000 shares anticipated to be issued upon the completion of
this Offering as part of the Kilovac Share Exchange, assuming an initial
public offering price of $10.00 per share. The actual number of shares
issuable in the Kilovac Share Exchange will be calculated by dividing $4.5
million by the initial public offering price per share in the Offering. See
"Certain Relationships and Related Transactions--Kilovac Acquisition."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
DECEMBER 31, SIX MONTHS ENDED
---------------------------- -----------------------------
PRO
JANUARY 1, MAY 11, PRO FORMA
1993 TO 1993 TO FORMA AS ADJUSTED
MAY 10, DECEMBER 31, AS ADJUSTED JULY 2, JUNE 30, JUNE 30,
1993(1) 1993(1) 1994 1995 1995(2) 1995 1996 1996(3)
---------- ------------ ------- ------- ----------- ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.............. $8,378 $17,095 $31,523 $39,918 $68,408 $18,568 $27,455 $38,280
Cost of sales.......... 6,684 14,448 24,330 28,687 46,622 13,568 19,011 27,104
------ ------- ------- ------- ------- ------- ------- -------
Gross profit........... 1,694 2,647 7,193 11,231 21,786 5,000 8,444 11,176
Selling expenses....... 713 1,344 2,382 3,229 4,961 1,409 2,382 2,538
General and
administrative
expenses.............. 586 1,150 2,248 3,334 5,738 1,296 2,369 2,943
Research and develop-
ment.................. 21 41 103 301 1,463 78 461 461
Amortization of
goodwill and other
intangible assets..... 45 117 177 251 809 110 246 390
Special compensation
charge(4)............. -- -- -- 1,300 1,300 -- -- --
Environmental
expenses(5)........... -- -- -- 951 951 -- -- --
Special acquisition
expenses(6)........... 153 266 -- 2,064 2,064 915 -- --
------ ------- ------- ------- ------- ------- ------- -------
Operating income
(loss)................ 176 (271) 2,283 (199) 4,500 1,192 2,986 4,844
Interest expense....... 77 1,086 1,833 2,997 1,616 1,138 1,820 808
Other income
(expense)............. 42 -- -- 2 (81) 2 201 186
------ ------- ------- ------- ------- ------- ------- -------
Income (loss) before
taxes and minority
interest.............. 141 (1,357) 450 (3,194) 2,803 56 1,367 4,222
Income tax expense
(benefit)............. -- (499) 178 (1,076) 1,237 22 554 1,697
------ ------- ------- ------- ------- ------- ------- -------
Net income (loss)...... 141 (858) 272 (2,153) 1,566 34 762 2,525
Preferred stock
dividend.............. -- 102 185 210 -- 92 186 --
------ ------- ------- ------- ------- ------- ------- -------
Net income (loss)
available for common
stock................. $ 141 $ (960) $ 87 $(2,363) $ 1,566 $ (58) $ 576 $ 2,525
====== ======= ======= ======= ======= ======= ======= =======
Pro forma net income
(loss) per common
share................. $ (.38) $ .03 $ (.93) $ .24 $ (.02) $ .23 $ .39
======= ======= ======= ======= ======= ======= =======
Average shares
outstanding........... 2,495 2,511 2,536 6,486 2,520 2,550 6,500
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------------
PRO FORMA
ACTUAL PRO FORMA(7) AS ADJUSTED(3)
------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................... $11,598 $17,601 $22,402
Total assets.............................. 49,081 66,231 69,946
Total debt................................ 30,808 43,782 19,754
Cumulative redeemable preferred stock..... 4,683 4,683 --
Total stockholders' equity (deficit)...... (1,929) (1,929) 32,708
</TABLE>
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(1) The statement of operations data for the period ended May 10, 1993
represent the results of the Predecessor from January 1, 1993 and the
statement of operations data for the period from May 11, 1993 to December
31, 1993 represent the results of the Company. In allocating the purchase
price in connection with the CII Acquisition, the Company recorded an
increase in inventory to estimated fair market value of $986,000 which was
reflected in cost of sales from May 11, 1993 to December 31, 1993. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--General" and "Selected Consolidated Financial Information."
(2) Gives effect to (i) the Hartman Acquisition and the Kilovac Acquisition,
(ii) the Kilovac Share Exchange and (iii) the sale by the Company of
3,500,000 shares of Common Stock in the Offering at an assumed initial
public offering price of $10.00 per share and the application of the
proceeds therefrom as described in "Use of Proceeds", including, without
limitation, the repayment of debt and the redemption of outstanding
cumulative redeemable preferred stock and the elimination of accrued and
unpaid dividends in connection therewith, in each case as adjusted to
reflect the corresponding tax expenses/benefits associated with such
adjustments and as if such transactions had occurred on January 1, 1995.
See "Use of Proceeds," "Capitalization," "Pro Forma Condensed Consolidated
Financial
5
<PAGE>
Information," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Certain Relationships and Related
Transactions--Kilovac Acquisition" and the Company's Consolidated Financial
Statements and the Notes thereto.
(3) Gives effect to (i) the Hartman Acquisition, (ii) the Kilovac Share
Exchange and (iii) the sale by the Company of 3,500,000 shares of Common
Stock in the Offering at an assumed initial public offering price of
$10.00 per share and the application of the proceeds therefrom as
described in "Use of Proceeds," including, without limitation, the
repayment of debt and the redemption of outstanding cumulative redeemable
preferred stock and the elimination of accrued and unpaid dividends in
connection therewith, in each case as adjusted to reflect the
corresponding tax expenses/benefits associated with such adjustments and
as if such transactions had occurred on January 1, 1995 in the case of
the statement of operations data and at June 30, 1996 in the case of
balance sheet data.
(4) Reflects a special compensation charge of $1.3 million which represents
(i) the difference between the purchase price of Common Stock issued to
seven employees on December 1, 1995 and the estimated fair market value
of such shares (based upon the appraised value on December 1, 1995) and
(ii) a related special cash bonus granted by the Company to the same
seven employees to pay taxes associated with such stock issuances.
(5) Reflects a non-recurring charge of $951,000 which represents primarily
the costs incurred to date and the present value of the estimated future
costs payable by the Company over the next 30 years for groundwater
remediation at the Fairview facility. See "Business--Environmental
Matters."
(6) Special acquisition expenses in 1993 consist primarily of costs related
to the relocation of a facility following the acquisition of Midtex
Relays and costs associated with relocating the operations acquired from
West Coast Electrical Manufacturing Co. and CP Clare. Such expenses in
1995 include costs primarily related to (i) the relocation of certain
assets acquired from HiG Relays and Deutsch Relays, and (ii) the write-
off of an agreement with a business development consultant. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Results of Operations."
(7) Gives effect to the Hartman Acquisition, as if such event had occurred on
June 30, 1996.
6
<PAGE>
RISK FACTORS
This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Exchange Act. Actual results could
differ materially from those projected in the forward-looking statements as a
result of certain of the risk factors set forth below and elsewhere in this
Prospectus. Prospective purchasers of the Common Stock should consider
carefully the following specific information, together with the other
information set forth in this Prospectus, before purchasing any shares of
Common Stock offered hereby.
EXPANSION THROUGH ACQUISITIONS
The overall relay and solenoid markets are relatively mature and stable.
Accordingly, the Company has and will continue to pursue a business strategy
of growing its business and product lines through strategic acquisitions in
order to grow at a faster rate than the markets it serves. The Company's
ability to continue to expand through acquisitions, however, will depend upon
the availability of suitable acquisition candidates, the Company's ability to
consummate such transactions and, in certain circumstances, the availability
of financing on terms acceptable to the Company. There can be no assurance
that the Company will be effective in making acquisitions. Such transactions
involve numerous risks, including possible adverse short-term effects on the
Company's operating results and the market price of the Company's Common
Stock. While the Company regularly evaluates potential acquisition candidates
in the ordinary course of its business, as of the date of this Prospectus
there are no commitments or agreements with respect to any acquisition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Acquisition Strategy."
INTEGRATION OF ACQUIRED BUSINESSES
The Company seeks to effectively consolidate acquired product lines and
assets into its business and, through eliminating overhead and benefiting from
synergies with the Company's existing manufacturing techniques and sales
force, increase the profit margins of the acquired assets. The success of any
acquisition will depend in large part on the Company's ability to effectively
integrate the acquired assets into its existing business. Integrating acquired
businesses may, for example, result in a loss of customers of the acquired
businesses and, if the acquired company has significant losses when purchased,
may have a short-term dilutive effect on the Company's results of operations.
The process of consolidating acquired businesses requires significant
management attention, may place significant demands on the Company's
operations, information systems and financial resources, and may also result
in costs that may adversely affect the Company's results of operations. The
failure to effectively integrate acquired businesses with the Company's
operations could adversely affect the Company. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Business--
Acquisition Strategy," and "--Sales and Distribution."
RISKS RELATED TO THE HARTMAN ACQUISITION
In connection with its recently completed Hartman Acquisition, the Company
has assumed a contractual obligation to produce and sell relay components of
electrical load management systems. This contract accounted for $1.4 million,
or 8.0%, of Hartman's revenues for fiscal 1995 and, for the first six months
of 1996, $2.3 million, or 21.3%, of Hartman's revenues (6.0% of the Company's
pro forma net sales for the first six months of 1996). This contract is
unprofitable, and, in connection with the Hartman Acquisition, the Company has
assumed a reserve previously established by Hartman of approximately $2.6
million in anticipation of losses that the Company expects to incur as this
contract is fulfilled over the next two years. To the extent that actual
losses attributable to this contract exceed the amount reserved therefor, the
Company's results of operations may be adversely affected. A decline in
purchases made under this contract could adversely affect profitability if
Hartman is not able to reduce its fixed costs or if the Company does not
increase revenue to offset the loss of this contract.
7
<PAGE>
Due to the nature of the industry that Hartman serves, its customer base is
highly concentrated. Approximately 86% and 91% of net sales in 1994 and 1995,
respectively, were to Hartman's ten largest customers. Four customers in 1994
and three customers in 1995 exceeded 10% of Hartman's net sales. Sales to
these customers accounted for 47.9% of net sales in 1994 and 47.0% of net
sales in 1995. The loss of one or more of these customers could have a
material adverse effect on the Company's result of operations.
INTERNATIONAL OPERATIONS AND FOREIGN INSTABILITY
General. In fiscal 1995, approximately 21.6% of the Company's cost of sales
was attributable to operations located outside the United States, consisting
primarily of the operations of the Company's Midtex Division located in
Juarez, Mexico and the operations of several Asian-based subcontractors which
supply the Company with finished goods, sub-assemblies and raw materials.
Foreign manufacturing is subject to various risks, including exposure to
currency fluctuations, political and economic instability, the imposition of
foreign tariffs and other trade barriers, and changes in governmental
policies. While the Company has not historically experienced material adverse
effects due to its foreign operations, the Company's foreign operations may
incur increased costs and experience delays or disruptions in product
deliveries that could cause loss of revenue and damage to customer
relationships.
A portion of the Company's cost of sales and net sales is derived from
international operations which are conducted in foreign currencies. Changes in
the value of these foreign currencies relative to the U.S. dollar in the past
have affected, and in the future may affect, the Company's results of
operations and financial position. In fiscal 1995, the devaluation of the
Mexican peso relative to the U.S. dollar had a favorable impact on the
Company's results of operations. An increase in the value of the peso relative
to the U.S. dollar in the future may have an adverse effect on the Company's
results of operations. The Company has not engaged in currency hedging
transactions in the past, though it may undertake currency hedging in the
future.
A significant portion of the Company's manufacturing, testing, and assembly
operations are performed in Mexico and by subcontractors located in China,
India, Taiwan, and Japan. In certain of these locations, there is a limited
pool of skilled workers. There can be no assurance that the Company or its
subcontractors will be able to continue to hire and train sufficiently skilled
personnel as the Company expands its international manufacturing operations.
Mexico. Mexico has recently experienced economic, political and civil
instability that have contributed to the devaluation of the peso, as well as
other adverse economic and social effects. In fiscal 1995, approximately 13.1%
of the Company's products were manufactured or assembled in its facility in
Juarez, Mexico, where approximately one-fourth of the Company's total labor
force is located. While the Company believes that it has adequate access to
and from Mexico to transport partially finished and fully assembled goods, any
disruption in the political or economic stability of that country could
substantially and adversely affect the Company's operations. While the Company
believes that its relations with its Mexican work force is good, economic
instability and the devaluation of the peso may have a destabilizing effect on
the workforce which could have a material adverse effect on the Company.
China. A portion of the Company's general purpose relays, solenoids and sub-
assemblies are produced in subcontract facilities in China. Since 1980, China
has enjoyed "most favored nation" ("MFN") status under United States tariff
laws, which provides the most favorable category of United States import
duties. China's MFN status is annually reviewed by Congress. The loss of MFN
status for China would result in a substantial increase in the duty for
products manufactured in China and imported into the United States. The
Company retains a business agent in China to assist the Company in developing
subcontracting arrangements. The Company believes that the loss of China's MFN
status or the services of the Company's agent in China is not likely to have a
long-term adverse effect on the Company's business because the Company is
prepared to shift its manufacturing to other countries or develop
relationships with new business agents. However, such a loss in either case
could have a short-term adverse effect until alternative manufacturing or
business arrangements could be made.
8
<PAGE>
India. The Company expects the Indian Joint Venture to commence production
of relays in the third quarter of 1996. The Company trained the employees of
the Indian Joint Venture in its North Carolina facilities and has transferred
the assembly equipment for certain of its product lines to the Indian Joint
Venture's facility. India has from time to time experienced social and civil
unrest relating to ethnic, religious and political differences among India's
population. This unrest has occasionally caused significant economic
disruptions within India. Future changes in government policies, and social,
political, economic or other future developments in or affecting India may
adversely affect the operations of, and the Company's economic interest in,
the Indian Joint Venture. The Company does not have a controlling interest in
the Indian Joint Venture. In addition, there can be no assurance that the
operations of the Indian Joint Venture will support the manufacturing
capability and international sales objectives of the Company. See "Business--
Facilities--Indian Joint Venture."
DEPENDENCE ON INDEPENDENT SALES REPRESENTATIVES AND DISTRIBUTORS
The Company conducts virtually all of its sales through independent sales
representatives and distributors. The Company's distributors are not subject
to minimum purchase requirements and certain of these distributors sell
competing products. The sales representatives and distributors can discontinue
marketing the Company's products with minimal notice. The loss of, or a
significant reduction in sales volume through, one or more of the Company's
independent sales representatives or distributors could have a material
adverse effect on the Company's operating results. See "Business--Sales and
Distribution."
DEPENDENCE ON SENIOR MANAGEMENT
The Company's future performance will depend, in part, upon the efforts and
abilities of the Company's senior management employees. The loss of service of
one or more of these persons could have an adverse effect on the Company's
business and development. The Company has entered into employment agreements
with Ramzi A. Dabbagh (the Company's Chairman, President and Chief Executive
Officer) and G. Daniel Taylor (the Company's Executive Vice President of
Business Development), each of which agreements terminates in May 1998, and
the Company maintains key-man life insurance on Messrs. Dabbagh and Taylor.
The Company has also entered into employment agreements with Michael A.
Steinback (President of the CII Division) and David Henning (Chief Financial
Officer of the Company), which agreements expire in April 1997 and December
1996, respectively, and are automatically renewed each year. The success of
certain recent and future acquisitions completed by the Company may also
depend, in part, on the Company's ability to retain key management of the
acquired businesses. The President of the Kilovac Division, Douglas Campbell,
is expected to leave his position upon the expiration of his employment
agreement in December 1996. The Company has selected a senior member of the
management team of the Kilovac Division to replace Mr. Campbell and has
entered into employment agreements with four key executives of the Kilovac
Division, each of which expires on October 31, 1998. See "Management--
Employment Agreements."
COMPETITION
The markets in which the Company operates are highly competitive. Several of
the Company's competitors have greater financial, marketing, manufacturing and
distribution resources than those of the Company. There can be no assurance
that the Company will be able to compete successfully in the future against
its existing competitors or that the Company will not experience increased
price competition, which could adversely affect the Company's results of
operations. The Company also faces competition for acquisition opportunities
from its large competitors. Barriers to entry exist in the high performance
relay markets in the form of stringent commercial and military qualifications
required to sell products to certain customers or for certain applications.
The Company holds military qualifications (QPL) for 29 of its product types.
Obtaining and maintaining these qualifications is contingent upon successful
completion of rigorous facility and product testing on a regular basis and at
significant cost. The elimination by the military or certain commercial
customers of such qualification requirements would lower these barriers to
entry and enable other relay manufacturers to sell products to such customers.
See "Business--Competition."
9
<PAGE>
COMPLIANCE WITH MILITARY QUALIFICATIONS
During 1995, approximately $9.7 million (14.2%) of the Company's total
revenue was derived from the sale of military qualified products. Maintaining
military qualifications is dependent upon successful completion of rigorous
environmental and life testing of the Company's qualified products on a
regular basis. From time to time, test failures occur in specific lots of
relays which exceed a predetermined statistical limit. When that occurs the
Company interrupts the production and shipping of the individual family of
products involved while the cause of the failures is investigated and
corrected. The Company does not resume production and shipment until the
report of the incident and a corrective action plan has been approved by the
governmental authority responsible for product qualifications. Historically,
such problems have occurred infrequently and production delays have been
brief. If a testing problem occurs in the future which cannot be resolved
quickly or if a proposed corrective action is not acceptable to the
government, production and shipping delays could be extended and the
operations of the Company could be adversely affected.
DEPENDENCE ON RAW MATERIALS AND LIMITED OR SOLE SOURCE SUPPLIERS
The Company's business is dependent upon maintaining access to adequate
supplies of certain raw materials, such as copper, silver, gold, palladium,
tin, iron, nickel, magnesium, cobalt and/or alloys of those raw materials. The
Company also requires specific types of plastic and ceramic materials and
glass for the manufacture of its products. Certain grades of these materials
are obtained from limited or single source suppliers. The Company does not
have long-term guaranteed supply agreements with its suppliers. While the
Company has not previously experienced significant interruptions in raw
material supplies, there can be no assurance that in the future significant
disruption or termination of the supply of these materials or a significant
increase in cost of these materials will not occur, which could result in a
material adverse effect on the Company's operations.
UNCERTAINTY OF INTELLECTUAL PROPERTY PROTECTION AND POSITION
The Company holds seven patents and has a number of applications for patents
pending. There can be no assurance that the Company's patents will prove to be
enforceable, that any patents will be issued with respect to those for which
applications have been made, or that competitors will not develop functionally
similar devices outside the protection of any patents the Company has or may
obtain. The Company has from time to time received, and may in the future
receive, communications from third parties alleging that certain of the
Company's products or technologies infringe the proprietary rights of such
third parties. There can be no assurance that the Company is not infringing
the proprietary rights of any third party. In addition, there can be no
assurance that, if the Company is so infringing the property rights of any
third party, a license to such rights would be available on commercially
reasonable terms, if at all. In the event of any such infringement, the
Company's results of operations could be materially and adversely affected.
See "Business--Proprietary Rights."
TECHNICAL OBSOLESCENCE
The markets for the Company's products are characterized by technological
change and new product introductions. To remain competitive, the Company must
continue to develop new process and manufacturing capabilities to meet
customers' needs and new product requirements, continue to enhance existing
products and introduce new products that reduce size, increase performance and
reliability and allow for improved manufacturing efficiency. If the Company is
unable to develop such new capabilities, or is unable to design, develop and
introduce competitive new products on a timely basis, its future operating
results may be materially and adversely affected.
ENVIRONMENTAL MATTERS
The Company is subject to various foreign, federal, state and local
environmental laws and regulations. The Company believes its operations are in
material compliance with such laws and regulations. However, there can be no
assurance that violations will not occur or be identified, or that
environmental laws and regulations will not change in the future, in a manner
that could materially and adversely affect the Company.
10
<PAGE>
Under certain circumstances, such environmental laws and regulations may
also impose joint and several liability for investigation and remediation of
contamination at locations owned or operated by the Company or its
predecessors, or at locations at which wastes or other contamination
attributable to the Company or its predecessors have come to be located. The
Company can give no assurance that such liability at facilities the Company
currently owns or operates, or at other locations, will not arise or be
asserted against the Company or entities for which it may be responsible. Such
other locations could include, for example, facilities formerly owned or
operated by the Company (or an entity or business that the Company has
acquired), or locations to which wastes generated by the Company (or an entity
or business that the Company has acquired) have been sent. The Company has
been identified as a potentially responsible party under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended ("CERCLA"), for investigation and remediation costs at two sites
neither owned nor operated by the Company. In addition, soil and groundwater
contamination has been identified at and about the Company's Fairview, North
Carolina facility, and that site has been included in the North Carolina
Department of Environmental, Health, & Natural Resources' Inactive Hazardous
Waste Sites Priority List. The Mansfield, Ohio property, at which the Company
recently has acquired operations in connection with the Hartman Acquisition,
may contain contamination at levels that will require further investigation
and may require soil and/or groundwater remediation. At each of these
locations, the Company could become subject to liability that, except under
certain circumstances, is joint and several for the total cost of
investigating and remediating the site. Such liability, or liability at
locations yet to be identified, could under certain circumstances materially
and adversely affect the Company. See "Business--Environmental Matters."
CONTROL BY PRINCIPAL STOCKHOLDERS
Upon completion of the Offering, CII Associates, L.P. (the "Partnership")
will own in the aggregate approximately 33.1% of the outstanding Common Stock
of the Company (and 30.6% of the outstanding Common Stock if the Underwriters
exercise their over-allotment option in full). Consequently, the Partnership,
through its Common Stock holdings and its representation on the current Board
of Directors, which includes three nominees designated by it, may exercise
significant influence over the policies and direction of the Company. See
"Ownership of Common Stock."
USE OF PROCEEDS TO REPAY DEBT OWING TO EXISTING STOCKHOLDERS
After the application of approximately $17.5 million of the net proceeds
(including approximately $700,000 for the success fee) to repay a portion of
amounts owing to its senior lenders, $1.45 million of the net proceeds will be
used to repay promissory notes held by Mr. Dabbagh and three other original
stockholders of the Predecessor. In addition, $7.5 million of the net proceeds
will be used to repay amounts owing under the Company's subordinated
promissory notes held by CII Associates, L.P. (the "Partnership"), which is
controlled by Stonebridge Partners and is the Company's principal stockholder,
and $4.7 million of the net proceeds will be used to redeem all of the
Company's outstanding Preferred Stock, including accrued and unpaid dividends,
held by the Partnership. See "Use of Proceeds" and "Ownership of Common
Stock."
ANTI-TAKEOVER PROVISIONS
The Certificate of Incorporation and Bylaws of the Company, as expected to
be amended prior to consummation of the Offering, will contain special notice
and other provisions the effect of which could be to discourage non-negotiated
takeover attempts, which some stockholders might otherwise deem to be in their
interests. As a Delaware corporation, the Company is also subject to certain
provisions of Delaware corporation law which may also discourage or make more
difficult a takeover attempt. See "Description of Capital Stock--Certain
Certificate of Incorporation, Bylaw and Statutory Provisions Affecting
Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON FUTURE MARKET
PRICES
Upon completion of the Offering, the Company will have 6,500,000 shares of
Common Stock outstanding (7,025,000 if the Underwriters' over-allotment option
is exercised in full). The 3,500,000 shares of Common
11
<PAGE>
Stock offered hereby (plus an additional 525,000 shares if the Underwriters'
over-allotment option is exercised in full) will be freely tradeable without
restriction or registration under the Securities Act, by persons other than
"affiliates" (as defined under the Securities Act) of the Company. All the
remaining 3,000,000 shares of Common Stock are "restricted securities," as
that term is defined under Rule 144 ("Rule 144") promulgated under the
Securities Act, and must be sold pursuant to Rule 144 or another exemption
from registration under the Securities Act. Substantially all of such
restricted securities will be subject to "lock-up" agreements under which the
holders of such shares will agree not to sell or otherwise dispose of any
shares of Common Stock for a period of 365 days without the prior written
consent of the Representatives of the Underwriters. In addition, the 3,000,000
shares of Common Stock held by the Company's current stockholders and the
participants in the Kilovac Share Exchange have certain rights with respect to
the registration of their restricted securities under the Securities Act. See
"Certain Relationships and Related Transactions--Registration Rights" and
"Underwriting."
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Common Stock prevailing from time to time. Sales of substantial
amounts of Common Stock, or the perception that such sales could occur, may
adversely affect prevailing market prices for the Common Stock and could
impair the Company's ability to raise capital through the sale of additional
equity securities. See "Shares Eligible for Future Sale."
DILUTION
The estimated initial public offering price is higher than the pro forma net
tangible book value per share of Common Stock. Investors purchasing shares of
Common Stock in the Offering will therefore incur immediate dilution in net
tangible book value per share of Common Stock of approximately $ 7.73. See
"Dilution."
NO PRIOR PUBLIC MARKET
Prior to the Offering, there has been no public market for the Common Stock.
There can be no assurance that an active public market will develop for the
Common Stock after the Offering. The initial public offering price will be
determined through negotiations among the Company and the Representatives of
the Underwriters and may not be indicative of the market price for the Common
Stock after the Offering. See "Underwriting" for factors to be considered in
determining the initial public offering price of the Common Stock.
12
<PAGE>
THE COMPANY
OVERVIEW
The Company is a leading designer, manufacturer and marketer of a broad line
of high performance electromechanical and electronic products and solenoids
for customers in the commercial/industrial equipment, commercial airframe,
defense/aerospace, communications, automatic test equipment and automotive
industries. The Company's relays are used to control current or signals in
electrical and electronic circuits, and are technological building blocks for
a wide range of products. While the Company is a broad-based supplier of
general and special purpose relays and solenoids, it has focused on
manufacturing high performance relay products and targeting customized
applications of these products to meet the needs of the markets it serves. The
Company's high performance relays are sophisticated, complex devices that have
been engineered for highly reliable performance over substantial periods of
time, often in adverse operating environments. The Company sells its products
to more than 2,100 customers including Boeing, AT&T, Rockwell, Hewlett
Packard, McDonnell Douglas and General Motors.
Relays are electrically operated switches which are used to control current
or signals in electrical or electronic circuits. Solenoids are
electromechanical devices which convert electric power into mechanical motion.
Because relays and solenoids are used to perform a basic function, they are
found in thousands of electrical and electronic devices. The Company's
business strategy has been to focus on providing high performance, highly
reliable products with sophisticated and customized applications. The
operations of the Company are conducted through its CII division, which
manufactures high performance signal level relays and solenoids (the "CII
Division"); the Midtex division, which manufactures general purpose relays
(the "Midtex Division"); the Kilovac division, which manufactures high
performance high voltage relays (the "Kilovac Division"); and the Hartman
Division, which manufactures high performance high current relays.
Communications Instruments, Inc. was initially formed in 1980 by Ramzi
Dabbagh (the Chairman, President and Chief Executive Officer of the Company)
and a group of private investors. The Company made its initial acquisition of
several relay and switch products from the CP Clare division of General
Instruments in 1980, and, since that initial acquisition, Mr. Dabbagh and his
management team have pursued a growth strategy of acquiring manufacturers of
relay products and related components, often consolidating the acquired
companies and/or their product lines into the Company's manufacturing
facilities, and eliminating significant overhead. The Company has completed 13
acquisitions since 1980 for an aggregate consideration of approximately $36.0
million, including the purchase of stand-alone companies, divisions of larger
companies and individual product lines. The Company believes that these
acquisitions have enabled it to become one of the five largest relay
manufacturers in North America.
In order to provide liquidity for the original shareholder group and
position the Company for future growth, Stonebridge Partners, together with
the management team, acquired the Predecessor in May 1993 (the "CII
Acquisition"). Since the CII Acquisition, the Company has acquired a high
performance relay product line of Deutsch Relays Inc. (the "Deutsch
Acquisition"), purchased certain assets of HiG Relays Inc. (the "HiG
Acquisition") and purchased in October 1995 an 80% interest in Kilovac, a
California-based relay manufacturer. Kilovac is a leading global supplier of
high voltage and direct current relays. See "Certain Relationships and Related
Transactions--Kilovac Acquisition." In July 1996 the Company purchased from
Figgie the assets of its Hartman Division. Hartman is a leading manufacturer
of high performance power relays with high current switching capability. These
high performance power relays have applications in the primary and secondary
power distribution circuits used in the commercial and military airframe,
aerospace and rail transportation industries. A significant portion of
Hartman's products are custom designed to meet customer requirements and
specifications. The Company believes that Hartman derived approximately 75% of
its 1995 revenues from sales as a sole source supplier. The Company also
recently acquired a 28% interest in a joint venture, CII Guardian
International Limited, to be operated in India with Guardian Controls Ltd., a
company with which the Company has had a longstanding business relationship
(the "Indian Joint Venture"). The Indian Joint Venture facility is expected to
13
<PAGE>
commence production of relays for the Company's global markets in the third
quarter of 1996 and thereafter expand into manufacturing of sub-assemblies and
solenoids. The Company has also developed manufacturing capability in The
People's Republic of China ("China") through subcontracting arrangements with
five manufacturers, which provide general purpose relays, sub-assemblies and
solenoids to the Company.
The Company's executive offices are located at 1396 Charlotte Highway,
Fairview, North Carolina, 28730, and its telephone number is (704) 628-1711.
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be $31.2
million (assuming an initial public offering price of $10.00 per share), after
deducting the estimated underwriting discounts and estimated offering expenses
payable by the Company.
The Company intends to use the net proceeds of the Offering as follows: (i)
approximately $16.8 million will be used to repay a portion of the $36.5
million owing under the Company's senior credit facility (the "Credit
Facility"), approximately $9.8 million of which was incurred in October 1995
to finance the Kilovac Acquisition and approximately $13.0 million of which
was incurred in July 1996 to finance the Hartman Acquisition;
(ii) approximately $1.45 million will be used to repay senior subordinated
promissory notes held by Mr. Dabbagh and three other original shareholders of
the Predecessor (the "Seller Notes"); (iii) approximately $1.7 million will be
used to repay the senior subordinated promissory note issued by the Company to
the Partnership on October 11, 1995 in connection with the Kilovac Acquisition
(the "Kilovac Note"); (iv) approximately $5.5 million will be used to repay
amounts (including interest) owing under the promissory note issued by the
Company to the Partnership in connection with the CII Acquisition (the "CII
Note"); (v) $300,000 will be used to repay three subordinated promissory notes
issued by the Company and held by the Partnership (the "Capital Notes"); and
(vi) approximately $4.7 million will be used to redeem all of the Company's
outstanding Cumulative Redeemable Preferred Stock held by the Partnership,
including accrued and unpaid dividends. In connection with the consummation of
the initial public offering, the Company will also pay to its senior lenders a
success fee in the amount of $700,000 (based on the assumed initial public
offering price).
The amounts outstanding under the Credit Facility are due on July 2, 2001,
and consist of revolving loans bearing interest at the lender's reference rate
plus 1.5% per annum, as well as term loans bearing interest at the lender's
reference rate plus 2% per annum. The Seller Notes and the Capital Notes each
bear interest at 9.25% per annum and mature on May 11, 2003. The CII Note
bears interest at 9.25% per annum and one-half of the unpaid principal of such
note is due on each of May 31, 2002 and May 31, 2003. The Kilovac Note also
bears interest at 9.25% per annum, and one-half of the unpaid principal on
that note is due on each of October 11, 2004 and October 11, 2005. Amounts due
under the CII Note and the Kilovac Note, $1.4 million and $115,000,
respectively, represent accrued and unpaid interest, bearing interest, in each
case, at an 11.75% per annum penalty rate.
If the Underwriters' over-allotment is exercised, the additional proceeds
received will be used by the Company to repay amounts owing to its senior bank
lenders under the Credit Facility.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its Common Stock
in the past and currently intends to retain its earnings to finance future
acquisitions and for general corporate purposes and therefore does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future. Any future determination to pay cash dividends will be made by the
Board of Directors in light of the Company's earnings, financial condition,
capital and other cash requirements and such other factors as the Board of
Directors deems relevant at such time. The Company's credit facilities have in
the past and are likely to continue to contain significant restrictions on the
Company's ability to pay cash dividends.
15
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and consolidated
capitalization of the Company (i) as of June 30, 1996 and (ii) as adjusted to
give effect to (a) the Kilovac Share Exchange, (b) the Hartman Acquisition and
(c) the sale of 3,500,000 shares of the Common Stock at an assumed initial
public offering price of $10.00 per share and the application of the estimated
net proceeds therefrom. See "Use of Proceeds." This table should be read in
conjunction with the Company's consolidated financial statements, including
the notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------
ACTUAL AS ADJUSTED
----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Current portion of long-term debt(1)............. $ 3,037 $ 37
=========== ===========
Long-term obligations(1):
Revolving loans(2)............................... $ 7,548 $ 7,694
Term loans....................................... 12,750 12,000
Seller Notes..................................... 1,450 --
Capital Notes.................................... 300 --
Capitalized lease obligation..................... 23 23
Subordinated notes payable to the Partnership.... 5,700 --
----------- -----------
Total long-term debt........................... 27,771 19,717
Accrued interest on subordinated note............ 1,470 --
Cumulative Redeemable Preferred Stock, $.01 par
value, 170,000 shares authorized; 40,000 shares
Preferred Stock and 40,000 shares Preferred
Stock Series A issued and outstanding, actual;
5,000,000 shares authorized
and none issued and outstanding, as
adjusted(3)..................................... 4,713 --
Common stock, $.01 par value, subject to put
options, 400,000 shares issued and
outstanding(4).................................. 165 --
----------- -----------
Total long-term obligations.................... 34,119 19,717
Stockholders' equity (deficit):
Common stock, $.01 par value, 2,150,000 shares
authorized and 2,150,000 shares issued and
outstanding, actual; and 25,000,000 shares
authorized and 6,500,000 shares issued and
outstanding, as adjusted........................ 22 65
Additional paid-in capital....................... 745 36,517
Retained earnings (deficit)...................... (2,660) (3,838)
Currency translation adjustment.................. (36) (36)
----------- -----------
Total stockholders' equity (deficit)........... (1,929) 32,708
----------- -----------
Total capitalization......................... $ 32,190 $ 52,425
=========== ===========
</TABLE>
- --------
(1) For a further description of the Company's debt, see Note 5 of Notes to
Consolidated Financial Statements.
(2) Approximately $13.0 million of the proceeds from the Offering will be used
to repay amounts incurred in July 1996 to finance the Hartman Acquisition.
Shortly after the consummation of the Offering, the Company expects to
amend its senior credit facility. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
(3) Includes accrued and unpaid dividends on the Cumulative Redeemable
Preferred Stock in the amount of $713,000.
(4) See Note 11 of Notes to Consolidated Financial Statements.
16
<PAGE>
DILUTION
As of June 30, 1996, the net tangible book value (deficit) applicable to the
Company's Common Stock, giving effect to the Hartman Acquisition and the
Kilovac Share Exchange, was $(21.5) million, or $(7.16) per share. Net
tangible book value per share is determined by dividing the net tangible book
value (tangible assets less liabilities) of the Company by the number of
shares of Common Stock outstanding at that date, in each case giving effect to
the Hartman Acquisition and the Kilovac Share Exchange as if such transactions
occurred on June 30, 1996. After giving effect to the sale of 3,500,000 shares
of Common Stock offered by the Company hereby (at an assumed initial public
offering price of $10.00 per share) and the application of the net proceeds
therefrom, the pro forma net tangible book value applicable to the Company's
Common Stock as of June 30, 1996 would have been $14.7 million or $2.27 per
share. This represents an immediate increase in pro forma net tangible book
value of $9.43 per share to existing stockholders and an immediate dilution of
$7.73 per share to investors purchasing shares in the Offering. The following
table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $10.00
Net tangible book value (deficit) per share before the Offer-
ing.......................................................... $(7.16)
Increase per share attributable to new investors.............. 9.43
------
Pro forma net tangible book value per share after the Offering.. 2.27
------
Dilution per share to new investors............................. $ 7.73
======
</TABLE>
The following table summarizes on a pro forma basis as of June 30, 1996, the
difference between the effective cash consideration paid by the Company's
existing stockholders for shares of Common Stock and the consideration paid by
the purchasers of the 3,500,000 shares of Common Stock to be sold by the
Company in the Offering, and non-cash consideration paid by the participants
in the Kilovac Share Exchange:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 2,550,000 39.2% $ 1,025,600 2.5% $ .40
New investors.............. 3,500,000 53.9 35,000,000 86.4 10.00
Participants in the Kilovac
Share Exchange............ 450,000 6.9 4,500,000(1) 11.1 10.00
--------- ----- ----------- -----
Total.................... 6,500,000 100.0% $40,525,600 100.0%
========= ===== =========== =====
</TABLE>
- --------
(1) Reflects non-cash consideration recorded in respect of the issuance of
450,000 shares of Common Stock in exchange for the 20% interest in Kilovac
not currently owned by the Company.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected consolidated financial information as of the dates and
for the periods indicated were derived from the audited consolidated financial
statements of the Company, except data as of, and for the six months ended,
July 2, 1995 and June 30, 1996 which were derived from the unaudited
consolidated financial statements of the Company but include all adjustments
(consisting of normal recurring adjustments) which management considers
necessary for a full presentation of results for these periods. The results of
operations for the six months ended June 30, 1996 are not necessarily
indicative of the results of operations that may be expected for the full year.
The following selected consolidated financial information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements of the
Company and the related notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
--------------------------------- ------------------------------------------------------------------------
FISCAL YEARS ENDED DECEMBER
31, SIX MONTHS ENDED
----------------------------- -----------------------------
FISCAL NINE PRO
YEAR MONTHS JANUARY 1, MAY 11, PRO FORMA
ENDED ENDED 1993 TO 1993 TO FORMA JUNE AS ADJUSTED
MARCH 31, DECEMBER 31, MAY 10, DECEMBER 31, AS ADJUSTED JULY 2, 30, JUNE 30,
1992 1992(1) 1993(2) 1993(2) 1994 1995 1995(3) 1995 1996 1996(4)
--------- ------------ ---------- ------------ ------- ------- ----------- ------- ------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales....... $20,318 $15,346 $ 8,378 $17,095 $31,523 $39,918 $68,408 $18,568 $27,455 $38,280
Cost of sales... 14,214 10,270 6,684 14,448 24,330 28,687 46,622 13,568 19,011 27,104
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit.... 6,104 5,076 1,694 2,647 7,193 11,231 21,786 5,000 8,444 11,176
Selling
expenses....... 1,381 1,065 713 1,344 2,382 3,229 4,961 1,409 2,382 2,538
General and
administrative
expenses....... 1,253 842 586 1,150 2,248 3,334 5,738 1,296 2,369 2,943
Research and
development.... 77 44 21 41 103 301 1,463 78 461 461
Amortization of
goodwill and
other
intangible
assets......... 70 53 45 117 177 251 809 110 246 390
Special
compensation
charge(5)...... -- -- -- -- -- 1,300 1,300 -- -- --
Environmental
expenses(6).... -- -- -- -- -- 951 951 -- -- --
Special
acquisition
expenses(7).... -- -- 153 266 -- 2,064 2,064 915 -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income
(loss)......... 3,323 3,072 176 (271) 2,283 (199) 4,500 1,192 2,986 4,844
Interest
expense........ 289 93 77 1,086 1,833 2,997 1,616 1,138 1,820 808
Other income
(expense)...... 14 100 42 -- -- 2 (81) 2 201 186
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss)
before taxes
and minority
interest....... 3,048 3,079 141 (1,357) 450 (3,194) 2,803 56 1,367 4,222
Income tax
expense
(benefit)...... -- -- -- (499) 178 (1,076) 1,237 22 554 1,697
Income
applicable to
minority
interest in net
income of
subsidiary..... -- -- -- -- -- 35 -- -- 51 --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income
(loss)......... 3,048 3,079 141 (858) 272 (2,153) 1,566 34 762 2,525
Preferred stock
dividend....... -- -- -- 102 185 210 -- 92 186 --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income
(loss)
available for
common stock... $ 3,048 $ 3,079 $ 141 $ (960) $ 87 $(2,363) $ 1,566 $ (58) $ 576 $ 2,525
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Pro forma net
income (loss)
per common
share.......... $ (.38) $ .03 $ (.93) $ .24 $ (.02) $ .23 $ .39
======= ======= ======= ======= ======= ======= =======
Average shares
outstanding.... 2,495 2,511 2,536 6,486 2,520 2,550 6,500
<CAPTION>
JUNE 30, 1996
-----------------------------------
PRO PRO FORMA
ACTUAL FORMA(8) AS ADJUSTED(4)
------- ----------- --------------
BALANCE SHEET
DATA:
(AT PERIOD END)
Working
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
capital........ $ 6,284 $ 6,853 $ 8,235 $ 7,313 $ 7,659 $ 9,904 $ 9,810 $11,598 $17,601 $22,402
Total assets.... 11,561 10,825 14,593 25,425 26,836 48,986 29,167 48,081 49,081 69,946
Total debt...... 2,451 1,065 4,292 17,393 17,947 30,902 19,835 30,808 43,782 19,754
Cumulative
redeemable
preferred
stock.......... -- -- -- 2,102 2,287 4,497 2,379 4,683 4,683 --
Total
stockholders'
equity
(deficit)...... 6,958 8,538 7,782 (969) (837) (2,505) (916) (1,929) (1,929) 32,708
</TABLE>
18
<PAGE>
- --------
(1) Reflects the change of the Predecessor's fiscal year end from March 31 to
December 31.
(2) The statement of operations data for the period ended May 10, 1993
represent the results of the Predecessor from January 1, 1993 and the
statement of operations data for the period from May 11, 1993 to December
31, 1993 represent the results of the Company. In allocating the purchase
price for the CII Acquisition, the Company recorded an increase in
inventory of $986,000 which was reflected in cost of sales from May
11,1993 to December 31, 1993 due to the revaluation of inventory to fair
market value. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--General."
(3) Gives effect to (i) the Hartman Acquisition and the Kilovac Acquisition,
(ii) the Kilovac Share Exchange and (iii) the sale by the Company of
3,500,000 shares of Common Stock in the Offering at an assumed initial
public offering price of $10.00 per share and the application of the
proceeds therefrom, as described in "Use of Proceeds" including, without
limitation, the repayment of a portion of outstanding debt and the
redemption of outstanding cumulative redeemable preferred stock and the
elimination of accrued and unpaid dividends in connection therewith, in
each case as adjusted to reflect the corresponding tax benefits
associated with such adjustments and as if such transactions had occurred
on January 1, 1995. See "Use of Proceeds," "Capitalization," "Pro Forma
Condensed Consolidated Financial Information," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Certain
Relationships and Related Transactions--Kilovac Acquisition" and the
Company's Consolidated Financial Statements and the Notes thereto.
(4) Gives effect to (i) the Hartman Acquisition, (ii) the Kilovac Share
Exchange and (iii) the sale by the Company of 3,500,000 shares of Common
Stock in the Offering at an assumed initial public offering price of
$10.00 per share and the application of the proceeds therefrom as
described in "Use of Proceeds," including, without limitation, the
repayment of debt and the redemption of outstanding cumulative redeemable
preferred stock and the elimination of accrued and unpaid dividends in
connection therewith, in each case as adjusted to reflect the
corresponding tax expenses/benefits associated with such adjustments and
as if such transactions had occurred on January 1, 1995 in the case of
the statement of operations data, and at June 30, 1996 in the case of
balance sheet data.
(5) Reflects a special compensation charge of $1.3 million which represents
(i) the difference between the purchase price of Common Stock issued to
seven employees on December 1, 1995 and the estimated fair market value
of such shares (based upon the appraised value on December 1, 1995) and
(ii) a related special cash bonus granted by the Company to the same
seven employees to pay taxes associated with such stock issuances.
(6) Reflects a non-recurring charge of $951,000 which represents primarily
the costs incurred to date and the present value of the estimated future
costs payable by the Company over the next 30 years for groundwater
remediation at the Fairview facility. See "Business--Environmental
Matters."
(7) Special acquisition expenses in 1993 consist primarily of costs related
to the relocation of a facility following the acquisition of Midtex
Relays and costs associated with relocating the operations acquired from
West Coast Electrical Manufacturing Co. and CP Clare. Such expenses in
1995 include costs primarily related to (i) the relocation of certain
assets acquired from HiG Relays and Deutsch Relays and (ii) the write-off
of an agreement with a business development consultant. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations."
(8) Gives effect to the Hartman Acquisition, as if such event had occurred on
June 30, 1996.
19
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
The pro forma condensed consolidated statement of operations data for the
fiscal year ended December 31, 1995 gives effect to (i) the October, 1995
purchase of 80% of the outstanding capital stock of Kilovac; (ii) the July,
1996 purchase of the assets of Figgie's Hartman Division; (iii) the Kilovac
Share Exchange; and (iv) the initial public offering of 3,500,000 shares of
the Company's Common Stock at an assumed initial public offering price of
$10.00 per share and the application of the proceeds therefrom, as if each
such transaction had occurred on January 1, 1995. See "Use of Proceeds,"
"Certain Relationships and Related Transactions--Kilovac Acquisition" and "The
Company."
The pro forma condensed consolidated statement of operations data for the
six months ended June 30, 1996 and the pro forma condensed consolidated
balance sheet at June 30, 1996 give effect to (i) the July, 1996 purchase of
the assets of Figgie's Hartman Division; (ii) the Kilovac Share Exchange; and
(iii) the initial public offering of 3,500,000 shares of the Company's Common
Stock at an assumed initial public offering price of $10.00 per share and the
application of the proceeds therefrom, as if such transactions had occurred on
January 1, 1995 and June 30, 1996, respectively. See "The Company" and "Use of
Proceeds."
The pro forma condensed consolidated financial information should be read in
conjunction with the consolidated financial statements of the Company, Kilovac
and the Hartman Division and the related notes thereto included elsewhere in
this Prospectus and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The pro forma condensed consolidated
financial information does not purport to represent what the Company's actual
results of operations would have been had such transactions occurred on such
dates nor does it purport to predict or indicate the results of future
operations.
20
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
FOR THE
KILOVAC FROM KILOVAC
JANUARY 1, ADJUSTMENTS ADJUSTMENTS ACQUISITION
1995 TO FOR THE FOR THE AND THE KILOVAC ADJUSTMENTS
OCTOBER 11, KILOVAC HARTMAN HARTMAN SHARE FOR THE
COMPANY(1) 1995 ACQUISITION HARTMAN ACQUISITION(10) ACQUISITION EXCHANGE(16) OFFERING(17)
---------- ------------ ----------- ------- --------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS
DATA:
Net sales....... $39,918 $11,029 $ -- $17,461 $ -- $68,408 $-- $ --
Cost of sales... 28,687 6,453 (174)(6) 11,417 219 (11) 46,602 20 --
------- ------- ------- ------- ------ ------- ---- -------
Gross profit.... 11,231 4,576 174 6,044 (219) 21,806 (20) --
Selling
expenses....... 3,229 1,287 -- 445 -- 4,961 --
General and
administrative
expenses....... 3,334 1,240 -- 2,753 (1,593)(12) 5,734 4 --
Research and
development.... 301 547 -- 615 -- 1,463 -- --
Amortization of
goodwill and
other
intangible
assets......... 251 -- 270 (7) -- 115 (13) 636 173 --
Special
compensation
charge(2)...... 1,300 -- -- -- -- 1,300 -- --
Environmental
expenses(3).... 951 -- -- 850 (850)(14) 951 -- --
Special
acquisition
expenses(4).... 2,064 -- -- -- -- 2,064 -- --
------- ------- ------- ------- ------ ------- ---- -------
Operating income
(loss)......... (199) 1,502 (96) 1,381 2,109 4,697 (197) --
Interest
expense........ 2,997 35 1,002 (8) 50 1,334 (15) 5,418 -- (3,802)
Other income
(expense)...... 2 9 -- (92) -- (81) -- --
------- ------- ------- ------- ------ ------- ---- -------
Income (loss)
before taxes
and minority
interest....... (3,194) 1,476 (1,098) 1,239 775 (802) (197) 3,802
Income tax
expense
(benefit)(5)... (1,076) 561 (402) 496 310 (111) (74) 1,422
Income
applicable to
minority
interest in net
income of
subsidiaries... 35 -- 43(9) -- -- 78 (78) --
------- ------- ------- ------- ------ ------- ---- -------
Net income
(loss)......... (2,153) 915 (739) 743 465 (769) (45) 2,380
Preferred stock
dividend....... 210 -- -- -- -- 210 -- (210)
------- ------- ------- ------- ------ ------- ---- -------
Net income
(loss)
available for
common stock... $(2,363) $ 915 $ (739) $ 743 $ 465 $ (979) $(45) $ 2,590
======= ======= ======= ======= ====== ======= ==== =======
Pro forma net
income (loss)
per common
share.......... $ (.93)
=======
Average shares
outstanding.... 2,536 450 3,500
<CAPTION>
PRO FORMA
AS
ADJUSTED(18)
--------------
<S> <C>
STATEMENT OF
OPERATIONS
DATA:
Net sales....... $68,408
Cost of sales... 46,622
--------------
Gross profit.... 21,786
Selling
expenses....... 4,961
General and
administrative
expenses....... 5,738
Research and
development.... 1,463
Amortization of
goodwill and
other
intangible
assets......... 809
Special
compensation
charge(2)...... 1,300
Environmental
expenses(3).... 951
Special
acquisition
expenses(4).... 2,064
--------------
Operating income
(loss)......... 4,500
Interest
expense........ 1,616(19)
Other income
(expense)...... (81)
--------------
Income (loss)
before taxes
and minority
interest....... 2,803
Income tax
expense
(benefit)(5)... 1,237
Income
applicable to
minority
interest in net
income of
subsidiaries... --
--------------
Net income
(loss)......... 1,566
Preferred stock
dividend....... --
--------------
Net income
(loss)
available for
common stock... $ 1,566
==============
Pro forma net
income (loss)
per common
share.......... $ 0.24
==============
Average shares
outstanding.... 6,486
</TABLE>
- -------
(1) Includes the results of operations of Kilovac from October 12, 1995 (the
date following the date of the Kilovac Acquisition) to December 31, 1995,
including net sales, gross profit and operating income of $3.7 million,
$1.8 million and $562,000, respectively.
(2) Reflects a special compensation charge of $1.3 million which represents
(i) the difference between the purchase price of Common Stock issued to
seven employees on December 1, 1995 and the estimated fair market value
of such shares (based upon the appraised value on December 1, 1995) and
(ii) a related special cash bonus granted by the Company to the same
seven employees to pay taxes associated with such stock issuances.
(3) Reflects a non-recurring charge of $951,000 which represents primarily
the costs incurred to date and the present value of the estimated future
costs payable by the Company over the next 30 years for groundwater
remediation at the Fairview facility. See "Business--Environmental
Matters."
(4) Special acquisition expenses primarily reflect costs related to (i) the
relocation of certain assets acquired from HiG Relays and Deutsch Relays
and (ii) the write-off of an agreement with a business development
consultant. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations."
21
<PAGE>
(5) Assumes an effective tax rate of 42.0% for Kilovac, 40.0% for Hartman and
44.1% for the pro forma as adjusted data.
(6) Reflects (i) decreased depreciation expenses relating to longer estimated
lives of certain equipment acquired in the Kilovac Acquisition and (ii)
the amortization of certain tooling expenditures previously expensed as
incurred by Kilovac.
(7) Reflects the amortization of goodwill ($185,000) and other intangible
assets ($85,000) recorded in connection with the Kilovac Acquisition.
(8) Reflects additional interest expense associated with $9.8 million of
senior debt and $1.7 million of subordinated debt incurred to finance the
Kilovac Acquisition. The interest rate on the $9.8 million senior debt is
10.5%. An increase of 1/8% in the interest rate would increase interest
expense by $12,000 for the year and a decrease of 1/8% in the interest
rate would lower the interest expense by $12,000 for the year. The
subordinated debt has a fixed interest rate of 9.25%.
(9) Reflects the 20% of Kilovac not held by the Company.
(10) The Company has accounted for the Hartman Acquisition as a purchase,
applying the provisions of Accounting Principles Board Opinion No. 16.
The purchase price has been allocated to the acquired assets and assumed
liabilities based on their estimated relative fair values as of the
closing. Such allocations are subject to final determination based on
valuations and other studies that may be completed after the closing.
Management believes that there will be no material changes to the
allocation of purchase price.
(11) Reflects (i) increased depreciation expenses corresponding to a higher
appraised value of certain equipment acquired in the Hartman Acquisition,
and (ii) the reclassification of building depreciation to rent expense
since the Company is leasing Hartman's facility. Does not give effect to
the write-off of $903,000 due to the purchase accounting adjustment for
the increase of inventories to estimated fair market value in connection
with the Hartman Acquisition. The lease of the Hartman facility is a 10
year lease, terminable at the Company's option. The first 5 years have an
average annual rent of approximately $85,000 and years 6-10 will have an
annual rent of approximately $159,000. For pro forma purposes, it was
assumed the lease would end in five years because management expects to
relocate locally within the next five years.
(12) Reflects elimination of estimated Figgie corporate charges of $1.8
million recorded by Hartman, which are partially offset by the Company's
estimate of accounting, legal and human resource expenses ($230,000).
These expense estimates are based on the Company's analysis of the on-
going costs of maintaining Hartman as a separate entity and have been
quantified based on discussions with professional accountants, attorneys,
human resource professionals and Figgie.
(13) Reflects the amortization of goodwill ($115,000) recorded in connection
with the Hartman Acquisition. Goodwill is amortized over 30 years.
(14) Reflects certain environmental expense associated with liabilities not
assumed by the Company.
(15) Reflects additional interest expense associated with approximately $13.0
million of bank debt incurred to finance the Hartman Acquisition. The
interest rate assumed on the $13.0 million of senior debt is 10.25% on
the term debt ($9.0 million) and 9.75% on the revolver debt ($4.0
million). An increase in these rates of 1/8% would increase interest
expense by $16,000 for the year and a decrease of 1/8% would lower
interest expense by $16,000 for the year.
(16) Reflects pro forma statement of operations data to give effect to the
Kilovac Share Exchange as adjusted to reflect the corresponding tax
benefit and as if such transaction had occurred on January 1, 1995. See
"Certain Relationships and Related Transactions--Kilovac Acquisition."
(17) Reflects pro forma statement of operations data to give effect to the
sale by the Company of 3,500,000 shares of Common Stock in the Offering
at an assumed initial public offering price of $10.00 per share and the
application of the proceeds therefrom, as described in "Use of Proceeds,"
including without limitation, the repayment of a portion of outstanding
debt and the redemption of outstanding cumulative redeemable preferred
stock and the elimination of accrued and unpaid dividends in connection
therewith as adjusted to reflect the corresponding tax expenses
associated with this adjustment and if such transactions had occurred on
January 1, 1995. See "Use of Proceeds" and "Capitalization."
(18) Reflects pro forma statement of operations data, as adjusted to give
effect to (i) the Hartman Acquisition and the Kilovac Acquisition, (ii)
the Kilovac Share Exchange and (iii) the sale by the Company of 3,500,000
shares of Common Stock in the Offering at an assumed initial public
offering price of $10.00 per share and the application of the proceeds
therefrom, as described in "Use of Proceeds", in each case as if such
transactions had occurred on January 1, 1995. See "Use of Proceeds,"
"Capitalization," "Pro Forma Condensed Consolidated Financial
Information," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Certain Relationships and Related
Transactions--Kilovac Acquisition" and the Company's Consolidated
Financial Statements and the Notes thereto.
(19) Reflects new debt of $19.7 million with an assumed interest rate of
8.00%.
22
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE KILOVAC ADJUSTMENTS PRO FORMA
HARTMAN SHARE FOR THE AS
COMPANY HARTMAN ACQUISITION(1) PRO FORMA EXCHANGE(7) OFFERING(8) ADJUSTED(9)
------- ------- -------------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $27,455 $10,825 $ -- $38,280 $-- $ -- $38,280
Cost of sales........... 19,011 7,942 141 (2) 27,094 10 -- 27,104
------- ------- ----- ------- ---- ------ -------
Gross profit............ 8,444 2,883 (141) 11,186 (10) -- 11,176
Selling expenses........ 2,382 156 -- 2,538 -- -- 2,538
General and
administrative
expenses............... 2,369 1,369 (797)(3) 2,941 2 -- 2,943
Research and
development............ 461 -- -- 461 -- -- 461
Amortization of goodwill
and other intangible
assets................. 246 -- 57 (4) 303 87 -- 390
------- ------- ----- ------- ---- ------ -------
Operating income
(loss)................. 2,986 1,358 599 4,943 (99) -- 4,844
Interest expense........ 1,820 693 (5) 2,513 -- (1,705) 808 (10)
Other (income) expense.. (201) 15 -- (186) -- -- (186)
------- ------- ----- ------- ---- ------ -------
Income (loss) before
taxes and minority
interest............... 1,367 1,343 (94) 2,616 (99) 1,705 4,222
Income tax expense
(benefit)(6)........... 554 536 (38) 1,052 (40) 685 1,697
Income applicable to
minority interest in
net income of
subsidiaries........... 51 -- -- 51 (51) -- --
------- ------- ----- ------- ---- ------ -------
Net income (loss)....... 762 807 (56) 1,513 (8) 1,020 2,525
Preferred stock
dividend............... 186 -- -- 186 -- (186) --
------- ------- ----- ------- ---- ------ -------
Net income (loss)
available for common
stock.................. $ 576 $ 807 $ (56) $ 1,327 $ (8) $1,206 $ 2,525
======= ======= ===== ======= ==== ====== =======
Pro forma net income per
common share........... $ 0.23 $ 0.39
======= =======
Average shares
outstanding............ 2,550 450 3,500 6,500
</TABLE>
- --------
(1) The Company has accounted for the Hartman Acquisition as a purchase,
applying the provisions of Accounting Principles Board Opinion No. 16. The
purchase price has been allocated to the acquired assets and assumed
liabilities based upon their estimated relative fair values as of the
closing. Such allocations are subject to final determination based on
valuations and other studies that may be completed after the closing.
Management believes that there will be no material changes to the
allocation of purchase price.
(2) Reflects (i) increased depreciation expenses corresponding to a higher
appraised value of certain equipment acquired in the Hartman Acquisition
and (ii) reclassification of building depreciation to rent expense since
the Company is leasing Hartman's facility. Does not give effect to the
write-off of $903,000 due to the purchase accounting adjustment for the
increase of inventories to estimated fair market value in connection with
the Hartman Acquisition. The lease of the Hartman facility is a 10 year
lease, terminable at the Company's option. The first 5 years have an
average annual rent of approximately $85,000 and years 6-10 will have an
annual rent of approximately $159,000. For pro forma purposes, it was
assumed the lease would end in five years because management expects to
relocate locally within the next five years.
(3) Reflects elimination of estimated Figgie corporate charges ($906,000)
recorded by Hartman, which are partially offset by the Company's estimate
of accounting, legal and human resource expenses ($115,000). These expense
estimates are based on the Company's analysis of the on-going costs of
maintaining Hartman as a separate entity and have been quantified based on
discussions with professional accountants, attorneys, human resource
professionals and Figgie.
23
<PAGE>
(4) Reflects the amortization of goodwill ($57,000) recorded in connection
with the Hartman Acquisition. Goodwill is amortized over 30 years.
(5) Reflects additional interest expense associated with approximately $13.0
million of bank debt incurred to finance the Hartman Acquisition. The
interest rate assumed on the $13.0 million of senior debt is 10.25% on the
term debt ($9.0 million) and 9.75% on the revolver debt ($4.0 million). An
increase in these rates of 1/8% would increase interest expense by $8,000
for the six month period and a decrease of 1/8% would lower interest
expense by $8,000 for the six month period.
(6)Assumes an effective tax rate of 39.9% for Hartman and 40.2% for the pro
forma as adjusted data.
(7) Reflects pro forma statement of operations data to give effect to the
Kilovac Share Exchange as adjusted to reflect the corresponding tax
benefit and as if such transaction had occurred on January 1, 1995. See
"Certain Relationships and Related Transactions--Kilovac Acquisition."
(8) Reflects pro forma statement of operations data to give effect to the sale
by the Company of 3,500,000 shares of Common Stock in the Offering at an
assumed initial public offering price of $10.00 per share and the
application of the proceeds therefrom, as described in "Use of Proceeds,"
including without limitation, the repayment of a portion of outstanding
debt and the redemption of outstanding cumulative redeemable preferred
stock and the elimination of accrued and unpaid dividends in connection
therewith as adjusted to reflect the corresponding tax expenses associated
with this adjustment and if such transactions had occurred on January 1,
1995. See "Use of Proceeds" and "Capitalization."
(9) Reflects pro forma statement of operations data, as adjusted to give
effect to (i) the Hartman Acquisition and the Kilovac Acquisition, (ii)
the Kilovac Share Exchange and (iii) the Offering and the application of
the estimated net proceeds therefrom, including, without limitation, the
repayment of debt and the redemption of outstanding cumulative redeemable
preferred stock and the elimination of accrued and unpaid dividends in
connection therewith, in each case as adjusted to reflect the
corresponding tax expenses/benefits associated with such adjustments and
as if such events occurred on January 1, 1995.
(10) Reflects new debt of $19.7 million at an assumed interest rate of 8.00%
for six months.
24
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS
ADJUSTMENTS FOR THE
FOR THE OFFERING AND PRO FORMA
HARTMAN THE KILOVAC AS
COMPANY HARTMAN ACQUISITION(1) PRO FORMA SHARE EXCHANGE ADJUSTED(14)
-------- -------- -------------- --------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Accounts receivable,
net.................. $ 8,616 $ 2,809 $ -- $ 11,425 $ -- $ 11,425
Inventories........... 10,671 6,503 903 (2) 18,077 47 (9) 18,124
Other current assets.. 3,813 28 (64)(2) 3,777 -- 3,777
-------- -------- ------- -------- ------- --------
Total current
assets............. 23,100 9,340 839 33,279 47 33,326
Property, plant and
equipment, net......... 12,672 1,339 1,833 (3) 15,844 169 (9) 16,013
Goodwill................ 7,596 -- 3,453 (4) 11,049 4,435 (10) 15,484
Other assets............ 5,713 1,427 (1,081)(5) 6,059 (936)(11) 5,123
-------- -------- ------- -------- ------- --------
$ 49,081 $ 12,106 $ 5,044 $ 66,231 $ 3,715 $ 69,946
======== ======== ======= ======== ======= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued expenses..... $ 6,719 $ 6,126 $(1,950)(6) $ 10,895 $ (87) $ 10,808
Accrued interest...... 1,667 -- -- 1,667 (1,667)(12) --
Current portion of
long-
term debt............ 3,037 489 (489)(6) 3,037 (3,000)(12) 37
Current payable due to
minority stockholders
of subsidiary........ 79 -- -- 79 -- 79
-------- -------- ------- -------- ------- --------
Total current
liabilities........ 11,502 6,615 (2,439) 15,678 (4,754) 10,924
Long-term debt.......... 20,321 -- 12,974 (7) 33,295 (13,578)(12) 19,717(16)
Notes payable to
stockholders........... 7,450 -- -- 7,450 (7,450)(12) --
Other long-term debt,
minority interest and
other.................. 6,889 372 (372)(8) 6,889 (292)(13) 6,597
Capital stock subject to
mandatory redemption/
put option(15)......... 4,848 -- -- 4,848 (4,848)(12) --
-------- -------- ------- -------- ------- --------
Total long-term
obligations........ 39,508 372 12,602 52,482 (26,168) 26,314
Stockholders' equity
(deficit)(17).......... (1,929) 5,119 (5,119) (1,929) 34,637 (12) 32,708
-------- -------- ------- -------- ------- --------
$ 49,081 $ 12,106 $ 5,044 $ 66,231 $ 3,715 $ 69,946
======== ======== ======= ======== ======= ========
</TABLE>
- --------
(1) The Company has accounted for the Hartman Acquisition as a purchase,
applying the provisions of Accounting Principles Board Opinion No. 16. The
purchase price has been allocated to the acquired assets and assumed
liabilities based upon their estimated relative fair values as of the
closing. The following summarizes the purchase price allocation of the
Hartman Acquisition as of the date of the consummation of the acquisition
(July 2, 1996):
<TABLE>
<S> <C>
Current Assets: $10,229
Property & Equipment: $ 3,172
Intangibles & Other Assets: $ 3,799
Liabilities Assumed: $(4,176)
-------
Purchase Price $13,024
</TABLE>
Such allocations are subject to final determination based on valuations and
other studies that may be completed after the closing. Management believes
that there will be no material changes to the allocation of purchase price.
25
<PAGE>
(2) Reflects the purchase accounting adjustment to increase inventories to
estimated fair market value in connection with the Hartman Acquisition
($903,000) offset by the reclassification of the deposit for the Hartman
Acquisition previously made by the Company ($50,000) and the elimination
of Hartman's current assets not purchased by the Company ($14,000).
(3) Reflects (i) the capitalization of tooling previously expensed by Hartman
($1.4 million) and (ii) the purchase accounting adjustment to increase
equipment to estimated fair market value ($1.0 million), offset by (iii)
the elimination of the Hartman building not purchased by the Company
($613,000).
(4) Reflects the goodwill adjustment in connection with the Hartman
Acquisition.
(5) Reflects deferred financing costs relating to the Hartman Acquisition
($346,000), offset by the elimination of Hartman's prepaid pension asset
for the pension obligations not assumed by the Company ($1.4 million).
(6) Reflects the elimination of the following liabilities not assumed in
connection with the Hartman Acquisition: (i) environmental liability
($850,000), (ii) the current portion of a capital lease obligation
($489,000) and (iii) other accrued expenses ($929,000).
(7) Reflects estimated long-term debt incurred to finance the Hartman
Acquisition.
(8) Reflects the elimination of the long-term portion of the capital lease
obligation not assumed by the Company in connection with the Hartman
Acquisition.
(9) Reflects the purchase accounting adjustments to increase inventories
($47,000) and property plant and equipment ($169,000) to estimated fair
market value in connection with the Kilovac Share Exchange.
(10) Reflects the goodwill adjustment in connection with the Kilovac Share
Exchange.
(11) Reflects other intangible assets ($458,000) resulting from the Kilovac
Share Exchange offset by the write-off of deferred financing costs due to
the satisfaction of senior bank indebtedness with the estimated proceeds
of the Offering ($1.0 million) and the write-off of pre-paid offering
costs in connection with the Offering ($383,000).
(12) Reflects (i) the net proceeds from the Offering ($31.2 million) used to
reduce indebtedness and accrued interest thereon, and to redeem
cumulative redeemable preferred stock including accrued and unpaid
dividends, (ii) the issuance of Common Stock in connection with the
Kilovac Share Exchange ($4.5 million) offset by (iii) the net of the
write-off of certain deferred costs, the payment of the unaccrued success
fee in connection with the Offering and the reclassification of the
Common Stock subject to put options ($1.1 million).
(13) Reflects the purchase accounting adjustment to increase deferred tax
liabilities in connection with the Kilovac Share Exchange ($271,000)
offset by the payment of the accrued portion of a success fee ($477,000)
to the Company's senior lenders and the elimination of the minority
interest in subsidiary in connection with the Kilovac Share Exchange
($86,000).
(14) Gives effect to (i) the Hartman Acquisition, (ii) the Kilovac Share
Exchange, (iii) the sale by the Company of 3,500,000 shares of Common
Stock in the Offering at an assumed initial public offering price of
$10.00 per share, and as if such transactions had occurred on June 30,
1996. See "Use of Proceeds," "Capitalization," "Pro Forma Condensed
Consolidated Financial Information," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Certain
Relationships and Related Transactions--Kilovac Acquisition" and the
Company's Consolidated Financial Statements and Notes thereto.
(15) See Note 11 of Notes to Consolidated Financial Statements.
(16) The Company expects to have commitments of term debt repayment for the
next five years of $600,000 per quarter starting October 31, 1996 under
the expected new credit facility. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
(17) The historical and pro forma as adjusted number of common shares
outstanding of the Company at June 30, 1996 are 1,020,000 and 6,500,000,
respectively.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Communications Instruments, Inc. was initially formed in 1980 by Ramzi
Dabbagh (the Company's Chairman, President and Chief Executive Officer) and a
group of private investors. The Company made its initial acquisition of
several relay and switch products from the CP Clare division of General
Instruments in 1980, and, since that initial acquisition, Mr. Dabbagh and his
management team have pursued a growth strategy of acquiring manufacturers of
relay products and related components, often consolidating the acquired
companies and/or their product lines into the Company's manufacturing
facilities and eliminating significant overhead. In order to provide liquidity
for the original shareholder group and to position the Company for future
growth, in May 1993 CII was acquired by the Company (the "CII Acquisition") in
a leveraged buyout transaction sponsored by Stonebridge Partners and members
of management. The $21.0 million acquisition price was financed by $11.6
million of senior bank debt; the proceeds of $4.0 million of subordinated
notes issued to CII Associates, L.P., a partnership controlled by Stonebridge
Partners (the "Partnership"); $2.0 million aggregate redemption value of
preferred stock issued to the Partnership; approximately $2.0 million of notes
issued to shareholders of the Predecessor (including a note of approximately
$370,000 issued to Mr. Dabbagh, of which approximately $223,000 is currently
owing to Mr. Dabbagh); and $960,000 of common equity issued to the Partnership
and members of management. The CII Acquisition was accounted for as a purchase
for financial reporting purposes and, accordingly, the assets and liabilities
of the Predecessor were recorded at their estimated fair values at the date of
acquisition.
The Company has in the past and will continue in the future to focus its
efforts on growing its business internally and through acquisitions. Since the
CII Acquisition, the Company has completed 13 acquisitions of other companies
or product lines for aggregate consideration of $36.0 million, including the
1995 Kilovac Acquisition and the Hartman Acquisition which was consummated in
July 1996. The Company has historically financed its acquisitions through a
combination of secured bank debt and internally generated funds.
In October 1995 the Company acquired an 80% interest in Kilovac, which was
financed with $9.8 million of secured bank debt, $1.7 million of subordinated
debt and the issuance of $2.0 million of preferred stock. Kilovac's operations
and facility were maintained as a stand-alone operation and therefore
significant integration costs were not incurred. The Company will exchange
450,000 shares of its Common Stock (based upon an assumed initial public
offering price of $10.00 per share) for the remaining 20% interest in Kilovac
in conjunction with the consummation of the Offering. See "Certain
Relationships and Related Transactions--Kilovac Acquisition."
In July 1996 the Company purchased the assets of the Hartman Division from
Figgie for $12.0 million plus expenses. The Company financed the Hartman
Acquisition with secured bank debt, and a portion of the proceeds obtained in
the Offering will be utilized to repay a portion of this debt. See "The
Company" and "Use of Proceeds." In connection with the Hartman Acquisition,
the Company has assumed a reserve previously established by Hartman of
approximately $2.6 million in anticipation of losses that the Company expects
to incur as a significant unprofitable Hartman contract is fulfilled over the
next two years.
As described herein, the amount of integration costs incurred by the Company
in connection with each acquisition depends upon the size and nature of the
acquisition. During the initial integration phase of smaller acquisitions, the
Company typically has incurred integration-related selling, general and
administrative expenses for training of staff members, for the conversion of
information systems and for duplicate rents and other operating costs in
connection with the consolidation of facilities.
The Company intends to utilize a portion of the proceeds of the Offering
made hereby to pay a portion of the amounts outstanding under its senior
credit facility. See "Use of Proceeds." In connection therewith, upon the
closing of the Offering (expected to occur during the quarter ending December
31, 1996), the Company is required to pay a one-time success fee of
approximately $700,000 (assuming an initial public offering price of $10.00
per share) to its senior lender, of which $223,000 has not been accrued and
which will be expensed at the time of the Offering, and will incur an expense
of $1.0 million relating to the write-off of deferred financing charges.
27
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated information derived
from the consolidated statements of operations expressed as a percentage of
net sales, and the percentage change in such items compared to the same period
in the prior year. There can be no assurance that the trends in sales growth
or operating results will continue in the future.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES PERCENTAGE INCREASE
------------------------------------------- ----------------------------------
YEARS ENDED
DECEMBER 31, SIX MONTHS ENDED SIX MONTHS
-------------- ----------------- ENDED JULY 2,
MAY 11- MAY 11- 1995 TO SIX
DEC 31, JULY 2, JUNE 30, DEC 31, 1993 1994 TO MONTHS ENDED
1993 1994 1995 1995 1996 TO 1994 1995 JUNE 30, 1996
------- ------ ------ ------- -------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 84.4% 26.6% 47.9%
Cost of sales........... 84.5 77.2 71.9 73.1 69.2 68.4 17.9 40.1
----- ------ ------ ----- ----- ------ ----- -----
Gross profit............ 15.5 22.8 28.1 26.9 30.8 171.7 56.1 68.9
Selling expenses........ 7.9 7.6 8.1 7.6 8.7 77.2 35.6 69.1
General and
administrative
expenses............... 6.7 7.1 8.4 7.0 8.6 95.5 48.3 82.8
Research and
development............ 0.2 0.3 0.8 0.4 1.7 151.2 192.2 491.0
Amortization of goodwill
and other intangible
assets................. 0.7 0.6 0.6 0.6 0.9 51.3 41.8 123.6
Special compensation
charge................. -- -- 3.3 -- -- -- -- --
Environmental expenses.. -- -- 2.4 -- -- -- -- --
Special acquisition
expenses............... 1.6 -- 5.2 4.9 -- * -- *
----- ------ ------ ----- ----- ------ ----- -----
Operating income
(loss)................. (1.6) 7.2 (0.5) 6.4 10.9 * * 150.5
Interest expenses....... 6.4 5.8 7.5 6.1 6.6 68.8 63.5 59.9
Other income (expense).. -- -- -- -- (0.7) -- -- *
----- ------ ------ ----- ----- ------ ----- -----
Income (loss) before
taxes.................. (7.9) 1.4 (8.0) 0.3 5.0 (133.2) * *
Income tax expense
(benefit).............. (2.9) 0.6 (2.7) 0.1 2.0 * * *
----- ------ ------ ----- ----- ------ ----- -----
Income applicable to
minority interest in
net income of
subsidiaries........... -- -- 0.1 -- 0.2 -- -- --
----- ------ ------ ----- ----- ------ ----- -----
Net income (loss)....... (5.0) 0.9 (5.4) 0.2 2.8 (131.7) * *
Preferred stock
dividend............... (0.6) 0.6 0.5 0.5 0.7 81.4 13.5 102.2
----- ------ ------ ----- ----- ------ ----- -----
Net income (loss)
available for common
stock (5.6)% 0.3% (5.9)% (0.3)% 2.1% * * *
===== ====== ====== ===== ===== ====== ===== =====
</TABLE>
- --------
* Not Meaningful.
Six Months Ended June 30, 1996 Compared to Six Months Ended July 2, 1995
Net sales for the six months ended June 30, 1996 increased $8.9 million, or
47.9%, to $27.5 million from $18.6 million for the corresponding period in
1995. Excluding the Kilovac Acquisition, net sales of the Company for the six
months ended June 30, 1996 increased by $1.2 million, or 6.4%, compared to the
corresponding period in 1995. The increase was due to growth in sales of high
performance relays ($2.6 million) and electronic products ($800,000), which
growth was partially offset by the expiration of a significant general purpose
relay contract ($890,000), increased competition for certain general purpose
relays ($596,000), peak demand of certain general purpose relays ($495,000)
and a decrease in sales of certain mature general purpose relay products
($200,000). Management believes that a portion of the mature general purpose
relay market will decline from the current revenue levels at approximately 10-
15% a year or $200,000 to $300,000 for six months.
The Company's gross profit for the six months ended June 30, 1996 increased
by $3.4 million to $8.4 million compared to the same period in 1995. Gross
profit as a percentage of net sales increased to 30.8% for the six months
ended June 30, 1996 from 26.9% for the same period in 1995. The increase in
gross profit was due in part to the acquisition of Kilovac. Excluding Kilovac,
the Company's gross profit for the six months ended June 30, 1996 increased by
$151,000, or 3.0%, from gross profit in the same period in 1995, and gross
profit as a percentage of net sales decreased from 26.9% for the six months
ended July 2, 1995 to 26.1% for the same period in 1996. The increase in
dollar amount was primarily due to the implementation of increased prices on
28
<PAGE>
certain of the Company's high performance products and cost reductions in both
materials and manufacturing expenses and was partially offset by lower margins
for high performance relays due to start-up costs incurred at the Company's
new Asheville facility.
Selling expenses increased to $2.4 million for the six months ended June 30,
1996 from $1.4 million for the corresponding period in 1995. The increase in
dollar amount of expense was primarily due to the acquisition of Kilovac.
Excluding Kilovac, selling expenses for the Company for the six months ended
June 30, 1996 were $1.4 million (7.3% of net sales), which represented an
increase of $28,000 from such expenses in the corresponding period in 1995.
Selling expense without Kilovac decreased from 7.6% of net sales in the first
half of 1995 to 7.3% for the same period in 1996. This increase in dollar
amount was primarily due to an increase in commissions associated with the
Company's additional sales.
General and administrative expenses increased to $2.4 million for the six
months ended June 30, 1996 from $1.3 million for the corresponding period in
1995. This increase was due primarily to the acquisition of Kilovac. Excluding
Kilovac, general and administrative expenses were $1.6 million, or 8.0% of net
sales, for the six months ended June 30, 1996, which represents an increase of
$284,000, or 21.9%, from general and administrative expenses for the
corresponding period in 1995. The increase in general and administrative
expenses (excluding Kilovac) was primarily due to the start-up of production
at the new Asheville facility and the addition of new management.
Research and development expenses increased to $461,000, or 1.7% of net
sales, for the six months ended June 30, 1996 compared to $78,000, or 0.4% of
net sales, for the corresponding period in 1995. The increase in dollar amount
was primarily due to the $356,000 of research and development expenses of
Kilovac.
Amortization of goodwill and other intangible assets was $246,000, or 0.9%
of net sales, for the six months ended June 30, 1996 compared to $110,000, or
0.6% of net sales, for the corresponding period in 1995. The increase in
dollar amount primarily reflects amortization of goodwill and other intangible
assets related to the acquisition of Kilovac ($174,000), offset by the
completed amortization of intangible assets associated with the acquisition of
the Sigma Relay Division of Pacific Scientific Co. (consummated in July 1990)
($38,000).
Special acquisition expenses were $915,000 for the first half of 1995. No
special acquisition expenses were incurred in the first half of 1996. The
costs in the first half of 1995 primarily related to the relocation of certain
assets acquired in the Hi-G Acquisition and the Deutsch Acquisition to the new
manufacturing facility in Asheville, N.C. and the commencement of production
at that facility.
Interest expense increased to $1.8 million in the six months ended June 30,
1996 from $1.1 million for the same period in 1995. The increase reflects
additional borrowings incurred to complete the Kilovac Acquisition ($11.5
million), and the accrual of additional amounts due to the Company's bank
lenders and was partially offset by a decrease in market interest rates. In
the first six months of 1995, the average amount of senior debt was
approximately $13.2 million at an average rate of 10.5% and the average amount
of subordinated debt was $5.8 million at a rate of 9.25%, compared to an
average senior debt of $22.6 million at an average rate of 10.3% and an
average amount of subordinated debt of $7.5 million at a rate of 9.25% for the
six months ended June 30, 1996. Interest expense includes the accrual of the
success fee, penalty interest on subordinated debt, amortization of loan
origination fees, non-use fees and other miscellaneous interest expenses
including the portion of rental expense on capitalized leases allocable to
interest.
Other income increased to $201,000 in the six months ended June 30, 1996
from $2,000 for the same period in 1995. Of other income in 1996, $204,000
represents 72% of the net gain on the sale of certain high performance relay
product line assets to the Indian Joint Venture. Due to the Company's 28%
ownership of the Indian Joint Venture, 28% of the net gain has been deferred.
Income taxes were an expense of $554,000 in the six months ended June 30,
1996, compared to expense of $22,000 in the same period of 1995. Income taxes
as a percentage of income before taxes were 40.5% in the six months ended June
30, 1996 and 39.3% for the same period in 1995, with the increase in
percentage due to additional amortization of goodwill from the Kilovac
Acquisition, which is not deductible for income tax purposes.
29
<PAGE>
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net sales for 1995 increased by $8.4 million, or 26.6%, to $39.9 million
from $31.5 million in 1994. The increase was primarily the result of the
acquisition of Kilovac, which represented $3.7 million in sales for the period
from October 12, 1995 (the date following the date of the acquisition) to
December 31, 1995, and the HiG Acquisition and Deutsch Acquisition which
represented $1.7 million and $1.6 million in sales, respectively, from the
date of the acquisition to December 31. Excluding these acquisitions, net
sales of the Company for 1995 increased by $1.4 million, or 4.5%, from sales
in 1994. The Company attributes this increase to increased sales of its high
performance and general purpose relays and solenoid products.
The Company's gross profit for 1995 increased by $4.0 million to $11.2
million in 1995 from $7.2 million in 1994. Gross profit as a percentage of net
sales increased from 22.8% in 1994 to 28.1% in 1995. The increases in gross
profit and gross profit as a percentage of net sales were due, in part, to the
acquisition of Kilovac. From October 12, 1995, the date following the date of
the Kilovac Acquisition, to December 31, 1995, Kilovac had a gross profit
margin of 49.6%, as compared to the 28.1% overall gross profit margin of the
Company. Excluding Kilovac, the Company's gross profit for 1995 increased by
$2.2 million, or 30.8%, from gross profit in 1994, and gross profit as a
percentage of net sales increased from 22.8% in 1994 to 25.9% in 1995. This
increase was due to the implementation of increased prices on certain of the
Company's high performance products and cost reductions in both materials and
manufacturing expenses. Gross profit in 1995 was also favorably impacted by
the devaluation of the Mexican peso in that year. The increase in gross profit
was partially offset by integration costs incurred in connection with the
Company's 1995 acquisitions and additional provisions for obsolete inventory.
Selling expenses increased to $3.2 million in 1995 from $2.4 million in
1994. The increase in dollar amount of selling expense was primarily due to
the acquisition of Kilovac. Excluding Kilovac, selling expenses for the
Company for 1995 were $2.8 million (7.6% of net sales), which represents an
increase of $371,000 from 1994. The increase in dollar amount was primarily
due to an increase in commissions associated with the Company's additional
sales.
General and administrative expenses increased in 1995 to $3.3 million from
$2.2 million in 1994. The Company attributes this increase primarily to the
acquisition of Kilovac. Excluding Kilovac, general and administrative expenses
of the Company were $2.9 million, or 7.9% of net sales, for 1995, which
represents an increase of $627,000, or 27.9%, from general and administrative
expenses in 1994. The increase in general and administrative expenses was
primarily due to the start-up of production of certain of the Company's high
performance relays at a new facility, the addition of new management and
increased executive compensation and costs incurred reviewing potential
acquisitions.
Research and development expenses increased to $301,000 in 1995, or 0.8% of
net sales, compared to $103,000, or 0.3% of net sales in 1994. The increase
was due primarily to the $181,000 of research and development expenses of
Kilovac from October 12, 1995 to the end of that year.
Amortization of goodwill and other intangible assets was $251,000 in 1995,
or 0.6% of net sales, compared to $177,000, or 0.6% of net sales, in 1994. The
increase in dollar amount primarily reflects the acquisition of Kilovac.
During 1995, the Company recorded a special compensation charge of $1.3
million, which represents (i) the difference between the purchase price of
Common Stock sold to seven employees on December 1, 1995 and the estimated
fair market value of such shares (based upon the appraised value at December
1, 1995) and (ii) a related special cash bonus granted by the Company to the
same seven employees to pay taxes associated with such stock. See "Certain
Relationships and Related Transactions--Issuance of Securities by the
Company."
30
<PAGE>
During 1995 the Company recorded a non-recurring charge of $951,000, which
represents primarily the costs incurred to date and the present value of the
estimated future costs payable by the Company over the next 30 years for
groundwater remediation at the Fairview facility. During 1995 the Company
entered into a settlement with the prior owner of the Fairview facility which
determined the liability, as between the two parties, for current and future
expenses related to the remediation of the facility. See "Business--
Environmental Matters."
Special acquisition expenses were $2.1 million in 1995. These expenses
related primarily to (i) the relocation of certain acquired assets resulting
from the HiG Acquisition and the Deutsch Acquisition to a new manufacturing
facility in Asheville, North Carolina and the commencement of production at
such facility and (ii) the write-off of a contract with a business development
consultant.
Interest expense increased to $3.0 million in 1995 from $1.8 million in
1994. The increase reflects additional borrowings of approximately $13.0
million for the Kilovac Acquisition and HiG Relay asset acquisition, an
increase in market interest rates and an accrual for additional amounts due to
the Company's bank lenders. Average senior debt outstanding for the year ended
December 31, 1995 was $15.6 million at an average interest rate of 10.44%, and
average subordinated debt outstanding was $6.1 million at an interest rate of
9.25%. For the year ended December 31, 1994, the average amount borrowed as
senior debt was $11.2 million at an average rate of 8.83% and the average
borrowed as subordinated debt was $5.8 million at a rate of 9.25%. Interest
expense includes the accrual of the success fee, penalty interest on
subordinated debt, amortization of loan origination fees, non-use fees and
other miscellaneous interest expenses including the portion of rental expense
on capitalized leases allocable to interest.
Income taxes were a benefit of $1.1 million in 1995, compared to an expense
of $178,000 in the same period in 1994. Income taxes (benefit) as a percentage
of income (loss) before taxes were 33.7% in 1995 compared to 39.6% in 1994.
The lower benefit in 1995 was due primarily to additional Mexican income taxes
of approximately $16,000 that arose in 1995 due to changes in Mexican tax law.
Year Ended December 31, 1994 Compared to the Period from May 11, 1993 to
December 31, 1993
The Company's net sales increased by $6.0 million, or 23.8%, to $31.5
million in 1994 from $25.5 million for the full year of 1993. Approximately
$2.8 million of the increase was due to the inclusion of the West Coast
Electrical Manufacturing Co. and Midtex Relays acquisitions consummated in
1993 for the full year of 1994. Excluding these acquisitions, the Company's
net sales increased by $3.2 million, or 16.7%. This increase was primarily due
to growth of the Company's high performance and general purpose relays.
Gross profit in 1994 increased to $7.2 million from $2.6 million for the
period from May 11, 1993 to December 31, 1993 (the "1993 Period"). Gross
profit as a percentage of net sales increased to 22.8% in 1994 from 15.5% in
1993. The increase in gross margin dollars primarily reflected the full year
in 1994 contrasted with the 1993 Period, as well as a 1993 purchase accounting
adjustment of $986,000 (reflected in 1993 cost of sales) due to the
revaluation of inventory to fair market value as a result of the CII
Acquisition, and $1.3 million of the 1994 increase reflected the full year
impact of the Company's 1993 acquisitions as well as the Company's
acquisitions in 1994. Excluding the accounting adjustment and acquisitions,
gross profit as a percentage of net sales in 1994 increased from the 1993
Period due to increased volume of general purpose relays and increased
efficiencies at the Company's Midtex Division, increased solenoid business
resulting from new product developments and increased volume and efficiencies
of the Company's high performance relays.
Selling expenses were $2.4 million in 1994 compared to $1.3 million for the
1993 Period. Selling expenses as a percentage of net sales were 7.6% in 1994
compared to 7.9% in 1993. The increase in the dollar amount of selling
expenses resulted from the full year in 1994 contrasted with the 1993 Period,
as well as the full integration of the Midtex operation in 1994 and the
addition of management and commission increases resulting from increased
sales. The percentage decrease in selling expenses from 1993 to 1994 was due
to the integration of the sales representatives of the newly acquired Midtex
Division with the sales network of the CII Division, which resulted in the
reduction of commissions as a percentage of sales.
31
<PAGE>
General and administrative expenses increased in 1994 to $2.2 million, or
7.1% of net sales, from $1.2 million, or 6.7% of net sales, for the 1993
Period. The increase in dollar amount of general and administrative expenses
was due to the full year in 1994 contrasted with the seven months in 1993, as
well as the full year impact of the Company's 1993 acquisitions and the
addition of management and other personnel to support the growth of the
business.
Research and development expenses were $103,000 or 0.3% of net sales in
1994, compared to $41,000, or 0.2% of net sales, for the 1993 Period. The
increase was due to the full year in 1994 contrasted with the 1993 Period, as
well as additional personnel.
Amortization of goodwill and other intangible assets increased to $177,000,
or 0.6% of net sales, in 1994 from $117,000, or 0.7% of net sales, for the
1993 Period.
Special acquisition expenses were $266,000, or 1.6% of net sales, for the
1993 Period. The costs in 1993 were primarily related to the acquisition,
shutdown, relocation and start-up of the solenoid product line and the costs
related to restructuring the Midtex operation. No special acquisition expenses
were incurred in 1994.
Interest expense increased to $1.8 million in 1994 from $1.1 million for the
1993 Period. For the year ended December 31, 1994, the average amount borrowed
as senior debt was $11.2 million at an average rate of 8.83% and the average
amount borrowed as subordinated debt was $5.8 million at a rate of 9.25%. For
the period from May 11, 1993 to December 31, 1993, the average amount borrowed
as senior debt was $11.3 million at an average rate of 7.75% and the average
amount borrowed as subordinated debt was $5.8 million at a rate of 9.25%.
Interest expense includes the accrual of the success fee, penalty interest on
subordinated debt, amortization of loan origination fees, non-use fees and
other miscellaneous interest expenses including the portion of rental expense
on capitalized leases allocable to interest.
Income tax expense was $178,000 in 1994 compared to a benefit of $499,000 in
1993. The rate of income tax expense (benefit) as a percentage of income
before income taxes (benefit) was 39.6% in 1994 and 36.8% in 1993. The
difference in the effective income tax rates was primarily due to the
allocation of sales among the Company's divisions which are located in
different states and subject to varying state tax rates.
32
<PAGE>
Quarterly Comparison
The following table sets forth the results of operations by quarter for
1994, 1995 and the first two quarters of 1996. This information includes all
adjustments, consisting only of normal recurring accruals, that management
considers necessary for a fair presentation of the data when read in
conjunction with the Consolidated Financial Statements and the Notes thereto
included elsewhere herein. The results of operations for historical periods
may not necessarily be indicative of results for any future period.
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED
----------------------------------------------------------------------------------------
APRIL 3, JULY 3, OCT. 2, DEC. 31, APRIL 2, JULY 2, OCT. 1, DEC. 31, MARCH 31, JUNE 30,
1994 1994 1994 1994 1995 1995 1995 1995(1) 1996 1996
-------- ------- ------- -------- -------- ------- ------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net sales............... $7,222 $8,201 $8,334 $7,766 $9,216 $9,352 $9,174 $12,176 $13,119 $14,336
Cost of sales........... 5,856 6,264 6,402 5,808 6,839 6,729 6,763 8,356 9,193 9,818
------ ------ ------ ------ ------ ------ ------ ------- ------- -------
Gross profit............ 1,366 1,937 1,932 1,958 2,377 2,623 2,411 3,820 3,926 4,518
Selling expenses........ 562 690 620 510 656 753 708 1,112 1,148 1,234
General and
administrative
expenses............... 541 533 544 630 656 640 733 1,305 1,187 1,182
Research and
development............ 25 30 27 21 39 39 22 201 265 196
Amortization of goodwill
and other intangible
assets................. 34 34 33 76 52 58 51 90 122 124
Special compensation
charge................. -- -- -- -- -- -- -- 1,300 -- --
Environmental expenses.. -- -- -- -- -- -- -- 951 -- --
Special acquisition
expenses............... -- -- -- -- 568 347 222 927 -- --
------ ------ ------ ------ ------ ------ ------ ------- ------- -------
Operating income
(loss)................. 204 650 708 721 406 786 675 (2,066) 1,204 1,782
Interest expense........ 414 467 451 501 555 583 579 1,280 874 946
Other income (expense).. 1 (1) -- -- 2 -- -- -- -- 201
------ ------ ------ ------ ------ ------ ------ ------- ------- -------
Income (loss) before
taxes and minority
interest............... (209) 182 257 220 (147) 203 96 (3,346) 330 1,037
Income tax expense
(benefit).............. (84) 72 103 87 (59) 81 38 (1,136) 132 422
Income applicable to
minority interest in
net income of
subsidiaries........... -- -- -- -- -- -- -- 35 14 37
------ ------ ------ ------ ------ ------ ------ ------- ------- -------
Net income (loss)....... (125) 110 154 133 (88) 122 58 (2,245) 184 578
Preferred stock
dividend............... 46 46 46 47 46 46 46 72 93 93
------ ------ ------ ------ ------ ------ ------ ------- ------- -------
Net income (loss)
available for common
stock.................. $ (171) $ 64 $ 108 $ 86 $ (134) $ 76 $ 12 $(2,317) $ 91 $ 485
====== ====== ====== ====== ====== ====== ====== ======= ======= =======
</TABLE>
- --------
(1) During this fiscal quarter the Kilovac Acquisition was completed.
Backlog
As of June 30, 1996, the Company's backlog was approximately $33.6 million
($23.8 million excluding Kilovac) compared to $20.5 million as of July 2,
1995. Approximately $25.9 million of this backlog ($20.7 million excluding
Kilovac) consists of orders scheduled to be fulfilled prior to March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $2.0 million in 1993, $1.2 million
in 1994 and $1.8 million in 1995. The decrease in cash provided by operating
activities from 1993 to 1994 was primarily due to the growth in the Company's
business which increased working capital requirements. The increase in cash
provided by operating activities from 1994 to 1995 was mainly due to the
reduction in inventory and slower growth of accounts receivable. For the six
months ended June 30, 1996, cash provided by operating activities was $1.3
million, compared to $475,000 for the same period in 1995. This increase was
primarily attributable to improved profitability, improved collections of
accounts receivable, the increase of accounts payable and a reduction in
inventory.
The Company bills its customers upon shipment of products. Engineering sales
represent revenues under fixed price development and cost sharing development
contracts. Revenues under the contracts are recognized
33
<PAGE>
based on the percentage of completion method, measured by the percentage of
costs incurred to date to estimated total costs for each contract. Costs in
excess of contract revenues on cost sharing development contracts are expensed
in the period incurred as research and development costs. Provision for
estimated losses on fixed price development contracts are made in the period
such losses are determined by management. The average days' sales outstanding
for accounts receivable was approximately 51, 55 and 58 trade days at year end
1993, 1994 and 1995, respectively. Average days' sales outstanding at June 30,
1996 was 53. The increase in average days' sales outstanding can be attributed
to increases in foreign sales and corresponding increases in foreign
receivables. The average days' sales outstanding for accounts receivable from
foreign customers has traditionally been in the range of 60 to 90 days.
The Company's inventories increased from $7.5 million at year end 1993 to
$7.9 million at year end 1994. The increase of the Company's inventories from
$7.9 million at year end 1994 to $10.6 million at year end 1995 is
attributable to inventory acquired in connection with the purchase of assets
from HiG Relays ($1.5 million) and the Kilovac Acquisition ($2.0 million) and
increased volume. The increase in inventories from year end 1994 to year end
1995 was favorably offset by the implementation of more efficient
manufacturing and material planning techniques. The Company's inventories
increased from $9.4 million at July 2, 1995 to $10.7 million at June 30, 1996.
The increase was primarily due to the Kilovac Acquisition ($2.3 million) and
was offset by the reduction of inventory associated with the sale of certain
high performance relay product line assets to the Indian Joint Venture
($300,000) and to improved inventory planning techniques.
The Company's accounts payable increased from $1.7 million at year end 1993
to $2.3 million at year end 1994. The increase was primarily the result of
increased purchases to support the Company's growth. The increase of the
Company's payables from $2.3 million at year end 1994 to $2.6 million at year
end 1995 was primarily due to the effect of the acquisition of Kilovac
($783,000) and increases in purchases to support the Company's growth. This
increase between 1994 and 1995 was partially offset by the Company's strategy
to shorten the payment period of its accounts payable. The Company's accounts
payable increased from $2.5 million at July 2, 1995 to $3.2 million at June
30, 1996. This increase was primarily due to the Kilovac Acquisition
($708,000).
The Company has historically financed its operations and acquisitions
through a combination of internally generated funds and secured borrowings
under its revolving credit agreement. The Company financed its largest
acquisition, the Kilovac Acquisition, through $9.8 million of secured
borrowings and the issuance of $1.7 million of subordinated debt and $2.0
million of cumulative redeemable preferred stock. The Company financed the
Hartman Acquisition with secured bank debt, and a portion of the proceeds
obtained in the Offering will be utilized to repay a portion of this debt.
Capital expenditures, excluding acquisitions, were $454,000 in 1993,
$444,000 in 1994, $1.1 million in 1995 and $925,000 for the six months ended
June 30, 1996. Capital expenditures were primarily for replacement and
enhancement of production equipment. In 1995, capital expenditures also
included $414,000 for improvements to the Asheville facility, $133,000 for the
acquisition of equipment for a high performance relay product line and
$112,000 of capital expenditures by the Kilovac Division. Acquisition spending
totaled $3.1 million in 1993, $1.1 million in 1994 and $14.3 million in 1995,
and the Company expended approximately $13.0 million in July 1996 for the
Hartman Acquisition.
The Company will apply the estimated net proceeds of the offering ($31.2
million) to repay approximately $16.8 million of the $36.5 million outstanding
under its senior secured credit facility, approximately $8.9 million of its
subordinated debt, including approximately $1.5 million of interest in arrears
and approximately $4.7 million of its preferred stock, including approximately
$713,000 of accrued and unpaid dividends. In connection with the initial
public offering, the Company will also pay to its senior lenders a success fee
in the amount of approximately $700,000 (based on the assumed initial public
offering price). The Company has entered into a letter of intent with Bank of
America Illinois, which, upon the execution of definitive documentation at the
time of the Offering, would provide for up to a $40.0 million secured credit
facility, consisting of a $28.0 million revolving credit facility (bearing
interest at LIBOR plus 1.75%) and a $12.0 million term loan facility (bearing
34
<PAGE>
interest at LIBOR plus 2.0%). The facility will be available for working
capital purposes and to finance additional acquisitions and will be secured by
the Company's assets. The Company anticipates that the loan agreement for the
new facility will contain financial covenants including, without limitation,
certain limitations on cash interest coverage, leverage, liquidity and minimum
net worth and certain other customary restrictive covenants. The Company
expects that the facilities will be available for five years and that amounts
outstanding under the Term Loan will be repaid in $600,000 installments each
fiscal quarter commencing October 31, 1996. There can be no assurance that the
Company will be successful in arranging for such a facility or what the final
terms of such facility will be. The Company believes that cash flow generated
from operations and borrowings under the credit facility will be sufficient to
fund the Company's working capital needs, planned capital expenditures,
interest expense and its business strategy for the foreseeable future. However,
the Company may require additional funds if it enters into strategic alliances,
acquires significant assets or businesses or makes significant investments in
furtherance of its growth strategy.
INFLATION
The Company does not believe that inflation has had any material effect on
the Company's business over the past three years.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-Lived Assets to be Disposed Of,"
which will be effective during the Company's year ending December 31, 1996. The
impact of this new standard on 1996 earnings is not expected to be significant.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which establishes an alternative method of accounting for
employee stock compensation plans based on a fair value methodology. However,
the statement allows an entity to continue to use the accounting prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees." The Company has
not yet determined whether it will adopt the alternative method of accounting
and has also not yet determined its effect.
35
<PAGE>
BUSINESS
GENERAL
The Company is a leading designer, manufacturer and marketer of a broad line
of high performance electromechanical and electronic products and solenoids
for customers in the commercial/industrial equipment, commercial airframe,
defense/aerospace, communications, automatic test equipment and automotive
industries. The Company's relays are used to control current or signals in
electrical and electronic circuits, and are technological building blocks for
a wide range of products. While the Company is a broad-based supplier of
general and special purpose relays and solenoids, it has focused on
manufacturing high performance relay products and targeting sophisticated and
customized applications of these products to meet the needs of the markets it
serves. The Company's high performance relays are sophisticated, complex
devices that have been engineered for highly reliable performance over
substantial periods of time, often in adverse operating environments. The
Company sells its products to more than 2,100 customers including Boeing,
AT&T, Rockwell, Hewlett Packard, McDonnell Douglas and General Motors.
INDUSTRY OVERVIEW
According to Frost & Sullivan, an industry market research firm, annual
sales of relay products in North America were estimated to be $840 million in
1995. The Company estimates that the high performance relay market is growing
at a 3-4% growth rate per year, in contrast to the less than 1% growth rate
(according to Frost & Sullivan) which characterizes the relay market as a
whole. The relay and solenoid markets are highly fragmented among a large
number of small suppliers.
The Company does not compete in the low-price, mass-produced relay market,
which is dominated by suppliers in the Far East. These suppliers utilize
highly automated lines and/or low-cost labor to produce long runs of standard
relay products. It is impractical for those manufacturers to modify their
product designs or manufacturing processes for the niche markets applications
targeted by the Company within the high performance relay markets. These niche
markets generally produce higher margins for the Company, are less sensitive
to pricing and are more dependent on high reliability, performance, and
meeting specific customer requirements than the markets for standard relay
products. High performance relay products have also proven themselves to be
less susceptible to obsolescence because the users of the sophisticated
equipment of which such high performance products are a component part are
less likely to modify such equipment because of the length of time required,
and cost incurred, to requalify such equipment.
The Company has identified two trends in the relay and solenoid industries
that it believes will have a favorable impact on the Company's future growth.
First, major customers in the primary markets that the Company serves are
consolidating their supplier base in an effort to develop long term strategic
business relationships with a limited number of leading suppliers. Suppliers
must therefore provide a broad range of high quality products, at competitive
prices, together with full service capabilities, including design, engineering
and product management support. These requirements can best be met by
suppliers with sufficient size and financial resources to satisfy such
demands. Although this trend has already resulted in significant consolidation
among suppliers in the relay and solenoid industries, the Company believes
that the new environment provides an opportunity for growth through the
acquisition of related products previously provided by other suppliers and by
acquiring companies or product lines that further enhance its product,
manufacturing and service capabilities.
A second trend is an increase in the technological complexity and
miniaturization of the equipment manufactured by the Company's customers. As
its customers develop increasingly complex mechanisms which require
sophisticated component parts, the Company expects that the demand for its
high performance relays and solenoids which provide the advantages of small
size, light weight, long life, low energy consumption and environmentally
sealed contacts, will increase as well.
36
<PAGE>
OPERATING STRATEGY
The Company seeks to leverage its broad product offering, its reputation for
quality, innovation and technological leadership, its diverse and efficient
manufacturing capabilities and its wide and diversified customer base to
further penetrate and expand the size and number of markets that it serves.
The principal elements of its operating strategy are set forth below:
Expand Product Line Capabilities. The Company manufactures over 750
different types of electromechanical and electronic products and solenoids
that have a wide variety of product applications. This broad product offering
allows it to provide its customers with sophisticated, customized products, as
well as more standard, general purpose products. The Company continuously
seeks to expand its product offering through acquisitions and by using its in-
house engineering and manufacturing resources to design, test and manufacture
new products, both in response to specific requests by existing customers and
in anticipation of potential new applications for its products.
Maintain Leadership Position and Focus on High Performance Markets. The
Company believes it is a leading manufacturer of high performance relays and
is a sole source supplier of over 80 specialty relay types. The Company
believes that its ability to produce proprietary high performance relays has
been fundamental to its success and will enable the Company to grow its
business in the future. This focus on the high performance relay market has
allowed the Company to successfully target and serve leading original
equipment manufacturers in niche markets who are willing to pay premium prices
for the performance advantages offered by the Company's products. The
Company's high performance relays are also critical enabling technologies in
advanced emerging applications such as electric vehicles, automatic heart
defibrillators, global positioning satellites, the Space Station, advanced
communications systems and advanced commercial and military aircraft.
Provide Efficient and Diverse Manufacturing Capability. The Company's
domestic and international manufacturing capability enables it to respond to
its customers' demands for high quality products at competitive prices. The
Company manufactures and assembles its products at five facilities which are
all capable of advanced mechanized assembly. The Company's two North Carolina
facilities produce high performance signal relays and solenoids and each of
these facilities has obtained the "Military Standard 790" certification
promulgated by the United States Department of Defense ("DOD"). The Military
Standard 790 certification is dependent upon the development and detailed
documentation, on an ongoing basis, of the facilities' operating systems,
manufacturing and quality control procedures, which, similar to ISO 9000
facility certification, assure product integrity and reliability among product
lots. The Kilovac Division's facility in southern California manufactures high
performance, high voltage relays, while the Midtex Division's facility in
Juarez, Mexico produces general purpose relays and provides the Company with
low-cost assembly capabilities. The Hartman Division's facility in Mansfield,
Ohio has obtained the Military Standard I 45208 certification promulgated by
the DOD which governs quality control and assurance, and operates under
certain Federal Aviation Administration approvals. This facility manufactures
high power relays and components of electrical power management systems for
the airframe and aerospace industries. The Company has also entered into
agreements with several subcontractors in the Far East to provide low-cost
labor-intensive finished products and sub-assemblies. The Company anticipates
that the Indian Joint Venture will bolster its ability to effectively compete
in the global marketplace by expanding its manufacturing capability and
providing increased flexibility at a lower cost structure. The Company has an
excellent record of manufacturing high quality, highly reliable relays and
solenoids and has experienced a low product return rate. In general, the
Company's diverse manufacturing capabilities allow it to provide its customers
with the specialized relay and solenoid products they require on delivery
schedules that meet the customers' needs.
Leverage Customer Relationships. The Company believes that its long-standing
customer relationships are due, in large part, to its excellent product
reputation and broad product offerings. The Company intends to further expand
its customer relationships by offering complementary and new products to its
existing customer base. For example, the Kilovac Division has established an
Electric Vehicle Product Group that markets high power
37
<PAGE>
and high voltage relays to major automobile manufacturers worldwide. As a
result of this effort, the Company has developed an enhanced understanding of
the automotive relay market and has established industry contacts which
management believes can assist the Company in introducing its low power relays
to certain segments of the automotive market. The Company believes that it is
also the primary supplier to nearly all manufacturers of heart defibrillators,
including customers such as Zoll, Hewlett Packard, and Physio Control. As
these defibrillator manufacturers develop new products, such as the automatic
external defibrillator (a product intended to provide quick and easy access to
a defibrillator in public places), the Company believes that its existing
customer contacts and advance knowledge regarding the relay requirements of
these new products will prove beneficial.
Pursue New Market Opportunities. The Company intends to pursue new market
opportunities for its existing products and new products it develops. The
Company has identified a demand for sophisticated relay and solenoid products
in the transportation, medical, and manufacturing industries due to the more
widespread use of electronics within the systems utilized by these industries.
The Company believes that it is positioned to capitalize on this demand
because it believes its technology is well-suited to meeting the stringent
operating environments and the increased voltage and current requirements of
these new markets. For example, the Company currently sells many of its
products to the commercial and military aircraft industries which are
developing aircraft with greater electric and electronic content and shifting
from 115 volt AC power to 270 volt DC power. The Company has developed several
new products which meet the higher power switching requirements of the new
electrical systems and these products have been selected for use on several
aircraft programs.
Expand International Sales. Primarily as a result of the Kilovac
Acquisition, approximately 14% of the Company's gross sales in 1995 were made
to customers located outside the United States. In an effort to further
increase its international sales, the Company has recently expanded the size
and geographic scope of its European and Asian sales and marketing network by
retaining sales representatives and distributors in England, Norway, Spain,
Portugal, the Benelux countries, Japan, Taiwan, Korea, and Singapore/Malaysia.
In addition, the Company intends to utilize the Kilovac Division's strong
European sales representatives network to market the broad portfolio of
products offered by the CII and Midtex Divisions to facilitate further
international sales expansion.
Invest in New Product Development. The Company intends to continue to devote
engineering resources to developing new products and increasing the
functionality of existing products in an effort to enter new markets and gain
market share in existing markets. The Company's design engineers conduct
internally sponsored research and development and provide similar services to
its customers. The Company's core competencies in high performance design,
processing, sealing and material processing in conjunction with collaborative
efforts with customers allow the Company to introduce new products
effectively. The Company is currently developing a number of new products,
including high performance relays for space satellites, automatic external
defibrillators, advanced aircraft, industrial vehicles and rail
transportation, and solenoids for commercial/industrial equipment.
There can be no assurance given that the Company will be successful in
implementing this strategy. The discussion of the Company's strategy contains
certain forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. Actual results could
differ materially from those projected in these forward-looking statements as
a result of certain risk factors described elsewhere in this Prospectus. See
"Risk Factors."
ACQUISITION STRATEGY
Since its formation, the Company's growth strategy has been to acquire
manufacturers of relay products and related components and to consolidate the
acquired operations where appropriate into the Company's business. The Company
plans to continue this strategy and also intends to broaden the scope of its
acquisitions to include related component companies and product lines.
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<PAGE>
Set forth in the table below is a description of the Company's acquisitions
to date, the date of acquisition, the name of the seller or acquired company,
the type of acquisition and a general description of the products acquired.
The aggregate purchase price paid for the acquisitions listed below is
approximately $36.0 million.
<TABLE>
<CAPTION>
DATE NAME OF SELLER OR ACQUIRED COMPANY TYPE OF ACQUISITION PRODUCT TYPES
---- ---------------------------------- ------------------- -------------
<C> <S> <C> <C>
January 1983 Sun Electric Company Product Line Aircraft instrumentation
September 1984 Midland-Ross Corporation Product Line High performance relay
products
January 1985 Automotive Electric Product Line Telecommunications relay
Division of GTE products
June 1986 Branson Corporation Company High performance relay
products
July 1990 Sigma Relay Division of Product Line Custom application relay
Pacific Scientific Co. products
December 1990 Airpax Relay Division of Product Line High performance relay
North American Phillips and solenoid products
January 1993 CP Clare Corporation Product Line Telecommunication relay
products
March 1993 West Coast Electrical Company Solenoid products
Manufacturing Co.
March 1993 Midtex Relays Inc. Company General purpose relay
products
December 1994 Deutsch Relays Inc. Product Line High performance relay
products, including T0-5
relay
January 1995 HiG Relays Inc. Assets High performance
electromechanical and
electronic products
October 1995 Kilovac Corporation Company High voltage relays,
vacuum and gas filled
relays and DC power
relay products
July 1996 Hartman Electrical Division High performance power
Manufacturing relay products and
electrical subsystems
</TABLE>
When acquiring a smaller company or product line, the Company typically
seeks to integrate the acquired operations and to consolidate functions such
as finance, sales, marketing, and engineering, thus eliminating significant
operating cost. Recent acquisitions which have been integrated in this manner
include the acquisition of West Coast Electric Manufacturing Co., the Airpax
Relay Division of North American Phillips, a product line acquired from
Deutsch Relays Inc. and assets of HiG Relays Inc. In the case of the
acquisition of Midtex Relays and the Kilovac Corporation, the acquired
businesses were of such size that the companies were maintained as stand-alone
operations. In addition, as a result of the acquisition of Midtex Relays,
several of the Company's existing products were shifted to the newly acquired
lower-cost operations in Mexico. Although the Hartman Division functions as a
stand-alone operation, the Company expects to offer Hartman's product line
through the Company's field sales force beginning in late 1996. The Company
has made strategic acquisitions of assets employing sophisticated technology,
and, as a result, the Company has and will continue to expend considerable
time and expense on rationalizing acquired products with similar products in
existing lines and creating synergies between related product technologies and
existing products. For example, the Company's product engineers are currently
integrating newly acquired technology into certain existing high performance
relay products to enhance the performance of those products.
The Company intends to continue to make acquisitions to expand its market
geographically, complement its product line and supplement its technical
knowledge. The Company presently has available capacity in certain of its
facilities, and therefore the Company believes that it is well-positioned to
make additional acquisitions and integrate the acquired businesses into its
existing facilities. While the Company regularly evaluates potential
acquisition opportunities in the ordinary course of its business, as of the
date hereof there are no existing commitments or agreements with respect to
any acquisitions.
39
<PAGE>
PRODUCTS
The Company manufactures products in the following four general categories:
high performance relays, general purpose relays, electronic products and
solenoids, which represented 67.7%, 22.5%, 5.9% and 3.3%, respectively, of the
Company's net sales in 1995.
Relays
A relay is an electrically operated switch which can be located at a remote
location to control electrical current or signal transmissions.
Electromechanical relays utilize discrete switching elements which are opened
or closed by electromagnetic energy and thus control circuits with physical
certainty. Since these devices are controlled electrically, they can be placed
at remote locations where it may not be safe or convenient for a human
operator to be located. Relays are designed to meet exacting circuit and
ambient conditions and can control numerous circuits simultaneously. Certain
relay types measured in microwatts are used to switch signals in test
equipment, computers and telecommunications systems. Higher power relays,
which switch or control high voltage or high currents, are used in electric
vehicles, aircraft electrical systems, heart defibrillators and spacecraft
power grids. Due to various application requirements, relays come in thousands
of shapes, sizes and with differing levels of performance reliability. Because
of the many switching functions performed by relays, they are found in
thousands of electrical and electronic applications.
High performance relays. High performance relays are characterized by their
advanced design or construction, demanding performance and reliability
requirements and used in adverse operating environments. High performance
relays provide customers with the advantages of smaller size, lighter weight,
longer life, energy efficiency and greater reliability than general purpose
relays. Many of the Company's high performance relays are hermetically sealed
in metal or ceramic enclosures to protect the internal operating mechanisms
from harsh environments and to improve performance and reliability. The
Company manufactures more than 400 types of high performance relays in its
North Carolina, Ohio and California facilities. The inherent switching
advantages of the Company's high performance relays generally command higher
selling prices than general purpose relays. The sale prices of high
performance relay products range from approximately $10 to $3,500 per unit.
The Company's high performance relays are sold to commercial airframe
manufacturers, manufacturers of communication systems, medical systems,
avionics systems, automatic test equipment, aerospace, and defense equipment
manufacturers. High performance relays can have a variety of applications in a
single end product. For example, the Company believes that more than 250 of
its high performance relays are used on each Boeing 777 aircraft to perform
switching, power distribution and control functions in the avionics system,
radio communications, power regulation equipment and electrical load
management system. High performance relays are also an integral component in
heart defibrillator machines and electric vehicles.
General purpose relays. Like its high performance relay products, the
Company's general purpose relays are generally targeted towards niche
applications where they are typically sole-sourced or have limited
competition. The Company's general purpose relays are used in commercial and
industrial applications where performance and reliability requirements are
somewhat less demanding than those for high performance relays. These relays
are generally manufactured for the Company in Mexico and in China where longer
production runs are necessary for operating efficiency. Many of these
production lines are either semi-automated or utilize lower-cost assembly
labor. The Company's general purpose relay offering includes some of the more
sophisticated product types in the general purpose category. The prices of
general purpose relays range from $1 to $25 per unit. Specific applications
for the Company's general purpose relays include an environmental management
system for buildings manufactured by Johnson Controls which uses up to 700
general purpose relays per system. Taylor Freezer also uses many of the
Company's general purpose relays in its ice cream machines.
40
<PAGE>
Electronic products. An electronic product contains no moving parts and
performs switching functions utilizing semiconductor devices. Since there are
no moving parts, these types of relays feature very long service lives and
high reliability, but such products are not appropriate for applications
requiring complete electrical isolation. High performance electronic products
are becoming increasingly sophisticated and provide the user with control and
functional options not previously available. Switching speed of electronic
products is normally much faster than that of electromechanical relays. The
Company significantly increased its electronic products product offerings
through the HiG Acquisition in January 1995. Management believes that,
although sales of electronic products represent approximately 3% of total 1995
net sales, electronic products represent a logical and attractive growth
opportunity for the Company. Electronic products are sold to commercial
industrial equipment manufacturers and defense equipment manufacturers for
prices ranging from approximately $15 to $500 per unit.
Solenoids
Solenoids are similar to relays in design, but differ in that
electromechanical action is used to perform mechanical functions. Rather than
control currents or transmissions, solenoids are applied when a defined
mechanical motion is required in the user's equipment or system. Among their
many applications, solenoid products operate product release mechanisms in
vending machines, activate remote door locks, open and close valves, and are
utilized in custom automation equipment. Like relays, solenoids can be made in
many sizes and shapes to meet specific customer application requirements.
The Company supplies products to the high performance and the general
purpose solenoid markets. High performance solenoids tend to be custom
designed and are used in aerospace, security, power station and automotive
applications such as aerospace de-icing equipment and commercial airframe fuel
shut-off valves. General purpose solenoid types are used in vending machines,
automation equipment, office machines and cameras. The Company manufactures
its high performance solenoids in its Fairview, North Carolina facility, while
its general purpose solenoid types are manufactured by subcontractors in
China. The prices of the Company's solenoids range from $2 to $350 per unit.
PRODUCT DEVELOPMENT
The Company intends to continue to develop new products to meet the
application requirements of its customers and to expand the Company's
technical capabilities.
High performance relays. The Company is developing several new types of high
performance relays, including a high voltage relay to be used in a new model
of automatic heart defibrillator, a high voltage relay for the rail
transportation industry, a new energy efficient, long-life environmentally
sealed relay for applications where energy consumption is critical, and a new
relay designed to reduce printed circuit board space. The Company is also
developing a new line of ultra-high reliability relays which are similar to
the high performance relays in composition, but are subject to more rigorous
testing because such relays are used in aerospace and satellite equipment and
are therefore continuously utilized in adverse conditions.
General purpose relays. The Company is currently developing several new
product types to be used in automotive and commercial/industrial applications.
These products are currently in the prototype stage and the Company expects to
begin manufacturing and selling certain of these products in 1996.
Solenoids. The Company is currently developing several new solenoid types
for use in business equipment, vending machines, security systems, home
appliances, automotive door locks, electronic games, and personal computers.
Prototypes of many of these products are in the test phase while others are in
mechanical design. The development cycle of new solenoids from design to
prototype can generally be completed within one month. The Company expects to
commence marketing these new solenoids in 1996.
41
<PAGE>
CUSTOMERS
The Company has established a diversified base of over 2,100 customers
representing a wide range of industries and applications. Sales by industry
segment are diversified across the commercial airframe, defense/aerospace,
commercial/industrial equipment, communications, automatic test equipment, and
automotive markets representing approximately 29.0%, 27.3%, 22.9%, 14.8%, 3.8%
and 2.2% respectively, of net sales during 1995. Sales to customers outside of
the United States comprised approximately 14% of net sales during 1995. No
single customer accounted for 10% or more of the Company's total net sales for
1995. The chart set forth below lists the Company's primary market segments,
representative customers, and certain end product applications.
<TABLE>
<CAPTION>
MARKET SEGMENT REPRESENTATIVE CUSTOMERS PRODUCT APPLICATIONS
- -------------- ------------------------ --------------------
<S> <C> <C>
Commercial Airframe Airbus, Aerospatiale, Beech, Flight Control Systems,
Boeing, British Aerospace, Navigation Control Systems,
Cessna, Lear, McDonnell- Communication Systems, Radar
Douglas, Smiths Industries Systems, Landing Gear
Control Systems, Electrical
Load Management Systems
Defense/Aerospace Allied Signal, Bell Satellites, Missiles, Tanks,
Helicopter, General Defense Systems, Navigation
Dynamics, Grimes Aerospace, Equipment, Aircraft, Global
HR Textron, Hughes Missile Positioning Equipment
Systems, ITT Aerospace,
Litton Industries, Lockheed
Martin, Loral, Lucas
Aerospace, McDonnell-
Douglas, NASA, Raytheon,
Rocketdyne, Rockwell,
Sundstrand Aviation, TRW,
Westinghouse
Commercial/Industrial Amana, ABB, Burdick, Dover, Vending Machines, Overhead
ECC, General Electric, Doors, Medical
Hercules Corp., Hewlett- Instrumentation, Heart
Packard, Honeywell, Johnson Defibrillators, Motor
Controls, Laerdal, Landis & Controls, Welders, White
Gyr, Lorain, Miller Goods, Appliances, Heating,
Electric, Montgomery Ventilation, Air
Elevator, Onan, Otis Conditioning Controls, Spas,
Elevator, Physio Control, Metering, High Voltage
Rockwell, Safetran, Testers
Scotsman, Siemens, Taylor
Freezer, Trane,
Westinghouse, Whitaker
Controls, Woodward Governor,
Zoll Medical
Communications AG Communications, Alcatel, Central Office Switches,
Allied Signal, AT&T, Station Switches, RF Radios,
Collins, Daewoo, IBM, Facsimile Communications,
Motorola, Pulsecom, Line Test Equipment,
Rockwell, Tellabs, Teltrend, Wireless Phones
Wiltron
Automatic Test Equipment Hewlett-Packard, IBM, Metric Electronic Systems, Test and
Systems, Picon, Schlumberger Component Systems
Automotive Chrysler, GM, Mercedes, Electric Vehicles,
Rostra Automotive Security Systems
</TABLE>
42
<PAGE>
SALES AND DISTRIBUTION
The Company sells its products worldwide through a network of 72 independent
sales representatives and 27 distributors in North America, Europe and Asia.
This sales network is supported by the Company's internal staff of 10 direct
product marketing managers, 10 customer service associates, 10 application
engineers and two marketing communication specialists.
The Company believes it differentiates itself from many of its competitors
by offering a high level of customer service and engineering support to its
customers. A key element in the service provided by the Company to its
customers is assistance in the proper application of the Company's products,
thereby reducing field failures and overall product cost in use. The Company
believes that its service oriented approach has contributed to significant
customer loyalty. The Company seeks to provide customized solutions to its
customers' switching problems and to sell complementary products across its
broad product offering to both existing and new customers. The Company has
formed strategic partnerships with certain customers to develop new products,
improve on existing products, and reduce product cost in use.
The Company provides its salespeople, representatives, and distributors with
product training on the application and use of all Company products. The
Company employs 10 technical application engineers who provide ongoing
technical support to new and existing customers. The application engineers,
along with the product marketing managers, develop application-related
literature, provide answers to customer questions on the use and application
of the Company's products, and provide field support at the customer's site
during installation or use, if required. The Company believes that the
services provided by its application engineers and product marketing managers
are an integral factor in its sales and new customer development efforts.
The Company produces internally nearly all of its own marketing
communication materials, enabling the Company's marketing department to
incorporate product improvements and respond to market changes rapidly. The
Company maintains an up-to-date database of over 9,000 prospects with an
active customer base of approximately 2,100.
The Company conducts virtually all of its sales through sales
representatives who sell both to end users and distributors. The Company has
maintained relationships with many of its sales representatives and
distributors for over ten years. The Company believes that its longstanding
relationships with its sales network contributes to the effectiveness of its
marketing program.
Sales representatives, who market the Company's products exclusively, and
distributors enter into agreements with the Company that allow for termination
by either party upon 30 days notice. Distributors are permitted to market and
sell competitive products and can return to the Company a small portion of
products purchased by them during the term of such agreements.
COMPETITION
The markets in which the Company operates are highly competitive. The
Company competes primarily on the basis of quality, reliability, price,
service and delivery. Its primary competitors are Teledyne Relays, Genicom,
Jennings, Leach, Ibex and Eaton in the high performance relay market, the
Electromechanical Products division of Siemens in the general purpose relay
market, and G.W. Lisk in the solenoid market. Several of the Company's
competitors have greater financial, marketing, manufacturing and distribution
resources than the Company and some have more automated manufacturing
facilities. There can be no assurance that the Company will be able to compete
successfully in the future against its competitors or that the Company will
not experience increased price competition, which could adversely affect the
Company's results of operations. The Company also faces competition for
acquisition opportunities from its large competitors.
The Company believes that significant barriers to entry exist in the high
performance relay markets in the form of stringent commercial and military
qualifications required to sell products to certain customers in
43
<PAGE>
these markets. The Company holds military qualifications (QPL) for 29 of its
product types. During 1995, approximately $9.7 million (14.2%) of the
Company's total revenue was derived from the sale of qualified products.
Obtaining and maintaining these qualifications is contingent upon successful
completion of rigorous facility review and product testing on a regular basis
and at a significant cost. Each of the Company's North Carolina manufacturing
facilities are certified to Military Standard 790, a standard promulgated by
the DOD. The elimination by the military or certain commercial customers of
qualification requirements would lower these barriers to entry and enable
other relay manufacturers to sell products to such customers.
The Company holds patents on many of its products, including high voltage DC
relays and other high performance relays. In addition, the Company has
developed proprietary manufacturing capabilities which afford the Company an
advantage over its competitors in many of its product lines. See "--
Proprietary Rights."
MANUFACTURING
The Company has established efficient, flexible and diverse manufacturing
capabilities, which the Company believes enable it to provide its customers
with a wide array of high quality custom and standard relays and solenoids at
competitive prices and lead times. The Company manufactures its products at
five facilities which utilize advanced and often proprietary assembly and
processing techniques.
The facilities of the CII Division in North Carolina manufacture high
performance signal relays and solenoids and have each obtained the Military
Standard 790 certification promulgated by the DOD which involves rigorous
documentation of operating systems processes, assembly, and testing technique.
The Kilovac Division's facility in Southern California manufactures high
performance, high voltage relays utilizing advanced propriety assembly and
processing techniques and maintains rigorous certifications and qualifications
required by its sophisticated customer base. Products manufactured at the
Kilovac facility represented approximately 21.5% of the Company's net sales in
1995.
The Company's facility in Juarez, Mexico manufactures general purpose relays
which represented approximately 13.1% of the Company's net sales in 1995. In
addition to manufacturing a broad array of general purpose relays for its
diverse customer base, this facility provides the Company with sophisticated
low cost assembly, process, and testing capabilities for labor-intensive
manufacture of certain components and products.
The Hartman Division's facility in Mansfield, Ohio manufactures high
performance, high current relays using a modular construction technique that
is designed to satisfy diverse customer requirements. Products manufactured by
the Hartman Division represented approximately 25.5% of the Company's net
sales in 1995.
Products representing approximately 0.9% of the Company's net sales in 1995
were manufactured at a subcontract facility in Connecticut. The Company owns
substantially all of the assets at this subcontract facility. Under the
agreement between the Company and the subcontractor, the subcontractor will
provide consultation, manufacturing, design, and engineering services upon the
Company's request on fixed pricing terms.
The Company also subcontracts for certain relays and solenoids to six
subcontractors located in China and Japan which represented approximately 3.1%
of the Company's net sales in 1995. In addition, these subcontractors supply
the Company with low cost labor-intensive assembly of certain components which
assists the Company in its cost reduction efforts.
The Company participated in the construction and design of the product lines
of each of its subcontractors and routinely confirms that the manufacturing
facilities of each subcontractor meet the Company's stringent product quality
qualifications. The Company believes that production by its international
subcontractors who maintain low labor costs and strong manufacturing
competence enable the Company to compete effectively in the relay and solenoid
marketplace.
44
<PAGE>
FACILITIES
The Company, headquartered in Fairview, North Carolina, operates the
following manufacturing and distribution facilities worldwide:
<TABLE>
<CAPTION>
SQUARE
LOCATION FOOTAGE PRODUCTS MANUFACTURED
-------- ------- ---------------------
<C> <C> <S>
CII DIVISION:
Fairview, North Carolina 70,000 High performance relays and solenoid
products
Asheville, North Carolina 26,000 High performance relays and electronic
products
KILOVAC DIVISION:
Carpinteria, California 38,000 High voltage and power switching relay
products
MIDTEX DIVISION:
Juarez, Mexico 45,000 General purpose relay products
El Paso, Texas 6,000 Distribution center
HARTMAN DIVISION:
Mansfield, Ohio 53,000 High performance power relays
INDIAN JOINT VENTURE:
Cochin, India(1) 20,000 High performance and general purpose relay
products
</TABLE>
- --------
(1) The Company has a 28% ownership interest in the Indian Joint Venture named
CII Guardian International Limited. Production is expected to commence at
this facility in the third quarter of 1996.
The Company's manufacturing and assembly facilities (including the Indian
Joint Venture property) contain approximately an aggregate of 250,000 square
feet of floor space. Each of the facilities is under lease, other than the two
North Carolina properties which the Company owns. The Company currently has
available manufacturing space in certain of its facilities. The Company
believes this excess manufacturing capacity will allow for the integration of
future product line acquisitions and/or the development of new product lines.
The facilities of the CII Division and the Hartman Division, each of which
manufacture products to be sold to the military, maintain Military Standard
790 and Military Standard I 45208 certifications, respectively.
The Company's headquarters in Fairview, North Carolina house the sales and
engineering staff of the CII Division. The corporate, sales and engineering
staff of the Kilovac Division and the Midtex Division are located in the
Carpinteria, California and Juarez, Mexico facilities, respectively, and the
leases for these facilities expire in April 2006 and June 1998, respectively.
The Company has entered into a lease for Hartman's Mansfield, Ohio facility
providing for a ten year term and an option to purchase.
Indian Joint Venture
In November 1995 the Company formed a joint venture in India with Guardian
Controls Ltd. ("Guardian"), an Indian company with which the Company has had a
business relationship for more than ten years. The joint venture is expected
to produce relays for the domestic Indian market and global markets and to
manufacture labor-intensive relay components and sub-assemblies for export to
the Company's divisions in North America. The Company trained the employees of
the Indian Joint Venture in its North Carolina facilities and is currently
transferring to the Indian Joint Venture's facility the assembly equipment
which was purchased by the Indian Joint Venture. All sales for the Indian
Joint Venture outside of India will be channeled through the Company's
existing sales representatives. The Company and Guardian each have a 28%
interest in the Indian Joint Venture, the Bank of India has a 16% interest,
and the remaining 28% interest is held by certain financial investors in
India. The governing board of the Indian Joint Venture is presently composed
of two designees of the Company, one designee of Guardian and two outside
directors.
45
<PAGE>
EMPLOYEES
As of June 30, 1996, the Company had approximately 1,054 employees. Of these
employees, approximately 293, including the sales and engineering staff, were
employed in its Fairview headquarters, approximately 185 were employed in the
Asheville facility, approximately 267 were employed in the Mexico facility,
approximately 3 were employed in the Texas facility, approximately 180 were
employed in the Ohio facility and approximately 126 were employed in the
California facility. Approximately 150 of Hartman's employees in the Ohio
facility are represented by the International Union of Electronics,
Electrical, Salaried, Machine and Furniture Workers AFL, CIO. The Company
believes that its relations with its employees are excellent.
PROPRIETARY RIGHTS
The Company currently holds seven patents, one registered trademark and has
four patent applications and four trademark registrations pending. None of the
Company's material patents expire prior to 2000. The Company intends to
continue to seek patents on its products, as appropriate. The Company does not
believe that the success of its business is materially dependent on the
existence, validity or duration of any patent, license or trademark.
The Company attempts to protect its trade secrets and other proprietary
rights through formal agreements with employees, customers, suppliers and
consultants. Although the Company intends to protect its intellectual property
rights vigorously, there can be no assurance that these and other security
arrangements will be successful. The Company has from time to time received,
and may in the future receive, communications from third parties asserting
patents on certain of the Company's products and technologies. Although the
Company has not been a party to any material intellectual property litigation,
if a third party were to make a valid claim and the Company could not obtain a
license on commercially reasonable terms, the Company's operating results
could be materially and adversely affected. Litigation, which could result in
substantial cost to and diversion of resources of the Company, may be
necessary to enforce patents or other intellectual property rights of the
Company or to defend the Company against claimed infringement of the rights of
others. The failure to obtain necessary licenses or the occurrence of
litigation relating to patent infringement or other intellectual property
matters could have a material adverse affect on the Company's business and
operating results.
LEGAL PROCEEDINGS
The Company is involved in legal proceedings from time to time in the
ordinary course of its business. As of the date of this Prospectus there are
no material legal proceedings pending against the Company.
ENVIRONMENTAL MATTERS
The Company is subject to various foreign, federal, state and local
environmental laws and regulations. The Company believes its operations are in
material compliance with such laws and regulations. However, there can be no
assurance that violations will not occur or be identified, or that
environmental laws and regulations will not change in the future, in a manner
that could materially and adversely affect the Company.
Under certain circumstances, such environmental laws and regulations may
also impose joint and several liability for investigation and remediation of
contamination at locations owned or operated by an entity or its predecessors,
or at locations at which wastes or other contamination attributable to an
entity or its predecessors have come to be located. The Company can give no
assurance that such liability at facilities the Company currently owns or
operates, or at other locations, will not arise or be asserted against the
Company or entities for which it may be responsible. Such other locations
could include, for example, facilities formerly owned or operated by the
Company (or an entity or business that the Company has acquired), or locations
to which wastes generated by the Company (or an entity or business that the
Company has acquired) have been sent. Under certain circumstances such
liability at several locations (discussed below), or at locations yet to be
identified, could materially and adversely affect the Company.
46
<PAGE>
The Company has been identified as a potentially responsible party ("PRP")
for investigation and cleanup costs at two sites under the Federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended ("CERCLA"). CERCLA provides for joint and several liability for the
costs of remediating a site, except under certain circumstances. However, the
Company believes it will be allocated responsibility for a relatively small
percentage of the cleanup costs at each of these sites, and in both instances
other PRPs will also be required to contribute to such costs. Although the
Company's total liability for cleanup costs at these sites cannot be predicted
with certainty, the Company does not currently believe that its share of those
costs will have a material adverse effect.
Soil and groundwater contamination has been identified at and about the
Company's Fairview, North Carolina facility resulting in that site's inclusion
in the North Carolina Department of Environmental, Health & Natural Resource's
Inactive Hazardous Waste Sites Priority List. The Company believes that the
Fairview contamination relates to the past activities of a prior owner of the
Fairview property (the "Prior Owner"). On May 11, 1995, the Company entered
into a Settlement Agreement with the Prior Owner, pursuant to which the Prior
Owner agreed to provide certain funds for the investigation and remediation of
the Fairview contamination in exchange for a release of certain claims by the
Company. In accordance with the Settlement Agreement, the Prior Owner has
placed $1.75 million in escrow to fund further investigation, the remediation
of contaminated soils, and the installation and start-up of a groundwater
remediation system at the Fairview facility. The Company is responsible for
investigation, soil remediation and start-up costs in excess of the escrowed
amount, if any. The Settlement Agreement further provides that after the
groundwater remediation system has been operating for three years, the Company
will provide to the Prior Owner an estimate of the then present value of the
cost to continue operating and maintaining the system for an additional 27
years. After receiving the estimate, the Prior Owner is to deposit with the
escrow agent an additional sum equal to 90% of the estimate, up to a maximum
of $1.25 million. Although the Company believes that the Prior Owner has the
current ability to satisfy its obligations pursuant to the Settlement
Agreement, the Company believes that the total investigation and remediation
costs may exceed the amounts that the Prior Owner is required to provide
pursuant to the Settlement Agreement. Based on the possibility that the
groundwater remediation will need to be operated for 30 years, the Company has
estimated that the present value of the excess remediation and operating costs
not covered by the Settlement Agreement may be approximately $690,000 and has
accrued a reserve for such an amount on its books. Applicable environmental
laws provide for joint and several liability, except under certain
circumstances. Accordingly, the Company, as the current owner of a
contaminated property, could be held responsible for the entire cost of
investigating and remediating the site. If the site remedial system fails to
perform as anticipated, or if the funds to be provided by the Prior Owner
pursuant to the Settlement Agreement together with the Company's reserve are
insufficient to remediate the property, or if the Prior Owner fails to make
the scheduled future contribution to the environmental escrow, the Company
could be required to incur costs that could materially and adversely affect
the Company. See "Risk Factors--Environmental Matters."
In connection with the Hartman Acquisition, the Company entered into an
agreement pursuant to which it leases from a wholly owned subsidiary of Figgie
a manufacturing facility in Mansfield, Ohio, at which Hartman has conducted
operations (the "Lease"). The Mansfield property may contain contamination at
levels that will require further investigation and may require soil and/or
groundwater remediation. As a lessee of the Mansfield property, the Company
may become subject to liability for remediation of such contamination at
and/or from such property, which liability may be joint and several except
under certain circumstances. The Lease includes an indemnity from the Company
to the lessor for contamination that may arise following commencement of the
Lease, where caused by the Company or related parties, except under certain
circumstances. The Lease also includes an indemnity from Lessor to the
Company, guaranteed by Figgie, for certain environmental liabilities in
connection with the Mansfield Property, subject to a dollar limitation of
$12.0 million (the "Indemnification Cap"). In addition, in connection with the
Hartman Acquisition, Figgie has placed $515,000 in escrow for environmental
remediation costs at the Mansfield property to be credited towards the
Indemnification Cap as provided in the Lease. The Company believes that, while
actual remediation costs may exceed the cash amount escrowed, such costs will
not exceed the Indemnification Cap. If costs exceed the escrow and the Company
is unable to obtain, or is delayed in obtaining, indemnification under the
Lease for any reason, the Company could be materially and adversely affected.
47
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company anticipated to be in
place upon consummation of the Offering and their ages and positions with the
Company are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION OR AFFILIATION
---- --- -----------------------
<S> <C> <C>
Ramzi A. Dabbagh........ 61 Chairman of the Board, Chief Executive Officer, President and Director
Michael A. Steinback.... 42 President of CII Division and Director
Douglas Campbell........ 49 President of Kilovac Division and Director
G. Daniel Taylor........ 60 Executive Vice President of Business Development and Director
David Henning........... 49 Chief Financial Officer
Theodore Anderson....... 40 Vice President and General Manager of Midtex Division
Daniel McAllister....... 42 Vice President of Manufacturing and Engineering of Kilovac Division
James R. Mikesell....... 54 Vice President and General Manager of Hartman Division
Michael S. Bruno, Jr.... 41 Director
Daniel A. Dye........... 43 Director
John P. Flanagan........ 54 Director
Donald E. Dangott....... 63 Director
</TABLE>
Upon the consummation of the Offering, the Board of Directors of the Company
will be expanded to 10 directors, and the Board currently intends to appoint
two additional independent directors following consummation of the Offering.
The present principal occupations and recent employment history of each of
the executive officers and directors of the Company listed above are set forth
below:
Ramzi A. Dabbagh was recently named the Chairman of the Board, Chief
Executive Officer and President of the Company. He served as President of
Communications Instruments from 1982 to 1995. Mr. Dabbagh served as President
and Chairman of the National Association of Relay Manufacturers ("NARM") from
1991 to 1993 and has been a director of NARM since 1990.
Michael A. Steinback became President of the CII Division and a director of
the Company in 1995. He served as the Vice President of Operations of the CII
Division from 1994 to 1995. From 1990 to 1993, Mr. Steinback was Vice
President of Sales and Marketing for CP Clare Corporation. Mr. Steinback has
served on the Board of Directors of NARM for 2 years.
Douglas Campbell became President of the Kilovac Division and a director of
the Company in 1995 as a result of the Kilovac Acquisition. He had been
employed by the Kilovac Corporation since 1978, and its President since 1986.
Mr. Campbell is expected to leave his position upon the expiration of his
employment agreement in December 1996. The Company may elect to employ Mr.
Campbell on a part-time consulting basis in 1997. See "--Employment
Agreements." The Company has an understanding with Mr. Campbell that he will
be nominated to serve as a director of the Company through October 1997.
G. Daniel Taylor has been the Executive Vice President of Business
Development of the Company since October 1995 and a director of the Company
since 1993. He joined the Company in 1981 as Vice President of Engineering and
Marketing and became Executive Vice President in 1984. He has served as the
Company's representative to NARM and has acted as an advisor to the National
Aeronautics and Space Administration (NASA) for relay applications and testing
procedures since 1967.
David Henning became Chief Financial Officer of the Company in December
1994. He held various positions at CP Clare Corporation from 1971 to 1994 and
served as Chief Financial Officer of that corporation from 1992 to 1994.
Theodore Anderson has served as Vice President and General Manager of the
CII Division/Midtex Division since 1993. Mr. Anderson served as Product
Marketing Manager of CP Clare Corporation from 1990 to 1993.
48
<PAGE>
Daniel R. McAllister has served as the Vice President of Manufacturing and
Engineering of the Kilovac Division since the Kilovac Acquisition in 1995 and
had served as Vice President of Product Development for the Kilovac
Corporation since 1990.
James R. Mikesell joined the Company as Vice President and General Manager
of the Hartman Division in July 1996 upon the completion of the Hartman
Acquisition. Mr. Mikesell joined Hartman Electrical Manufacturing in February
1994, from IMO Industries, where he had been the General Manager of their
Controlex Division for the previous 5 years. Prior to IMO, Mr. Mikesell was
Director of Manufacturing for the U.S. operations of the Automatic Switch
Division of Emerson Electric; Vice President of Engine Accessory Operations
and Director of Materials Management for the Quincy Controls Division of Colt
Industries; and in various operations management positions with Cummins Engine
and Dana Corporation.
Michael S. Bruno, Jr. has served as a director of the Company since 1993. He
was a founding Partner of Stonebridge Partners in 1986.
Daniel A. Dye has served as a director of the Company since 1993. He has
been a Partner of Stonebridge Partners since March 1993. From 1977 to 1993 he
was employed by Security Pacific Corporation and its successor company,
BankAmerica Capital Corporation and served as Senior Vice President of that
Company from 1988 to 1993.
John P. Flanagan has served as a director of the Company since 1993. He has
been an Operating Partner of Stonebridge Partners since 1992. He was the Chief
Operating Officer of Cabot Safety Corporation from 1990 to 1991 and President
of American Opticals Safety Business from 1985 to 1990.
Donald E. Dangott has served as a director of the Company since 1994. He
held various positions at Eaton Corporation until 1993, including serving as
the Director of Business Development Commercial and Military Controls
Operations from 1990 to 1993, and he presently serves as a business
development consultant. He is the Executive Director and a member of the Board
of Directors of NARM.
COMPENSATION OF DIRECTORS
As independent directors of the Company, Mr. Dangott and the directors to be
appointed after the consummation of the Offering will receive $10,000 per
year. All directors are entitled to reimbursement of reasonable out-of-pocket
expenses incurred in connection with Board meetings. Directors who are
officers of the Company or partners of Stonebridge Partners receive no
additional compensation for serving as directors. See "--Compensation
Committee Interlocks and Insider Participation."
BOARD COMMITTEES
The Board of Directors has an Audit Committee which makes recommendations to
the Board of Directors regarding the independent auditors to be nominated for
election by the shareholders, reviews the independence of such auditors,
approves the scope of the annual audit activities and reviews audit results.
The Audit Committee consists of Mr. Dye, Mr. Dangott and an additional
independent director to be named after the consummation of the Offering.
The Compensation Committee makes recommendations to the Board of Directors
concerning salaries and incentive compensation for officers and employees of
the Company. Mr. Flanagan, Mr. Dangott and an additional independent director
to be named after the consummation of the Offering will comprise the
Compensation Committee.
The Board of Directors may from time to time establish other committees to
assist it in the discharge of its responsibilities.
49
<PAGE>
EXECUTIVE COMPENSATION
The following sets forth a summary of all compensation paid to the chief
executive officer and the three other executive officers of the Company (the
"Named Executive Officers") for services rendered in all capacities to the
Company for the year ended December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------
OTHER
ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) COMPENSATION(2)
- --------------------------- -------- -------- --------------- ---------------
<S> <C> <C> <C> <C>
Ramzi A. Dabbagh ........ $163,752 $139,098 $361,305 $14,240
Chairman, President and
Chief Executive Officer
Michael A. Steinback..... 129,683 75,026 346,458 8,494
President of CII
Division and Director
G. Daniel Taylor......... 107,309 63,187 5,098 7,866
Executive Vice President
of Business Development
and Director
David Henning............ 102,500 60,350 343,833 7,396
Chief Financial Officer
</TABLE>
- --------
(1) These amounts represent the sum of (i) the difference between the
appraised value of 25,000 shares of Common Stock at the date of purchase
($7.66 per share) and the purchase price paid for such shares ($0.46 per
share) ($180,100 for each of Messrs. Dabbagh, Steinback and Henning); (ii)
reimbursement for taxes related to stock compensation ($166,358 for
Messrs. Dabbagh and Steinback and $156,233 for Mr. Henning; (iii) fringe
benefits received by Messrs. Dabbagh and Taylor valued at $14,847 and
$5,098, respectively and (iv) with respect to Mr. Henning, reimbursement
received for $7,500 of expenses relating to the commencement of his
employment with the Company.
(2)These amounts represent insurance premiums paid by the Company with respect
to term life insurance.
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements with Messrs. Dabbagh and
Taylor which terminate on May 11, 1998 and provide for annual base salaries of
$150,000 and $100,000. In addition, the employment agreements provide that
each of these executive officers is entitled to participate in a bonus pool
based upon the performance of the Company as established by the Board of
Directors, and such other employee benefit plans and other benefits and
incentives as the Board of Directors of the Company shall determine from time
to time. Under the employment agreements, each of Messrs. Dabbagh and Taylor
agrees that during the period of such agreement and for one year thereafter
such executive officer will not (i) become employed by or in any other way
associated with a business similar to that of the Company, (ii) solicit any
business similar to that of the Company from any of its customers or clients
or (iii) encourage any employees of the Company which have been employed by
the Company for a year or less to enter into any employment agreement or
perform any services for any other organization or enter into any other
business. The agreements also provide that while employed by the Company
neither of the executive officers may have a financial or other interest in a
supplier, customer, client or competitor of the Company (provided that
maintaining a financial interest equal to the lesser of $100,000 or 1%
ownership of a public company is not precluded). The employment agreements may
be terminated immediately by the Company "for cause" or within three months
after the death or disability of the employee. The Company maintains key-man
life insurance on Messrs. Dabbagh and Taylor and has agreed to pay out of the
proceeds of such policy three years salary to the estate of either officer in
the event of the death of such officer.
50
<PAGE>
The Company entered into an employment agreement with Douglas Campbell in
connection with the Kilovac Acquisition pursuant to which Mr. Campbell is
employed on a full-time basis until December 31, 1996 and, at the Company's
request, on a part-time consultancy basis for up to 12 months thereafter.
Under such agreement, while he is a full-time employee Mr. Campbell is
entitled to receive an annual salary of $150,000 and such stock options and
bonuses as are afforded other key employees of the Kilovac Division. The
Company is entitled to terminate this employment agreement for any reason upon
90 days notice, provided that Mr. Campbell is entitled to receive his full
salary if he is terminated without "cause". Under the employment agreement Mr.
Campbell agrees that for the term of such agreement and for five years
thereafter he will not directly or indirectly participate, have a financial
interest in or advise any business competitive with the business of the
Company and will not at any time interfere with the business of the Company by
soliciting its customers, suppliers or employees.
The Company entered into employment agreements with Michael Steinback and
David Henning in January 1994 and December 1994, respectively, which expire in
April 1997 and December 1996, respectively, and are automatically renewed each
year. Messrs. Steinback and Henning are entitled to receive annual salaries
(subject to annual review) of $134,375 and $105,000, respectively, an annual
auto allowance, and other standard employee benefits applicable to the
Company's other executive officers, and are entitled to participate in the
Company's executive bonus plan. Each of Messrs. Steinback and Henning is
entitled to receive full salary and benefits for a year if he is terminated at
any time during such year.
EMPLOYEE BENEFIT PLAN
The CII Technologies Inc. 1996 Management Stock Plan (the "1996 Plan") has
been adopted by the Company's Board of Directors and approved by its
stockholders.
Administration. The 1996 Plan is administered by the Compensation Committee
of the Board of Directors. The Compensation Committee has discretion to select
the individuals to whom awards will be granted and to determine the type, size
and terms of each award and the authority to administer, construe and
interpret the 1996 Plan. Members of the Compensation Committee must be
"disinterested" within the meaning of Rule 16b-3 under the Securities Exchange
Act of 1934.
Participants. All employees of the Company who are selected by the
Compensation Committee are eligible to participate in the 1996 Plan. Each of
the Named Executive Officers and other officers of the Company is an eligible
participant under the 1996 Plan.
Awards. The 1996 Plan provides for the granting of incentive and non-
qualified incentive stock options, stock appreciation rights, and other stock
based awards (collectively or individually, "Awards"). An individual to whom
an Award is made has no rights as a stockholder with respect to any Common
Stock issuable pursuant to that Award until the date of issuance of the stock
certificate for such shares upon payment of the Award.
Shares Available for Awards. A total of 325,000 shares of Common Stock may
be subject to Awards under the 1996 Plan, subject to adjustment at the
discretion of the Compensation Committee in the event of a Common Stock
dividend, split, recapitalization or certain other transactions. The shares of
Common Stock issuable under the 1996 Plan may be either authorized unissued
shares, or treasury shares or any combination thereof. If any shares of Common
Stock subject to repurchase or forfeiture rights are reacquired by the Company
or if any Award is canceled, terminates or expires unexercised, the shares of
Common Stock which were issued or would have been issuable pursuant thereto
will become available for new Awards. No individual may receive options, SARs
or other stock-based Awards during a calendar year attributable to more than
75,000 shares of Common Stock, subject to adjustment in accordance with the
terms of the 1996 Plan.
Stock Options. A stock option which may be a non-qualified or an incentive
stock option (each, an "Option"), is the right to purchase a specified number
of shares of Common Stock at a price (the "Option Price") fixed by the
Compensation Committee. The Option Price of an incentive Option may be no less
than the
51
<PAGE>
fair market value of the underlying Common Stock on the date of grant. Unless
otherwise provided in a participant's award agreement, options are not
transferable during the participant's lifetime and will generally expire not
later than ten years after the date on which they are granted. Options become
exercisable at such times and in such installments as the Compensation
Committee shall determine. The Compensation Committee may also accelerate the
period for exercise of any or all Options held by a participant.
The Compensation Committee may, at the time of the grant of an Option or
thereafter, grant the participant a right (a "Limited Right") to surrender to
the Company all or a portion of the related Option in connection with a Change
in Control (as defined below). In exchange for such surrender, the Option
holder would receive cash in an amount equal to the number of shares subject
to the Option multiplied by the excess of the higher of (i) the highest price
per share of Common Stock paid in certain Change of Control transactions or
(ii) the highest fair market value per share of Common Stock at any time
during the 90-day period preceding such Change in Control over the Option
Price of the Option to which the Limited Right relates. A Limited Right can be
exercised within the 30-day period following a Change of Control. A Limited
Right will only be exercisable during the term of the related Option. A
"Change in Control" is deemed to occur when: (i) 20% or more of the combined
voting power of Company's voting securities is acquired in certain instances;
(ii) individuals who are members of Company's Board of Directors prior to the
Change of Control cease, subject to certain exceptions, to constitute at least
a majority of such Board of Directors; or (iii) stockholders approve certain
mergers, consolidations, reorganizations, or a liquidation of the Company or
an agreement is approved for the sale or other disposition of all or
substantially all of the assets of the Company.
Stock Appreciation Rights. A stock appreciation right may be granted alone
or in tandem with Options. Upon exercise, a stock appreciation right will
entitle the participant to receive from the Company an amount equal to excess
of the fair market value of a share of Common Stock on the settlement date
over the per share grant or option price, as applicable (or some lesser amount
as the Compensation Committee may determine at the time of grant), multiplied
by the number of shares of Common Stock with respect to which the stock
appreciation right is exercised. Upon the exercise of a stock appreciation
right granted in connection with a stock option, the stock option shall be
canceled to the extent of the number of shares as to which the stock
appreciation right is exercised, and upon the exercise of a stock option
granted in connection with a stock appreciation right or the surrender of such
stock option, the stock appreciation right shall be canceled to the extent of
the number of shares as to which the stock option is exercised or surrendered.
The Compensation Committee will determine whether the stock appreciation right
will be settled in cash, Common Stock or a combination of cash and Common
Stock. The Compensation Committee may, at the time of the grant of a SAR
unrelated to an Option or thereafter, grant a Limited Right in tandem with the
SAR which will operate in a manner comparable to the Limited Rights described
above under the caption "Stock Options."
Other Stock Based Awards. Other Awards of Common Stock that are valued in
whole or in part by reference to, or otherwise based on, the fair market value
of Common Stock ("Other Stock-based Awards"), may be granted under the 1996
Plan in the discretion of the Compensation Committee. The Compensation
Committee may make Other Stock-based Awards in the form of (i) the right to
purchase shares of Common Stock, (ii) shares of Common Stock subject to
restrictions on transfer until the completion of a specified period of
service, the occurrence of an event or the attainment of performance
objectives, each as specified by the Compensation Committee, and (iii) shares
of Common Stock issuable upon the completion of a specified period of service,
the occurrence of an event or the attainment of performance objectives, each
as specified by the Compensation Committee. Other Stock-based Awards may be
granted alone or in addition to any other Awards made under the Plan. Subject
to the provisions of the 1996 Plan, the Compensation Committee has sole and
absolute discretion to determine to whom and when such Other Stock-based
Awards will be made, the number of shares of Common Stock to be awarded under
(or otherwise related to) such Other Stock-based Awards and all other terms
and conditions of such Awards. The Compensation Committee determines whether
Other Stock-based Awards will be settled in cash, Common Stock or a
combination of cash and Common Stock.
Additional Information. The Compensation Committee may accelerate or waive
vesting or exercise or the lapse of restrictions on all or any portion of any
Award or extend the exercisability of Options or SARs.
52
<PAGE>
Unless otherwise provided in an individual's award agreement, an
individual's rights under the 1996 Plan may not be assigned or transferred
(except in the event of death). The Company will have the right to deduct from
all amounts paid to any participant in cash (whether under the 1996 Plan or
otherwise) any taxes required by law to be withheld therefrom. In the case of
payments of Awards in the form of Common Stock, at the Compensation
Committee's discretion, the participant may be required to pay to the Company
the amount of any taxes required to be withheld with respect to such Common
Stock, or, in lieu thereof, the Company shall have the right to retain the
number of shares of Common Stock the fair market value of which equals the
amount required to be withheld. Without limiting the foregoing, the
Compensation Committee may, in its discretion and subject to such conditions
as it shall impose, permit share withholding to be done at the Participant's
election.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1995 the Company's Compensation Committee consisted of Messrs.
Dabbagh, Bruno and Flanagan. Neither Mr. Bruno nor Mr. Flanagan served as an
officer or employee of the Company during that year. Mr. Bruno is a general
partner and Mr. Flanagan is a special limited partner of the Partnership which
will own approximately 33.1% of the Common Stock of the Company upon
consummation of the Offering. As a general partner of the Partnership, Mr.
Bruno may be deemed to share beneficial ownership of the Common Stock
beneficially owned by the Partnership; however, Mr. Bruno disclaims such
beneficial ownership. See "Ownership of Common Stock."
Stonebridge Partners, which is an affiliate of the Partnership, renders
management, consulting, acquisition and financial services to the Company for
an annual fee of approximately $150,000. The Company believes that this fee is
no less favorable than that which could be obtained for comparable services
from unaffiliated third parties. From time to time, Stonebridge Partners may
also receive customary investment banking fees for services rendered to the
Company in connection with acquisitions and certain other transactions. The
Company paid Stonebridge Partners fees of $140,000 and $130,000 upon
consummation of the Kilovac Acquisition and Hartman Acquisition, respectively.
The Company also reimburses Stonebridge Partners for out-of-pocket expenses
incurred in connection with services rendered to the Company. Partners of
Stonebridge Partners who also serve as directors of the Company do not receive
additional compensation for service in such capacity.
53
<PAGE>
OWNERSHIP OF COMMON STOCK
The following table sets forth certain information concerning the beneficial
ownership of the Common Stock of the Company as of June 30, 1996 assuming the
consummation of the Kilovac Share Exchange and as adjusted to reflect the sale
of the shares offered hereby of (i) each beneficial owner of more than 5% of
the Common Stock of the Company, (ii) each director and each Named Executive
Officer and (iii) all directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
THE OFFERING THE OFFERING
-------------- ------------
NAME AND ADDRESS NUMBER PERCENT NUMBER PERCENT
---------------- --------- ------- --------- -------
<S> <C> <C> <C> <C>
CII Associates, L.P.(1)(2)................ 2,150,000 71.7% 2,150,000 33.1%
Ramzi A. Dabbagh(3)....................... 75,000 2.5 75,000 1.2
Michael A. Steinback(3)................... 75,000 2.5 75,000 1.2
G. Daniel Taylor(3)....................... 100,000 3.3 100,000 1.5
David Henning(3).......................... 25,000 * 25,000 *
Michael S. Bruno(1)(2).................... 2,150,000 71.7 2,150,000 33.1
Daniel A. Dye(1)(2)....................... 2,150,000 71.7 2,150,000 33.1
John P. Flanagan(3)....................... 75,000 2.5 75,000 1.2
Donald E. Dangott(3)...................... -- -- -- --
Douglas Campbell(4)....................... 279,713 9.3 279,713 4.3
Directors and executive officers as a
group (12 persons)(2)(4)................. 2,779,713 92.7 2,779,713 42.8
</TABLE>
- --------
* Represents less than 1% of the outstanding Common Stock of the Company.
(1) c/o Stonebridge Partners, Westchester Financial Center, 50 Main Street,
White Plains, NY 10606.
(2) The general partners of CII Associates, L.P. have sole voting and
investment power with respect to the shares of Common Stock owned by CII
Associates, L.P. Messrs. Bruno and Dye (directors of the Company) and
Messrs. David A. Zackrison and Harrison M. Wilson, as the general partners
of CII Associates, L.P., may be deemed to share beneficial ownership of
the shares shown as beneficially owned by CII Associates, L.P. Messrs.
Bruno and Dye disclaim beneficial ownership of such shares.
(3) c/o CII Technologies Inc., 1396 Charlotte Highway, Fairview, North
Carolina 28730
(4) Includes 25,243 shares held by Douglas Campbell, as Trustee of the
Campbell Charitable Remainder Unitrust (the "Unitrust") and 110,219 shares
held by Douglas Campbell, as Trustee of the Kilovac Corporation Employee
Stock Bonus Plan (the "ESBP"). Mr. Campbell disclaims beneficial ownership
of all shares held as Trustee of the Unitrust and of 103,409 shares held
by the ESBP, as to which the individual employees have the power to direct
the Trustee as to the disposition of the shares. Mr. Campbell's address is
c/o Kilovac Division, Communications Instruments, Inc., P.O. Box 4422,
Santa Barbara, California 93140.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
KILOVAC ACQUISITION
On October 11, 1995, the Company purchased 80% of the outstanding capital
stock of Kilovac pursuant to a Stock Subscription and Purchase Agreement, as
amended (the "Kilovac Purchase Agreement"), dated as of September 20, 1995
among the Company, Kilovac and the stockholders of Kilovac named therein (the
"Kilovac Stockholders"). Under the terms of the Kilovac Purchase Agreement,
concurrent with the consummation of the Offering, the 24,957 outstanding
shares of Kilovac held by the Kilovac Stockholders will be exchanged for the
number of shares of Common Stock of the Company equal to $4,500,000 divided by
the initial per share offering price to the public of the Common Stock being
offered hereby (450,000 shares of Common Stock based upon the assumed initial
public offering price of $10.00 per share) (the "Kilovac Share Exchange"). The
Shares of Common Stock to be issued in the Kilovac Share Exchange will be
issued pursuant to an exemption from the registration requirements of the
Securities Act and will be "restricted securities" within the meaning of Rule
144. Most of the Kilovac Stockholders have agreed not to sell or otherwise
dispose of any of the Common Stock of the Company acquired in the Kilovac
Share Exchange until 365 days after the Offering (the "Lock-up Period")
without the prior written consent of the Representatives of the Underwriters.
54
<PAGE>
REGISTRATION RIGHTS
In connection with the CII Acquisition, the Partnership entered into a
Registration Rights Agreement with the Company (the "Registration Rights
Agreement") pursuant to which the Company granted demand registration rights
to the Partnership in respect of the shares of Common Stock and Preferred
Stock owned by the Partnership or a partner thereof (the "Registrable
Securities"). Under the Registration Rights Agreement, holders of a majority
of the outstanding Registrable Securities may make a demand registration at
any time. Expenses in connection with the exercise of such demand registration
rights are to be borne by the Company subject to certain limitations. Under
the terms of the stock subscription agreements pursuant to which certain
members of management and others purchased Common Stock in the Company, the
Company granted such purchasers certain rights to have their shares of Common
Stock included in registrations of capital stock of the Company ("piggyback
registration rights"). The Company is obligated to assume all of the costs
associated with the exercise of the piggyback registration rights other than
each such purchaser's pro rata share of any underwriter's discounts or
commissions. In connection with the Offering, all holders of Registrable
Securities and piggyback registration rights have agreed to waive their
registration rights for 365 days following the date of this Prospectus.
Upon the expiration of the Lock-up Period, holders of shares of Common Stock
received in the Kilovac Share Exchange may require the Company to register
such shares (at the Company's expense) pursuant to the Securities Act. In
addition, such stockholders have certain rights to register their shares pari
passu with any registration of shares effected on behalf of another
stockholder.
ISSUANCE OF SECURITIES BY THE COMPANY
In connection with the CII Acquisition on May 11, 1993, the Company issued
to the Partnership (i) 2,150,000 shares of Common Stock for $860,000, (ii)
40,000 shares of Cumulative Redeemable Preferred Stock for $2.0 million, and
(iii) a $4.0 million subordinated promissory note that bears interest at an
annual rate of 9.25% and one-half of the unpaid principal of such note is due
on each of May 31, 2002 and May 31, 2003 (the "CII Note"). $1.2 million of the
amounts due under the CII Note represent accrued and unpaid interest which
bears interest at an 11.75% interest rate. The general partners of the
Partnership include Michael S. Bruno, Jr. and Daniel A. Dye (both directors of
the Company), David A. Zackrison and Harrison M. Wilson and the limited
partners include the other partners of Stonebridge Partners, certain private
investors and the original shareholders of the Predecessor and Aleowyn C. Ward
(the "Original Shareholders"). The general partners of the Partnership have
sole voting and investment power with respect to the shares of Common Stock
owned by the Partnership.
As part of the financing of the CII Acquisition, the Original Shareholders
issued notes for an aggregate principal amount of $2.0 million which bear
interest at the annual rate of 9.25% and become due May 11, 2003 (the "Seller
Notes"). The aggregate principal amount of the Seller Notes was reduced by
$250,000 on May 17, 1994 in satisfaction of certain indemnity claims arising
under the acquisition agreement pursuant to which the CII Acquisition was
accomplished (the "Acquisition Agreement"). The Original Shareholders were
subsequently released from all indemnity obligations arising under the
Acquisition Agreement on October 11, 1995. On October 11, 1995, three of the
four Original Shareholders, in their capacity as limited partners of the
Partnership, each contributed $100,000 of their respective Seller Notes to
their respective capital accounts in the Partnership (the "Capital Notes").
Proceeds from the Offering will be used to repay the $1.45 million outstanding
principal and interest on the Seller Notes and the $300,000 outstanding
principal and interest on the Capital Notes.
On October 11, 1995, in connection with the Kilovac Acquisition, the Company
issued to the Partnership (i) 40,000 shares of Cumulative Redeemable Preferred
Stock Series A for a purchase price of $2.0 million and (ii) a subordinated
promissory note in the principal amount of $1.7 million which bears interest
at the annual rate of 9.25% and one-half of the unpaid principal amount on
such note is due on each of October 11, 2004 and October 11, 2005 (the
"Kilovac Note"). $74,000 of the amounts due under the Kilovac Note represent
accrued and unpaid interest which bears interest at an 11.75% interest rate.
Proceeds from the Offering will be used to repay the $1.8 million outstanding
principal and accrued interest on the Kilovac Note and to redeem the Preferred
Stock.
55
<PAGE>
On October 11, 1995, the Company made a $70,000 loan to Ramzi Dabbagh (the
Chairman, President and Chief Executive Officer of the Company) which was to
bear interest at 9.25% per annum and secured by Mr. Dabbagh's limited
partnership interest in the Partnership. Mr. Dabbagh repaid the principal and
accrued interest on this loan in December 1995.
On December 1, 1995 Ramzi Dabbagh, Michael Steinback and David Henning each
purchased 25,000 shares of Common Stock for $11,400. On such date other
employees also purchased stock of the Company as follows: Theodore Anderson
purchased 12,500 shares of Common Stock for $5,700 and Gary C. McGill, Jeffrey
W. Boyce and Raymond McClinton purchased 4,165, 4,165 and 4,170 shares of
Common Stock, respectively, for purchase prices of $1,899, $1,899 and $1,902,
respectively. The Company recorded a special compensation charge in 1995 to
reflect the difference between the purchase price of such Common Stock
issuances and the estimated fair market value of such shares. The Company also
granted a cash bonus to each of these employees to compensate such employees
for the tax impact of the stock issuances. See "--Summary Compensation Table."
DESCRIPTION OF CAPITAL STOCK
Upon completion of the Offering, consummation of the Kilovac Share Exchange
and application of the proceeds as described herein, the authorized capital
stock of the Company will consist of 25,000,000 shares of Common Stock, $.01
par value per share, of which 6,500,000 shares will be outstanding, and five
million shares of Preferred Stock, $.01 par value per share, none of which
will be outstanding. The following description of the capital stock of the
Company, and certain provisions of the Company's Restated Certificate of
Incorporation (the "Certificate of Incorporation") and Restated Bylaws (the
"Bylaws") is a summary of such provisions as proposed to be amended prior to
consummation of the Offering and is qualified in its entirety by the
provisions of the Certificate of Incorporation and Bylaws, as anticipated to
be amended, copies of which are filed as exhibits to the Company's
Registration Statement of which this Prospectus is a part. As of the date of
this Prospectus the Company's Common Stock is held of record by 11
stockholders.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of the stockholders, including the election of
directors. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election if they choose to do so. The Certificate of
Incorporation does not provide for cumulative voting for the election of
directors. Subject to the prior rights of the holders of any Preferred Stock,
holders of Common Stock will be entitled to receive ratably such dividends, if
any, as may be declared from time to time by the Board of Directors out of
funds legally available therefor, and will be entitled to receive, pro rata,
all assets of the Company available for distribution to such holders upon
liquidation. Holders of Common Stock do not have preemptive, subscription or
redemption rights.
Application has been made to list the Common Stock on the Nasdaq National
Market under the symbol CIIT.
PREFERRED STOCK
The Restated Certificate of Incorporation is expected to be amended to
authorize the Company to issue "blank check" Preferred Stock, which may be
issued from time to time in one or more series upon authorization by the
Company's Board of Directors. The Board of Directors, without further approval
of the stockholders, will be authorized to fix the dividend rights and terms,
conversion rights, voting rights, redemption rights and terms, liquidation
preferences, and any other rights, preferences, privileges and restrictions
applicable to each series of the Preferred Stock. The issuance of Preferred
Stock, while providing flexibility in connection with possible acquisitions
and other corporate purposes could, among other things, adversely affect the
voting power of the holders of Common Stock and, under certain circumstances,
make it more difficult for a third party to gain control of the Company,
discourage bids for the Company's Common Stock at a premium or otherwise
adversely affect the market price of the Common Stock.
56
<PAGE>
The Restated Certificate of Incorporation also authorizes 85,000 shares for
each of two series of Preferred Stock, designated as the Cumulative Redeemable
Preferred Stock and the Cumulative Redeemable Preferred Stock Series A
(collectively, the "Existing Preferred Stock"). As of the date of this
Prospectus, 40,000 shares of each series are issued and outstanding and are
held by the Partnership. The Company anticipates that a portion of the
proceeds of the Offering will be used to redeem all of the outstanding
Existing Preferred Stock at a price per share of $50 plus an amount equal to
all accrued and unpaid dividends to the date fixed by the Board of Directors
as the redemption date.
CERTAIN CERTIFICATE OF INCORPORATION, BYLAW AND STATUTORY PROVISIONS AFFECTING
STOCKHOLDERS
Classified Board; Board Vacancies. Effective upon the first annual meeting
of stockholders following the Offering, the Restated Certificate of
Incorporation is expected to be amended to provide that the Company's Board of
Directors will be divided into three classes, with each class, after a
transitional period, serving for three years, and one class being elected each
year. Members of the Board of Directors may be removed only with cause. A
majority of the remaining directors then in office, though less than a quorum,
or the sole remaining director, will be empowered to fill any vacancy on the
Board of Directors. A majority vote of the stockholders will be required to
alter, amend or repeal the foregoing provisions. The classification of the
Board of Directors may discourage a third party from making a tender offer or
otherwise attempting to gain control of the Company and may maintain the
incumbency of the Board of Directors. See "Management."
Special Meetings of Stockholders. The Restated Certificate of Incorporation
is expected to be amended to require that special meetings of the stockholders
of the Company be called only by a majority of the Board of Directors and
certain officers.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The Bylaws are expected to be amended to provide that
stockholders seeking to bring business before or to nominate directors at any
meeting of stockholders, must provide timely notice thereof in writing. To be
timely, a stockholder's notice must be delivered to, or mailed and received
at, the principal executive offices of the Company not less than 60 days nor
more than 90 days prior to such meeting or, if less than 60 days' notice was
given for the meeting, within 10 days following the date on which such notice
was given. The Bylaws also will specify certain requirements for a
stockholder's notice to be in proper written form. These provisions may
preclude some stockholders from bringing matters before the stockholders or
from making nominations for directors.
Section 203 of Delaware Corporation Law. Following the consummation of the
Offering, the Company will be subject to the "business combination" statute of
the Delaware General Corporation Law. In general, such statute prohibits a
publicly held Delaware corporation from engaging in various "business
combination" transactions with any "interested stockholder" for a period of
three years after the time that such person became an "interested
stockholder," unless (i) the transaction is approved by the board of directors
prior to the time the interested stockholder obtained such status, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
"interested stockholder," the "interested stockholder" owned at least 85% of
the voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned by (a) persons who are directors and also
officers and (b) employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer, or (iii) on or subsequent
to such time the "business combination" is approved by the board of directors
and authorized at an annual or special meeting of stockholders by the
affirmative vote of at least 66 2/3% of the outstanding voting stock which is
not owned by the "interested stockholder." A "business combination" includes
mergers, consolidations, asset sales and other transactions resulting in
financial benefit to a stockholder. An "interested stockholder" is a person
who, together with affiliates and associates, owns (or within three years, did
own) 15% or more of a corporation's voting stock. The statute could prohibit
or delay mergers or other takeover or change in control attempts with respect
to the Company and, accordingly, may discourage attempts to acquire the
Company.
57
<PAGE>
Limitations on Directors' Liability. Delaware law authorizes corporations to
limit or eliminate the personal liability of directors to corporations and
their stockholders for monetary damages for breach of directors' fiduciary
duty of care. The Restated Certificate of Incorporation limits the liability
of the Company's directors to the Company or its stockholders (in their
capacity as directors but not in their capacity as officers) to the fullest
extent permitted by Delaware law. As a result, directors will not be
personally liable for monetary damages for breach of a director's fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for unlawful payments of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived
an improper personal benefit.
The inclusion of this provision in the Restated Certificate of Incorporation
may have the effect of reducing the likelihood of derivative litigation
against directors, and may discourage or deter stockholders or management from
bringing a lawsuit against directors for breach of their duty of care, even
though such an action, if successful, might otherwise have benefited the
Company and its stockholders.
TRANSFER AGENT AND REGISTRAR
First Union National Bank of North Carolina will be the Transfer Agent and
Registrar for the Common Stock.
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of the Offering, 6,500,000 shares of Common Stock will
be outstanding (7,025,000 shares if the Underwriter's over-allotment option is
exercised in full). Of these shares, the 3,500,000 shares (4,025,000 if the
over-allotment option granted to the Underwriters is exercised in full) sold
in the Offering may be freely traded without restriction under the Securities
Act, except by purchasers in the Offering who may be deemed to be "affiliates"
of the Company, as that term is defined in Rule 144 under the Securities Act
(an "Affiliate").
All of the shares of Common Stock currently outstanding were, and the shares
to be issued in the Kilovac Share Exchange will be, acquired in transactions
exempt from registration under the Securities Act. These shares, as well as
any shares purchased in the Offering by an Affiliate, may not be resold unless
they are registered under the Securities Act or are sold pursuant to an
applicable exemption from registration, including exemptions under Rule 144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, if at least two years have elapsed since the
later of the date "restricted securities" (as that term is defined in Rule
144) were acquired from the Company or from an Affiliate, the beneficial
holder of such restricted shares (including an Affiliate) is entitled to sell
a number of shares within any three-month period that does not exceed the
greater of 1% of the then outstanding shares of Common Stock immediately after
the Offering or the average weekly volume of trading in the Common Stock as
reported through the automated quotation system of a registered securities
association during the four calendar weeks preceding such sale and may sell
such shares only through unsolicited brokers' transactions. Sales under Rule
144 are also subject to certain requirements pertaining to the manner of such
sales, notices of such sales and the availability of current public
information concerning the Company. Existing Stockholders holding 2,425,000
shares have already satisfied the two-year holding period. In addition,
Affiliates may sell shares not constituting restricted securities in
accordance with the foregoing volume limitations and other requirements but
without regard to the two-year holding period.
Most of the restricted securities will be subject to "lock-up" agreements
under which the holders of such shares will agree not to sell or otherwise
dispose of any shares of Common Stock for a period of 365 days without the
prior written consent of the Representatives of the Underwriters.
Under Rule 144(k), if at least three years have elapsed since the later of
the date restricted shares were acquired from the Company or an Affiliate, a
holder of such restricted shares who is not an Affiliate at the time of the
sale and has not been an Affiliate for at least three months prior to the sale
would be entitled to sell the shares immediately without regard to the volume
limitations and other conditions described above. A non-affiliate existing
stockholder holds 25,000 shares which may be resold under Rule 144(k) without
restriction, assuming such existing stockholder does not become an Affiliate
of the Company.
The existing stockholders (including the recipients of shares in the Kilovac
Share Exchange) will have registration rights with respect to the 3,000,000
shares of Common Stock held by such shareholders following the closing of the
Offering. See "Certain Relationships and Related Transactions--Registration
Rights" and "--Kilovac Acquisition."
59
<PAGE>
UNDERWRITING
The Company has entered into an underwriting agreement (the "Underwriting
Agreement") with certain underwriters listed in the table below (the
"Underwriters"), for whom William Blair & Company, L.L.C. and Furman Selz LLC
are acting as Representatives (the "Representatives"). Subject to the terms
and conditions set forth in the Underwriting Agreement, the Company has agreed
to sell to each of the Underwriters, and each of the Underwriters has
severally agreed to purchase from the Company, the number of shares of Common
Stock set forth opposite each Underwriter's name in the table below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
William Blair & Company, L.L.C. ................................
Furman Selz LLC.................................................
---------
Total......................................................... 3,500,000
=========
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Common Stock
being sold pursuant to the Underwriting Agreement if any of the Common Stock
being sold pursuant to the Underwriting Agreement (excluding shares covered by
the over-allotment option granted therein) is purchased. In the event of and
default by an Underwriter, the Underwriting Agreement provides that, in
certain circumstances, purchase commitments of the non-defaulting Underwriters
will be increased or the Underwriting Agreement may be terminated.
The Underwriters have advised the Company that they propose to offer the
Common Stock to the public initially at the public offering price set forth on
the cover page of this Prospectus and to selected dealers at such price less a
concession of not more than $ per share. The Underwriters may allow, and
such dealers may re-allow, a concession not in excess of $ per share to
certain other dealers. After the initial public offering, the public offering
price and other selling terms may be changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable within 30
days after the date of this Prospectus, to purchase up to an additional
525,000 shares of Common Stock at the same price per share to be paid by the
Underwriters for the other shares offered hereby. If the Underwriters purchase
any such additional shares pursuant to this option, each of the Underwriters
will be committed to purchase such additional shares in approximately the same
proportion as set forth in the table above. The Underwriters may exercise the
option only for the purpose of covering over-allotments, if any, made in
connection with the distribution of the Common Stock offered hereby.
The Company and certain of its officers, directors and stockholders have
agreed that they will not sell, contract to sell or otherwise dispose of any
Common Stock or any interest therein for a period of 365 days after the date
of this Prospectus without the prior written consent of the Representatives of
the Underwriters.
60
<PAGE>
There has been no public market for the shares of Common Stock prior to the
Offering. The initial public offering price for the Common Stock will be
determined by negotiation between the Company and the Representatives of the
Underwriters. Among the factors to be considered in determining the initial
public offering price are prevailing market conditions, revenue and earnings
of the Company, estimates of the business potential and prospects of the
Company, the present state of the Company's business operations, an assessment
of the Company's management and the consideration of the above factors in
relation to the market valuation of certain publicly traded companies.
The Company has agreed to indemnify the Underwriters and their controlling
persons against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriters may be required
to make in respect thereof.
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
LEGAL MATTERS
Certain legal matters in connection with the Common Stock offered hereby are
being passed upon for the Company by Simpson Thacher & Bartlett (a partnership
which includes professional corporations), New York, New York, and for the
Underwriters by Gardner, Carton & Douglas, Chicago, Illinois.
EXPERTS
The consolidated balance sheets of the Company at December 31, 1994 and
December 31, 1995, the related consolidated statements of operations,
stockholders' equity and cash flows for the years then ended and the period
from May 11, 1993 to December 31, 1993 and the statements of operations,
stockholders' equity and cash flows for the Predecessor for the period from
January 1, 1993 to May 10, 1993 included in this Prospectus and Registration
Statement have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein. Such consolidated financial
statements and financial statements of the Predecessor Company for the periods
referred to above are included herein in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
The consolidated balance sheet of Kilovac at December 31, 1994, the related
consolidated statements of income, stockholders' equity and cash flows for the
year then ended and the consolidated statements of income, stockholders'
equity and cash flows for the year ended December 31, 1993 and the period from
January 1, 1995 to October 11, 1995 included in this Prospectus and
Registration Statement have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein. Such consolidated
financial statements of Kilovac referred to above are included herein in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
The consolidated balance sheet of the Hartman Division at December 31, 1994
and December 31, 1995 and the related statements of operations, stockholders'
equity and cash flows for the years then ended included in this Prospectus and
the Registration Statement referred to below have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing herein.
Such consolidated financial statements of the Hartman Division referred to
above are included herein in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
61
<PAGE>
ADDITIONAL INFORMATION
The Company will furnish its stockholders with annual reports containing
audited financial statements for each fiscal year and with quarterly reports
containing unaudited summary financial information for each of the first three
quarters of each fiscal year.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (the "Registration
Statement") under the Securities Act, with respect to the Common Stock being
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement, certain items of which are contained in schedules and exhibits to
the Registration Statements as permitted by the rules and regulations of the
Commission. Items of information omitted from this Prospectus but contained in
the Registration Statement may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street N.W., Washington,
D.C. 20549, and at the regional offices of the Commission at Seven World Trade
Center, 13th Floor, New York, New York 10048 and at Citicorp Center, Suite
1400, 500 West Madison Street, Chicago, Illinois 60661. Such material may also
be accessed electronically by means of the Commission's Home Page on the
Internet at http://www.sec.gov. Copies of such material may also be obtained
by mail from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
62
<PAGE>
CII TECHNOLOGIES INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
CII TECHNOLOGIES INC. AND SUBSIDIARIES
Independent Auditors' Report.......................................... F-2
Consolidated Balance Sheets at December 31, 1994 and 1995 (Company)
and Unaudited June 30, 1996 (Company)................................ F-3
Consolidated Statements of Operations for the Period From January 1,
1993 to May 10, 1993 (Predecessor Company), the Period From May 11,
1993 to December 31, 1993 (Company), the Years Ended December 31,
1994 and 1995 (Company) and the Unaudited Six Months Ended July 2,
1995 and June 30, 1996 (Company)..................................... F-4
Consolidated Statements of Stockholders' Equity for the Period From
January 1, 1993 to May 10, 1993 (Predecessor Company), the Period
From May 11, 1993 to December 31, 1993 (Company), the Years Ended
December 31, 1994 and 1995 (Company) and the Unaudited Six Months
Ended June 30, 1996 (Company)........................................ F-5
Consolidated Statements of Cash Flows for the Period From January 1,
1993 to May 10, 1993 (Predecessor Company), the Period From May 11,
1993 to December 31, 1993 (Company), the Years Ended December 31,
1994 and 1995 (Company) and the Unaudited Six Months Ended July 2,
1995 and June 30, 1996 (Company)..................................... F-6
Notes to Consolidated Financial Statements............................ F-7
KILOVAC CORPORATION AND SUBSIDIARIES:
Independent Auditors' Report.......................................... F-19
Consolidated Balance Sheet at December 31, 1994....................... F-20
Consolidated Statements of Income for the Years Ended December 31,
1993 and 1994 and the Period From January 1, 1995 to October 11,
1995................................................................. F-21
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1993 and 1994 and the Period From January 1, 1995 to
October 11, 1995..................................................... F-22
Consolidated Statements of Cash Flows for the Years Ended December 31,
1993 and 1994 and the Period From January 1, 1995 to October 11,
1995................................................................. F-23
Notes to Consolidated Financial Statements............................ F-24
HARTMAN ELECTRICAL MANUFACTURING DIVISION OF
FIGGIE INTERNATIONAL INC.:
Independent Auditors' Report.......................................... F-28
Balance Sheets at December 31, 1994 and 1995 and Unaudited June 30,
1996................................................................. F-29
Statements of Operations for the Years Ended December 31, 1994 and
1995 and the Unaudited Six Months Ended June 30, 1995 and 1996....... F-30
Statements of Cash Flows for the Years Ended December 31, 1994 and
1995 and the Unaudited Six Months Ended June 30, 1995 and 1996....... F-31
Notes to Consolidated Financial Statements............................ F-32
INDEX TO FINANCIAL STATEMENT SCHEDULES................................. II-4
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
CII Technologies Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of CII
Technologies Inc., formerly Communications Instruments Holdings, Inc. (the
"Company"), as of December 31, 1994 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the period
from May 11, 1993 to December 31, 1993 and the years ended December 31, 1994
and 1995. Our audits also included the financial statement schedule listed in
the index at II-4. We have also audited the consolidated statements of
operations, stockholders' equity and cash flows of Communications Instruments,
Inc. (the "Predecessor Company") for the period from January 1, 1993 to May
10, 1993. These financial statements and financial statement schedule are the
responsibility of the Company's and Predecessor Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits 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 audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Company at December 31, 1994 and 1995, and the results of its operations and
its cash flows for the period from May 11, 1993 to December 31, 1993 and the
years ended December 31, 1994 and 1995 and the Predecessor Company's results
of operations and cash flows for the period from January 1, 1993 to May 10,
1993, in conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Deloitte & Touche LLP
Charlotte, North Carolina
March 21, 1996
F-2
<PAGE>
CII TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
ASSETS (NOTE 5)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash.............................................. $ 72 $ 193 $ 150
Accounts receivable (less allowance for doubtful
accounts: 1994--$301; 1995--$420;
1996--$377) (Note 1)............................. 5,094 8,092 8,616
Inventories (Notes 1 and 2)....................... 7,934 10,642 10,671
Deferred income taxes (Note 7).................... 410 1,909 2,050
Other current assets (Note 13).................... 76 1,321 1,613
------- ------- -------
Total current assets.............................. 13,586 22,157 23,100
------- ------- -------
Property, Plant and Equipment, net (Notes 1, 3 and
6)................................................ 11,735 13,225 12,672
------- ------- -------
OTHER ASSETS:
Cash restricted for environmental remediation
(Note 9)......................................... -- 1,755 1,231
Environmental settlement receivable (Note 9)...... -- 1,050 1,076
Goodwill (net of accumulated amortization: 1994--
$54; 1995--$130; 1996--$260)..................... 717 7,726 7,596
Other intangible assets, net (Note 4)............. 798 3,061 3,267
Other noncurrent assets........................... -- 12 139
------- ------- -------
Total other assets................................ 1,515 13,604 13,309
------- ------- -------
Total............................................. $26,836 $48,986 $49,081
======= ======= =======
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable................................... $ 2,282 $ 2,579 $ 3,173
Accrued interest (Note 5).......................... 626 1,269 1,667
Other accrued expenses............................. 1,013 3,231 3,546
Current portion of long-term debt (Note 5)......... 2,006 3,721 3,037
Current payable due to minority stockholders of
subsidiary (Note 1)............................... -- 1,453 79
------- ------- -------
Total current liabilities.......................... 5,927 12,253 11,502
------- ------- -------
Long-Term Debt (Note 5)............................. 10,191 19,731 20,321
------- ------- -------
Notes Payable to Stockholders (Notes 5 and 13)...... 5,750 7,450 7,450
------- ------- -------
Accrued Environmental Remediation Costs (Note 9).... -- 3,491 3,013
------- ------- -------
Deferred Income Taxes and Other Liabilities (Notes 7
and 8)............................................. 3,418 3,004 2,973
------- ------- -------
Noncurrent Payable Due to Minority Stockholders of
Subsidiary (Note 1)................................ -- 865 817
------- ------- -------
Minority Interest in Subsidiary..................... -- 35 86
------- ------- -------
Cumulative Redeemable Preferred Stock--$.01 par
value, stated at liquidation value--170,000 shares
authorized; 40,000 shares issued and outstanding--
1994; 80,000 shares issued and outstanding--1995
and 1996 (Note 11)................................. 2,287 4,497 4,683
------- ------- -------
Common Stock Subject to Put Options--$.01 par value,
215,000 shares issued and
outstanding--1994; 400,000 shares issued and
outstanding--1995 and 1996 (after giving effect
retroactively to the stock split, see Note 11 and
Note 14)........................................... 100 165 165
------- ------- -------
COMMITMENTS AND CONTINGENCIES (Notes 6 and 8)
STOCKHOLDERS' EQUITY (Notes 5, 11 and 14):
Common stock, $.01 par value--2,550,000 shares
authorized; 2,150,000 shares issued and
outstanding (after giving effect retroactively to
the stock split, see Note 11 and Note 14)......... 9 9 9
Additional paid-in capital......................... 38 758 758
Accumulated deficit................................ (873) (3,236) (2,660)
Currency translation loss.......................... (11) (36) (36)
------- ------- -------
Total stockholders' equity (deficit)............... (837) (2,505) (1,929)
------- ------- -------
Total.............................................. $26,836 $48,986 $49,081
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
CII TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMPANY
--------------------------------------------------------------
PREDECESSOR
COMPANY YEAR ENDED SIX MONTHS ENDED
JANUARY 1, MAY 11, 1993 DECEMBER 31, ----------------------
1993 TO TO DECEMBER 31, ---------------------- JULY 2, JUNE 30,
MAY 10, 1993 1993 1994 1995 1995 1996
------------ --------------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net Sales (Note 12)..... $8,378 $ 17,095 $ 31,523 $ 39,918 $ 18,568 $ 27,455
Cost of Sales........... 6,684 14,448 24,330 28,687 13,568 19,011
------ ---------- ---------- ---------- ---------- ----------
Gross Profit............ 1,694 2,647 7,193 11,231 5,000 8,444
------ ---------- ---------- ---------- ---------- ----------
Operating Expenses:
Selling expenses....... 713 1,344 2,382 3,229 1,409 2,382
General and
administrative
expenses (Note 13).... 586 1,150 2,248 3,334 1,296 2,369
Research and
development expenses.. 21 41 103 301 78 461
Amortization of
goodwill and other
intangible assets..... 45 117 177 251 110 246
Special compensation
charge (Note 10)...... -- -- -- 1,300 -- --
Environmental expenses
(Note 9).............. -- -- -- 951 -- --
Special acquisition
expenses (Note 1)..... 153 266 -- 2,064 915 --
------ ---------- ---------- ---------- ---------- ----------
Total operating
expenses............. 1,518 2,918 4,910 11,430 3,808 5,458
------ ---------- ---------- ---------- ---------- ----------
Operating Income
(Loss)................. 176 (271) 2,283 (199) 1,192 2,986
Other Income............ 42 -- -- 2 2 201
Interest Expense (Note
5)..................... (77) (1,086) (1,833) (2,997) (1,138) (1,820)
------ ---------- ---------- ---------- ---------- ----------
Income (Loss) Before
Income Taxes and
Minority Interest in
Subsidiary............. 141 (1,357) 450 (3,194) 56 1,367
Income Tax Expense
(Benefit) (Note 7)..... -- (499) 178 (1,076) 22 554
------ ---------- ---------- ---------- ---------- ----------
Income (Loss) After
Income Taxes Before
Minority Interest in
Subsidiary............. 141 (858) 272 (2,118) 34 813
Income Applicable to
Minority Interest in
Subsidiary............. -- -- -- 35 -- 51
------ ---------- ---------- ---------- ---------- ----------
Net Income (Loss)....... 141 (858) 272 (2,153) 34 762
Preferred Stock
Dividend............... -- 102 185 210 92 186
------ ---------- ---------- ---------- ---------- ----------
Net Income (Loss)
Available for Common
Stock.................. $ 141 $ (960) $ 87 $ (2,363) $ (58) $ 576
====== ========== ========== ========== ========== ==========
Pro Forma Earnings per
Common Share
(Unaudited) (Note 1):
Net Income (Loss)
Available for Common
Stock................. $ (.38) $ .03 $ (.93) $ (.02) $ .23
========== ========== ========== ========== ==========
Weighted average of
common shares
outstanding........... 2,495,440 2,511,125 2,535,714 2,520,440 2,550,000
========== ========== ========== ========== ==========
Supplemental Pro Forma
Earnings Per Common
Share (Unaudited) (Note
1):
Net Income (Loss)
Available for Common
Stock................. $ (.21) $ .18
========== ==========
Weighted average of
common shares
outstanding........... 6,035,714 6,050,000
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
CII TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
------------- ---------------- RETAINED
SHARES AMOUNT SHARES AMOUNT EARNINGS
PREDECESSOR COMPANY ------ ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1993............. 6,875 $ 840 2,428 $ 545 $ 8,243
Distributions to stockholders......... -- -- -- -- (1,217)
Net income............................ -- -- -- -- 141
----- ----- ------- ------- -------
Balances at May 10, 1993................ 6,875 $ 840 2,428 $ 545 $ 7,167
===== ===== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CURRENCY SUBSCRIPTION
---------------- PAID-IN ACCUMULATED TRANSLATION NOTE
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT RECEIVABLE
COMPANY -------- ------ ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of stock May
11, 1993............... 960,000 $ 10 $ 950 -- -- $ (35)
Reclass to common
stock subject to put
options.............. (100,000) (1) (99) -- -- --
Dividend deemed to be
paid to continuing
shareholders in
conjunction with
leveraged buyout
transaction (Note
1)................... -- -- (843) -- -- --
Preferred stock
dividend accrued..... -- -- -- $ (102) -- --
Collection on
subscription note
receivable........... -- -- -- -- -- 10
Net loss.............. -- -- -- (858) --
-------- ---- ----- -------- ----- -----
Balances at December 31,
1993................... 860,000 9 8 (960) -- (25)
Preferred stock
dividend accrued..... -- -- -- (185) -- --
Contribution.......... -- -- 30 -- -- --
Currency translation
loss................. -- -- -- -- $ (11) --
Common stock issued... 10,000 -- 10 -- -- (10)
Reclass to common
stock subject to put
options.............. (10,000) -- (10) -- -- 10
Collection on
subscription note
receivable........... -- -- -- -- -- 25
Net income............ -- -- -- 272 -- --
-------- ---- ----- -------- ----- -----
Balances at December 31,
1994................... 860,000 9 38 (873) (11) --
Preferred stock
dividend accrued..... -- -- -- (210) -- --
Currency translation
loss................. -- -- -- -- (25) --
Common stock issued... 50,000 -- 775 -- -- --
Reclass to common
stock subject to put
options.............. (50,000) -- (55) -- -- (10)
Collection on
subscription note
receivable........... -- -- -- -- -- 10
Net loss.............. -- -- -- (2,153) -- --
-------- ---- ----- -------- ----- -----
Balances at December 31,
1995................... 860,000 9 758 (3,236) (36) --
Unaudited:
Preferred stock
dividend accrued..... -- -- -- (186) -- --
Net income............ -- -- -- 762 -- --
-------- ---- ----- -------- ----- -----
Balances at June 30,
1996 .................. 860,000 $ 9 $ 758 $ (2,660) $ (36) $ --
======== ==== ===== ======== ===== =====
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
CII TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY
PREDECESSOR ----------------------------------------------------
COMPANY YEAR ENDED
JANUARY 1, DECEMBER 31, SIX MONTHS ENDED
1993 TO MAY 11, 1993 ----------------- -----------------
MAY 10, TO DECEMBER 31, JULY 2, JUNE 30,
1993 1993 1994 1995 1995 1996
----------- --------------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss)..... $ 141 $ (858) $ 272 $ (2,153) $ 34 $ 762
Adjustments to
reconcile net income
(loss) to net cash
provided by operating
activities:
Depreciation and
amortization......... 201 1,309 2,158 2,442 1,168 1,553
Deferred taxes........ -- (749) (751) (1,583) (403) (436)
Stock compensation
charge............... -- -- -- 720 -- --
Non-cash environmental
charge............... -- -- -- 686 -- --
Minority interest..... -- -- -- 35 -- 51
Gain on sale of
assets............... -- -- -- -- -- (201)
Changes in operating
assets and
liabilities net of
effects of
acquisitions:
Decrease (increase)
in accounts
receivable.......... (306) 453 (1,600) (1,033) (953) (524)
Decrease (increase)
in inventories...... 841 41 (274) 748 (27) (29)
Decrease (increase)
in other current
assets.............. 360 244 (3) (121) (163) (1,048)
Increase (decrease)
in accounts
payable............. (205) 383 603 (486) 223 594
Increase (decrease)
in accrued
expenses............ 304 (181) 734 2,678 617 645
Increase in other
assets and
liabilities......... -- -- 46 81 (22) (39)
------- -------- ------- -------- ------- -------
Net cash provided by
operating
activities......... 1,336 642 1,185 1,846 474 1,328
------- -------- ------- -------- ------- -------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Acquisition of
businesses and
product lines, net of
cash acquired........ (2,745) (13,320) (1,100) (14,345) (1,485) --
Investment in joint
venture.............. -- -- -- -- -- (139)
Purchases of property,
plant and equipment.. (131) (323) (444) (1,139) (880) (925)
Sale of equipment..... -- -- -- -- -- 446
------- -------- ------- -------- ------- -------
Net cash used in
investing
activities........... (2,876) (13,643) (1,544) (15,484) (2,365) (618)
------- -------- ------- -------- ------- -------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net borrowings
(repayment) under
line of credit
arrangement.......... 1,400 160 (552) 114 673 2,097
Borrowings under long-
term debt
agreements........... 1,967 15,612 2,281 16,945 2,241 --
Principal payments
under long-term debt
agreements........... (540) (4,446) (1,300) (4,789) (1,025) (2,184)
Loan fees paid........ -- (452) (50) (577) -- --
Proceeds from issuance
of common stock...... -- 144 -- 56 -- --
Proceeds from issuance
of cumulative
redeemable
preferred stock...... -- 2,000 -- 2,000 -- --
Receipt on stock
subscription note.... -- 10 25 10 -- --
Payments of amounts
owed to minority
stockholders......... -- -- -- -- -- (666)
Distributions to
stockholders......... (1,216) -- -- -- -- --
------- -------- ------- -------- ------- -------
Net cash provided by
(used in) financing
activities........... 1,611 13,028 404 13,759 1,889 (753)
------- -------- ------- -------- ------- -------
NET INCREASE IN CASH... 71 27 45 121 (2) (43)
CASH, BEGINNING OF
PERIOD................ 10 -- 27 72 72 193
------- -------- ------- -------- ------- -------
CASH, END OF PERIOD.... $ 81 $ 27 $ 72 $ 193 $ 70 $ 150
======= ======== ======= ======== ======= =======
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING ACTIVITIES:
During the period from
May 11, 1993 to
December 31, 1993, the
Company entered into a
capital lease
arrangement for
computer equipment
totaling $139.
During the year ended
December 31, 1995, the
Company entered into a
capital lease
arrangement for a
building totaling
$640.
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
CII TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JULY 2, 1995 AND JUNE 30, 1996
IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Description--Communications Instruments Holdings, Inc. ("Holdings")
was formed in May 1993 for the purpose of acquiring Communications
Instruments, Inc. and its subsidiary (the "Predecessor Company"). On March 13,
1996, Holdings changed its name to CII Technologies Inc. CII Technologies Inc.
and its subsidiaries are hereinafter referred to as the Company. The Company
is engaged in the design, manufacture and distribution of electromechanical
and electronic products and solenoids for the commercial/industrial equipment,
commercial airframe, defense/aerospace, communications, automotive and
automatic test equipment. Manufacturing is primarily performed in North
Carolina, California and Juarez, Mexico.
Acquisitions--On January 1, 1993, the Predecessor Company acquired certain
relay and switch product lines from CP Clare Corporation for $750 in cash. On
March 1, 1993, the Predecessor Company acquired certain assets and liabilities
of the West Coast Electrical Manufacturing Company for $400 in cash and notes
to the seller for $400. On March 22, 1993, the Predecessor Company acquired
Midtex Relays, Inc. for $1,600 in cash. These acquisitions were accounted for
using the purchase method of accounting. Accordingly, the purchase price was
allocated to the assets acquired based on their fair values at the date of
acquisition.
On May 11, 1993, the Company acquired the Predecessor Company in a leveraged
buyout transaction (the "Acquisition") and merged the Predecessor Company with
its wholly-owned acquisition shell company, Communications Instruments, Inc.
("CII"). The Company is 89% owned by investors that did not hold an interest
in the Predecessor Company, with the remaining 11% held by stockholders who
owned shares of the Predecessor Company prior to the Acquisition. The
Acquisition has been accounted for as a purchase to the extent of the change
in ownership (89%), with the remaining 11% valued at its historical cost. The
total purchase price was approximately $20,205, including acquisition costs of
approximately $1,300. To the extent of the 89% change in ownership, the
purchase price has been allocated to the assets and liabilities of the
Predecessor Company based on their fair values. Fair value was determined
generally by appraisals with the excess allocated to goodwill. The excess of
purchase price paid to continuing stockholders over the historical cost of
shares owned by such continuing shareholders has been deemed to be a
stockholder distribution and thus has been recorded as a reduction of
additional paid-in capital. As the Predecessor Company financial statements
have been prepared on the historical cost basis, they are not directly
comparable to those of the Company.
The following summarizes the purchase price allocation as of the acquisition
date:
<TABLE>
<S> <C>
Current assets.................................................. $11,704
Property and equipment.......................................... 13,200
Intangibles and other assets.................................... 2,577
Liabilities assumed............................................. (7,276)
-------
Total purchase price.......................................... $20,205
=======
</TABLE>
In conjunction with the Acquisition, the Company issued a term note payable
to a bank of $6,500 and borrowed $5,112 under a revolving credit facility. In
addition, Holdings issued subordinated notes payable of $4,000 and $2,000
(reduced to $1,750 on May 17, 1994 pursuant to an indemnity settlement
agreement) as well as cumulative redeemable preferred stock of $2,000.
On December 5, 1994, the Company purchased certain assets of Deutsch Relays,
Inc. for a purchase price of approximately $1,100. The purchase price was
allocated to the fair value of inventory, equipment and related business
assets with the remainder of $200 allocated to a covenant not to compete.
F-7
<PAGE>
CII TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On January 27, 1995, the Company acquired certain assets from HiG Company,
Inc. for $1,485 in cash. The acquisition was accounted for using the purchase
method of accounting. Accordingly, the purchase price was allocated to the
assets acquired based on their fair values at the date of acquisition. As the
purchase price was equal to the fair value of the inventory at the date of
acquisition the entire purchase price was allocated to the inventory and no
value was assigned to the machinery and equipment acquired.
On October 11, 1995, the Company purchased an 80% ownership interest in
Kilovac Corporation ("Kilovac") for an aggregate purchase price of
approximately $15,800 including acquisition costs of approximately $1,300.
Kilovac designs and manufactures high voltage and high frequency
electromechanical relays. The transaction has been accounted for as a
purchase. To the extent of the 80% change in ownership, the purchase price has
been allocated to the assets and liabilities of Kilovac based on their fair
values, with the remaining 20% minority interest valued at its historical
cost. Fair values were determined generally by appraisals with the excess
allocated to goodwill.
The following summarizes the purchase price allocation as of the acquisition
date:
<TABLE>
<S> <C>
Current assets.................................................. $ 5,663
Property and equipment.......................................... 1,802
Intangibles and other assets.................................... 10,165
Liabilities assumed............................................. (1,849)
-------
Total purchase price............................................ $15,781
=======
</TABLE>
The transaction was financed through additional borrowings of approximately
$9,800 on the term and revolver loans, issuance of $2,000 in preferred stock,
and issuance of subordinated notes of $1,700. Additionally, an estimated
$2,300 is payable to the sellers upon the future realization of potential tax
benefits associated with a net operating loss carryforward.
The Company is obligated to purchase, for additional shares of the Company,
the remaining 20% interest in Kilovac on, at the option of the selling
shareholders, either December 31, 2000 or December 31, 2005, or upon the
occurrence of certain events, if earlier, at an amount based on the value of
Kilovac as defined in the agreement. The anticipated initial public offering
described in Note 14 is an event that would result in the acquisition of such
shares. During 1996, the Company and holders of the remaining 20% interest in
Kilovac agreed that the value of the remaining interest that would be acquired
upon such offering is $4,500.
The following unaudited pro forma financial information shows the results of
operations of the Company as though the Kilovac acquisition occurred as of
January 1, 1994 and 1995.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1994 1995
---------- ----------
<S> <C> <C>
Net sales....................................... $ 43,742 $ 50,947
========== ==========
Net loss available for Common Stock............. $ (98) $ (2,187)
========== ==========
Loss per share.................................. $ (.04) $ (.86)
========== ==========
Average shares outstanding...................... 2,511,125 2,535,714
========== ==========
</TABLE>
Principles of Consolidation--The accompanying consolidated financial
statements include Holdings, its wholly-owned subsidiary, CII and CII's
wholly-owned subsidiary, Electro-Mech S.A. and 80% owned subsidiary, Kilovac
and Kilovac's wholly-owned subsidiaries, Kilovac International Inc., and
Kilovac International FSC Ltd. Inc. Significant intercompany transactions have
been eliminated.
F-8
<PAGE>
CII TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Revenue Recognition--Sales and the related cost of sales are recognized upon
shipment of products. Certain sales for Kilovac, which constitute an
immaterial proportion of the total consolidated sales, represent revenues
under long-term fixed price development contracts. Revenues under these
contracts are recognized based on the percentage of completion method,
measured by the percentage of costs incurred to date to estimated total costs
for each contract. Costs in excess of contract revenues on cost sharing
development contracts are expensed in the period incurred as research and
development costs. Provision for estimated losses on fixed price contracts is
made in the period such losses are determined by management.
Special Acquisition Expenses--In conjunction with the acquisition of several
product lines and businesses, the Company has incurred direct costs of
integration of the acquisitions into the existing business, such as moving,
training and product qualification costs. Such costs are expensed in the
period incurred.
Accounts Receivable--The changes in the allowance for doubtful accounts
receivable consist of the following:
<TABLE>
<CAPTION>
JANUARY 1, MAY 11, YEAR ENDED
1993 TO 1993 TO DECEMBER 31,
MAY 10, DECEMBER 31, --------------
1993 1993 1994 1995
---------- ------------ ------ ------
<S> <C> <C> <C> <C>
Allowance beginning of year........ $108 $265 $ 317 $ 301
Provision for uncollectible
accounts.......................... -- 40 64 127
Write-off of uncollectible accounts
(net)............................. (43) 12 (80) (48)
Effect of acquisitions and other... 200 -- -- 40
---- ---- ------ ------
Allowance end of year............ $265 $317 $ 301 $ 420
==== ==== ====== ======
</TABLE>
Inventories--Inventories are stated at the lower of cost (first-in, first-
out method) or market.
Property, Plant and Equipment--Property, plant and equipment held at the
Acquisition date are recorded at their respective fair market values at the
date of the Acquisition. Purchases of property, plant and equipment subsequent
to the Acquisition are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, which are
five to twenty years.
Goodwill--Goodwill represents the excess of cost over net tangible and
identifiable intangible assets acquired in the Acquisition and the Kilovac
Acquisition, and is being amortized by the straight-line method over the
estimated period benefited, 30 years. The Company regularly evaluates the
recoverability of goodwill using estimates of undiscounted future cash flows
and operating earnings of the businesses acquired.
Intangible Assets--Intangible assets, primarily patents, covenants not to
compete and debt issuance costs, are amortized on a straight-line basis over
the patent life, term of the related agreement or on the effective interest
method over the life of the loan.
Reclassifications--Certain 1993 and 1994 amounts have been reclassified to
conform with the 1995 presentation.
Pro forma Earnings Per Common Share--Pro forma earnings per common share is
computed based on the weighted average number of common shares outstanding
during each period after giving retroactive effect to the planned 2.5 for one
stock split to be effective prior to the closing of the anticipated initial
public offering described more fully in Note 14. The Company issued 40,000
shares of common stock via subscription agreements to certain employees of the
Company in December 1995 (Note 11). Pursuant to Staff Accounting Bulletin,
Topic 4D, "Earnings Per Share Computations in an Initial Public Offering",
stock issued within a one year period prior to the initial filing of the
registration statement are treated as outstanding for periods reported.
Supplemental Pro forma Earnings Per Common Share--Supplemental earnings per
common share is computed based on the weighted average number of common shares
outstanding during 1995 and the first quarter of 1996 after giving retroactive
effect to the planned 2.5 for 1 stock split, and the planned issuance of
3,500,000
F-9
<PAGE>
CII TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
shares in the anticipated initial public offering described more fully in Note
14. The proceeds from such offering are anticipated to be used to retire
approximately $18,300 of Company debt and Cumulative Redeemable Preferred
Stock. Supplemental pro forma net earnings gives effect for the interest and
dividend savings on such retired Company debt and Cumulative Redeemable
Preferred Stock of $1,097, net of income taxes of $731.
Use of Estimates in the Preparation of Financial Statements--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.
Fair Value of Financial Instruments--The carrying amount of accounts
receivable, long-term debt, notes payable and other current and long-term
liabilities approximates their respective fair values.
Impact of New Accounting Pronouncements--In March 1995, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standard (SFAS) No. 121, "Accounting for the Impairment of Long-lived Assets
and for Long-lived Assets to be Disposed Of", which will be effective during
the Company's year ending December 31, 1996. The Company adopted the new
standard in the first quarter of 1996, which adoption had no impact on the
accompanying financial statements.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which establishes an alternative method of accounting for
employee stock compensation plans based on a fair value methodology. However,
the statement allows an entity to continue to use the accounting prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees." The new
standard also requires additional disclosures if the Company elects to remain
with the accounting in Opinion 25. The Company has not determined whether it
will adopt the alternative method of accounting and has also not yet
determined its effect.
Indian Joint Venture--In November 1995, the Company formed a joint venture
in India with Guardian Controls Ltd., an Indian company, a bank and certain
financial investors. The Company has a 28% interest in the joint venture which
was formed for the purpose of manufacturing relays, relay components and sub-
assemblies in India for the domestic Indian market, and global markets. The
Company accounts for the joint venture using the equity method. The Company
expects the venture to start production in the third quarter of 1996.
Unaudited Interim Financial Data--The interim financial data relating to the
six months ended July 2, 1995 and June 30, 1996 are unaudited; however, in the
opinion of the Company's management, the interim data includes all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair statement of the results for the interim periods. The results for the six
months ended June 30, 1996 are not necessarily indicative of the results to be
expected for the full year or any other interim period.
Fiscal Quarters--As of January 1, 1996 the Company changed its policy for
the fiscal quarter-end to be consistent with the calendar quarter-end.
Previously, the fiscal quarter-end was the Sunday which came closest to
including a full 13 weeks in each quarter. The impact of the change is not
significant.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE
--------------- 30,
1994 1995 1996
------ ------- -------
<S> <C> <C> <C>
Finished goods.................................... $1,500 $ 2,495 $ 2,782
Work-in-process................................... 2,821 4,201 4,010
Raw materials..................................... 4,116 4,730 4,709
Reserve for obsolete and slow-moving inventory.... (503) (784) (830)
------ ------- -------
Total........................................... $7,934 $10,642 $10,671
====== ======= =======
</TABLE>
F-10
<PAGE>
CII TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment at December 31 consisted of the following:
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Land......................................................... $ 250 $ 289
Buildings.................................................... 1,299 2,652
Machinery and equipment...................................... 13,042 15,145
Construction in progress..................................... 135 198
------- -------
Total...................................................... 14,726 18,284
Less accumulated depreciation................................ 2,991 5,059
------- -------
Total, net................................................. $11,735 $13,225
======= =======
</TABLE>
4. INTANGIBLE ASSETS
Intangible assets at December 31 consisted of the following:
<TABLE>
<CAPTION>
1994 1995
------ ------
<S> <C> <C>
Debt issuance costs........................................... $ 502 $1,079
License of product name....................................... 44 --
Covenants not to compete...................................... 668 557
Patents....................................................... -- 1,634
Trademarks.................................................... -- 360
Other......................................................... -- 3
------ ------
1,214 3,633
Less accumulated amortization................................. 416 572
------ ------
Total....................................................... $ 798 $3,061
====== ======
</TABLE>
5. LONG-TERM DEBT
CII has a borrowing arrangement with a bank which provides for a maximum
credit facility of $27,500 (including $2,000 for stand-by letters of credit),
limited by outstanding indebtedness under the $16,500 term loan agreement or
availability under the borrowing base, as defined. Amounts advanced under the
revolving loan bear interest at the prime rate plus 1.5% (10.0% at both
December 31, 1994 and December 31, 1995) and are due on October 11, 2000. No
amounts are outstanding against the letter of credit portion of the credit
arrangement at December 31, 1995.
All of the Company's assets are pledged to secure the revolving credit and
term loan bank indebtedness.
F-11
<PAGE>
CII TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Long-term debt at December 31 consisted of the following:
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Term note payable to a bank due in quarterly installments
of $750 from March 1, 1996 through December 1, 1997 and
$875 from March 1, 1998 through September 1, 2000 with a
final payment October 1, 2000. Interest is prime plus 2%
(10.5% at December 31, 1994 and 1995).................... $ 7,183 $16,500
Revolving loan payable to a bank.......................... 4,720 6,208
Unsecured note payable, due in 1995, plus interest payable
monthly at prime plus 2% (10.5% at December 31, 1994).... 200 --
Subordinated notes payable by Holdings to Communications
Instruments Associates, L.P. ("Associates"), a
stockholder, due in installments of $2,000 in May 2002,
$2,000 in May 2003, $850 in October 2004 and $850 in
October 2005, plus interest payable semiannually at
9.25%.................................................... 4,000 5,700
Subordinated notes payable by Holdings to prior owners of
Predecessor Company and stockholders of the Company and
Associates, due in May 2003, plus interest payable
monthly at 9.25%......................................... 1,750 1,750
Subordinated notes payable to a former stockholder;
interest at a rate of 8.25% payable monthly, principal
due January 1996......................................... -- 81
Obligations under capital leases.......................... 94 663
------- -------
Total................................................... 17,947 30,902
Less--current portion................................... 2,006 3,721
------- -------
$15,941 $27,181
======= =======
</TABLE>
Debt maturities at December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996............................................................. $ 3,721
1997............................................................. 3,023
1998............................................................. 3,500
1999............................................................. 3,500
Thereafter....................................................... 17,158
-------
Total.......................................................... $30,902
=======
</TABLE>
The term and revolving loans payable to a bank contain certain covenants,
including maintenance of minimum net worth, interest coverage ratio and
leverage ratio and limits on expenditures for property and equipment.
Additionally, CII is restricted from issuing stock, retiring or otherwise
acquiring any of its capital stock, further encumbering any of its assets and
declaring or paying dividends such that approximately $8,800 of the $10,293 of
net assets of CII may not be transferred to Holdings at December 31, 1995. At
December 31, 1995, the Company was in compliance with the covenants except the
capital investment limitation covenant for the year ended December 31, 1995.
The Company received a waiver from the bank for exceeding the capital
investment limitation covenant. At June 30, 1996, the Company was not in
compliance with several of the covenants. The Company received a waiver from
the bank for these violations (see Note 14).
Both subordinated notes held by Associates include a provision for penalty
interest at a rate of 11.75% for interest or principal payments not paid on
the scheduled due date. At December 31, 1994 and 1995, accrued interest
represents interest and penalty interest due on the $4,000 and $5,700
subordinated notes. No scheduled interest payments have been paid as allowed
under the agreement. At December 31, 1994 and 1995, $617 and $1,140 in
interest was due on the subordinated notes, respectively.
F-12
<PAGE>
CII TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interest paid amounted to $77, $551, $1,142 and $1,874 for the period from
January 1, 1993 to May 10, 1993, the period from May 11, 1993 to December 31,
1993, and the years ended December 31, 1994 and 1995, respectively.
6. LEASES
The Company leases certain office equipment and a building under capital
lease arrangements. The leased assets have a net book value of $92 and $683 at
December 31, 1994 and 1995, respectively.
The future minimum lease obligation under capital leases as of December 31
is included in long-term debt (see Note 5). On February 7, 1996, the Company
purchased the building in accordance with the capital lease arrangement. The
$625 purchase price was financed through additional borrowings under the
revolving loan agreement.
The Company leases certain premises and equipment under noncancelable
operating leases which have remaining terms from one to four years and which
provide for various renewal options. Total rent expense charged to operations
was approximately $51, $23, $63 and $120 for the period from January 1, 1993
to May 10, 1993, the period from May 11, 1993 to December 31, 1993 and the
years ended December 31, 1994 and 1995, respectively.
Future minimum rental payments required under operating leases that have
initial or remaining noncancelable lease terms in excess of one year at
December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996................................................................ $296
1997................................................................ 315
1998................................................................ 276
1999................................................................ 86
----
Total............................................................. $973
====
</TABLE>
7. INCOME TAXES
The Predecessor Company was a "Subchapter S" Corporation and therefore all
taxable income was passed through to its shareholders. Accordingly, no tax
provision has been recorded in the period from January 1, 1993 to May 10,
1993.
The significant components of income tax expense are:
<TABLE>
<CAPTION>
MAY 11, YEAR ENDED
1993 TO DECEMBER 31,
DECEMBER 31, --------------
1993 1994 1995
------------ ----- -------
<S> <C> <C> <C>
Current tax expense:
Federal...................................... $ 196 $ 795 $ 378
State........................................ 48 131 83
Foreign...................................... 6 3 46
----- ----- -------
Total current tax expense...................... 250 929 507
Deferred tax (benefit)......................... (749) (751) (1,583)
----- ----- -------
Total tax provision............................ $(499) $ 178 $(1,076)
===== ===== =======
</TABLE>
Income tax payments amounted to approximately $254, $717 and $859 for the
period from May 11, 1993 to December 31, 1993 and the years ended December 31,
1994 and 1995, respectively.
F-13
<PAGE>
CII TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's effective tax rate differs from the statutory rate for the
following reasons:
<TABLE>
<CAPTION>
MAY 11, YEAR ENDED
1993 TO DECEMBER 31,
DECEMBER 31, -------------
1993 1994 1995
------------ ------ ------
<S> <C> <C> <C>
Provision at statutory U.S. tax rate.......... (34.0)% 34.0% (34.0)%
Effective state income tax rate............... (4.5) 3.7 (3.6)
Nondeductible meals, entertainment and
officers' life insurance expenses............ -- 3.5 1.0
Mexican income taxes.......................... -- -- 1.4
Other, net.................................... 1.7 (1.7) 1.5
----- ----- ------
(36.8)% 39.5% (33.7)%
===== ===== ======
</TABLE>
Deferred income taxes consisted of the following at December 31:
<TABLE>
<CAPTION>
1994 1995
------ ------
<S> <C> <C>
Current deferred tax assets:
U.S. net operating loss carryforward........................ -- $ 161
State net operating loss carryforward....................... -- 9
Other....................................................... $ 410 1,739
Accrued expenses............................................ 104 1,299
Inventory reserve .......................................... 189 287
Accounts receivable reserve................................. 117 153
------ ------
Total current deferred assets................................. $ 410 $1,909
------ ------
Long-term deferred tax asset:
Accrued expenses............................................ $ 248 $ 407
U.S. net operating loss carryforward........................ -- 1,422
State net operating loss carryforward....................... -- 182
------ ------
248 2,011
Less--Valuation allowance................................... -- (75)
------ ------
Total long-term deferred tax asset............................ $ 248 $1,936
====== ======
Long-term deferred tax liabilities:
Property and equipment...................................... $3,401 $3,217
Intangibles................................................. -- 726
Other....................................................... 218 186
------ ------
Total long-term deferred tax liability........................ $3,619 $4,129
====== ======
Total long-term deferred tax liability, net................... $3,371 $2,193
====== ======
Deferred tax liability, net................................... $2,961 $ 284
====== ======
</TABLE>
At December 31, 1995, the Kilovac subsidiary has a U.S. net operating loss
carryforward of $4,655 which expires in 2010. Internal Revenue Code Section
382 imposes certain limitations on the ability of a taxpayer to utilize its
U.S. net operating losses in any one year if there is a change in ownership of
more than 50% of the Company. Management has considered the Section 382
limitation and believes that it is more likely than not that the entire U.S.
net operating loss carryforward will be utilized. California tax law limits
loss carryforwards to a five-year period. A valuation allowance has been
recorded for the portion of the California net operating loss carryforward
which could not be realized due to the previously mentioned limitations.
F-14
<PAGE>
CII TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Realization of the benefit is dependent on generating sufficient taxable
income prior to expiration of the loss carryforwards. The amount of the
deferred tax asset considered realizable could be reduced in the near term if
estimates of future taxable income during the carryforward period are reduced.
8. COMMITMENTS AND CONTINGENCIES
The Company has employment agreements with certain executives which expire
in May 1998. Such agreements provide for minimum salary levels as well as
incentive bonuses. The incentive bonuses are based upon the attainment of
specified performance levels as determined by the board of directors.
Additionally, one former executive will be paid a "finder's fee" for any
acquisition originated by the executive that closes within eighteen months of
origination. In the current year, this former executive was paid a finder's
fee of $28 due to the acquisition of Hi-G assets. The agreements also restrict
the executive's ability to compete directly with the Company or to solicit
customers or employees of the Company. The aggregate commitment for salaries,
excluding bonuses, was $1,688 and $1,338 at December 31, 1994 and 1995,
respectively.
The Company is obligated to pay the bank that financed the Acquisition and
the Kilovac acquisition a "success fee" upon the occurrence of certain
specified events, such as sale of the Company or an initial public offering,
or on the fifth anniversary of the Kilovac acquisition (collectively referred
to as the valuation date). The fee will be based upon the market value or
appraised value of the Company on the valuation date. At December 31, 1995,
$387 has been accrued related to this fee, representing the fee based on
management's estimate of the value of the Company accrued over the period to
the maturity of the arrangement. The anticipated public offering discussed in
Note 14 represents a valuation date that would require the fee to be paid. The
success fee based on the anticipated value of the Company at the effective
date of such offering is estimated to be $700 (assuming an initial public
offering price of $10.00 per share).
From time to time the Company is a party to certain lawsuits and
administrative proceedings that arise in the conduct of its business. While
the outcome of these lawsuits and proceedings cannot be predicted with
certainty, management believes that, if adversely determined, the lawsuits and
proceedings, either singularly or in the aggregate, would not have a material
adverse effect on the financial condition or results of operations of the
Company.
9. ENVIRONMENTAL REMEDIATION
The Company has been notified by the State of North Carolina Department of
Environment, Health & Natural Resources ("NCDHNR") that its manufacturing
facility in Fairview, North Carolina has sites containing hazardous wastes
resulting from activities by the predecessor to the Predecessor Company
("Prior Owner"). Additionally, the Company has been identified as a
potentially responsible party for remediation at two superfund sites which
were formerly used by hazardous waste disposal companies utilized by the
Company.
Several soil and groundwater contaminations have been noted at the Fairview
facility the most serious of which is TCE contamination in the groundwater.
Remedial investigations have been on-going at the facility and the NCDHNR has
placed the facility on the Inactive Hazardous Sites Inventory. The Company is
proceeding with development of a Corrective Action Plan and performing
preliminary remediation under the Responsible Party Voluntary Site Remedial
Action course of action.
In the acquisition agreement of the Predecessor Company, the Company
obtained indemnity from the selling shareholders for any environmental clean
up costs as a result of existing conditions which would not be paid by the
Prior Owner. The indemnity was limited to the extent of amounts owed to the
selling shareholders through the subordinated note.
On May 11, 1995, the Company reached a settlement with the Prior Owner which
resulted in a cash deposit of $1,750 to an escrow account and an obligation
for the Prior Owner to pay to the escrow account after the
F-15
<PAGE>
CII TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
groundwater remediation system has been operating at least at 90% capacity for
three years, an amount equal to the lesser of 90% of the present value of the
long term operating and maintenance costs of the groundwater remediation
system or $1,250. The Company has reflected the present value of the
receivable, discounted at 5%, and the cash as restricted assets as the funds
are held in escrow to be used specifically for the Fairview facility
environmental remediation and monitoring and will become unrestricted only
when the NCDHNR determines that no further action is required.
In October 1995, the Company released the selling shareholders from their
indemnity obligation. This action and the settlement with the Prior Owners
resulted in the recording of a separate environmental remediation liability
and the recognition in 1995 operations of an expense of $951 of environmental
related costs which are not covered under the settlement with the Prior Owner.
The environmental related costs include an environmental remediation liability
which is recorded at the present value, discounted at 5%, of the best estimate
of the costs to remediate and monitor the remediation over the estimated 30
year remediation period, which were developed by a third party environmental
consultant based on experience with similar remediation projects and methods
and taking inflation into consideration. Total amounts estimated to be paid
related to environmental liabilities are $5,264 calculated as follows:
<TABLE>
<S> <C>
1996............................................................. $1,395
1997............................................................. 135
1998............................................................. 135
1999............................................................. 135
2000............................................................. 135
Thereafter....................................................... 3,277
------
5,212
Discount to present value........................................ 1,773
------
Fairview site liability at present value......................... 3,439
Other environmental liabilities.................................. 52
------
Total Accrued Environmental Remediation Costs.................... $3,491
======
</TABLE>
10. EMPLOYEE BENEFITS
The Company has a self-funded welfare benefit plan (the "Plan") composed of
separate programs for the hourly and salaried employees. The Plan was formed
in 1981 to provide hospitalization and medical benefits for substantially all
full-time employees of the Company and their dependents. The Plan is funded
principally by employer contributions in amounts equal to the benefits
provided. Employee contributions vary depending upon the amount of coverage
elected by the employee. Employer contributions amounted to $50, $175, $307
and $508 for the period from January 1, 1993 to May 10, 1993, the period from
May 11, 1993, to December 31, 1993 and the years ended December 31, 1995 and
1994, respectively.
Effective January 1, 1988, the Company implemented an investment retirement
plan (the "Retirement Plan") pursuant to Section 401(k) of the Internal
Revenue Code for all employees who qualify based on tenure with the Company.
The Retirement Plan provides for employee and the Company contributions
subject to certain limitations. The cost of the Retirement Plan charged to
operations was approximately $36, $66, $110 and $91 for the period from
January 1, 1993 to May 10, 1993, the period from May 11, 1993, to December 31,
1993 and the years ended December 31, 1995 and 1994, respectively.
During 1995, the Company sold 50,000 shares of stock to certain employees.
The issuance price was $1 per share for 10,000 shares and $1.14 per share for
40,000 shares. The Company has recorded compensation expense of $720
representing the difference between the issuance price and the fair value of
the stock as determined by an independent appraiser. Additionally, the Company
has accrued bonuses of $580 to the employees for reimbursement of the tax
impact to the employees of these transactions.
F-16
<PAGE>
CII TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. CUMULATIVE REDEEMABLE PREFERRED STOCK AND COMMON STOCK SUBJECT TO PUT
OPTIONS
On May 11, 1993, the Company issued 40,000 shares of cumulative redeemable
preferred stock for $50 per share. This issuance was in conjunction with the
acquisition described in Note 1.
On October 11, 1995, the Company issued 40,000 shares of cumulative
redeemable preferred stock Series A at $50 per share to finance the Kilovac
acquisition described in Note 1. At December 31, 1995, the Company has 40,000
shares of cumulative redeemable preferred stock Series A and 40,000 shares of
cumulative redeemable preferred stock outstanding. The preferred stock has
been stated at the liquidation preference value of $50 per share plus unpaid
dividends.
Holders of the preferred stock are entitled to a cumulative dividend payable
semiannually on May 31 and November 30 at an annual rate of 9.25%. No
dividends have been paid as Management has elected not to pay dividends until
completion of the offering as described in Note 14. The dividends have been
accrued and reflected as an increase in preferred stock.
The preferred stock carries a mandatory redemption feature requiring
redemption of 50% of the then outstanding shares of preferred stock on May 31,
2002 and the remaining shares on May 31, 2003 at a rate of $50 per share plus
accrued and unpaid dividends. The Series A preferred stock also carries a
mandatory redemption feature requiring redemption of 50% of the then
outstanding shares of Series A preferred stock on May 31, 2004 and the
remaining shares on May 31, 2005 at a rate of $50 per share plus accrued and
unpaid dividends. The preferred stock may, however, be redeemed at the option
of the Company at any time prior to the mandatory redemption date, in whole or
in part, at a price of $50 per share plus accrued and unpaid dividends.
On May 11, 1993, the Company issued 100,000 shares of common stock via
subscription agreements for $1.00 per share to members of management who owned
shares of the Predecessor Company. On both May 17, 1994 and May 23, 1995, the
Company issued 10,000 shares of common stock via subscription agreements for
$1.00 per share. On December 1, 1995, the Company issued 40,000 shares of
common stock via subscription agreements for $1.14 per share (see Note 10).
These agreements stipulate that the purchaser cannot sell the stock without
first offering it for sale back to the Company. Prior to the fifth year
anniversary of purchase or an initial public offering such as the anticipated
offering described in Note 14, the Company is obligated to buy back the stock
at the higher of the original purchase price or book value per share in the
event of death, disability, or voluntary termination of employment ("Put
Options"). At December 31, 1995, the Company had 160,000 shares outstanding
subject to Put Options of the total 1,020,000 shares outstanding.
12. SIGNIFICANT CUSTOMERS
Sales to foreign customers accounted for 15%, 15%, 20% and 15% of total
sales for the period from January 1, 1993 to May 10, 1993, the period from May
10, 1993 to December 31, 1993 and the years ended December 31, 1994 and 1995,
respectively.
Approximately 20% percent of the Company's sales are made directly, or
indirectly, to the U.S. Department of Defense.
13. RELATED PARTY TRANSACTIONS
Certain nonemployee shareholders provide management services to the Company.
The Company was charged $0, $127, $150 and $156 for such services for the
period from January 1, 1993 to May 10, 1993, the period from May 11, 1993 to
December 31, 1993 and the years ended December 31, 1994 and 1995,
respectively. Additionally, this group was paid $150 in 1995 for fees related
to the Kilovac acquisition (see Notes 1 and 5).
F-17
<PAGE>
CII TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During the six months ended June 30, 1996, the Company sold certain of its
fixed assets to the Indian Joint Venture (Note 1) for approximately $990. This
amount is included in the other assets balance in the accompanying
consolidated balance sheet at June 30, 1996.
14. SUBSEQUENT EVENTS (UNAUDITED)
On July 2, 1996, the Company acquired certain assets and assumed certain
liabilities of the Hartman Electrical Division of Figgie International, Inc.
for approximately $12,000. The transaction was financed with secured bank
debt, which was made available through amendment to the existing credit
facility. The amended credit facility contains financial covenants including,
without limitation, certain limitations on cash interest coverage, leverage,
liquidity and minimum net worth and certain other customary restrictive
covenants.
The Company has entered into a Letter of Understanding with the bank, which,
upon the execution of definitive documentation at the time of the offering,
would provide for an amended $40 million credit facility, which will bear
interest at LIBOR plus the applicable margin. The facility will be available
for working capital purposes and to finance additional acquisitions and will
be secured by the Company's assets. The Company anticipates that the loan
agreement for the new facility will contain financial covenants including,
without limitation, certain limitations on cash interest coverage, leverage,
liquidity and minimum net worth and certain other customary restrictive
covenants. The Company expects that the facility will be available for five
years.
In connection with the expected offering of 3,500,000 shares of Common Stock
by the Company, a Registration Statement on Form S-1 has been filed with the
Securities and Exchange Commission.
The Company intends to use the anticipated net proceeds of the offering to
repay amounts under the borrowing arrangement with a bank, the subordinated
notes payable and the preferred stock.
Subsequent to December 31, 1995, the Board of Directors adopted the 1996
Management Stock Plan (the "1996 Plan"). The 1996 Plan is administered by the
Compensation Committee of the Board of Directors. All employees of the Company
who are selected by the Compensation Committee are eligible to participate in
the 1996 Plan. The 1996 Plan provides for the granting of incentive and non-
qualified incentive stock options, stock appreciation rights, and other stock
based awards. The shares of common stock issuable under the 1996 Plan may be
either authorized unissued shares, or treasury shares, or any combination
thereof. A total of 325,000 shares of Common Stock may be subject to awards
under the 1996 Plan, subject to adjustment at the discretion of the
Compensation Committee. No awards have yet been granted in 1996.
Subsequent to December 31, 1995, the Board of Directors approved a 2.5 for 1
stock split and increased the number of authorized shares to 25,000,000, both
to be effective immediately prior to the offering of Common Stock by the
Company. The 2.5 for 1 stock split has been retroactively reflected in the
consolidated financial statements.
F-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Kilovac Corporation:
We have audited the consolidated balance sheet of Kilovac Corporation and
subsidiaries as of December 31, 1994, and the related consolidated statements
of income, stockholders' equity, and cash flows for each of the two years in
the period ended December 31, 1994 and the period from January 1, 1995 through
October 11, 1995. These financial statements are the responsibility of
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits 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 audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Kilovac Corporation and
subsidiaries as of December 31, 1994, and the results of their operations and
their cash flows for the two years in the period ended December 31, 1994 and
the period from January 1, 1995 through October 11, 1995 in conformity with
generally accepted accounting principles.
As discussed in Note 10 to the consolidated financial statements, in
September 1995 Kilovac Corporation entered into a merger agreement with
Communications Instruments, Inc. Effective October 11, 1995, the merger was
completed.
Deloitte & Touche LLP
Los Angeles, California
December 6, 1995
F-19
<PAGE>
KILOVAC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1994
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................... $ 533,532
Receivables:
Trade, net of allowance for doubtful accounts of $6,134....... 1,315,546
Other......................................................... 191,531
Unbilled receivables.......................................... 30,518
Income taxes receivable....................................... 66,554
Inventories:
Raw materials and processed parts............................. 558,907
Work-in-progress.............................................. 429,787
Finished products............................................. 208,536
Prepaid expenses................................................ 68,140
Deferred income taxes........................................... 325,827
-----------
Total current assets.......................................... 3,728,878
-----------
PROPERTY, At cost:
Land............................................................ 435,408
Building........................................................ 145,136
Machinery....................................................... 1,999,514
Furniture and office equipment.................................. 754,106
Vehicles........................................................ 19,220
Leasehold improvements.......................................... 935,725
Construction-in-progress........................................ 36,450
-----------
Total......................................................... 4,325,559
Accumulated depreciation........................................ (2,671,554)
-----------
Property, net................................................. 1,654,005
-----------
OTHER ASSETS:
Deposits........................................................ 27,226
Patents......................................................... 145,295
-----------
Total other assets............................................ 172,521
-----------
TOTAL............................................................. $ 5,555,404
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit........................................ $ 200,000
Notes payable................................................... 429,778
Accounts payable................................................ 486,855
Accrued liabilities............................................. 905,243
-----------
Total current liabilities..................................... 2,021,876
-----------
DEFERRED INCOME TAXES............................................. 18,916
-----------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY:
Preferred stock, $100 par value; 5,000 shares authorized; none
issued or outstanding..........................................
Preference stock, $100 par value; 5,000 shares authorized; none
issued or outstanding..........................................
Common stock--Class A, no par value; 200,000 shares authorized;
58,574 shares issued and outstanding........................... 559,929
Common stock--Class B, no par value; 200 shares authorized; none
issued or outstanding
Retained earnings............................................... 2,954,683
-----------
Total stockholders' equity.................................... 3,514,612
-----------
TOTAL............................................................. $ 5,555,404
===========
</TABLE>
See notes to consolidated financial statements.
F-20
<PAGE>
KILOVAC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1993 AND 1994
AND THE PERIOD JANUARY 1, 1995 TO OCTOBER 11, 1995
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, JANUARY 1, 1995
------------------------ TO OCTOBER 11,
1993 1994 1995
----------- ----------- ---------------
<S> <C> <C> <C>
REVENUES:
Product sales...................... $10,375,887 $11,257,160 $9,685,620
Engineering sales.................. 492,343 961,810 1,343,880
----------- ----------- ----------
Total revenues................... 10,868,230 12,218,970 11,029,500
----------- ----------- ----------
COSTS AND EXPENSES:
Cost of product sales.............. 5,902,130 6,940,568 5,635,997
Engineering, research and
development costs................. 943,532 1,431,703 1,364,845
Selling, general and administrative
expenses.......................... 2,441,318 2,987,309 2,527,046
----------- ----------- ----------
Total costs and expenses......... 9,286,980 11,359,580 9,527,888
----------- ----------- ----------
OTHER EXPENSE (INCOME):
Other (income) expense............. 226,133 (112,901) (8,788)
Interest expense................... 150,813 130,247 34,527
----------- ----------- ----------
Total other expense.............. 376,946 17,346 25,739
----------- ----------- ----------
INCOME BEFORE INCOME TAXES........... 1,204,304 842,044 1,475,873
----------- ----------- ----------
INCOME TAX PROVISION (BENEFIT):
Current............................ 490,799 333,168 622,864
Deferred........................... (87,913) (104,852) (61,751)
----------- ----------- ----------
Total income taxes............... 402,886 228,316 561,113
----------- ----------- ----------
NET INCOME........................... $ 801,418 $ 613,728 $ 914,760
=========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
F-21
<PAGE>
KILOVAC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993 AND 1994
AND THE PERIOD JANUARY 1, 1995 TO OCTOBER 11, 1995
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ -------- ---------- -------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993............ 62,114 $538,795 $1,684,640 $2,223,435
Exercise common stock options..... 10 95 -- 95
Repurchase of common stock........ (2,448) (24,467) (68,526) (92,993)
Net income........................ -- -- 801,418 801,418
------ -------- ---------- ----------
BALANCE, DECEMBER 31, 1993.......... 59,676 514,423 2,417,532 2,931,955
Issuance of common stock.......... 1,346 69,992 -- 69,992
Repurchase of common stock........ (2,448) (24,486) (76,577) (101,063)
Net income........................ -- -- 613,728 613,728
------ -------- ---------- ----------
BALANCE, DECEMBER 31, 1994.......... 58,574 559,929 2,954,683 3,514,612
Repurchase of common stock........ (6,279) (185,714) (122,264) (307,978)
Net income........................ -- -- 914,760 914,760
------ -------- ---------- ----------
BALANCE, OCTOBER 11, 1995........... 52,295 $374,215 $3,747,179 $4,121,394
====== ======== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-22
<PAGE>
KILOVAC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993 AND 1994
AND THE PERIOD JANUARY 1, 1995 TO OCTOBER 11, 1995
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, JANUARY 1, 1995
--------------------- TO OCTOBER 11,
1993 1994 1995
--------- ---------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................. $ 801,418 $ 613,728 $ 914,760
Adjustments to reconcile net income to net cash
provided by activities:
Depreciation and amortization......... 308,699 365,718 274,030
Loss on disposal of property.......... -- 14,543 --
Deferred income taxes................. (87,913) (104,852) (61,751)
Provision for doubtful accounts and
notes receivable..................... 78,151 (30,000) 31,682
Changes in operating assets and
liabilities:
Trade and other receivables......... (792,448) (6,632) (459,373)
Inventories......................... (49,503) 167,438 (583,039)
Prepaid expenses and deposits....... (108,146) 59,784 545
Accounts payable.................... 91,170 96,384 308,378
Income taxes........................ 159,464 (345,015) 453,441
Accrued liabilities................. 197,254 268,251 68,079
--------- ---------- ---------
Net cash provided by operating
activities....................... 598,146 1,099,347 946,752
--------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property................. (284,029) (486,583) (299,374)
Additions to patents.................. (579) (68,779) (14,663)
Proceeds from disposal of fixed
assets............................... -- 1,205 --
--------- ---------- ---------
Net cash used in investing
activities......................... (284,608) (554,157) (314,037)
--------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net revolving line of credit
borrowings........................... -- 200,000 (200,000)
Repayment of notes payable............ (137,968) (860,865) (348,936)
Issuance of common stock.............. 95 69,992 --
Repurchase of common stock............ (92,993) (101,063) (307,978)
--------- ---------- ---------
Net cash used in financing
activities......................... (230,866) (691,936) (856,914)
--------- ---------- ---------
NET DECREASE IN CASH AND CASH
EQUIVALENTS............................ 82,672 (146,746) (224,199)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD................................. 597,606 680,278 533,532
--------- ---------- ---------
CASH AND CASH EQUIVALENTS, END OF
PERIOD................................. $ 680,278 $ 533,532 $ 309,333
========= ========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION--
Cash paid during the year for:
Interest.............................. $ 117,132 $ 97,810 $ 19,963
Income taxes.......................... $ 321,798 $ 717,500 $ 142,200
</TABLE>
See notes to consolidated financial statements.
F-23
<PAGE>
KILOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1994 AND THE PERIODFROM JANUARY 1, 1995
THROUGH OCTOBER 11, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General--Kilovac Corporation designs and manufactures high voltage and high
frequency electromechanical relays with applications in the following
industries: aerospace and defense, medical, test equipment, and other
commercial industries. Kilovac Corporation sells its products and grants
credit to customers in all of these industries located throughout the world.
Principles of Consolidation--The consolidated financial statements include
the accounts of Kilovac Corporation and its wholly owned subsidiaries (the
"Company"). All intercompany accounts and transactions have been eliminated.
Inventories--Inventories are stated at the lower of cost (first-in, first-
out) or market. Reserves for excess and obsolete inventories are determined
based on historical and projected usage.
Property--Depreciation and amortization are computed using the straight-line
method. Useful lives of the assets range from 3 to 30 years for buildings and
leasehold improvements, 3 to 10 years for machinery, and 3 to 5 years for
furnishings, office equipment and vehicles.
Income Taxes--The Company files a federal income tax return and a California
franchise tax return. Income taxes are recognized for (a) the amount of taxes
payable or refundable for the current period, and (b) deferred income tax
assets and liabilities for the future tax consequences of events that have
been recognized in the Company's financial statements or income tax returns.
The effects of income taxes are measured based on enacted laws and rates.
Revenues--Engineering sales represent revenues under fixed price development
and cost sharing development contracts. Revenues under the contracts are
recognized based on the percentage of completion method, measured by the
percentage of costs incurred to date to estimated total costs for each
contract. Costs in excess of contract revenues on cost sharing development
contracts are expensed in the period incurred as research and development
costs. These estimates are reviewed and revised periodically throughout the
lives of the contracts, and adjustments to profits resulting from such
revisions are recorded in the accounting period in which the revisions are
made. Provision for estimated losses on fixed price development contracts is
made in the period such losses are determined by management. Product sales are
recognized upon product shipment.
Use of Estimates in the Preparation of Financial Statements--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.
Export Sales--The Company operates in one industry segment. Export sales
primarily to the Far East and Europe for the years ended December 31, 1993 and
1994 and the period from January 1, 1995 through October 11, 1995 totaled
$2,254,995, $2,743,502 and $3,118,545, respectively.
New Accounting Standards--In March 1995, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 121, "Accounting for the Impairment of Long-
lived Assets and for Long-lived Assets to Be Disposed Of," which established a
new accounting principle for the impairment of long-lived assets and certain
identifiable intangible assets and is effective for fiscal years beginning
after December 15, 1995 with earlier adoption encouraged. The Company adopted
the new standard in 1995, which adoption had no impact on the accompanying
consolidated financial statements.
F-24
<PAGE>
KILOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which establishes an alternative method of accounting for
employee stock compensation plans based on a fair value methodology. However,
the statement allows an entity to continue to use the accounting prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees." The new
standard also requires additional disclosures if the Company elects to remain
with the accounting in Opinion 25. The Company has not determined whether it
will adopt the new accounting standard and has also not yet determined its
effect.
2. BORROWING ARRANGEMENTS
The Company had borrowing arrangements with a bank that provided for
borrowings of up to $750,000 under a revolving line of credit and $600,000
under a term line of credit for equipment purchases. Interest on outstanding
balances under these arrangements was payable at the bank's reference rate
(8.5% at December 31, 1994) plus .75% under the revolving line of credit and
1% under the term line of credit. The credit arrangements required the Company
to maintain certain financial ratios and a compensating balance equal to 7% of
the revolving line of credit limit. In connection with the sale of the Company
(see Note 9), the borrowing arrangements were canceled effective October 11,
1995.
3. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Term loan to bank; interest at the prime rate (8.5% at December
31, 1994) plus 1% with minimum and maximum rates set at 11%
and 14.75%, respectively; principal due in monthly
installments of $806 through March 1995 when the unpaid
balance is due and payable. The loan is collateralized by a
first trust deed on land and building with a net book value of
$556,354 at December 31, 1994................................. $244,078
Term line of credit; interest at variable rates, 9.5% at
December 31, 1994, principal and interest due in monthly
installments through May 1995................................. 84,558
Subordinated notes payable to a former officer/stockholder;
interest at a rate of 8.25% payable monthly, principal due
December 1995................................................. 80,842
Other.......................................................... 20,300
--------
$429,778
========
</TABLE>
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Wages and certain benefits...................................... $319,033
Legal costs..................................................... 360,000
Provision for contract losses................................... 155,813
Other........................................................... 70,397
--------
$905,243
========
</TABLE>
F-25
<PAGE>
KILOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. INCOME TAXES
Significant components of the Company's net deferred income taxes are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Current:
Accrued expenses.............................................. $147,358
Provision for contract losses................................. 52,976
Inventories................................................... 31,449
Loan receivable............................................... 23,800
Other......................................................... (4,005)
State taxes, net of federal benefit........................... 74,249
--------
$325,827
========
Noncurrent:
Depreciation.................................................. $(16,185)
State taxes, net of federal benefit........................... (2,731)
--------
$(18,916)
========
</TABLE>
The net deferred tax asset is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Deferred tax assets........................................... $336,608
Deferred tax liabilities...................................... (29,697)
--------
$306,911
========
</TABLE>
The following is a reconciliation of the effective tax rate to the federal
statutory rate:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED YEAR ENDED JANUARY 1, 1995
DECEMBER 31, DECEMBER 31, TO OCTOBER 11,
1993 1994 1995
------------ ------------ ---------------
<S> <C> <C> <C>
Tax provision at statutory rate.. $421,506 $294,715 $516,556
Benefit of foreign service
corporation..................... (11,937) (9,821) (21,237)
Research and development credit.. (55,776) (71,006) (27,610)
State taxes, net of federal
benefit......................... 63,628 14,915 80,969
Other............................ (14,535) (487) 12,435
-------- -------- --------
$402,886 $228,316 $561,113
======== ======== ========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
The Company leases its premises under an operating lease that expires in
April 1996. Future minimum lease payments under the lease total $77,805 at
October 11, 1995.
Rent expense for the years ended December 31, 1993 and 1994 and the period
from January 1, 1995 through October 11, 1995 was $207,480, $207,480 and
$163,590, respectively.
In 1992, two former officers of the Company filed a lawsuit against the
Company and an officer of the Company, stating various causes of action. The
lawsuit has been settled and the settlement amount and related legal costs
were reported in the 1994 consolidated financial statements as other
(expenses) income, net of insurance reimbursements.
F-26
<PAGE>
KILOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. CAPITAL STOCK
The dividend rights, dividend rate, conversion rights, voting rights, rights
and terms of redemption and other preferences of the Class B common stock,
preferred stock and preference stock are subject to determination by the Board
of Directors.
8. STOCK OPTIONS
The Company has stock option plans that provide for the issuance of shares
of the Company's common stock in incentive stock options and nonqualified
stock options to key employees. Incentive stock options may be granted at a
price not less than the fair market value of the stock at the grant date.
Options granted vest over varying periods and expire no later than ten years
from the grant date. The option agreements include a vesting acceleration
provision in the event of certain occurrences, which include the merger or
sale of the Company. In connection with the merger agreement discussed in Note
10, all of the employee stock options became fully vested on October 11, 1995
and were exercised.
Information concerning outstanding options is as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
--------- ------------
<S> <C> <C>
Outstanding, January 1, 1993......................... 70,500 $9.52-$38.70
Exercised.......................................... (10) 9.52
------ ------------
Outstanding, December 31, 1993....................... 70,490 $9.52-$38.70
Granted............................................ 2,000 41.50
------ ------------
Outstanding, December 31, 1994....................... 72,490 $9.52-$41.50
------ ------------
Outstanding, October 11, 1995........................ 72,490 $9.52-$41.50
====== ============
</TABLE>
9. EMPLOYEE BENEFIT PLANS
The Company has established the Kilovac Corporation Employee Stock Bonus
Plan (the "Plan") for the benefit of substantially all of its employees.
Annual contributions are limited to a maximum of 15% of eligible employees'
compensation and are made at the discretion of the Board of Directors.
Contributions may be made in the form of cash or stock. Valuation of stock
contributed under the Plan is based on fair market value as determined by
independent appraisal. Contributions to the Plan for the years ended December
31, 1993 and 1994 and the period from January 1, 1995 through October 11, 1995
totaled $147,607, $76,280 and $70,000, respectively. Effective with the
consummation of the merger (see Note 10), the Company has discontinued further
contributions to the plan.
The Company has established a salary deferral savings plan under provisions
of Section 401(k) of the Internal Revenue Code. Employees may elect to defer
up to 15% of their annual compensation under the plan. Company contributions
to the Plan for the years ended December 31, 1993 and 1994 and the period from
January 1, 1995 through October 11, 1995 totaled $0, $25,400 and $89,200,
respectively.
10. MERGER AGREEMENT
On September 20, 1995, the Company entered into a merger agreement with
Communications Instruments, Inc. ("CII") that was effective October 11, 1995.
Under the terms of the agreement, CII acquired 80% of the outstanding common
stock of the Company (99,828 shares) for a total cash consideration of
$12,900,000 (less certain transaction fees), distribution of the Company's
ownership in Kilovac Development Corporation, and certain future
consideration. In conjunction with the acquisition, the outstanding stock
options were exercised, representing 72,490 shares of the Company's common
stock. The option holders received their pro rata share of the purchase price
less the aggregate option exercise price totaling $1,202,692.
F-27
<PAGE>
INDEPENDENT AUDITORS' REPORT
Hartman Electrical Manufacturing
Division of Figgie International,
Inc.
We have audited the accompanying balance sheets of the Hartman Electrical
Manufacturing Division (the "Company") of Figgie International, Inc. as of
December 31, 1994 and 1995 and the related statements of operations, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits 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 audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1994 and 1995,
and the results of its operations and its cash flows for the years then ended
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Cleveland, Ohio
June 28, 1996
F-28
<PAGE>
HARTMAN ELECTRICAL MANUFACTURING DIVISION OF FIGGIE INTERNATIONAL, INC.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
ASSETS
<S> <C> <C> <C>
Cash............................................ $ 7 $ 22 $ 14
Receivables--net of allowance for doubtful
accounts of $100 in 1994, 1995 and 1996........ 3,633 1,877 2,809
Inventories (Note 2)............................ 5,632 6,992 6,503
Prepaid expenses................................ 13 23 14
------- ------- -------
Total current assets.......................... 9,285 8,914 9,340
Property and equipment--at cost (Note 3)........ 5,720 5,720 5,400
Less accumulated depreciation and amortization.. (3,626) (3,958) (4,061)
------- ------- -------
Property and equipment--net................... 2,094 1,762 1,339
Prepaid pension (Note 6)........................ 1,342 1,427 1,427
Other assets.................................... 174 33 --
------- ------- -------
Total......................................... $12,895 $12,136 $12,106
======= ======= =======
LIABILITIES AND DIVISIONAL EQUITY
LIABILITIES:
Accounts payable................................ $ 963 $ 1,356 $ 1,189
Accrued liabilities (Note 4).................... 6,819 5,333 4,937
Current portion of capital lease obligations
(Note 7)....................................... 1,073 518 489
------- ------- -------
Total current liabilities..................... 8,855 7,207 6,615
Non-current capital lease obligations (Note 7).. 1,138 617 372
------- ------- -------
Total liabilities............................. 9,993 7,824 6,987
COMMITMENTS AND CONTINGENCIES (Note 7)
DIVISIONAL EQUITY (Note 9)...................... 2,902 4,312 5,119
------- ------- -------
Total......................................... $12,895 $12,136 $12,106
======= ======= =======
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-29
<PAGE>
HARTMAN ELECTRICAL MANUFACTURING DIVISION OF FIGGIE INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------- -----------------
1994 1995 1995 1996
------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES................................. $19,974 $17,461 $ 9,404 $ 10,825
------- ------- ------- --------
COSTS AND EXPENSES:
Cost of sales (Note 8).................. 17,120 11,417 6,007 7,942
Selling................................. 889 445 248 156
General and administrative (Note 1 and
8)..................................... 3,331 2,753 1,387 1,369
Research and development................ 969 615 381 --
Non-recurring charge (Note 10).......... 1,877 -- -- --
Provision for estimated environmental
costs (Note 11)........................ -- 850 -- --
------- ------- ------- --------
Total costs and expenses.............. 24,186 16,080 8,023 9,467
------- ------- ------- --------
INCOME (LOSS) FROM OPERATIONS............. (4,212) 1,381 1,381 1,358
------- ------- ------- --------
OTHER INCOME (EXPENSE):
Interest expense (Note 8)............... (332) (50) (27) --
Other................................... 118 (92) (79) (15)
------- ------- ------- --------
Total other income (expense).......... (214) (142) (106) (15)
------- ------- ------- --------
INCOME (LOSS) BEFORE INCOME TAXES......... (4,426) 1,239 1,275 1,343
PROVISION (BENEFIT) FOR INCOME TAXES (Note
5)....................................... (1,765) 496 509 536
------- ------- ------- --------
NET INCOME (LOSS)......................... $(2,661) $ 743 $ 766 $ 807
======= ======= ======= ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-30
<PAGE>
HARTMAN ELECTRICAL MANUFACTURING DIVISION OF FIGGIE INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED ENDED
DECEMBER 31, JUNE 30,
---------------- ------------
1994 1995 1995 1996
------- ------- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................. $(2,661) $ 743 $ 766 $ 807
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation................................ 389 332 175 135
Gain on sale of fixed assets................ (167) -- -- --
Loss on write-off of equipment and other
assets..................................... 1,951 -- -- --
Changes in operating assets and liabilities:
Receivables............................... (1,322) 1,756 897 (933)
Inventories............................... 1,315 (1,360) 243 489
Prepaid expenses.......................... (4) (10) (33) 9
Prepaid pension and other assets.......... 629 56 14 33
Accounts payable.......................... (1,314) 393 344 (167)
Accrued expenses.......................... (2,613) (1,486) 1,662 (397)
------- ------- ----- -----
Net cash provided by (used in) operating
activities................................. (3,797) 424 744 (24)
------- ------- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................... (76) -- -- (63)
Sale of property and equipment................ 217 -- -- --
------- ------- ----- -----
Net cash provided by (used in) investing
activities................................. 141 -- -- (63)
------- ------- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations......... (491) (1,076) (562) (273)
Net cash provided by Figgie................... 4,149 667 (169) 352
------- ------- ----- -----
Net cash provided by (used in) financing
activities................................. 3,658 (409) (731) 79
------- ------- ----- -----
NET INCREASE (DECREASE) IN CASH............... 2 15 13 (8)
CASH, BEGINNING OF PERIOD..................... 5 7 7 22
------- ------- ----- -----
CASH, END OF PERIOD........................... $ 7 $ 22 $ 20 $ 14
======= ======= ===== =====
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-31
<PAGE>
HARTMAN ELECTRICAL MANUFACTURING DIVISION OF FIGGIE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)
(IN THOUSANDS)
1.BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reporting Entity--Hartman Electrical Manufacturing (the "Company") is a
division of Figgie International, Inc. ("Figgie"). The Company, located in
Mansfield, Ohio, is a manufacturer and marketer of high current
electromechanical relays for critical applications in the military and
commercial aerospace markets. The Company specializes in lower volume, highly
engineered relays targeted to aerospace original equipment manufacturers and
aftermarket users. Due to the nature of the industry they serve, the Company's
customer base is highly concentrated. Approximately 86% and 91% of net sales
in 1994 and 1995, respectively, were to the Company's ten largest customers.
Three customers in 1994 and four customers in 1995 exceeded 10% of net sales.
In 1994, customers A, B and C purchased 21.0%, 17.1% and 11.1%, respectively,
while in 1995 customers A, B, C and D purchased 27.4%, 13.2%, 11.3% and 10.5%,
respectively. Net sales to the U.S. Department of Defense (including prime
contractors under U.S. government programs) amounted to 35% and 26% of total
net sales in 1994 and 1995, respectively.
Approximately 13% and 17% of net sales in 1994 and 1995, respectively, were
to entities which principally operate outside of the United States.
The financial statements have been prepared generally as if the Company had
operated as a stand-alone entity for all periods presented. The financial
information included herein is not necessarily indicative of the financial
position and results of operations of the Company in the future. In addition,
these financial statements do not reflect any effects of the proposed change
in ownership transaction described in Note 12.
The Company receives an allocation, based on a percentage of assets, of
interest costs and various management services provided by Figgie such as
insurance, legal, treasury, property management, human resources, accounting,
tax and other miscellaneous. Expenses for such costs and common services,
included in general and administrative expenses, were $1,812 in 1994 and 1995.
The Company's management believes the allocation method is reasonable;
however, this allocated expense is not necessarily indicative of expenses that
would have been incurred by the Company on a stand-alone basis. Effective
January 1, 1996, Figgie discontinued allocating expenses for interest and
common services discussed above due to the proposed transaction discussed in
Note 12. An estimate of $906 relating to corporate charges that would have
been allocated by Figgie to the Company during the quarter ended June 30, 1996
has been included in general and administrative expenses for the quarter ended
June 30, 1996.
Concentration of Credit Risk--Credit is extended based on an evaluation of
the customer's financial condition and, generally, collateral is not required.
Receivables from the Company's ten largest customers represent 82% and 78% of
total receivables at December 31, 1994 and 1995, respectively.
Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions pending completion of related events. These estimates and
assumptions affect the amounts reported at the date of the financial
statements for assets, liabilities, revenues and expenses and the disclosure
of contingencies. Actual results could differ from those estimates.
Fair Value of Financial Instruments--The Company has various financial
instruments, including cash, accounts receivable, accounts payable, and
capital leases. The Company believes that the carrying values of these
financial instruments approximate their fair values.
F-32
<PAGE>
HARTMAN ELECTRICAL MANUFACTURING DIVISION OF FIGGIE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Inventories-- Inventories are stated at the lower of first-in, first-out
(FIFO) cost or market. Reserves for excess and obsolete inventories are
determined based on historical and projected usage.
Revenue Recognition--Revenues are generally recognized as finished products
are shipped to customers. The Company follows the guidelines of AICPA
Statement of Position 81-1, "Accounting for Performance of Construction-Type
and Certain Production-Type Contracts" (the contract method of accounting) for
certain long-term commercial and governmental contracts. Under the contract
method of accounting, the Company's sales are primarily under fixed-price
contracts, certain of which require delivery of products over several years.
Sales and profit on each contract are recognized primarily in accordance with
the percentage-of-completion method of accounting, using the units of delivery
method. Revisions of estimated profits on contracts are included in earnings
by the reallocation method, which spreads the change in estimate over future
deliveries. Any anticipated losses on contracts are charged to earnings when
identified. Estimated warranty costs are provided for based on known claims
and historical experience.
Depreciation--Depreciation is computed on the straight-line method over the
assets' estimated useful lives, ranging from 15 to 40 years for buildings and
improvements and 5 to 10 years for machinery and equipment.
Research and Development--Research and development costs are expensed as
incurred.
Unaudited Interim Financial Data--The interim financial data relating to the
six months ended June 30, 1995 and 1996 are unaudited; however, in the opinion
of the Company's management, the interim data includes all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
statement of the results for the interim periods. The results for the six
months ended June 30, 1996 are not necessarily indicative of the results to be
expected for the full year or any other interim period.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Products in process.......................... $ 2,089 $ 3,475 $ 3,940
Raw materials, supplies and finished
components.................................. 6,456 6,709 6,110
------- ------- -------
Inventories--gross........................... 8,545 10,184 10,050
Reserve for excess and obsolete inventory.... (2,913) (3,192) (3,547)
------- ------- -------
Total...................................... $ 5,632 $ 6,992 $ 6,503
======= ======= =======
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1994 1995
------ ------
<S> <C> <C>
Land.......................................................... $ 205 $ 205
Buildings and improvements.................................... 1,134 1,134
Machinery and equipment....................................... 4,131 4,381
Construction in progress...................................... 250 --
------ ------
Total....................................................... $5,720 $5,720
====== ======
</TABLE>
F-33
<PAGE>
HARTMAN ELECTRICAL MANUFACTURING DIVISION OF FIGGIE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1994 1995 1996
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Compensation and related benefits................. $ 617 $ 642 $ 751
Taxes other than income........................... 334 335 413
Estimated losses on uncompleted contracts......... 5,332 3,091 2,465
Estimated environmental remediation liability..... -- 850 860
Warranty.......................................... 200 200 320
Other............................................. 336 215 137
------ ------ ------
Total........................................... $6,819 $5,333 $4,936
====== ====== ======
</TABLE>
5. INCOME TAXES
The operations of the Company are included in the consolidated tax return of
Figgie. The income tax provision included in the statements of operations has
been determined as if the Company was a separate taxpayer. Current and
deferred tax assets and liabilities are transferred to divisional equity.
The provision (benefit) for income taxes consists of the following for the
years ended December 31:
<TABLE>
<CAPTION>
1994 1995
------- ----
<S> <C> <C>
Current........................................................ $(1,654) $ 1
Deferred....................................................... (111) 495
------- ----
Total........................................................ $(1,765) $496
======= ====
</TABLE>
The effective income tax rates for the years ended December 31, 1994 and
1995 were 40%. The principle difference between income taxes computed at the
federal statutory rate (35%) and the Company's effective income tax rate is
state and local income taxes.
Components of the deferred tax liabilities (assets) included in divisional
equity at December 31 were as follows:
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Depreciation.............................................. $ 214 $ 186
Pension................................................... 537 571
Inventory basis difference................................ (1,065) (1,178)
Estimated losses on uncompleted contracts................. (2,133) (1,236)
Accrued liabilities....................................... (213) (508)
Bad debt reserve.......................................... (40) (40)
------- -------
Total................................................... $(2,700) $(2,205)
======= =======
</TABLE>
6. RETIREMENT PLANS
Hourly employees covered under the Company's collective bargaining agreement
participate in a defined benefit pension plan. The plan provides for various
levels of benefits based on length of service. The plan is fully funded and no
contributions to the plan were required in 1994 and 1995. The plan's assets
consist primarily of listed common stocks, corporate and government bonds,
real estate investments, and cash and cash equivalents.
F-34
<PAGE>
HARTMAN ELECTRICAL MANUFACTURING DIVISION OF FIGGIE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Net periodic pension income of the defined benefit pension plan consists of
the following for the years ended December 31:
<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
Service cost--benefits earned during the year................. $ 59 $ 53
Interest cost on accumulated benefit obligation............... 190 221
Actual (return) loss on plan assets........................... 171 (748)
Net amortization and deferral................................. (607) 389
----- -----
Net periodic pension income................................. $(187) $ (85)
===== =====
</TABLE>
The funded status of the defined benefit pension plan and the amounts
recognized in the balance sheets at December 31 are as follows:
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Fair value of plan assets................................ $ 3,548 $ 4,091
Actuarial present value of benefit obligation--projected
and accumulated......................................... (2,443) (3,014)
------- -------
Plan assets greater than projected benefit obligation.... 1,105 1,077
Unrecognized net transition asset........................ (521) (456)
Unrecognized net loss.................................... 670 728
Unrecognized prior service cost.......................... 88 78
------- -------
Prepaid pension asset.................................... $ 1,342 $ 1,427
------- -------
Vested benefits.......................................... $ 2,411 $ 2,970
------- -------
</TABLE>
Assumptions used were as follows: discount rate--8.25% in 1994 and 7.50% in
1995; and return on plan assets--10%.
Eligible salaried employees of the Company participate in a defined benefit
pension plan sponsored by Figgie. Plan benefits under this plan are based on
employees' earnings during their years of participation in the plan. Amounts
allocated by Figgie and charged to expense were $170 and $49 in 1994 and 1995,
respectively. In addition, eligible employees may participate in a 401(k)
defined contribution plan, also sponsored by Figgie. The Plan does not provide
for employer contributions.
7. COMMITMENTS
The Company has commitments under operating leases primarily for computer
and office equipment. Rental expense was $488 in 1994 and $424 in 1995. Future
minimum rental commitments under operating leases having initial or remaining
non-cancelable lease terms exceeding one year are $356 in 1996; $263 in 1997;
$176 in 1998; and $23 in 1999.
The Company has commitments under capital leases primarily for machinery and
equipment. Future principal payments under these capital leases are as
follows:
<TABLE>
<S> <C>
Year ending December 31,
1996............................................................ $ 518
1997............................................................ 490
1998............................................................ 127
------
$1,135
======
</TABLE>
The net book value of machinery and equipment under capital leases is not
significant. Implicit interest rates in the capital leases range from 8.9% to
9.8%.
F-35
<PAGE>
HARTMAN ELECTRICAL MANUFACTURING DIVISION OF FIGGIE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. RELATED PARTY TRANSACTIONS
The Company purchases certain component parts from Interstate Electronics, a
subsidiary of Figgie. Amounts purchased during the years ended December 31,
1994 and 1995 were $4,670 and $2,005, respectively. Amounts purchased during
the six months ended June 30, 1995 and 1996 were $1,367 and $601,
respectively.
The Company's working capital and other cash requirements are financed by
Figgie with an interest charge or benefit computed based on working capital
variance to plan budgets. Net interest expense charged by Figgie in 1994 and
1995 amounted to $315 and $44, respectively.
During the six month period ending June 30, 1996, the Company transferred
equipment with a net book value of $351 to Figgie.
9.DIVISIONAL EQUITY
Changes in divisional equity, which includes cash advances and allocated
costs, were as follows:
<TABLE>
<S> <C>
Balance, January 1, 1994............................................ $ 1,414
Net loss for 1994................................................. (2,661)
Net cash transferred from Figgie.................................. 4,149
-------
Balance, December 31, 1994.......................................... 2,902
Net income for 1995............................................... 743
Net cash transferred from Figgie.................................. 667
-------
Balance, December 31, 1995.......................................... 4,312
Net income for the six months ended June 30, 1996................. 807
Net cash transferred from Figgie.................................. 351
Equipment transferred to Figgie................................... (351)
-------
Balance, June 30, 1996.............................................. $ 5,119
=======
</TABLE>
10.NON-RECURRING CHARGE
The non-recurring charge in 1994 represents the write-off of test equipment.
This equipment was developed for the purpose of testing relays in a more
efficient manner. Management determined in 1994 that the equipment was not
effective.
11.CONTINGENCIES
In 1995, the Company recorded an estimated liability of $850 for
environmental remediation and compliance costs related to its facility in
Mansfield, Ohio. Management believes that the actual outcome of any
remediation and compliance costs in excess of the recorded liability would not
have a material effect on the financial condition, results of operations or
cash flows of the Company.
12.SUBSEQUENT EVENT
On July 2, 1996, Communications Instruments, Inc. ("CII") acquired certain
assets and assumed certain liabilities of the Company for approximately
$12,000. The pension plan assets and obligations described in Note 6 will
remain with Figgie, the plan sponsor, as well as certain other assets and
liabilities including, but not limited to, land, buildings and environmental
related liabilities.
F-36
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS IN CONNECTION WITH THE OFFERING COVERED HEREBY. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO-
RIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY THE COMMON STOCK IN ANY
JURISDICTION WHERE OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Summary Consolidated Financial Data...................................... 5
Risk Factors............................................................. 7
The Company.............................................................. 13
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Consolidated Financial Information.............................. 18
Pro Forma Condensed Consolidated Financial Information................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 27
Business................................................................. 36
Management............................................................... 48
Ownership of Common Stock................................................ 54
Certain Relationships and Related Transactions........................... 54
Description of Capital Stock............................................. 56
Shares Eligible for Future Sale.......................................... 59
Underwriting............................................................. 60
Legal Matters............................................................ 61
Experts.................................................................. 61
Additional Information................................................... 62
Index to Financial Statements............................................ F-1
</TABLE>
---------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS EF-
FECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIRE-
MENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIP-
TION.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO] CII TECHNOLOGIES (TM)
3,500,000 SHARES
COMMON STOCK
---------------
PROSPECTUS
, 1996
---------------
WILLIAM BLAIR & COMPANY
FURMAN SELZ
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an itemization of the estimated costs expected to be
incurred in connection with the offer and sale of the securities registered
hereby.
<TABLE>
<S> <C>
Securities Act Registration Fee.................................. $ 15,267
NASD Filing Fee.................................................. 4,928
Nasdaq National Market Listing Fee............................... 33,750
Transfer Agent Fee............................................... 1,500
Printing and Engraving Expenses.................................. 158,000
Legal Fees and Expenses.......................................... 380,000
Accounting Fees and Expenses..................................... 402,000
Blue Sky Fees and Expenses....................................... 15,000
Miscellaneous.................................................... 389,555
----------
Total.......................................................... $1,400,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is made to Section 102(b)(7) of the Delaware General Corporation
Law (the "DGCL"), which enables a corporation in its original certificate of
incorporation or an amendment thereto to eliminate or limit the personal
liability of a director for violations of the director's fiduciary duty,
except (i) for any breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) pursuant
to Section 174 of the DGCL (providing for liability of directors for unlawful
payment of dividends or unlawful stock purchases or redemptions) or (iv) for
any transaction from which a director derived an improper personal benefit.
The Registrant's Restated Certificate of Incorporation limits the liability of
directors to the extent permitted by Section 102(b)(7) of the DGCL.
Under the Restated Certificate of Incorporation of the Registrant and under
its Amended and Restated Bylaws, the Registrant shall have the power to
indemnify its officers, directors, employees and agents to the full extent
permitted by the laws of the State of Delaware.
The Registrant maintains insurance, at its expense, to protect any director
or officer of the Registrant against certain expenses, liabilities or losses.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
(a) Securities sold:
(i) On May 11, 1993, as part of the CII Acquisition, the Registrant issued
to CII Associates, L.P. (the "Partnership") 2,150,000 shares of Common Stock
and 40,000 shares of Cumulative Redeemable Preferred Stock for a total
consideration of $860,000 and $2,000,000, respectively.
(ii) Also in connection with the CII Acquisition on May 11, 1993, Ramzi A.
Dabbagh, Alan Gordon, G. Daniel Taylor and John Flanagan subscribed for and
purchased 50,000, 25,000, 100,000 and 75,000 shares, respectively of Common
Stock of the Company for purchases price of $20,000, $10,000, $40,000 and
$30,000, respectively.
(iii) On May 11, 1993 the Company issued a subordinated promissory note due
May 31, 2003 in the principal amount of $4,000,000 and one-half of the unpaid
principal of such note is due on each of May 31, 2002 and May 31, 2003.
II-1
<PAGE>
(iv) On May 17, 1994 and May 23, 1995 Michael A. Steinback purchased 25,000
shares of Common Stock and the consideration for each such purchase was
$10,000.
(v) On October 11, 1995 the Company issued to the Partnership 40,000 shares
of Cumulative Redeemable Preferred Stock Series A for a total consideration of
$2,000,000.
(vi) On October 11, 1995 the Company issued a subordinated promissory note
due October 11, 2005 in the principal amount of $1,700,000 and one-half of the
unpaid principal of such note is due on each of October 11, 2004 and October
11, 2005.
(vii) On December 1, 1995, Ramzi Dabbagh, Michael Steinback and David
Henning each purchased 25,000 shares of Common Stock for $11,400. On such
date, Theodore Anderson also purchased 12,500 shares of Common Stock for
$5,700 and Gary L. McGill, Jeffrey W. Boyce and Raymond McClinton purchased
4,165, 4,165 and 4,170 shares, respectively, for purchase prices of $1,899,
$1,899 and $1,902, respectively.
(b) Underwriters and other purchasers
None.
(c) Consideration
See (a) above.
(d) Exemption from registration claimed
The foregoing securities were not offered or sold in transactions involving
any public offering in the United States and, accordingly, were exempt from
registration under Section 4(2) of the Securities Act.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<C> <S>
1 --Form of Underwriting Agreement.
*3.1 --Form of Second Amended and Restated Certificate of Incorporation.
*3.2 --Form of Amended and Restated Bylaws.
4 --Form of Common Stock Certificate.
*5 --Opinion of Simpson Thacher & Bartlett (a partnership which
includes professional corporations) regarding the legality of the
Common Stock being registered.
+10.1 --Management Subscription Agreements between the Company and Messrs.
Dabbagh, Gordon, Taylor and Flanagan.
+10.2 --Subscription Agreements between the Company and Messrs. Dabbagh,
Steinback, Henning, Anderson, Jr., McGill, Boyce and McClinton.
+10.3 --Registration Rights Agreement between the Company and CII
Associates, L.P.
+10.5 --Employment Agreement with Ramzi Dabbagh.
+10.6 --Employment Agreement with G. Daniel Taylor.
+10.7 --Employment Agreement with Douglas Campbell.
+10.8 --Employment Agreement with Michael Steinback.
+10.9 --Employment Agreement with David Henning.
10.10 --Stock Subscription and Purchase Agreement dated as of September
20, 1995, by and among CII, Kilovac Corporation and the
stockholders and optionholders of Kilovac Corporation named
therein.
+10.11 --Second Amended and Restated Loan and Security Agreement dated as
of July 2, 1996 among CII, the financial institutions named therein
(the "Lenders") and Bank of America Illinois as agent for the
Lenders.
+10.12 --Asset Purchase Agreement dated as of June 27, 1996 between
Communications Instruments Inc. and Figgie International Inc.
++10.13 --Environmental Remediation and Escrow Agreement, dated as of July
2, 1996.
+10.14 --Lease Agreement dated as of July 2, 1996 by and between Figgie
Properties, Inc. and Communications Instruments, Inc. dba Hartman
Division of CII Technologies Inc.
10.15 --Form of CII Technologies Inc. 1996 Management Stock Plan.
10.16 --First Amendment to Stock Subscription and Purchase Agreement dated
as of August 26, 1996, by and among the Company, CII, Kilovac and
the Selling Shareholders.
+11 --Statement re computation of pro forma per share earnings.
+21 --Subsidiaries of Registrant.
23.1 --Consent of Deloitte & Touche LLP.
*23.2 --Consent of Simpson Thacher & Bartlett (included in Exhibit 5).
+24 --Powers of Attorney (included in the signature pages of this
registration statement)
+27.1 --Financial Data Schedule
</TABLE>
- --------
*To be filed by amendment.
+ Previously filed.
++Previously filed but refiled as completed.
(b) Financial Statement Schedules:
I. Condensed Financial Information of Registrant.
II-3
<PAGE>
SCHEDULE I
CII TECHNOLOGIES INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
I. CONDENSED FINANCIAL INFORMATION OF REGISTRANT..................... II-5
Notes to Condensed Financial Information of Registrant............. II-8
</TABLE>
Schedules not filed herewith are omitted because of the absence of conditions
under which they are required or because the information called for is shown in
the Consolidated Financial Statements or Notes thereto.
II-4
<PAGE>
CII TECHNOLOGIES INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1994 1995
------ -------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Income tax receivable........................................ $ 60 $ 59
Current deferred tax asset................................... 249 455
------ -------
Total current assets....................................... 309 514
INVESTMENT IN SUBSIDIARY....................................... 7,862 10,538
------ -------
Total...................................................... $8,171 $11,052
====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Payable due to subsidiary.................................... $ 256 $ 304
Accrued interest............................................. 615 1,141
------ -------
Total current liabilities.................................. 871 1,445
LONG-TERM DEBT................................................. 5,750 7,450
CUMULATIVE REDEEMABLE PREFERRED STOCK.......................... 2,287 4,497
COMMON STOCK SUBJECT TO PUT OPTIONS............................ 100 165
STOCKHOLDERS' EQUITY:
Common stock................................................. 9 9
Additional paid-in capital................................... 38 758
Accumulated deficit.......................................... (873) (3,236)
Currency translation loss.................................... (11) (36)
------ -------
Total...................................................... $8,171 $11,052
====== =======
</TABLE>
See notes to condensed financial statements.
II-5
<PAGE>
CII TECHNOLOGIES INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
MAY 11, 1993 -------------------------
TO DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995
--------------- ------------ ------------
<S> <C> <C> <C>
INTEREST EXPENSE.................... $ 358 $ 554 $ 689
OTHER EXPENSE....................... -- -- 8
----- ----- -------
LOSS BEFORE EQUITY IN INCOME (LOSS)
OF SUBSIDIARY AND INCOME TAXES..... (358) (554) (697)
INCOME TAX EXPENSE (BENEFIT)........ 142 208 264
----- ----- -------
LOSS BEFORE EQUITY IN INCOME (LOSS)
OF SUBSIDIARY...................... (216) (346) (433)
EQUITY IN INCOME (LOSS) OF
SUBSIDIARY......................... (642) 618 (1,720)
----- ----- -------
NET INCOME (LOSS)................... $(858) $ 272 $(2,153)
===== ===== =======
</TABLE>
See notes to condensed financial statements.
II-6
<PAGE>
CII TECHNOLOGIES INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
MAY 11, 1993 -------------------------
TO DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995
--------------- ------------ ------------
<S> <C> <C> <C>
NET CASH USED IN OPERATING
ACTIVITIES.......................... $ (121) $ (160) $ (114)
NET CASH USED IN INVESTING
ACTIVITIES--
Acquisition of Common Stock of
Communications Instruments, Inc... (7,904) -- (3,700)
NET CASH PROVIDED BY FINANCING
ACTIVITIES:
Proceeds from issuance of debt..... 5,750 -- 1,700
Proceeds from issuance of preferred
stock............................. 2,000 -- 2,000
Proceeds from issuance of common
stock............................. 144 -- 56
Borrowings from subsidiary......... 121 135 48
Receipt on stock subscription
note.............................. 10 25 10
------- ------ -------
NET INCREASE (DECREASE) IN CASH...... -- -- --
CASH, BEGINNING OF PERIOD............ -- -- --
------- ------ -------
CASH, END OF PERIOD.................. $ -- $ -- $ --
======= ====== =======
</TABLE>
See notes to condensed financial statements.
II-7
<PAGE>
CII TECHNOLOGIES INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
1. BASIS OF PRESENTATION
The Condensed Financial Information of Registrant reflects the financial
statements of CII Technologies Inc. with its subsidiaries, Communications
Instruments, Inc. Kilovac Corporation, Kilovac International FSC Limited and
Electro-Mech, S.A. DE C.V., presented on the equity method of accounting in
order to comply with the requirements of Schedule I of the Form S-1 to be
filed with the Securities and Exchange Commission.
2. LONG-TERM DEBT
See Note 5 of the Notes to Consolidated Financial Statements.
3. CUMULATIVE REDEEMABLE PREFERRED STOCK AND COMMON STOCK SUBJECT TO PUT
OPTIONS
See Note 11 of the Notes to Consolidated Financial Statements.
4. COMMITMENTS AND CONTINGENCIES
See Note 8 of the Notes to Consolidated Financial Statements.
5. CASH DIVIDENDS PAID TO REGISTRANT
For the fiscal years ending December 31, 1993, 1994 and 1995, CII
Technologies Inc. did not receive any dividends.
II-8
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the
Representatives of the Underwriters at the closing specified in the
Underwriting Agreement certificates for Common Stock in such denominations and
registered in such names as required by the Representatives of the
Underwriters to permit prompt delivery to each purchaser of Common Stock.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4), or 497(h) under the Securities Act of 1933 shall be deemed to be a
part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
II-9
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
FAIRVIEW, STATE OF NORTH CAROLINA, ON SEPTEMBER 10, 1996.
CII Technologies Inc.
/s/ Ramzi A. Dabbagh
By __________________________________
RAMZI A. DABBAGH
CHAIRMAN OF THE BOARD OF DIRECTORS
AND CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON SEPTEMBER 10, 1996.
SIGNATURE TITLE
/s/ Ramzi A. Dabbagh Chairman of the Board of Directors,
- ------------------------------------- and Chief Executive Officer and
RAMZI A. DABBAGH Director (principal executive
officer)
Executive Vice President of Business
/s/ G. Daniel Taylor* Development and Director
- -------------------------------------
G. DANIEL TAYLOR
Chief Financial Officer (principal
/s/ David Henning* financial and accounting officer)
- -------------------------------------
DAVID HENNING
President of Communications
/s/ Michael A. Steinback* Instruments Inc. and Director
- -------------------------------------
MICHAEL A. STEINBACK
President of Kilovac Division and
/s/ Douglas Campbell* Director
- -------------------------------------
DOUGLAS CAMPBELL
II-10
<PAGE>
SIGNATURE TITLE
Director
/s/ Michael S. Bruno, Jr.*
- -------------------------------------
MICHAEL S. BRUNO, JR.
Director
/s/ Daniel A. Dye*
- -------------------------------------
DANIEL A. DYE
Director
/s/ John P. Flanagan*
- -------------------------------------
JOHN P. FLANAGAN
Director
/s/ Donald E. Dangott*
- -------------------------------------
DONALD E. DANGOTT
- --------
*By signing his name hereto, Ramzi A. Dabbagh signs this document on behalf of
each of the persons indicated above pursuant to powers of attorney duly
executed by such persons.
/s/ Ramzi A. Dabbagh
By: ____________________________
ATTORNEY IN FACT
II-11
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
------- ---------------------- ------------
<C> <S> <C>
1 --Form of Underwriting Agreement.
*3.1 --Form of Second Amended and Restated Certificate of
Incorporation.
*3.2 --Form of Amended and Restated Bylaws.
4 --Form of Common Stock Certificate.
*5 --Opinion of Simpson Thacher & Bartlett (a partnership
which includes professional corporations) regarding
the legality of the Common Stock being registered.
+10.1 --Management Subscription Agreements between the
Company and Messrs. Dabbagh, Gordon, Taylor and
Flanagan.
+10.2 --Subscription Agreements between the Company and
Messrs. Dabbagh, Steinback, Henning, Anderson, Jr.,
McGill, Boyce and McClinton.
+10.3 --Registration Rights Agreement between the Company and
CII Associates, L.P.
+10.5 --Employment Agreement with Ramzi Dabbagh.
+10.6 --Employment Agreement with G. Daniel Taylor.
+10.7 --Employment Agreement with Douglas Campbell.
+10.8 --Employment Agreement with Michael Steinback.
+10.9 --Employment Agreement with David Henning.
10.10 --Stock Subscription and Purchase Agreement dated as of
September 20, 1995, by and among CII, Kilovac
Corporation and the stockholders and optionholders of
Kilovac Corporation named therein.
+10.11 --Second Amended and Restated Loan and Security
Agreement dated as of July 2, 1996 among CII, the
financial institutions named therein (the "Lenders")
and Bank of America Illinois as agent for the Lenders.
+10.12 --Asset Purchase Agreement dated as of June 27, 1996
between Communications Instruments Inc. and Figgie
International Inc.
++10.13 --Environmental Remediation and Escrow Agreement, dated
as of July 2, 1996.
+10.14 --Lease Agreement dated as of July 2, 1996 by and
between Figgie Properties, Inc. and Communications
Instruments, Inc. dba Hartman Division of CII
Technologies Inc.
10.15 --Form of CII Technologies Inc. 1996 Management Stock
Plan.
10.16 --First Amendment to Stock Subscription and Purchase
Agreement dated as of August 26, 1996, by and among
the Company, CII, Kilovac and the Selling
Shareholders.
+11 --Statement re computation of pro forma per share
earnings.
+21 --Subsidiaries of Registrant.
23.1 --Consent of Deloitte & Touche LLP.
*23.2 --Consent of Simpson Thacher & Bartlett (included in
Exhibit 5).
+24 --Powers of Attorney (included in the signature pages
of this registration statement)
+27.1 --Financial Data Schedule
</TABLE>
- -------
*To be filed by amendment.
+ Previously filed.
++Previously filed but refiled as completed.
<PAGE>
EXHIBIT 1
GC&D Draft 7/2/96
CII Technologies Inc.
Shares*
Common Stock
UNDERWRITING AGREEMENT
______________, 1996
WILLIAM BLAIR & COMPANY, L.L.C.
FURMAN SELZ L.L.C.
As Representatives of the Several
Underwriters Named in Schedule A
c/o William Blair & Company, L.L.C.
222 West Adams Street
Chicago, Illinois 60606
Ladies and Gentlemen:
SECTION 1. Introductory. CII Technologies Inc. (the "Company"), a Delaware
corporation, has an authorized capital stock consisting of _____________ shares
of Preferred Stock, of which [80,000] shares were outstanding as of
_______________, 1996 and _________________ shares of Common Stock $0.01 par
value per share ("Common Stock"), of which ______________ shares were
outstanding as of such date. The Company proposes to issue and sell ____________
shares of its authorized but unissued Common Stock to the several underwriters
named in Schedule A as it may be amended by the Pricing Agreement hereinafter
defined ("Undewriters"), who are acting severally and not jointly. Such total of
______________ shares of Common Stock proposed to be sold by the Company is
hereinafter referred to as the "Firm Shares". In addition, the Company proposes
to grant to the Underwriters an option to purchase up to ____________ additional
shares of Common Stock ("Option Shares") as provided in Section 4 hereof. The
Firm Shares and, to the extent such option is exercised, the Option Shares, are
hereinafter collectively referred to as the "Shares."
You have advised the Company that the Underwriters propose to make a public
offering of their respective portions of the Shares as soon as you deem
advisable after the registration statement hereinafter referred to becomes
effective, if it has not yet become effective, and the Pricing Agreement
hereinafter defined has been executed and delivered.
Prior to the purchase and public offering of the Shares by the several
Underwriters, the Company and William Blair & Company, L.L.C. and Furman Selz
L.L.C. (the "Representatives"), acting on behalf of the several Underwriters,
shall enter into an agreement substantially in the form of Exhibit A hereto (the
"Pricing Agreement"). The Pricing Agreement may take the form of an exchange of
any standard form of written telecommunication between the Company and the
Representatives and shall specify such applicable information as is indicated
in Exhibit A hereto. The offering of the Shares will be governed by this
Agreement, as supplemented by the Pricing Agreement. From and after the date of
the execution and delivery of the Pricing Agreement, this Agreement shall be
deemed to incorporate the Pricing Agreement.
________________________
* Plus an option to acquire from the Company up to ______________ additional
shares to cover overallotments.
<PAGE>
The Company hereby confirms its agreements with the Underwriters as
follows:
SECTION 2. Representations and Warranties of the Company. The Company
represents and warrants to the several Underwriters that:
(a) A registration statement on Form S-1 (File No. 333- and a related
----
preliminary prospectus with respect to the Shares have been prepared and
filed with the Securities and Exchange Commission ("Commission") by the
Company in conformity with the requirements of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "1933 Act," all references herein to specific rules are
rules promulgated under the 1933 Act); the Company has so prepared and has
filed such amendments thereto, if any, and such amended preliminary
prospectuses as may have been required to the date hereof and (will file
such additional amendments thereto and such amended prospectuses as may
hereafter required.) There have been or will promptly be delivered to you
three signed copies of such registration on statement and amendments, three
copies of each exhibit filed therewith, and conformed copies of such
registration statement and amendments (but without exhibits) and of the
related preliminary prospectus or prospectuses and Final forms of prospectus
for each of the Underwriters.
Such registration statement (as amended, if applicable) at the time it
becomes effective and the prospectus constituting a part thereof (including
the information, if any, deemed to be part of the registration statement at
the time of effectiveness pursuant to Rule 43OA(b) and/or Rule 434(d)), as
from time to time amended or supplemented, are hereinafter referred to as
the "Registration Statement" and the "Prospectus," respectively, except
that if any revised prospectus shall be provided to the Underwriters by the
Company for use in connection with the offering of the Shares which differs
from the Prospectus on file at the Commission at the time the Registration
Statement became or becomes effective (whether or not such revised
prospectus is required to be filed by the Company pursuant to Rule 424(b)),
the term "Prospectus" shall refer to such revised prospectus from and after
the time it was provided to the Underwriters for such use. If the Company
elects to rely on Rule 434 of the 1933 Act, all references to "Prospectus"
shall be deemed to include, without limitation, the form of prospectus and
the term sheet, taken together, provided to the Underwriters by the Company
in accordance with Rule 434 of the 1933 Act (the "Rule 434 Prospectus"). Any
registration statement (including any amendment or supplement thereto or
information which is deemed to be a part thereof) filed by the Company under
Rule 462(b) (the "Rule 462(b) Registration Statement") shall be deemed to be
part of the "Registration Statement" as defined herein, and any prospectus
(including any amendment or supplement thereto or information which is
deemed a part thereof included in such registration statement shall be
deemed to be a part of the "Prospectus" as defined herein, as appropriate.
The Securities Exchange Act of 1934, as amended, and the rules and
regulations of the Commission thereunder are hereinafter collectively
referred to as the "Exchange Act."
(b) The Commission has not issued any order preventing or suspending the
use of any preliminary prospectus, and each preliminary prospectus has
conformed in all material respects with the requirements of the 1933 Act
and, as of its date, has not included any untrue statement of a material
fact or omitted to state a material fact necessary to make the statements
therein not misleading; and when the Registration Statement became or
becomes effective, and at all times subsequent thereto, up to the First
Closing Date or the Second Closing Date hereinafter defined, as the case may
be, the Registration Statement, including the information deemed to
be part of the Registration Statement at the time of effectiveness pursuant
to Rule
-2-
<PAGE>
430A(b) or Rule 434(d), if applicable, and the Prospectus and any amendments or
supplements thereto, contained or will contain all statements that are required
to be stated therein in accordance with the 1933 Act and in all material
respects conformed or will in all material respects conform to the requirements
of the 1933 Act and neither the Registration Statement nor the Prospectus, nor
any amendment or supplement thereto, included or will include any untrue
statement of a material fact or omitted or will omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company makes no representation or
warranty as to information contained in or omitted from any preliminary
prospectus, the Registration Statement the Prospectus or any such amendment or
supplement in reliance upon and in conformity with written information furnished
to the Company by or on behalf of any Underwriter through the Representatives
specifically for use in the preparation thereof.
(c) Communications Instruments, Inc., a North Carolina corporation, and
Kilovac Corporation, a California corporation (collectively the "Subsidiaries,)
constitute the Company's only "significant subsidiaries" (as such term is
defined in Rule 405 of Regulation C under the 1933 Act).
(d) The Company and the Subsidiaries have been duly incorporated and are
validly existing as corporations in good standing under the laws of their
respective places of incorporation, with corporate power and authority to own
their properties and conduct their business as described in the Prospectus; the
Company and the Subsidiaries are duly qualified to do business as foreign
corporations under the corporation law of, and are in good standing as such in,
each jurisdiction in which such qualification is required except in any such
case where the failure to so qualify or be in good standing would not have a
material adverse effect upon the Company and the Subsidiaries taken as a whole;
and no proceeding of which the Company has knowledge has been instituted in any
such jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit
or curtail, such power and authority or qualification.
(e) Except as disclosed in the Registration Statement, the Company owns
directly or indirectly 100 percent of the issued and outstanding capital stock
of the Subsidiaries, free and clear of any claims, liens, encumbrances or
security interests and all of such capital stock has been duly authorized and
validly issued and is fully paid and nonassessable.
(f) The issued and outstanding shares of capital stock of the Company as
set forth in the Prospectus have been duly authorized and validly issued, are
fully paid and nonassessable, and conform to the description thereof contained
in the Prospectus.
(g) The Shares to be sold by the Company have been duly authorized and when
issued, delivered and paid for pursuant to this Agreement, will be validly
issued, fully paid and nonassessable, and will conform to the description
thereof contained in the Prospectus.
(h) The making and performance by the Company of this Agreement and the
Pricing Agreement have been duly authorized by all necessary corporate action
and will not violate any provision of the Company's charter or bylaws and will
not result in the breach, or be in contravention, of any provision of any
agreement, franchise, license, indenture, mortgage, deed of trust, or other
instrument to which the Company or either of the Subsidiaries are a party or by
which the Company, either of the Subsidiaries or the property of any of them may
be bound or affected, or any order, rule or regulation applicable to the Company
or either of the Subsidiaries of any court or regulatory body, administrative
agency or other governmental body applicable to
-3-
<PAGE>
the Company or either of the Subsidiaries or any of their respective
properties, or any order of any court or governmental agency or authority
entered in any proceeding to which the Company or either of the Subsidiaries
were or are now a party or by which any of them are bound. No consent,
approval, authorization or other order of any court, regulatory body,
administrative agency or other governmental body is required for the execution
and delivery of this Agreement or the Pricing Agreement or the consummation of
the transactions contemplated herein or therein, except for compliance with the
1933 Act and blue sky laws applicable to the public offering of the Shares by
the several Underwriters and clearance of such offering with the National
Association of Securities Dealers, Inc. ("NASD"). This Agreement has been duly
executed and delivered by the Company.
(i) The accountants who have expressed their opinions with respect to
certain of the financial statements and schedules included in the Registration
Statement are independent accountants as required by the 1933 Act.
(j) The consolidated financial statements and schedules of the Company
included in the Registration Statement present fairly the consolidated financial
position of the Company and the Subsidiaries as of the respective dates of such
financial statements, and the consolidated results of operations and cash flows
of the Company and the Subsidiaries for the respective periods covered thereby,
all in conformity with generally accepted accounting principles consistently
applied throughout the periods involved, except as disclosed in the Prospectus;
and the supporting schedules included in the Registration Statement present
fairly the information required to be stated therein. The financial information
set forth in the Prospectus under "Selected Historical Consolidated Financial
Information" presents fairly, on the basis stated in the Prospectus, the
information set forth therein.
The financial statements of the Hartman Electrical Manufacturing Division of
Figgie International, Inc. ("Hartman") included in the Registration Statement
present fairly the consolidated financial position of Hartman as of the
respective dates of such financial statements, and the results of operations and
cash flows of Hartman for the respective periods covered thereby, all in
conformity with generally accepted accounting principles consistently applied
throughout the periods involved, except as disclosed in the Prospectus.
The pro forma financial statements and other pro forma financial
information included in the Prospectus present fairly the information shown
therein, have been prepared in accordance with the Commission's rules and
guidelines with respect to pro forma financial statements and other pro forma
information, have been properly compiled an the pro forma basis described
therein, and in the opinion of the Company, the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate under the circumstances.
(k) Neither the Company nor either of the Subsidiaries is in violation of
its charter or in default under any consent decree, or in default with respect
to any material provision of any lease, loan agreement, franchise, license,
permit or other contract obligation to which it is a party; and there does not
exist any state of facts which constitutes an event of default as defined in
such documents or which, with notice or lapse of time or both, would constitute
such an event of default in each case, except for defaults which neither singly
nor in the aggregate are material to the Company and the Subsidiaries taken as a
whole,
(l) There are no material legal or governmental proceedings pending, or to
the Company's knowledge, threatened to which the Company or either of the
Subsidiaries is or may
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be a party or of which material property owned or leased by the, Company or
either of the Subsidiaries is or may be the subject, or related to environmental
or discrimination matters which are not disclosed in the Prospectus, or which
question the validity of this Agreement or tile Pricing Agreement or any action
taken or to be taken pursuant hereto or thereto.
(m) There are no holders of securities of the Company having rights to
registration thereof or preemptive rights to purchase Common Stock except as
disclosed in the Prospectus. Holders of registration rights have waived such
rights with respect to the offering being made by the Prospectus.
(n) The Company and the Subsidiaries have good and marketable title to all
the properties and assets reflected as owned in the financial statements
hereinabove described (or elsewhere in the Prospectus), subject to no lien,
mortgage, pledge, charge or encumbrance of any kind except those, if any,
reflected in such financial statements (or elsewhere in the Prospectus) or which
are not material to the Company and the Subsidiaries taken as a whole. The
Company and each of the Subsidiaries hold their respective leased properties
which are material to the Company and the Subsidiaries taken as a whole under
valid and binding leases.
(o) The Company has not taken and will not take, directly or indirectly, any
action designed to or which has constituted or which might reasonably be
expected to cause or result, under the Exchange Act or otherwise, in
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares,
(p) Subsequent to the respective dates as of which information is given in
the Registration Statement and Prospectus, and except as contemplated by the
Prospectus, the Company and the Subsidiaries, taken as a whole, have not
incurred any material liabilities or obligations, direct or contingent nor
entered into any material transactions not in the ordinary course of business
and there has not been any material adverse change in their condition (financial
or otherwise) or results of operations not any material change in their capital
stock, short-term debt or long-term debt.
(q) The Company agrees not to sell, contract to sell or otherwise dispose of
any Common Stock or securities convertible into Common Stock (except Common
Stock issued pursuant to currently outstanding options), for a period of 365
days after this Agreement becomes effective without the prior written consent of
the Representatives. The Company has obtained, or will obtain similar agreements
from each stockholder, director and executive officer of the Company as required
by Section 7(f)(v) of this Agreement,
(r) There is no material document of a character required to be described
in the Registration Statement or the Prospectus or to be filed as an exhibit
to the Registration Statement which is not described or filed as required.
(s) The Company together with the Subsidiaries owns and possesses all
right, title and interest in and to, or has duly licensed from third parties,
all patents, trademarks, copyrights and other proprietary rights ("Trade
Rights") material to the business of the Company and the Subsidiaries taken as
a whole. Neither the Company nor either of the Subsidiaries has received any
notice of infringement, misappropriation or conflict from any third party as to
such material Trade Rights which has not been resolved or disposed of and
neither the Company nor either of the Subsidiaries has infringed,
misappropriated or otherwise conflicted with material Trade Rights of any third
parties, which infringement, misappropriation or conflict would have a
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material adverse effect upon the condition (financial or otherwise) or results
of operations of the Company and the Subsidiaries taken as a whole.
(t) The conduct of the business of the Company and the Subsidiaries is in
compliance in all respects with applicable federal, state, local and foreign
laws and regulations, except where the failure to be in compliance would not
have a material adverse effect upon die condition (financial or otherwise) or
results of operations of the Company and the Subsidiaries taken as a whole.
(u) All offers and sales of the Company's capital stock prior to the date
hereof were at all relevant times exempt from the registration requirements of
the 1933 Act and were duly registered with or the subject of an available
exemption from the registration requirements of the applicable state securities
or blue sky laws.
(v) The Company has filed all necessary federal and state income and
franchise tax returns and has paid all taxes shown as due thereon, and, except
as disclosed in the Prospectus, there is no tax deficiency that has been, or to
the knowledge of the Company might be, asserted against the Company or either of
the Subsidiaries or any of their properties or assets that would or could be
expected to have a material adverse affect upon the condition (financial or
otherwise) or results of operations of the Company and the Subsidiaries taken as
a whole.
(w) The Company has filed a registration statement pursuant to Section
12(g) of the Exchange Act to register the Common Stock thereunder, has filed an
application to list the Shares on the Nasdaq National Market, and has received
notification that the listing has been approved, subject to notice of issuance
or sale of the Shares, as the case may be.
(x) The Company is not, and does not intend to conduct its business in a
manner in which it would become, an "investment company" as defined in Section
3(a) of the Investment Company Act of 1940, as amended ("Investment Company
Act").
(y) The Company confirms as of the date hereof that it is in compliance
with all provisions of Section I of Laws of Florida, Chapter 92-198, An Act
------
Relating to Disclosure of Doing Business with Cuba, and the Company further
- --------------------------------------------------
agrees that if it commences engaging in business with the government of Cuba or
with any person or affiliate located in Cuba after the date the Registration
Statement becomes or has become effective with the Commission or with the
Florida Department of Banking and Finance (the "Department"), whichever date is
later, or if the information reported in the Prospectus, if any, concerning the
Company's business with Cuba or with any person or affiliate located in Cuba
changes in any material way, the Company will provide the Department notice of
such business or change, as appropriate, in a form acceptable to the Department.
SECTION 3. Representation and Warranties of the Underwriters. The
Representatives, on behalf of the several Underwriters, represent and warrant to
the Company that the information set forth (a) on the cover page of the
Prospectus with respect to price, underwriting discount and terms of the
offering and (b) under "Underwriting" in the Prospectus was furnished to the
Company by and on behalf of the Underwriters for use in connection with the
preparation of the Registration Statement and is correct and complete in all
material respects.
SECTION 4. Purchase, Sale and Delivery of Shares, On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the
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Company agrees to sell to the Underwriters named in Schedule A hereto, and the
Underwriters agree, severally and not jointly, to purchase from the Company
____________ Firm Shares at the price per share set forth in the Pricing
Agreement. The obligation of each Underwriter to the Company shall be to
purchase from the Company that number of full shares which (as nearly as
practicable, as determined by you) bears to ___________ , the same proportion as
the number of Shares set forth opposite the name of such Underwriter in Schedule
A hereto bears to the total number of Firm Shares to be purchased by all
Underwriters under this Agreement. The initial public offering price and the
purchase price shall be set forth in the Pricing Agreement.
At 9:00 A.M., Chicago Time, on the fourth business day, if permitted under
Rule 15c6-1 under the Exchange Act (or the third business day if required under
Rule 15c6-1 under the Exchange Act or unless postponed in accordance with the
provisions of Section II hereof) following the date the Registration Statement
becomes effective (or, if the Company has elected to rely upon Rule 430A, the
fourth business day, if permitted under Rule l5c6-1 under the Exchange Act (or
the third business day if required under Rule 15c6-1 under the Exchange Act)
after execution of the Pricing Agreement), or such other time not later than ten
business days after such date as shall be agreed upon by the Representatives and
the Company, the Company will deliver to you at the offices of counsel for the
Underwriters or through the facilities of The Depository Trust Company for the
accounts of the several Underwriters, certificates representing the Firm Shares
to be sold by them, respectively, against payment of the purchase price
therefor by certified or bank cashier's checks in Chicago Clearing House funds
(next-day funds) payable to the order of the Company. Such time of delivery and
payment is herein referred to as the "First Closing Date." The certificates for
the Firm Shares so to be delivered will be in such denominations and registered
in such names as you request by notice to the Company prior to 10:00 A.M.,
Chicago Time, on the third full business day preceding the First Closing Date,
and will be made available at the Company's expense for checking and packaging
by William Blair & Company, L.L.C. at 10:00 A.M., Chicago Time, on the first
full business day preceding the First Closing Date. Payment for the Firm Shares
so to be delivered shall be made at the time and in the manner described above
at the offices of counsel for the Underwriters.
In addition, on the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company hereby grants an option to the several Underwriters to purchase,
severally and not jointly, up to an aggregate of ___________ Option Shares, at
the same purchase price per share to be paid for the Firm Shares, for use solely
in covering any overallotments, made by the Underwriters in the sale and
distribution of the Firm Shares. The option granted hereunder may be exercised
at any time (but not more than once) within 30 days after the date of the
initial public offering upon notice by you to the Company setting forth the
aggregate number of Option Shares as to which the Underwriters are exercising
the option, the names and denominations in which the certificates for such
shares are to be registered and the time and place at which such certificates
will be delivered. Such time of delivery (which may not be earlier than the
First Closing Date), being herein referred to as the "Second Closing Date,"
shall be determined by you, but if at any time other than the First Closing
Date, shall not be earlier than three nor later than 10 full business days after
delivery of such notice of exercise. The number of Option Shares to be purchased
by each Underwriter shall be determined by multiplying the number of Option
Shares to be sold by the Company pursuant to such notice of exercise by a
fraction, the numerator of which is the number of Firm Shares to be purchased by
such Underwriter as set forth opposite its name in Schedule A and the
denominator of which is the total number of Firm Shares (subject to such
adjustments to eliminate any fractional share purchases as you in your absolute
discretion may make). Certificates for the Option Shares will be made available
at the Company's expense for checking and packaging at 10:00 A.M., Chicago Time,
on the first full business day preceding the Second Closing Date, The manner of
payment for and delivery of the Option Shares shall be the same as for the Firm
Shares as specified in the preceding paragraph.
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<PAGE>
You have advised the Company that each Underwriter has authorized you to
accept delivery of its Shares, to make payment and to receipt therefor. You,
individually and not as the Representatives of the Underwriters, may make
payment for any Shares to be purchased by any Underwriter whose funds shall not
have been received by you by the First Closing Date or the Second Closing Date,
as the case may be, for the account of such Underwriter, but any such payment
shall not relieve such Underwriter from any obligation hereunder.
SECTION 5. Covenants of the Company. The Company covenants and agrees that:
(a) The Company will advise you promptly of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or of the institution of any proceedings for that
purpose, or of any notification of the suspension of qualification of the
Shares for sale in any jurisdiction or the initiation or threatening of any
proceedings for that purpose, and will also advise you promptly of any
request of the Commission for amendment or supplement of the Registration
Statement, of any preliminary prospectus or of the Prospectus, or for
additional information, and will not file any amendment or supplement to the
Registration Statement, to any preliminary prospectus or to the Prospectus
of which you have not been furnished with a copy prior to such filing or to
which you reasonably object.
(b) The Company will give you notice of its intention to file or
prepare any amendment to the Registration Statement (including any post-
effective amendment) or any Rule 462(b) Registration Statement or any
amendment or supplement to the Prospectus (including any revised prospectus
which the Company proposes for use by the Underwriters in connection with
the offering of the Shares which differs from the prospectus on file at the
Commission at the time the Registration Statement became or becomes
effective, whether or not such revised prospectus is required to be filed
pursuant to Rule 424(b) and any term sheet as contemplated by Rule 434)
and will furnish you with copies of any such amendment or supplement a
reasonable amount of time prior to such proposed filing or use, as the case
may be, and will not file any such amendment or supplement or use any such
prospectus to which you or counsel for the Underwriters shall reasonably
object.
(c) If the Company elects to rely on Rule 434 of the 1933 Act, the
Company will prepare a term sheet that complies with the requirements or
Rule 434. If the Company elects not to rely on Rule 434, the Company will
provide the Underwriters with copies of the form of prospectus, in such
numbers as the Underwriter may reasonably request, and file with the
Commission such prospectus in accordance with Rule 424(b) of the 1933 Act
by the close of business in New York City on the second business day
immediately succeeding the date of the Pricing Agreement. If the Company
elects to rely on Rule 434, the Company will provide the Underwriter with
copies of the form of Rule 434 Prospectus, in such numbers as the
Underwriters may reasonably request, by the close of business in New York
on the business day immediately succeeding the date of the Pricing
Agreement.
(d) If at any time when a prospectus relating to the Shares is
required to be delivered under the 1933 Act any event occurs as a result of
which the Prospectus, including any amendments or supplements, would
include an untrue statement of a material fact, or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the
Prospectus, including any amendments or supplements thereto and including
any revised prospectus which the Company proposes for use by the
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<PAGE>
Underwriters in connection with the offering of the Shares which differs from
the prospectus on file with the Commission at the time of effectiveness of the
Registration Statement, whether or not such revised prospectus is required to be
filed pursuant to Rule 424(b) to comply with the 1933 Act, the Company promptly
will advise you thereof and will promptly prepare and file with the Commission
an amendment or supplement which will correct such statement or omission or an
amendment which will effect such compliance; and, in case any Underwriter is
required to deliver a prospectus nine months or more after the effective date of
the Registration Statement, the Company upon request, but at the expense of such
Underwriter, will prepare promptly such Prospectus or prospectuses as may be
necessary to permit compliance with the requirements of Section 10(a)(3) of the
1933 Act.
(e) Neither the Company nor either of the Subsidiaries will, prior to the
earlier of the Second Closing Date or termination or expiration of the related
option, incur any liability or obligation, direct or contingent, or enter into
any material transaction, other than in the ordinary course of business, except
as contemplated by the Prospectus.
(o Neither the Company nor either of the Subsidiaries will acquire any
capital stock of the Company prior to the earlier of the Second Closing Date or
termination or expiration of the related option, nor will the Company declare or
pay any dividend or make any other distribution upon the Common Stock payable to
stockholders of record on a date prior to the earlier of the Second Closing Date
or termination or expiration of the related option, except in either case as
contemplated by the Prospectus.
(g) The Company will make generally available to its security holders an
earnings statement (which need not be audited) covering a period of at least 12
months beginning after the effective date of the Registration Statement, which
will satisfy the provisions of the last paragraph of Section 1l(a) of the 1933
Act and Rule 158 thereunder.
(h) During such period as a prospectus is required by law to be delivered
connection with offers and sales of the Shares by an Underwriter or dealer, the
Company will furnish to you at its expense, subject to the provisions of
subsection (b) hereof, copies of the Registration Statement, the Prospectus,
each preliminary prospectus and all amendments and supplements to any such
documents in each case as soon as available and in such quantities as you may
reasonably request, for the purposes contemplated by the 1931 Act.
(i) The Company will cooperate with the Underwriters in qualifying or
registering the Shares for sale under the blue sky laws of such jurisdictions as
you designate, and will continue such qualifications in effect so long as
reasonably required for the distribution of the Shares. The Company shall not
be required to qualify as a foreign corporation or to file a general consent to
service of process in any such jurisdiction where it is not currently qualified
or where it would be subject to taxation as a foreign corporation.
(j) During the period of five years hereafter, the Company will furnish you
and, if so requested by any other Underwriter, each such requesting Underwriter
with a copy (i) as soon as practicable after the filing thereof, of each report
filed by the Company with the Commission, any securities exchange or the NASD;
(ii) as soon as practicable after the release thereof, of each material press
release in respect of the Company; and (iii) as soon as available, of each
report of the Company mailed to stockholders.
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<PAGE>
(k) The Company will use the net proceeds received by it from the sale
of the Shares being sold by it in the manner specified in the Prospectus.
(l) If, at the time of effectiveness of the Registration Statement, any
information shall have been omitted therefrom in reliance upon Rule 430A
and/or Rule 434, then immediately following the execution and delivery of the
Pricing Agreement, the Company will prepare, and file or transmit for filing
with the Commission in accordance with such Rule 430A, Rule 424(b) and/or Rule
434, as the case may be, copies of an amended prospectus or term sheet, as the
case may be, or, if required by such Rule 430A or Rule 434, as the case may be,
a post-effective amendment to the Registration Statement (including an amended
prospectus), containing all information so omitted. If required, the Company
will prepare and file, or transmit for filing, a Rule 462(b) Registration
Statement not later than the date of the execution of the Pricing Agreement. If
a 462(b) Registration Statement is filed, the Company shall make payment of, or
arrange for payment of, the additional registration fee owing to the Commission
required by Rule 111.
(m) The Company will comply with all registration, filing and reporting
requirements of the Exchange Act and the Nasdaq National Market and will
file with the Commission in a timely manner all reports on Form SR required by
Rule 463 and will furnish you copies of any such reports as soon as practicable
after the filing thereof.
SECTION 6. Payment of Expenses. Whether or not the transactions contemplated
hereunder are consummated or this Agreement becomes effective as to all of its
provisions or is terminated, the Company agrees to pay (i) all costs, fees and
expenses (other than legal fees and disbursements of counsel for the
Underwriters and the expenses incurred by the Underwriters) incurred in
connection with the performance of the Company's obligations hereunder,
including without limiting the generality of the foregoing, all fees and
expenses of legal counsel for the Company and of the Company's independent
accountants, all costs and expenses incurred in connection with the preparation,
printing, filing and distribution of the Registration Statement, each
preliminary prospectus and the Prospectus (including all exhibits and financial
statements) and all amendments and supplements provided for herein, this
Agreement, the Pricing Agreement and the Blue Sky Memorandum, (ii) all costs,
fees and expenses (including legal fees not to exceed $15,000 and disbursements
of counsel for the Underwriters) incurred by the Underwriters in connection with
qualifying or registering all or any part of the Shares for offer and sale under
blue sky laws, including the preparation of a blue sky memorandum relating to
the Shares, and clearance of such offering with the NASD; and (iii) all fees and
expenses of the Company's transfer agent, printing of the certificates for the
Shares and all transfer taxes, if any, with respect to the sale and delivery of
the Shares to the several Underwriters.
SECTION 7. Conditions of the Obligations of the Underwriters. The
obligations of the several Underwriters to purchase and pay for the Firm Shares
on the First Closing Date and the Option Shares on the Second Closing Date shall
be subject to the accuracy of the representations and warranties on the part of
the Company herein set forth as of the date hereof and as of the First Closing
Date or the Second Closing Date, as the case may be, to the accuracy of the
statements of officers of the Company made pursuant to the provisions hereof, to
the performance by the Company of its obligations hereunder, and to the
following additional conditions:
(a) The Registration Statement shall have become effective either prior to
the execution of this Agreement or not later than 1:00 P.M., Chicago Time, on
the first full business day after the date of this Agreement, or such later
time as shall have been consented to by you but in no event later than 1:00
P.M., Chicago Time, on the third full business day following the
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date hereof, and prior to the First Closing Date or the Second Closing Date, as
the case may be, no stop order suspending the effectiveness of the Registration
Statement shall have been issued, and no proceedings for that purpose shall have
been instituted or shall be pending or, to the knowledge of the Company or you,
shall be contemplated by the Commission. If the Company has elected to rely
upon Rule 430A and/or Rule 434, the information concerning the initial public
offering price of the Shares and price-related information shall have been
transmitted to the Commission for filing pursuant to Rule 424(b) within the
prescribed period and the Company will provide evidence satisfactory to the
Representatives of such timely filing (or a post-effective amendment providing
such information shall have been filed and declared effective in accordance with
the requirements of Rules 430A and 424(b)). If a Rule 462(b) Registration
Statement is required, such Registration Statement shall have been transmitted
to the Commission for filing and become effective within the prescribed time
period and, prior to the First Closing Date, the Company shall provide evidence
of such filing and effectiveness in accordance with Rule 462(b).
(b) The Shares shall have been qualified for sale under the blue sky laws of
such states as shall have been specified by the Representatives.
(c) The legality and sufficiency of the authorization, issuance and sale or
transfer and sale of the Shares hereunder, the validity and form of the
certificates representing the Shares, the execution and delivery of this
Agreement and the Pricing Agreement, and all corporate proceedings and other
legal matters incident thereto, and the form of the Registration Statement and
the Prospectus (except financial statements) shall have been approved by counsel
for the Underwriters exercising reasonable judgment.
(d) You shall not have advised the Company that the Registration Statement
or the Prospectus or any amendment or supplement thereto, contains an untrue
statement of fact, which, in the opinion of counsel for the Underwriters, is
material or omits to state a fact which, in the opinion of such counsel, is
material and is required to be stated therein or necessary to make the
statements therein not misleading.
(e) Subsequent to the execution and delivery of this Agreement there shall
not have occurred any change, or any development involving a prospective change,
in or affecting particularly the business or properties of the Company or either
of the Subsidiaries, whether or not arising in the ordinary course of business,
which, in the judgment of the Representatives, makes it impractical or
inadvisable to proceed with the public offering or purchase of the Shares as
contemplated hereby.
(f) There shall have been furnished to you, as Representatives of the
Underwriters, on the First Closing Date or the Second Closing Date, as the case
may be, except as otherwise, expressly provided below:
(i) An opinion of Simpson Thacher & Bartlett, counsel for the Company,
addressed to the Underwriters and dated the First Closing Date or the
Second Closing Date, as the case may be, to the effect that:
(1) the Company has been duly incorporated and is validly existing
and in good standing under the laws of the State of Delaware with
corporate power and authority to own its properties and conduct its
business as described in the Prospectus; and the Company has been duly
qualified to do business as a foreign
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<PAGE>
corporation under the corporation law of, and is in good standing as such in,
every jurisdiction where the ownership or leasing of property, or the conduct of
its business requires such qualification except where the failure so to qualify
would not have a material adverse effort upon the condition (financial or
otherwise) or results of operations of the Company and the Subsidiaries taken as
a whole;
(2) each of the Subsidiaries has been duly incorporated and is validly
existing and in good standing under the laws of their respective states of
incorporation, with corporate power and authority to own their properties and
conduct their business as described in the Prospectus; and each Subsidiary has
been duly qualified to do business as a foreign corporation under the
corporation law of, and is in good standing as such in, every jurisdiction where
such Subsidiary conducts operations, except where the failure so to qualify
would not have a material adverse effect upon the condition (financial or
otherwise) or results of operations of the Company and the Subsidiaries taken as
a whole
(3) all of the issued and outstanding capital stock of each Subsidiary has
been duly authorized, validly issued and is fully paid and nonassessable, and,
except as disclosed in the Registration Statement, the Company owns directly or
indirectly 100 percent of the outstanding capital stock of the Subsidiaries and
such stock is owned free and clear of any claims, liens, encumbrances or
security interests;
(4) the authorized capital stock of the Company, of which there is
outstanding the amount set forth in the Registration Statement and Prospectus
(except for subsequent issuances, if any, pursuant to stock options or other
rights referred to in the Prospectus), conforms as to legal matters in all
material respects to the description thereof in the Registration Statement and
Prospectus;
(5) the issued and outstanding capital stock of the Company has been duly
authorized and validly issued and is fully paid and nonassessable;
(6) the certificates for the Shares to be delivered hereunder are in due and
proper form, and when duly countersigned by the Company's transfer agent and
delivered to you or upon your order against payment of the agreed consideration
therefor in accordance with the provisions of this Agreement and the Pricing
Agreement, the Shares represented thereby will be duly authorized and validly
issued, fully paid and nonassessable;
(7) the Registration Statement has become effective under the 1933 Act, and,
to the best knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued, and no proceedings
for that purpose have been instituted or are pending or contemplated under the
1933 Act and the Registration Statement (including the information deemed to be
pad of the Registration Statement at the time of effectiveness pursuant to Rule
43OA(b) and/or Rule 434(d), if applicable), the Prospectus and each amendment or
supplement thereto (except for the financial statements and other statistical or
financial data included therein as to which such counsel need express no
opinion) comply as to form in all material respects with the requirements of the
1933 Act;
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such counsel has no reason to believe that either the Registration Statement
(including the information deemed to be part of the Registration Statement at
the time of effectiveness pursuant to Rule 43OA(b) and/or Rule 434(d), if
applicable) or the Prospectus, or the Registration Statement or the Prospectus
as amended or supplemented (except as aforesaid), as of their respective
effective or issue dates, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Prospectus as amended or
supplemented, if applicable, as of the First Closing Date or the Second Closing
Date, as the case may be, contained any untrue statement of a material fact or
omitted to state any material fact necessary to make the statements therein not
misleading in light of the circumstances under which they were made; the
statements in the Registration Statement and the Prospectus summarizing
statutes, rules and regulations are accurate and fairly and correctly present
the information required to be presented by the 1933 Act or the rules and
regulations thereunder, in all material respects and such counsel does not know
of any statutes, rules and regulations required to be described or referred to
in the Registration Statement or the Prospectus that are not described or
referred to therein as required; and such counsel does not know of any legal or
governmental proceedings pending or threatened required to be described in the
Prospectus which are not described as required, nor of any contracts or
documents of a character required to be described in the Registration Statement
or Prospectus or to be filed as exhibits to the Registration Statement which are
not described or filed, as required;
(8) the statements under the captions "Certain Relationships and Related
Transactions," "Description of Capital Stock" and "Shares Eligible for Future
Sale" in the Prospectus, insofar as such statements constitute a summary of
documents referred to therein or matters of law, are accurate summaries and
fairly and correctly present, in all material respects, the information called
for with respect to such documents and matters;
(9) this Agreement and the Pricing Agreement and the performance of the
Company's obligations hereunder have been duly authorized by all necessary
corporate action and this Agreement and the Pricing Agreement have been duly
executed and delivered by and on behalf of the Company, and are legal, valid and
binding agreements of the Company, except as enforceability of the same may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights and by the exercise of judicial discretion in
accordance with general principles applicable to equitable and similar remedies
and except as to those provisions relating to indemnities for liabilities
arising under the 1933 Act as to which no opinion need be expressed; and no
approval, authorization or consent of any public board, agency, or
instrumentality of the United States or of any state or other jurisdiction is
necessary in connection with the issue or sale of the Shares by the Company
pursuant to this Agreement (other than under the 1933 Act applicable blue sky
laws and the rules of the NASD) or the consummation by the Company of any other
transactions contemplated hereby;
(10) the execution and performance of this Agreement will not contravene any
of the provisions of, or result in a default under, any agreement, franchise,
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license, indenture, mortgage, deed of trust or other instrument known to
such counsel, of the Company or either of the Subsidiaries or by which the
property of any of them is bound and which contravention or default would be
material to the Company and the Subsidiaries taken as a whole; or violate
any of the provisions of the charter or bylaws of the Company or either of
the Subsidiaries or, so far as is known to such counsel, violate any
statute, order, rule or regulation of any regulatory or governmental body
having jurisdiction over the Company or either of the Subsidiaries;
(11) the Company is not an "investment company" or a person "controlled
by" an "investment company" within the meaning of the Investment Company
Act; and
(12) to such counsel's knowledge, all offers and sales of the capital
stock of the Company and the Subsidiaries since March 1, 1993 were at all
relevant times exempt from the registration requirements of the 1933 Act and
were duly registered or the subject of an available exemption from the
registration requirements of the applicable state securities or blue sky
laws.
In rendering such opinion, such counsel may state that they are relying
upon the certificate of ____________, the transfer agent for the Common Stock,
as to the number of shares of Common Stock at any time or times outstanding,
and that insofar as their opinion under clause (1) above relates to the accuracy
and completeness of the Prospectus and Registration Statement, it is based upon
a general review with the Company's representatives and independent accountants
of the information contained therein, without independent verification by such
counsel of the accuracy or completeness of such information, Such counsel may
also rely upon the opinions of other competent counsel and, as to factual
matters, on certificates and of officers of the Company and of state officials,
in which case their opinion is to state that they are so doing and copies of
said opinions or certificates are to be attached to the opinion unless said
opinions or certificates (or, in the case of certificates, the information
therein) have been furnished to the Representatives in other form.
(ii) Such opinion or opinions of Gardner, Carton & Douglas, counsel for the
Underwriters, dated the First Closing Date or the Second Closing Date, as the
case may be, with respect to the incorporation of the Company, the validity of
the Shares to be sold by the Company, the Registration Statement and the
Prospectus and other ' related matters as you may reasonably require, and the
Company shall have furnished to such counsel such documents and shall have
exhibited to them such papers and records as they request for the purpose of
enabling them to pass upon such matters.
(iii) A certificate of the chief executive officer and the principal
financial officer of the Company, dated the First Closing Date or the Second
Closing Date, as the case may be, to the effect that:
(1) the representations and warranties of the Company set forth in
Section 2 of this Agreement are true and correct as of the date of this
Agreement and as of the First Closing Date or the Second Closing Date, as
the case may be, and the Company has complied with all the agreements and
satisfied all the
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<PAGE>
conditions on its part to be performed or satisfied at or prior to
such Closing Date; and
(2) the Commission has not issued an order preventing or
suspending the use of the Prospectus or any preliminary prospectus
filed as a part of the Registration Statement or any amendment
thereto; no stop order suspending the effectiveness of the
Registration Statement has been issued, which order remains in
effect; and to the best knowledge of the respective signers, no
proceedings for that purpose have been instituted or are pending or
contemplated under the 1933 Act,
The delivery of the certificate provided for in this
subparagraph shall be and constitute a representation and warranty of
the Company as to the facts required in the immediately foregoing
clauses (1) and (2) of this subparagraph to be set forth in said
certificate.
(iv) At the time the Pricing Agreement is executed and also on the
First Closing Date or the Second Closing Date, as the cast may be,
there shall be delivered to you a letter addressed to you, as
Representatives of the Underwriters, from Deloitte & Touche LLP,
independent accountants, the first one to be dated the date of the
Pricing Agreement the second one to be dated the First Closing Date and
the third one (in the event of a second closing) to be dated the Second
Closing Date, to the effect set forth in Schedule B. There shall not
have been any change or decrease specified in the letters referred to
in this subparagraph which makes it impractical or inadvisable in the
judgment of the Representatives to proceed with the public offering or
purchase of the Shares as contemplated hereby.
(v) At the time the Pricing Agreement is executed, there
shall be delivered to you a letter from each stockholder, director and
executive officer of the Company identified in Schedule C hereto, in
which each such person agrees not to sell, contract to sell or
otherwise dispose of any Common Stock or securities convertible into
Common Stock (except Common Stock issued pursuant to currently
outstanding options) for a period of 365 days after the date of such
letter without the prior written consent of the Representatives.
(vi) Such further certificates and documents as you may reasonably
request.
All such opinion, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory to you and
to Gardner, Carton & Douglas, counsel for the Underwriters, which approval
shall not be unreasonably withheld. The Company shall furnish you with such
manually signed or conformed copies of such opinions, certificates, letters and
documents as you request.
If any condition to the Underwriters' obligations hereunder to be satisfied
prior to or at the first Closing Date is not so satisfied, this Agreement at
your election will terminate upon notification to the Company without
liability on the part of any Underwriter or the Company, except for the expenses
to be paid or reimbursed by the Company pursuant to Sections 6 and 8 hereof and
except to the extent provided in Section 10 hereof.
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<PAGE>
SECTION 8. Reimbursement of Underwriters' Expenses. If the sale to the
Underwriters of the Shares on the First Closing Date is not consummated because
any condition of the Underwriters' obligations hereunder is not satisfied or
because of any refusal, inability or failure on the part of the Company to
perform any agreement herein or to comply with any provision hereof, unless such
failure to satisfy such condition or to comply with any provision hereof is due
to the default or omission of any Underwriter, the Company agrees to reimburse
you and the other Underwriters upon demand for all out-of-pocket expenses
(including reasonable fees and disbursements of counsel) that shall have been
reasonably incurred by you and them in connection with the proposed purchase and
the sale of the Shares. Any such termination shall be without liability of any
party to any other party except that the provisions of this Section, Section 6
and Section 10 shall at all times be effective and shall apply.
SECTION 9. Effectiveness of Registration Statement. You and the Company will
use your and its best efforts to cause the Registration Statement to become
effective, if it has not yet become effective, and to prevent the issuance of
any stop order suspending the effectiveness of the Registration Statement and,
if such stop order be issued, to obtain as soon as possible the lifting thereof.
SECTION 10. Indemnification. (a) The Company agrees to indemnify and hold
harmless each Underwriter and each person, if any, who controls any Underwriter
within the meaning of the 1933 Act or the Exchange Act against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter or
such controlling person may become subject under the 1933 Act, the Exchange Act
or other federal or state statutory law or regulation, at common law or
otherwise (including in settlement of any litigation if such settlement is
effected with the written consent of the Company), insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, including the information deemed
to be part of the Registration Statement at the time of effectiveness pursuant
to Rule 430A and/or Rule 434(d), if applicable, any preliminary prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading;
and will reimburse each Underwriter and each such controlling person for any
legal or other expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company will not
be liable in any such case to the extent that (i) any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in the Registration
Statement, any preliminary prospectus, the Prospectus or any amendment or
supplement thereto in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any Underwriter through the
Representatives, specifically for use therein; or (ii) if such statement or
omission was contained or made in any preliminary prospectus and corrected in
the Prospectus and (1) any such loss, claim, damage or liability suffered or
incurred by any Underwriter (or any person who controls any Underwriter)
resulted from an action, claim or suit by any person who purchased Shares which
are the subject thereof from such Underwriter in the offering and (2) such
Underwriter failed to deliver or provide a copy of the Prospectus, as then
amended or supplemented, to such person at or prior to the confirmation of the
sale of such Shares in any case where such delivery is required by the 1933 Act.
In addition to its other obligations under this Section 10(a), the Company
agrees that as an interim measure during the pendency of any claim, action,
investigation, inquiry or other proceeding arising out of or based upon any
statement or omission, or any alleged statement or omission, described in this
Section 10(a), it will reimburse the Underwriters on a monthly basis for all
reasonable legal and other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Company's obligation to reimburse the Underwriters for
such expenses and the possibility that such payments might later be held to have
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<PAGE>
been improper by a court of competent jurisdiction. This indemnity agreement
will be in addition to any liability which the Company may otherwise have.
(b) Each Underwriter will severally indemnify and hold harmless the Company,
each of its directors, and each of its officers who signed the Registration
Statement and each person, if any, who controls the Company within the meaning
of the 1933 Act or the Exchange Act, against any losses, claims, damages or
liabilities to which the Company, or any such director, officer or controlling
person may become subject under the 1933 Act, the Exchange Act or other federal
or state statutory law or regulation, at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of such Underwriter), insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue or alleged untrue statement of any material fact contained in the
Registration Statement, any preliminary prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in the Registration
Statement, any preliminary prospectus, the Prospectus, or any amendment or
supplement thereto in reliance upon and in conformity with Section 3 of this
Agreement or any other written information furnished to the Company by such
Underwriter through Representatives specifically for use in the preparation
thereof; and will reimburse any legal or other expenses reasonably incurred by
the Company, or any such director, officer or controlling person in connection
with investigating or defending any such loss, claim, damage, liability or
action. In addition to their other obligations under this Section 10(b), the
Underwriters agree that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
this Section 10(b), they will reimburse the Company on a monthly basis for all
reasonable legal and other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Underwriters' obligation to reimburse the Company for such
expenses and the possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. This indemnity agreement will be
in addition to any liability which such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section, notify the indemnifying party of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party except to the extent that
the indemnifying party was prejudiced by such failure to notify. In case any
such action is brought against any indemnified party, and it notifies an
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with
all other indemnifying parties similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to those
available to the indemnifying party, or the indemnified and indemnifying parties
may have conflicting interests which would make it inappropriate for the same
counsel to represent both of them, the indemnified party or parties shall have
the right to select separate counsel to assume such legal defense and otherwise
to participate in the defense of such action on behalf of such indemnified party
or parties. Upon receipt of notice from the indemnifying party to such
indemnified party of its election so to assume the defense of such action and
approval by the indemnified party of counsel, the indemnifying party will not be
liable to
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<PAGE>
such indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed such counsel in
connection with the assumption of legal defense in accordance with the proviso
to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel, approved by the Representatives in the case of paragraph (a)
representing all indemnified parties not having different or additional defenses
or potential conflicting interest among themselves who are parties to such
action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability arising out
of such proceeding.
(d) If the indemnification provided for in this Section is unavailable to an
indemnified party under paragraphs (a) or (b) hereof in respect of any losses,
claims, damages or liabilities referred to therein, then each applicable
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Underwriters from the offering of the Shares or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only that: relative benefits referred to in clause
(i) above but also the relative fault of the Company and the Underwriters in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The respective relative benefits received by the Company and the
Underwriters shall be deemed to be in the same proportion in the case of the
Company, as the total price paid to the Company for the Shares by the
Underwriters (net of underwriting discount but before deducting expenses), and
in the case of the Underwriters as the underwriting discount received by them
bears to the total of such amounts paid to the Company and received by the
Underwriters as underwriting discount in each case as contemplated by the
Prospectus. The relative fault of the Company and the Underwriters shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the Company or by the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission, ne amount paid or payable by a
party as a result of the losses, claims, damages and liabilities referred to
above shall be deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending any action
or claim.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable, considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section, no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall
be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section are several in proportion to their respective
underwriting commitments and not joint.
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<PAGE>
(e) The provisions of this Section shall survive any termination of
this Agreement.
SECTION 11. Default of Underwriters. It shall be a condition to the
agreement and obligation of the Company to sell and deliver the Shares
hereunder, and of each Underwriter to purchase the Shares hereunder, that,
except as hereinafter in this paragraph provided, each of the Underwriters shall
purchase and pay for all Shares agreed to be purchased by such Underwriter
hereunder upon tender to the Representatives of all such Shares in accordance
with the terms hereof. If any Underwriter or Underwriters default in their
obligations to purchase Shares hereunder on the First Closing Date and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed to purchase does not exceed 10 percent of the total number of
Shares which the Underwriters are obligated to purchase on the First Closing
Date, the Representatives may make arrangements satisfactory to the Company for
the purchase of such Shares by other persons, including any of the Underwriters,
but if no such arrangements are made by such date the nondefaulting Underwriters
shall be obligated severally, in proportion to their respective commitments
hereunder, to purchase the Shares which such defaulting Underwriters agreed but
failed to purchase on such date. If any Underwriter or Underwriters so default
and the aggregate number of Shares with respect to which such default or
defaults occur is more than the above percentage and arrangements satisfactory
to the Representatives and the Company for the purchase of such Shares by other
persons are not made within 36 hours after such default, this Agreement will
terminate without liability on the part of any nondefaulting Underwriter or the
Company, except for the expenses to be paid by the Company pursuant to Section 6
hereof and except to the extent provided in Section 10 hereof.
In the event that Shares to which a default relates are to be purchased by
the nondefaulting Underwriters or by another party or parties, the
Representatives or the Company shall have the right to postpone the First
Closing Date for not more than seven business days in order that the necessary
changes in the Registration Statement, Prospectus and any other documents, as
well as any other arrangements, may be effected. As used in this Agreement the
term "Underwriter" includes any person substituted for an Underwriter under this
Section. Nothing herein will relieve a defaulting Underwriter from liability
for its default.
SECTION 12. Effective Date. This Agreement shall become effective
immediately as to Sections 6, 8, 10 and 13 and as to all other provisions at
10:00 A.M., Chicago Time, on the day following the date upon which the Pricing
Agreement is executed and delivered, unless such a day is a Saturday, Sunday or
holiday (and in that event this Agreement shall become effective at such hour on
the business day next succeeding such Saturday, Sunday or holiday); but this
Agreement shall nevertheless become effective at such earlier time after the
Pricing Agreement is executed and delivered as you may determine on and by
notice to the Company or by release of any Shares for sale to the public. For
the purposes of this Section, the Shares shall be deemed to have been so
released upon the release for publication of any newspaper advertisement
relating to the Shares or upon the release by you of telegrams (i) advising
Underwriters that the Shares are released for public offering, or (ii) offering
the Shares for sale to securities dealers, whichever may occur first.
SECTION 13. Termination. Without limiting the right to terminate this
Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company by notice to you
of by you by notice to the Company at any time prior to the time this
Agreement shall become effective as to all its provisions, and any such
termination shall be without liability on the part of the Company to any
Underwriter (except for the expenses to be paid or reimbursed pursuant to
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<PAGE>
Sections 6 or 8 hereof and except to the extent provided in Section 10
hereof) or of any Underwriter to the Company.
(b) This Agreement may also be terminated by you prior to the First
Closing Date, and the option referred to in Section 4, if exercised, may be
canceled at any time prior to the Second Closing Date, if (i) trading in
securities on the New York Stock Exchange shall have been suspended or
minimum prices shall have been established on such exchange, or (ii) a
banking moratorium shall have been declared by Illinois, New York, or United
States authorities, or (iii) there shall have been any change in financial
markets or in political, economic or financial conditions which, in the
reasonable opinion of the Representatives, either renders it impracticable
or inadvisable to proceed with the offering and sale of the Shares on the
terms set forth in the Prospectus or materially and adversely affects the
market for the Shares, or (iv) there shall have been an outbreak of major
armed hostilities between the United States and any foreign power which in
the opinion of the Representatives makes it impractical or inadvisable to
offer or sell the Shares. Any termination pursuant to this paragraph (b)
shall be without liability on the part of any Underwriter to the Company or
on the part of the Company to any Underwriter (except for expenses to be
paid or reimbursed pursuant to Sections 6 or 8 hereof and except to the
extent provided in Section 10 hereof).
SECTION 14. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, and will survive delivery of and payment
for the Shares sold hereunder.
SECTION 15. Notices. All communications hereunder will be in writing and,
if sent to the Underwriters will be mailed, delivered or telegraphed and
confirmed to you c/o William Blair & Company, L.L.C., 222 West Adams,
Chicago, Illinois 60606, with a copy to Glenn W. Reed, Gardner, Carton &
Douglas, 321 North Clark Street, Chicago, Illinois 60610; if sent to the Company
will be mailed, delivered or telegraphed and confirmed to the Company at its
corporate headquarters with a copy to Wilson Neely, Simpson Thacher & Bartlett
425 Lexington Avenue, New York, NY 10017-3909.
SECTION 16. Successors. This Agreement and the Pricing Agreement will
inure to the benefit of and be binding upon the parties hereto and their
respective successors, personal representatives and assigns, and to the benefit
of the officers and directors and controlling persons referred to in Section 10,
and no other person will have any right or obligation hereunder. The term
"successors" shall not include any purchaser of the Shares as such from any of
the Underwriters merely by reason of such purchases.
SECTION 17. Representation of Underwriters. You will act as
Representatives for the several Underwriters in connection with this financing,
and any action under or in respect of this Agreement taken by you will be
binding upon all the Underwriters. Any action under or in respect of this
Agreement taken by William Blair & Company, L.L.C. will be binding upon the
other Representative.
SECTION 18. Partial Unenforceability. If any section, paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, such determination shall not effect the validity or
enforceability of any other section, paragraph or provision hereof.
SECTION 19. Applicable Law. This Agreement and the Pricing Agreement shall
be governed by and construed in accordance with the laws of the State of
Illinois.
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<PAGE>
If the foregoing is in accordance with your understanding of our agreement
kindly sign and return to us the enclosed duplicates hereof, whereupon it will
become a binding agreement among the Company and the several Underwriters
including you, all in accordance with its terms.
Very truly yours,
CII TECHNOLOGIES INC.
By:
--------------------------
Its:
--------------------------
The foregoing Agreement is hereby
confirmed and accepted as of
the date first above written,
WILLIAM BLAIR & COMPANY, L.L.C.
FURMAN SELZ L.L.C.
Acting as Representatives of the
several Underwriters named in
Schedule A.
By: William Blair & Company, L.L.C.
By:
-----------------------------
Partner
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<PAGE>
SCHEDULE A
NUMBER OF FIRM
SHARES TO BE
UNDERWRITER PURCHASED
William Blair & Company, L.L.C.............
Furman Selz L.L.C..........................
------
TOTAL
======
<PAGE>
EXHIBIT 4
[FRONT SIDE OF STOCK CERTIFICATE]
COMMON STOCK COMMON STOCK
NUMBER SHARES
INCORPORATED UNDER THE LAWS THIS CERTIFICATE IS TRANSFERRABLE IN
OF THE STATE OF DELAWARE NEW YORK, NY
CII TECHNOLOGIES INC.
THIS IS TO CERTIFY THAT CUSIP 125519 10 8
SEE REVERSE FOR
CERTAIN DEFINITIONS
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF THE PAR VALUE
OF $.01 EACH OF
CII Technologies Inc., transferable on the books of the Corporation by the
holder hereof in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed. This Certificate is not valid unless
countersigned by the Transfer Agent and registered by the Registrar.
Witness the seal of the Corporation and the signatures of its duly
authorized Officers.
Dated COUNTERSIGNED AND REGISTERED:
[ ]
TRANSFER AGENT
AND REGISTRAR
By
CHAIRMAN AND CHIEF EXECUTIVE OFFICER Authorized Signature
SECRETARY
[CORPORATE SEAL]
--------------------------
<PAGE>
[REVERSE SIDE OF STOCK CERTIFICATE]
CII TECHNOLOGIES INC.
The Corporation will furnish without charge to each stockholder who so
requests a statement of the designations, powers, preferences and relative
participation, optional or other special rights of each class of stock or series
thereof of the Corporation and the qualifications, limitations or restrictions
of such preferences and/or rights. Such request may be made to the Corporation
or the Transfer Agent.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - __________________ Custodian ____________
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform gifts to Minors
Act _____________________________________
JT TEN - as joint tenants with (State)
right of survivorship
and not as tenants in common
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OR ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
shares of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint ____________________ Attorney to transfer the
said stock on the books of the within named Corporation with full power of
substitution in the premises.
Dated _________________________
____________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
<PAGE>
EXHIBIT 10.10
KILOVAC CORPORATION
STOCK SUBSCRIPTION AND PURCHASE AGREEMENT
This STOCK SUBSCRIPTION AND PURCHASE AGREEMENT (this "Agreement") dated as
of September 20, 1995 is made and entered into by and among COMMUNICATIONS
INSTRUMENTS, INC., a North Carolina corporation ("Buyer"), KILOVAC
CORPORATION, a California corporation (the "Company"), and the shareholders
and optionholders set forth in Schedule 1 (individually, a "Selling
Shareholder" and collectively, the "Selling Shareholders").
W I T N E S S E T H :
WHEREAS, the Selling Shareholders collectively own, beneficially and of
record, an aggregate of 124,785 Class A Common Shares, no par value, of the
Company (the "Common Stock") after giving effect to the exercise of the
outstanding options (the "Stock Options") exercisable into shares of Common
Stock; and
WHEREAS, the Selling Shareholders intend to exercise all of the Stock
Options, and thereby purchase 72,490 shares of Common Stock for an aggregate
exercise price of $1,202,691.80; and
WHEREAS, Buyer desires that the Company purchase and Selling Shareholders
desire to sell to the Company an aggregate of 99,828 shares of Common Stock
upon the terms and conditions set forth herein;
WHEREAS, Buyer desires to purchase 99,828 newly issued shares of the Common
Stock of the Company for consideration of $4,000,000.
NOW THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants, agreements, terms and conditions
contained herein, the parties hereto do hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF STOCK;
EXERCISE OF STOCK OPTIONS
1.1 Purchase and Sale; And Exercise of Stock Options.
(a) On the Closing Date (as defined below) and subject to the terms and
conditions set forth in this Agreement, the Selling Shareholders shall, in
exchange for the consideration described in Section 1.3, (i) sell, assign,
transfer and deliver to Company 99,828 Shares, (the "Sale Shares") free and
clear of all options, pledges, security interests, liens or other encumbrances
or restrictions on voting or transfer (other than those restrictions
contemplated by this Agreement), (ii) deliver to Company certificates for the
Sale Shares, with appropriate share transfer forms attached, duly endorsed in
blank, together with evidence of payment of any applicable transfer taxes and
(iii) take such steps as may be necessary to cause the Company to cancel and
redeem the Sale Shares.
(b) As of the Closing Date and immediately prior to Closing, and without any
action on the part of the holders thereof after signing this Agreement, each
Stock Option shall be exercised and the shares of Common Stock issuable on
exercise shall be issued to such holder. There shall be deducted from the
aggregate proceeds payable to the holder of each Stock Option pursuant to the
purchase of the Sale Shares, the aggregate exercise price of all Stock Options
held by such Selling Shareholder, which deduction shall be in satisfaction of
the payment by such holder of the option exercise price with respect to the
Stock Options.
(c) The Company shall sell, assign, transfer and deliver to Buyer and Buyer
shall purchase 99,828 newly issued shares of Common Stock (the "New Shares"),
free and clear of all options, pledges, security interests, liens or other
restrictions on voting or transfer (other than those restrictions contemplated
by this Agreement),
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together with evidence of payment of any applicable transfer tax in
consideration of payment in the amount of $4,000,000 and Buyer shall make
advances to Company in an aggregate amount not less than $10,000,000.
1.2 Closing. The closing (the "CLOSING") of the transactions provided for in
this Agreement shall be held at the offices of Bank of America Illinois, in
Chicago, Illinois (unless the parties hereto otherwise agree in writing) on
the Closing Date. The "CLOSING DATE" shall mean October 11, 1995; provided,
however, that if any of the conditions provided for in Article IV shall not
have been waived or met by October 11, 1995, then either Buyer or Douglas
Campbell on behalf of the Selling Shareholders shall be entitled to postpone
the Closing Date by written notice to the other party until three (3) business
days after such condition or conditions have been met or waived. The Closing
Date shall not be later than October 31, 1995, unless mutually agreed upon by
Buyer and Douglas Campbell.
1.3 Purchase Consideration. The purchase consideration for the Sale Shares
shall be the aggregate of the per share amounts set forth below, which
aggregate amount shall be subject to deduction for payment of certain expenses
in accordance with Section 1.5 of this Agreement:
(i) cash in the aggregate amount of $11,900,000, which equals $131.2527
on a per share basis; provided that with respect to Sale Shares issued on
the exercise of Stock Options, the aggregate amount payable to such
Shareholder shall be reduced by the aggregate exercise price of all Stock
Options exercised by such Selling Shareholder as of the Closing Date (the
aggregate of all such cash consideration, the "CASH CONSIDERATION");
(ii) a pro rata interest in the Escrow Fund (as defined in Section 1.4),
calculated based on a total number of interests therein, which shall be
99,828 (the aggregate of all such consideration, the "ESCROW
CONSIDERATION");
(iii) a pro rata interest in the tax benefits payable to Selling
Shareholders in accordance with Section 1.6, calculated on the same basis
as set forth in Section 1.3(ii) (the aggregate of all such consideration,
the "TAX BENEFITS CONSIDERATION"); and
(iv) one common share of Kilovac Development, Inc., a California
corporation ("KILOVAC DEVELOPMENT") and the owner of the Palm Avenue
Property (as defined below) (such aggregate shares, the "PROPERTY
CONSIDERATION").
The Cash Consideration, the Escrow Consideration, the Tax Benefits
Consideration and the Property Consideration are referred to herein,
collectively, as the "Purchase Consideration".
1.4 Escrow Fund. On the Closing Date and subject to the terms and conditions
set forth in this Agreement, in reliance on the representations, warranties,
covenants and agreements of the parties contained herein and in consideration
of the sale, assignment, transfer and delivery of the Sale Shares, the Company
shall deliver $500,000 to Bank of America, N.A. ("ESCROW AGENT") to be held
pursuant to, and in all cases subject to, the Escrow Agreement substantially
in the form of Exhibit A hereto (the "ESCROW AGREEMENT") and the Paying Agent
Agreement in the form of Exhibit B hereto (the "PAYING AGENT AGREEMENT")
delivered in connection with this Agreement; amounts so held from time to time
are to be referred to therein as the "Escrow Fund".
1.5 Payment. (a) At or prior to the Closing, Buyer, the Company and the
Selling Shareholders shall enter into the Paying Agent Agreement which, among
other things, designates the persons or entities selected by the Selling
Shareholders and approved by Buyer to act as paying agent, shareholder
representative and attorney-in-fact (the "PAYING AGENT") in connection with
the transactions contemplated in this Agreement. At the Closing, upon the
terms and subject to the conditions of this Agreement and the Paying Agent
Agreement, Buyer shall deliver the Cash Consideration to the Paying Agent for
the benefit of the Selling Shareholders.
(b) From the Cash Consideration, the Paying Agent shall first pay all fees
and expenses incurred by the Company or the Selling Shareholders in connection
with the transactions contemplated by this Agreement, all as approved by the
Paying Agent in accordance with the Paying Agent Agreement (the "TRANSACTION
FEES").
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Thereafter, the Paying Agent shall disburse to each Selling Shareholder the
amount due to such Selling Shareholder pursuant to Section 1.3 net of such
Selling Shareholder's pro rata share of the Transaction Fees.
1.6 Certain Tax Benefits. Buyer agrees that the Selling Shareholders will
receive cash payment from the Company, as described in this Section 1.6, for
certain tax benefits resulting from any deduction relating to the exercise or
sale of the Stock Options net of any income recognized by the Company
resulting from transactions contemplated herein other than any income
recognized as a result of any tax election made by Buyer or the Company after
the Closing Date (the "Deduction"). Such payment shall be made ratably to the
Selling Shareholders as follows: (A) to the extent that the Deduction results
in a net operating loss for income tax purposes in the taxable year that
includes the Closing Date (the "Short Period") that may be carried back to
prior taxable years, 100 percent of the benefit realized shall be paid to
Paying Agent for the benefit of Selling Shareholders when tax refunds are
received by the Company as a result of the carryback claims (net of any taxes
caused by the refund of state taxes); (B) to the extent that the Deduction
results in a reduction of the tax liability due for or a refund of taxes that
would otherwise have been payable with respect to the day to day sales and
operations of the Company and its Subsidiaries in the Short Period and not
from other transactions or events (including, without limitation, transactions
not in the ordinary course of business, any income resulting from transactions
contemplated by this Agreement and any income relating to prior periods), 100
percent of the benefit realized shall be paid to Paying Agent for the benefit
of Selling Shareholders (i) when refunds of such taxes are received by the
Company or (ii) when such taxes that would otherwise be payable by the Company
or the consolidated group which includes Buyer and the Company are reduced;
and (C) to the extent that the Deduction results in a net operating loss
generated in the taxable years ending through the Closing Date that is carried
forward to taxable years thereafter, 100 percent of the benefit realized by
virtue of the net operating loss carryforward for the fiscal year ending
December 31, 1995 and 50 percent of such benefit realized for fiscal years
thereafter shall be paid to the Paying Agent for the benefit of Selling
Shareholders when such benefit is actually realized. The Selling Shareholders
agree to reimburse the Buyer and/or the Company for any unearned payments made
pursuant to this Section 1.6, subject to the limitations of Section 6.2
hereof.
1.7 Continuing Common Stock.
1.7.1 Definitions. For purposes of this Section 1.7 the following terms
shall have the meanings set forth below:
"ACQUISITION DEBT" shall mean the principal and accrued interest on any
senior bank financing actually obtained by Buyer specifically to finance
the purchase of the Sale Shares hereunder, whether such Acquisition Debt is
a principal obligation of Buyer or any of its parent or affiliate
organizations, including the Company. Acquisition Debt shall also include
the principal and accrued interest on any refinancing of the foregoing
acquisition financing actually obtained, to the extent utilized to payoff
the principal amount initially borrowed as Acquisition Debt, including
accrued interest. Acquisition Debt shall not include any amount borrowed by
the Company, whether from any lending institution or from Buyer or any
affiliate of Buyer, to the extent the funds obtained are utilized in the
Company's ordinary business operations, and are not used to reduce
Acquisition Debt or to pay fees or other return to Buyer or its affiliates.
"DEBT" with respect to any entity shall mean the gross amount of all
indebtedness for borrowed money of the subject entity reflected on its
balance sheet prepared on a consolidated basis with its subsidiaries as at
the date of the event causing such measurement.
"CONTINUING SHARES" shall mean the shares of Common Stock not transferred
and redeemed by the Company at the Closing Date.
"PREFERRED STOCK" with respect to any entity shall mean the sum of the
accrued but unpaid dividends and liquidation preference on any of the
entity's stock which has any preference with respect to dividends or
liquidation proceeds.
1.7.2 Share Sale Adjustment. One half of the Continuing Shares (the
"ESCROWED CONTINUING SHARES"), together with stock assignments separate from
certificate with respect thereto duly executed by the respective
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Shareholders in blank (the "ESCROWED STOCK POWERS") shall be placed in escrow
with Adams, Duque & Hazeltine (the "SHARE ESCROW HOLDER") to be held subject
to the following. If no SALE, IPO (each as defined below) or conversion
pursuant to Subsection 1.7.5.2 (any of such events, a "LIQUIDITY EVENT")
occurs prior to January 1, 1998 and CUMULATIVE 1997 EBITDA (as defined below)
is not equal to or greater than $6,342,700 (the "EBITDA TARGET"), the Purchase
Consideration shall be deemed to have been paid with respect to both the
Escrowed Continuing Shares and the Sale Shares, and Escrow Holder shall
release the Escrowed Continuing Shares, together with the Escrowed Stock
Powers, to Buyer on account of the payment on the Closing Date of the Purchase
Consideration. If either (a) a Liquidity Event occurs prior to January 1,
1998, or (b) Cumulative 1997 EBITDA is equal to or exceeds the EBITDA Target,
then there shall be no share adjustment and the Escrowed Continuing Shares,
together with the Escrowed Stock Powers, shall be released by Escrow Agent for
the benefit of the Shareholders and delivered by Escrow Holder to the Paying
Agent.
1.7.2.1 Escrow Holder's Duties. Escrow Holder shall act solely on (i) the
joint certification of Buyer and Shareholder Representative, or (ii) the final
determination of either the Company's accountant or an arbitrator, each as
certified by both Buyer and Shareholder Representative as being final, or (a)
the arbitrator's award or the order of a court with respect to the arbitrators
award.
1.7.2.2 Cumulative 1997 EBITDA. "CUMULATIVE 1997 EBITDA" shall mean the
Company's cumulative earnings before interest, taxes, depreciation and
amortization for the fiscal years ended December 31, 1996 and December 31,
1997 determined in accordance with generally accepted accounting principles
("GAAP") applied in a manner consistent throughout all periods and in
accordance with the Company's financial statements for the three fiscal years
prior to the Closing Date, except that tooling costs will be treated as if
capitalized (whether or not actually capitalized). Further, in calculating
EBITDA, (i) there shall be excluded all Buyer or corporate income and expense
items allocated, assigned or charged to the Company, including debt and
related interest, overhead (other than sales and marketing expenses and
overhead directly related to the conduct of the Company's business), and
amortization of goodwill and other capitalized assets resulting from the
purchase of the Sale Shares pursuant to this Agreement and (ii) no
consolidated or consolidating entries relating to any entity other than the
existing subsidiaries of the Company shall be given effect. Cumulative 1997
EBITDA shall be conclusively presumed to be the amount agreed by both the
Company and Shareholder Representative in writing.
1.7.3 Purchase of Continuing Shares. Buyer shall purchase and redeem the
Continuing Shares in accordance with the following:
1.7.3.1 Final Redemption. If the Continuing Shares are not earlier purchased
and the purchase obligations are not earlier terminated on an IPO as provided
below, Buyer shall effective December 31, 2005 ("Final Redemption") purchase
the Continuing Shares. The per share purchase price for the Continuing Shares
outstanding on such date shall equal the result of the Company Redemption
Value divided by the number of shares of Common Stock then outstanding.
1.7.3.2 Early Redemption. If the Continuing Shares are not purchased prior
to December 31, 2000 ("EARLY REDEMPTION") and the purchase obligations are not
earlier terminated on an IPO as provided below, Buyer shall at the election of
any Shareholder purchase the Continuing Shares owned by such Shareholder. The
per share purchase price payable with respect to the Continuing Shares
outstanding on such date shall equal the result of the COMPANY REDEMPTION
VALUE divided by the number of shares of Common Stock then outstanding. The
foregoing Shareholder election may be exercised by each Shareholder only
during the period commencing January 1, 2001 and continuing until and
including April 30, 2001, by giving written notice to Buyer or the Company.
The effective date of any such election by a Shareholder shall be December 31,
2000.
1.7.3.3 Definitions. For purposes of this Subsection the following terms
shall have the meanings set forth below:
"COMPANY REDEMPTION EBIT" shall mean the Company's earnings before interest
and taxes for the fiscal year ending December 31, 2000 or December 31, 2005
(whichever is concurrent with Early Redemption or
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Final Redemption) determined in accordance with GAAP applied in a manner
consistent throughout all periods and in accordance with the Company's
financial statements for the three fiscal years prior to the Closing Date,
except that tooling costs will be treated as if capitalized (whether or not
actually capitalized). Further, in calculating EBIT, (i) there shall be
excluded all Buyer or corporate income and expense items allocated,
assigned or charged to the Company, including debt and related interest,
overhead (other than sales and marketing expenses and overhead directly
related to the conduct of the Company's business), and amortization of
goodwill and other capitalized assets resulting from the purchase of the
Sale Shares and (ii) no consolidated or consolidating entries relating to
any entity other than the subsidiaries of the Company at the end of such
measurement period shall be given effect.
"COMPANY REDEMPTION VALUE" shall equal 5.75 times COMPANY REDEMPTION EBIT,
minus the Debt of the Company.
1.7.3.4 Buyer's Determination of Payment. Buyer's determination of the
purchase price payable pursuant to this Subsection shall be determined based
on the audited financial statements of the Company and within 30 days
following the Company's auditor's completion of its audit of the Company's
financial statements for such fiscal year and not later than March 31 of the
following year.
1.7.3.5 Payment. The purchase price payable under Subsection 1.7.3.1 shall
be payable in cash within 10 days after final determination of the amount
payable and not later than May 31, 2006. The purchase price payable under
Subsection 1.7.3.2 shall be payable within 10 days after final determination
of the amount payable and not later than May 31, 2001. If such payment would
be prohibited under the Buyer's senior credit agreement or California law,
such payment shall be made as soon as practicable and shall bear interest
during the deferral at the rate of 8% per annum.
1.7.4 Purchase on a Sale. The closing of a sale (a "STOCK SALE") of greater
than 50% of the outstanding common equity interests in the Company or Buyer
(or any affiliate of Buyer which includes as part of its consolidated
operations the business of the Company (a "SALE AFFILIATE")) and the sale (an
"ASSET SALE") of all or substantially all of the assets of the Company, Buyer
or Sale Affiliate, are referred to herein together as a "SALE". If a Sale
occurs prior to Buyer's purchase of the Continuing Shares in accordance with
any of the other provisions herein, effective as of the closing date with
respect to such Sale, holders of the Continuing Shares shall participate
therein as set forth below.
1.7.4.1 Sale of the Company. If the Sale is with respect to the Company, the
holders of Continuing Shares shall be entitled to participate in the Sale
proceeds pari passu with other holders of equity interests in the Company, and
the Shareholders shall participate in such Sale pro rata with all holders of
Continuing Shares.
1.7.4.2 Sale of Buyer or Affiliate. If the Sale is with respect to Buyer or
any Selling Affiliate (either, as appropriate, a "SELLER"), the Continuing
Shares shall be purchased for a per share purchase price payable with respect
to the Continuing Shares outstanding on such date equal to the result of the
COMPANY SALE VALUE divided by the number of shares of Common Stock then
outstanding. Payment for the Continuing Shares shall be in cash at the closing
of the Sale. At Buyer's election, payment for the Continuing Shares may
instead be made at the closing of the Sale with a proportionate payment of the
NET SALE CONSIDERATION, pari passu with all other recipients of such Net Sale
Consideration.
1.7.4.3 Definitions. For purposes of this Subsection the following terms
shall have the meanings set forth below:
"COMPANY SALE VALUE" shall equal (a) COMPANY SALE EBIT times SALE MULTIPLE,
minus (b) Debt of the Company.
"COMPANY SALE EBIT" shall mean the Company's earnings before interest and
taxes for the four fiscal quarters preceding the closing date of the Sale
determined in accordance with GAAP applied in a manner consistent
throughout all periods and consistent between the Company and Seller.
Further, in calculating EBIT, (i) there shall be excluded all Buyer or
corporate income and expense items allocated, assigned or
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charged to the Company, including debt and related interest, overhead
(other than sales and marketing expenses and overhead directly related to
the conduct of the Company's business), and (ii) no consolidated or
consolidating entries relating to any entity other than the Company and
subsidiaries of the Company at the time of the Sale shall be given effect.
"NET SALE CONSIDERATION" shall mean the fair market value in cash of (a)
all consideration received in the Sale plus the value of all Debt of the
Seller assumed or taken subject to by the buyer plus the fair market value
of (i) all shares of the Seller not sold in a Stock Sale or (ii) all assets
of the Seller retained in any Asset Sale, minus (b) the reasonable costs
and expenses of consummating such Sale, without deduction for any fees or
expenses paid to any affiliate of Buyer.
"SALE MULTIPLE" shall equal the NET SALE CONSIDERATION divided by SELLER
EBIT.
"SELLER EBIT" shall equal Seller's earnings before interest and taxes for
the four fiscal quarters preceding the closing date of the Sale determined
in accordance with GAAP applied in a manner consistent throughout all
periods and consistent between the Company and Seller. Further, in
calculating EBIT, (i) there shall be excluded all Buyer or corporate income
and expense items allocated, assigned or charged to Seller, including debt
and related interest, overhead (other than sales and marketing expenses and
overhead directly related to the conduct of Seller's business), and (ii) no
consolidated or consolidating entries relating to any entity other than the
Company and subsidiaries of Seller at the time of the Sale shall be given
effect.
"SELLER VALUE" shall equal (a) SELLER EBIT times SALE MULTIPLE, minus (b)
the Debt and Preferred Stock of Seller or Selling Affiliate (as
appropriate).
1.7.4.4 Contingent Payment. If a Sale occurs prior to the end of the 30th
full calendar month following the Closing Date, the Shareholders shall be
entitled to an additional payment as set forth below (the "CONTINGENT SALE
PAYMENT"). If no Sale occurs within such period, no Contingent Sale Payment
shall become due under this Subsection. On the occurrence of a Sale within
such period, Buyer shall pay to the Shareholders a Contingent Sale Payment in
the per share amount equal to the result of (1) the lesser of (i) the amount
of ACQUISITION DEBT then outstanding and (a) $5,000,000, divided by (b) the
number of shares of Common Stock outstanding.
1.7.4.5 Buyer's Determination of Payment. Buyer's determination of the
purchase price payable pursuant to this Subsection shall be determined based
on the audited financial statements of the Company for the four fiscal
quarters immediately prior to the closing date of such sale and within 30 days
following the Company's auditor's completion of its review of the final
quarterly financial statements of the Company for such fiscal quarters.
1.7.5 Registered Public Offering. The closing of a registered initial public
offering of common equity of the Company or Buyer (or any affiliate of Buyer
which includes as part of its consolidated operations the business of the
Company (an "OFFERING AFFILIATE")) is referred to herein as an "IPO". If an
IPO occurs prior to Buyer's purchase of the Continuing Shares in accordance
with any of the foregoing, the Continuing Shares shall be eligible to
participate in such IPO as provided below.
1.7.5.1 IPO of the Company. If the IPO is with respect to common equity of
the Company, the Continuing Shares shall be registered as a part of the
offering pari passu with other holders of equity interests in the Company, and
the Selling Shareholders shall participate in such offering pro rata with all
holders of Common Stock. The Selling Shareholders shall also participate in
any secondary offering pari passu with all other holders of unregistered
Common Stock.
1.7.5.2 IPO by Buyer or Affiliate. As a condition to an IPO with respect to
the common equity of Buyer or any Offering Affiliate (either, as appropriate,
"OFFEROR"), the Continuing Shares shall be exchanged for common equity
("OFFEROR SHARES") of Offeror having the same rights, preferences and
privileges as the direct or indirect interests of the other common equity
owners of Buyer. The number of Offeror Shares for which the aggregate
Continuing Shares shall be exchanged shall be equal to the product of (a) (i)
the proportion of common equity of the Company represented by the Continuing
Shares times (ii) the result of Company IPO Value divided
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by Offeror IPO Value, multiplied by (b) the aggregate number of Offeror Shares
which are to be outstanding immediately prior to the IPO.
In an IPO of Offeror Shares, the Offeror Shares into which the Continuing
Shares are converted shall be registered as a part of the offering pari passu
with other holders of Offeror Shares, and the Shareholders shall participate
in such offering pro rata with all holders of Offeror Shares. The Selling
Shareholders shall also participate in any secondary offering pari passu with
all other holders of unregistered Offeror Shares.
1.7.5.3 Definitions. For purposes of this Subsection the following terms
shall have the meanings set forth below:
"COMPANY IPO EBIT" shall mean the Company's earnings before interest and
taxes for the four fiscal quarters and consistent between the Company and
Seller preceding the closing date of the IPO determined in accordance with
GAAP applied in a manner consistent throughout all periods and consistent
between the Company and Seller. Further, in calculating EBIT, (i) there
shall be excluded all Buyer or corporate income and expense items
allocated, assigned or charged to the Company, including debt and related
interest, overhead (other than sales and marketing expenses and overhead
directly related to the conduct of the Company's business), and (ii) no
consolidated or consolidating entries relating to any entity other than the
Company or subsidiaries of the Company at the time of the IPO shall be
given effect.
"COMPANY IPO VALUE" shall equal (a) COMPANY IPO EBIT times IPO MULTIPLE
minus (b) the Debt of the Company; provided however that during the period
continuing until the last day of the 30th full calendar month following the
Closing Date, the Debt of the Company as used in the foregoing calculation
shall not include the Acquisition Debt.
"IPO MULTIPLE" shall equal the result of multiplying (a) the number of
shares of Offeror common stock to be outstanding immediately prior to the
IPO times (b) the per share offering price as determined by the lead
underwriter for the IPO at the final pricing meeting prior to closing the
IPO, and adding to the product (c) the Debt and Preferred Stock of Offeror,
and subtracting from the product (d) the estimated transaction fees to be
incurred in connection with the IPO, and dividing the amount thus
determined by (e) Offeror IPO EBIT.
"OFFEROR IPO EBIT" shall equal Offeror's earnings before interest and taxes
for the four fiscal quarters preceding the closing date of the IPO
determined in accordance with GAAP applied in a manner consistent
throughout all periods and consistent between the Company and Seller.
Further, in calculating EBIT, (i) there shall be excluded all Buyer or
corporate income and expense items allocated, assigned or charged to
Offeror, including debt and related interest, overhead (other than sales
and marketing expenses and overhead directly related to the conduct of
Offeror's business), and (ii) no consolidated or consolidating entries
relating to any entity other than Offeror or subsidiaries of Offeror at the
time of the IPO shall be given effect.
"OFFEROR IPO VALUE" shall equal (a) Offeror IPO EBIT times IPO Multiple,
minus (b) the Debt and Preferred Stock of Offeror.
1.7.5.4 Manner of Exchange. If there is an exchange of Continuing Shares for
Offeror Shares, such exchange shall be completed in compliance with federal
and state securities laws and Buyer shall use its best efforts to cause such
exchange to be completed in a manner that is tax free to the Shareholders and
Buyer. Further, following such exchange Buyer shall use its best efforts to
cause the Shareholders to be entitled to tack their holding period for the
Continuing Shares to their holding period for the Offeror Shares for purposes
of Rule 144 promulgated under the Securities Act of 1933 (the "33 Act") or
shall be entitled to sell such shares under the provisions of Rule 144 or Rule
145 without regard to holding period. Such efforts may include holding a
fairness hearing under Section 3(a)(10) of the 33 Act and seeking a "no-
action" letter in connection therewith.
1.7.5.5 Termination of Purchase Obligations. Upon an IPO in which the
Continuing Shares or Offeror Shares received in exchange therefor are
registered and participate, all obligations of Buyer to purchase the
Continuing Shares shall terminate and be of no further force or effect.
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1.7.6 Right of Review. Cumulative 1997 EBITDA, together with all the other
defined terms in this Section 1.7 involving calculation or determination by
Buyer are referred to herein as the "Determination Numbers". With respect to
the Determination Numbers, Buyer shall, promptly upon computation, provide to
Shareholder Representative the amount determined by Buyer for such
Determination Number and a complete and accurate description of the
calculations and determinations made in connection therewith, including the
amount and manner of calculation of any numbers used in computing the
Determination Numbers. In addition, Buyer shall provide Shareholder
Representative complete and accurate copies of the Company's, and, where
appropriate, Buyer's and any affiliate's financial statements relevant in
reviewing such calculations and determinations. Examples of such calculations
are appended to this Agreement as Schedule 2. Shareholder Representative shall
also have the right, in person or by its agent, to audit the relevant books
and records of the Company, and where appropriate, Buyer and its affiliates,
with regard to such calculations and determinations. Such right may be
exercised by written request made within 60 days following Shareholder
Representative's receipt of Buyer's report of such Determination Number and
the foregoing description and financial statements.
1.7.6.1 Disputes. If Shareholder Representative disputes any Determination
Number, and Shareholder Representative and Buyer are unable to resolve their
differences within 30 days following receipt by Buyer of a statement from
Shareholder Representative setting forth complete and accurate descriptions of
its differences with the calculations and determinations used in computing a
Determination Number, the amount of such Determination Number shall be
submitted to the Company's independent public accountants who shall confer
with Buyer and Shareholder Representative regarding all calculations and
determinations, and who shall thereafter render its determination made in
accordance with the provisions of this Section 1.7. Such determination shall
be final and binding on the parties, absent manifest error. Any claim of
manifest error shall be determined by arbitration in accordance with this
Agreement.
1.7.6.2 No Separate Shareholder Right. No person entitled to payments in
accordance with this Section 1.7 shall have any right to dispute the Company's
calculations or determinations, or review the Company's books and records.
Shareholder Representative is the sole representative of all such persons in
reviewing, challenging or confirming such determinations. Any agreement of
Shareholder Representative with Buyer resolving any Determination Number or
the amounts payable hereunder, and any determination of the Shareholder
Representative to acquiesce in, and any failure to appeal, any determination
by the Company, its independent public accountants or any arbitrator, shall be
final and binding on all persons entitled to receive payments hereunder. The
foregoing is a material and substantial consideration to Buyer in entering
into this agreement and providing for the purchase of the Sale Shares and the
Continuing Shares in accordance herewith. The separate review of the matters
subject hereof by the several Shareholders could result in different
Shareholders receiving different amounts and would result in a substantial
burden and inconvenience to Buyer and the Company in complying with multiple
review requests.
1.7.7 Anti-dilution. If there is any share dividend or stock split, or any
exchange or recapitalization or other occurrence affecting the Company's
Common Stock, the figures used in the calculations herein shall be adjusted to
eliminate the effect of such occurrence. The Company shall not issue any
equity interests so long as Buyer's obligations under this Section 1.7 are not
satisfied, unless such issuance enhances or does not dilute the value of the
Continuing Shares and Shareholder Representative approves such issuance in
writing prior to the effectiveness thereof.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties by Buyer. Buyer represents and warrants
to, and agrees with, the Selling Shareholders as follows:
a. Organization, etc. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, with full corporate power and authority to own all of
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its property and assets and to carry on its business as it is now being
conducted. Buyer is duly qualified or licensed to do business and is in
good standing in each jurisdiction in which the nature of its business or
the character of its property makes such qualification necessary. The
copies of the Certificate of Incorporation and By-laws of Buyer, which have
been delivered to the Company are complete and correct, and such
instruments, as so amended, are in full force and effect.
b. Authority Relative To Agreement. Buyer has the corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery by Buyer of
this Agreement and the consummation by Buyer of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action or proceedings. This Agreement has been duly executed and delivered
by Buyer and is a valid and binding agreement of Buyer, enforceable in
accordance with its terms.
c. Non-Contravention. The execution and delivery of this Agreement by
Buyer does not, and the consummation by Buyer of the transactions
contemplated hereby will not, (i) violate any provision of its Certificate
of Incorporation or By-Laws, or (ii) violate, or result with the giving of
notice or the lapse of time or both in a violation of, any provision of any
mortgage, lien, lease, agreement, license, instrument, law, ordinance,
regulation, order, arbitration award, judgment or decree to which Buyer or
any of its properties or assets (real, personal or mixed, tangible or
intangible) are bound, which, in the case of clause (ii) above, would have
a material adverse effect on the ability of Buyer to consummate the
transactions contemplated herein.
d. Consents, etc. As of the Closing Date, Buyer shall have obtained all
licenses, permits, consents, authorizations, orders or approvals of any
governmental commission, board or regulatory body necessary for its
execution and delivery of this Agreement and its consummation of the
transactions contemplated hereby.
2.2 Representations and Warranties by the Company. Except as set forth in
the Disclosure Schedule dated as of the date hereof prepared by the Company
and made a part of this Agreement (the "Disclosure Schedule"), the Paying
Agent on behalf of the Selling Shareholders represents and warrants to, and
agrees with, Buyer as follows:
a. Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of California,
with full corporate power and authority to own all of its properties and
assets and to carry on its business as it is now being conducted. The
Company is duly qualified or licensed to do business and is in good
standing in the states in which it has facilities and each other
jurisdiction in which the nature of its business or the character of its
properties requires such qualification. The copies of the Certificate of
Incorporation and By-laws, as amended, of the Company, which have been
delivered to Buyer, are complete and correct, and such instruments are in
full force and effect.
b. Capital Stock and Securities. The authorized capital stock of the
Company consists of 400,000 shares, consisting of (i) 200,000 shares of
Common Stock and (ii) 200,000 Series B Common Shares, no par value. As of
the Closing (after giving effect to the exercise of the Stock Options),
124,785 shares of the Common Stock will be issued and outstanding, all of
which will be owned, beneficially and of record, by the Selling
Shareholders in the amounts set forth on Schedule 1 attached hereto. Each
share of capital stock of the Company is owned by the Selling Shareholders
free and clear of any and all liens, charges, pledges, security interests
or other encumbrances of any kind. Each outstanding share of capital stock
of the Company is and shall be duly authorized, validly issued, fully paid
and nonassessable. Upon the consummation of the purchase of the Sale Shares
as contemplated by Sections 1.1 and 1.3, the Company will acquire from the
Selling Shareholders good and valid title to the Sale Shares free and clear
of any liens, claims, charges, pledges, options, contractual restrictions
of any kind or other legal or equitable encumbrances. Except for Stock
Options exercisable into 72,490 shares of Common Stock which are held by
the Selling Shareholders in the amounts set forth on Schedule 1 and which
will be exercised pursuant to
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Article I, the Company does not have any outstanding commitments to issue
or sell any shares of its capital stock, or any securities or obligations
convertible into or exchangeable for, or giving any person any right to
subscribe for or acquire from the Company any shares of its capital stock,
and no securities or obligations evidencing any such right are outstanding.
The Company does not have outstanding any other debt or equity securities
other than its Common Stock and existing indebtedness, which, including the
terms thereof, are fully described in the Disclosure Schedule.
c. Subsidiaries. The Company does not have any Subsidiaries other than
Kilovac Development and Kilovac International, Inc., a California
corporation. Set forth on the Disclosure Schedule is a correct and complete
list of the Subsidiaries, showing as to each, its name, its corporate,
partnership or joint venture form, the jurisdiction of its incorporation or
formation, the number of shares of stock of each class of each Subsidiary
which is outstanding and the number of such outstanding shares owned by
each of the Company and its Subsidiaries. Each Subsidiary is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation. Each Subsidiary has the corporate or other
power and authority to carry on its business as now being conducted and to
own and lease its properties and is duly qualified to do business as a
foreign corporation in each jurisdiction in which the nature of its
business or properties makes such qualification necessary. All of the
outstanding shares of capital stock of each Subsidiary have been validly
issued, are fully paid and non-assessable with no personal liability
attaching to the ownership thereof and are free and clear of all liens. The
Company is the sole beneficial owner of all the outstanding shares of each
Subsidiary which is a corporation and there are no other securities of any
Subsidiary which is a corporation other than such outstanding shares. There
are no outstanding rights, warrants, options or agreements with respect to
any such outstanding shares of Subsidiaries including, without limitation,
agreements granting to any person rights to acquire any capital stock or
agreements with respect to the voting thereof. Neither the Company nor any
of its Subsidiaries has any investment (whether equity, debt or other) in
any other person. The copies of the Certificate of Incorporation and By-
laws, as amended, of each Subsidiary, which have been delivered to Buyer,
are complete and correct, and such instruments are in full force and
effect.
d. Authority Relative to Agreement. The Company and each Selling
Shareholder has the power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The
execution and delivery by the Company and each Selling Shareholder of this
Agreement and the consummation by such parties of the transactions
contemplated hereby have been duly authorized by each such party. No other
proceedings on the part of the Company or any Selling Shareholder are
necessary, and no vote or consent by the shareholders of the Company is
necessary, to authorize the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby. This Agreement
has been duly executed and delivered by the Company and each Selling
Shareholder and is a valid and binding agreement of each such party,
enforceable in accordance with its terms.
e. Non-Contravention. The consummation of the transactions contemplated
hereby will not violate any provision of the Certificate of Incorporation
or By-Laws of the Company or any of its Subsidiaries, or violate, or result
with the giving of notice or the lapse of time or both in a violation of,
any provision of any mortgage, lien, lease, agreement, license, instrument,
law, ordinance, regulation, order, arbitration award, judgment or decree to
which the Company, any of its Subsidiaries or any of their properties or
assets (real, personal or mixed, tangible or intangible) are bound.
f. Consents, etc. As of the Closing Date, the Company and the Selling
Shareholders shall have obtained all licenses, permits, consents,
authorizations, orders or approvals of any governmental commission, board
or regulatory body, if any, necessary for the execution and delivery of
this Agreement and the consummation of the transactions contemplated
hereby.
g. Financial Statements. The Company and the Selling Shareholders have
heretofore delivered to Buyer the audited consolidated financial statements
of the Company and its subsidiaries for the fiscal years
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ended December 31, 1990, 1991, 1992, 1993 and 1994 and the unaudited
unconsolidated financial statements of the Company and its subsidiaries for
the 6 periods ended June 16, 1995 including their balance sheets as of each
such date and the related statements of income, cash flow, and
shareholders' equity for each of the respective periods then ended (the
"Financial Statements"). Except as noted therein, such Financial Statements
have been prepared from the books and records of the Company and its
subsidiaries, and are in accordance with generally accepted accounting
principles consistently applied throughout the periods covered thereby, and
fairly present the financial condition, results of operations, and cash
flows of the Company and its subsidiaries as of the respective dates and
for the respective periods thereof except in the case of the June 16, 1995
Financial Statements footnotes have been omitted and it is subject to
normal year-end adjustments (which adjustments, individually or in the
aggregate, will not be material).
The December 31, 1994 balance sheet delivered as part of the Financial
Statements is referred to as the "Balance Sheet" and the June 16, 1995
balance sheet delivered as part of the Financial Statements is referred to
as the "Interim Balance Sheet".
h. Government Authorizations and Compliance with Laws. The business of
the Company and its Subsidiaries has been operated in material compliance
with all laws, ordinances, regulations and orders, of all governmental
entities, domestic or foreign. The Company and its Subsidiaries have all
material permits, certificates, licenses, approvals and other
authorizations required in connection with the operation of their business.
No notice has been received by the Company or any of its Subsidiaries and,
to the Company's knowledge after due inquiry, no investigation or review is
pending or threatened by any governmental entity with respect to (i) any
alleged violation by the Company or any of its Subsidiaries of any law,
ordinance, regulation, order, policy or guideline of any governmental
entity, or (ii) any alleged failure to have all permits, certificates,
licenses, approvals and other authorizations required in connection with
the operation of the business of the Company and its Subsidiaries. As used
in this Agreement, "Company's knowledge after due inquiry" shall mean the
knowledge of Douglas Campbell, Rick Danchuk, Pat McPherson, Robert Helman
and Dan McAllister, after inquiry by them of the Company's officer level
employees having responsibility for matters in the subject area of the
statement made and review of the Company's records with respect to such
subject matter.
i. Tax Matters. All federal, state, local and foreign tax returns and tax
reports required to be filed by or with respect to the Company or its
Subsidiaries have been duly filed. All taxes (including interest, penalties
and related costs) with respect to the Company and its Subsidiaries for all
taxable periods ending on or prior to the Closing Date have been paid,
except (a) to the extent of reserves for taxes (other than deferred taxes)
reflected on the Interim Balance Sheet less payments of such taxes on or
prior to the Closing Date and (b) for such taxes (other than deferred
taxes) properly accruable by the Company and its Subsidiaries for the
period beginning immediately following the date of the Interim Balance
Sheet and ending on the Closing Date but only to the extent that such taxes
arise in the ordinary course of the operations of the Company and its
Subsidiaries occurring during such period (and not taxes arising from other
transactions or events, including, without limitation, any taxes on income
resulting from transactions contemplated by this Agreement and any taxes
relating to prior periods); provided, however, that the reserve set forth
in clause (a) above and the accrual for taxes set forth in clause (b) above
shall be reduced for the tax effect of any deductions relating to the
exercise or cancellation of the Stock Options. No issues have been raised,
either orally or in writing, (and are currently pending) by any foreign,
federal, state or local taxing authority in connection with any of the
returns or reports referred to in this Section 2.2(i). No waivers of
statutes of limitations as to any tax matters are currently in effect with
respect to the Company or its Subsidiaries.
All tax returns filed by the Company and its Subsidiaries were true and
correct in all material respects as of the date on which they were filed.
Complete copies of all federal, state and local income tax returns for the
Company and its Subsidiaries that have been filed with respect to taxable
periods for which the statute of limitations period has not run have been
delivered to Buyer. The Company has provided to Buyer
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all revenue agent's reports and other written assertions by governmental
authorities of deficiencies or other liabilities for taxes of the Company
and its Subsidiaries with respect to past periods for which the statute of
limitations period has not run. All amounts required to be collected or
withheld by the Company and its Subsidiaries with respect to taxes have
been duly collected or withheld and any such amounts that are required to
be remitted to any taxing authority have been duly remitted.
No extension of time within which to file any tax return that related to
the Company and its Subsidiaries has been requested, which return has not
since been filed. There are no tax rulings, requests for rulings, or
closing agreements to which the Company or its Subsidiaries is a party or
is subject which could affect the liability for taxes for any period after
the Closing Date. All federal income tax returns of the Company and its
Subsidiaries with respect to taxable periods through the year ended
December 31, 1991, have been examined and closed or are returns with
respect to which the applicable statute of limitations period has expired
without extension or waiver. No power of attorney has been granted by the
Company or its Subsidiaries with respect to any matter relating to taxes of
the Company and its Subsidiaries which is currently in force.
The Company and its Subsidiaries have not filed a consent under Section
341(f) of the Code or any comparable provision of state revenue statutes.
The Company and its Subsidiaries have made all payments of estimated taxes
required to be made under Section 6655 of the Code and any comparable
provisions of state, local or foreign law. Any adjustment of taxes of the
Company and its Subsidiaries made by the Internal Revenue Service in any
examination which is required to be reported to the appropriate state,
local or foreign taxing authorities has been reported, and any additional
taxes due with respect thereto have been paid.
The Company and its Subsidiaries have not agreed or are not required to
include in income any adjustment pursuant to Section 481(a) of the Code (or
similar provisions of other law or regulations) by reason of a change in
accounting method. No excess loss accounts exist with respect to the
Company or any Subsidiary. There is no deferred gain or loss arising from
deferred intercompany transactions between the Company and its
Subsidiaries. The Company or its Subsidiaries are not a party to any
agreement that would result by its terms in the payment of a non-deductible
"excess parachute payment" within the meaning of Section 280G of the Code.
The amount of deferred tax assets reflected on the Balance Sheet and the
Interim Balance Sheet are determined in accordance with GAAP, subject to
year end adjustments.
For the purpose of this Agreement, any federal, state, local or foreign
income, sales, use, transfer, payroll, unemployment, Social Security,
personal property, occupancy or other tax, levy, impost, fee, imposition,
assessment or similar charge, together with any related addition to tax,
interest or penalty thereon, is referred to as a "tax."
j. Title to Properties; Absence of Liens and Encumbrances, etc. The
Company and its Subsidiaries have good and marketable title to all of the
properties and other assets (real, personal and mixed, tangible and
intangible) reflected in the Balance Sheet or acquired after the date
thereof (except for properties and assets sold or otherwise disposed of
since December 31, 1994 in the ordinary and usual course of business and
the real property located at 410 Palm Avenue (the "Palm Avenue Property")),
free and clear of any and all liens, charges, pledges, mortgages, security
interests or other encumbrances of any kind ("Liens"). Except for those
properties or assets acquired since December 31, 1994, all properties and
assets (real, personal and mixed, tangible and intangible) used in the
business of the Company and its Subsidiaries are reflected in the Balance
Sheet in the manner and to the extent required by generally accepted
accounting principles.
k. Material Agreements. The Disclosure Schedule lists every material
agreement to which the Company or any of its Subsidiaries is a party or by
which it or any of their properties or assets (real, personal or mixed,
tangible or intangible) is bound which is to be performed in whole or in
part after the Closing Date. Solely for the purpose of this Section 2.2(k),
the term "material agreement" shall mean any
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single agreement or lease, including agreements with respect to notes
receivable, pursuant to which any party thereto is obligated after the date
hereof to make payments aggregating more than $100,000. There is no
default, nor will any default occur hereafter, as a result of the
consummation of the transactions contemplated hereby or otherwise, in any
obligation to be performed by any party to any material agreement to which
the Company or any of its Subsidiaries is a party or by which it or any of
its properties or assets (real, personal or mixed, tangible or intangible)
is bound. Each agreement listed in the Disclosure Schedule is valid and
binding in accordance with its terms. Other than this Agreement, there are
no agreements or options to sell or lease any of the properties or assets
(real, personal or mixed, tangible or intangible) of the Company or any of
its Subsidiaries except in the ordinary and usual course of its business.
The Company has delivered to Buyer true and complete copies of all
agreements listed in the Disclosure Schedule, including supporting
documentation.
l. Litigation. (i) There is no claim, action, suit or proceeding pending
or, to the Company's knowledge after due inquiry, threatened against the
Company, any of its Subsidiaries or any of their properties or assets
(real, personal or mixed, tangible or intangible) or which seeks to
prohibit, restrict or delay consummation of the transactions contemplated
by this Agreement or any of the conditions to consummation of the
transactions contemplated by this Agreement, nor is there any judgement,
decree, injunction, ruling, award or order of any court, governmental
department, commission, agency or instrumentality or arbitrator outstanding
or, to the Company's knowledge after due inquiry, threatened against the
Company, any of its Subsidiaries or any of their properties or assets
(real, personal or mixed, tangible or intangible); and (ii) neither the
Company, any of its Subsidiaries nor any of their officers or, to the
Company's knowledge, employees is currently charged with, or to the
Company's knowledge is currently under investigation with respect to, any
violation of any provision of any federal, state, foreign or other
applicable law or administrative regulation in respect of the business of
the Company and its Subsidiaries.
m. Employee Benefit Plans. The Disclosure Schedule contains a complete
list of "Plans" consisting of each:
(1) "employee welfare benefit plan", as defined in Section 3(1) of
the Employee Retirement Income Security Act of 1974 ("ERISA"), to which
the Company or any of its Subsidiaries contributes or is required to
contribute, including each multi-employer welfare plan ("Welfare
Plan"), and sets forth the amount of any liability of the Company or
its Subsidiaries for payments more than thirty days past due with
respect to each Welfare Plan as of the Closing Date;
(2) "multi-employer pension plan," as defined in Section 3(37) of
ERISA, to which the Company (or any entity which is a member of a
"controlled group of corporations" with or is under "common control"
with the Company as defined in Section 414(b) or (c) of the Internal
Revenue Code of 1986 as amended ("Code") ("Common Control Entity")) has
contributed or been obligated to contribute at any time after September
25, 1980 ("Multi-employer Plan").
(3) "employee pension benefit plan," as defined in Section 3(2) of
ERISA, (other than a Multi-employer Plan) to which the Company or any
Common Control Equity contributes or is required to contribute
("Pension Plan"); and
(4) deferred compensation plan, bonus plan, stock option plan,
employee stock purchase plan and any other employee benefit plan,
agreement, arrangement or commitment, other than normal payroll
practices and policies concerning holidays, vacations and salary
continuation during short absences for illness or other reasons,
maintained by the Company or its Subsidiaries.
n. Pension Plans. The funding method used in connection with each Pension
Plan which is subject to the minimum funding requirements of ERISA is
acceptable and the actuarial assumptions used in connection with funding
each such plan, in the aggregate, are reasonable. The assets of each
Pension Plan are sufficient to discharge all liabilities under such plan,
on an ongoing basis and on a termination basis, and there is no
"accumulated funding deficiency," as defined in Section 302(a)(2) of ERISA,
with respect
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to any plan year of any such plan. Neither the Company nor any Common
Control Entity has any liability for unpaid contributions with respect to
any Pension Plan.
(1) Each Pension Plan and each related trust agreement, annuity
contract or other funding instrument is qualified and tax-exempt under
the provisions of Code Sections 401(a) (or 403(a) as appropriate) and
501(a).
(2) Each Pension Plan and each related trust agreement, annuity
contract or other funding instrument complies currently, and has
complied at all times in the past, both as to form and in operation,
with the provisions of applicable Federal law, including the Code and
ERISA.
(3) The Company have paid all premiums (and interest charges and
penalties for late payment, if applicable) due the Pension Benefit
Guaranty Corporation ("PBGC") with respect to each Pension Plan for
each plan year thereof for which such premiums are required. There has
been no "reportable event" (as defined in Section 4043(b) of ERISA and
the PBGC regulations under such Section) with respect to any Pension
Plan. No liability to the PBGC has been incurred by the Company or any
Common Control Entity on account of the termination of any Pension
Plan. No filing has been made by the Company or any Common Control
Entity with PBGC, and no proceeding has been commenced by the PBGC, to
terminate any Pension Plan. Neither the Company nor any Common Control
Entity has, at any time, (a) ceased operations at a facility so as to
become subject to the provisions of Section 4062(e) of ERISA, (b)
withdrawn as a substantial employer so as to become subject to the
provisions of Section 4063 of ERISA, or (c) ceased making contributions
on or before the Closing Date to any Pension Plan subject to Section
4064(a) of ERISA to which the Company or any Common Control Entity made
contributions during the five years prior to the Closing Date.
o. Multi-employer Plans. Neither the Company nor any Common Control
Entity has, at any time, withdrawn from a Multi-employer Plan in a
"complete withdrawal" or a "partial withdrawal" as defined in ERISA
Sections 4203 and 4205, respectively.
p. Prohibited Transactions. Neither the Company, any of its Subsidiaries
nor, to the Company's knowledge after due inquiry, any plan fiduciary of
any Welfare Plan or Pension Plan has engaged in any transaction in
violation of Section 406(a) or (b) of ERISA or any "prohibited
transaction," as defined in Section 4975(c)(1) of the Code, for which no
exemption exists under Section 4975(c)(2) or 4975(d) of the Code.
q. Copies of Relevant Plan Documents. True and complete copies of each of
the following documents have been delivered by the Company to Buyer: (i)
each Welfare Plan and each Pension Plan, related trust agreements, annuity
contracts or other funding instruments, (ii) each plan, agreement,
arrangement and commitment referred to in Sections 2.2(m) and (n), and
complete descriptions of any such plan which is not in writing, (iii) the
most recent determination letter issued by the Internal Revenue Service
with respect to each Pension Plan, (iv) Annual Reports on Form 5500 Series
required to be filed with any governmental agency for each Welfare Plan and
each Pension Plan for the two most recent plan years and (v) all actuarial
reports prepared for the last three years for each Pension Plan.
r. Validity and Enforceability of Plans. Each Welfare Plan, Pension Plan,
related trust agreement, annuity contract or other funding instrument and
each plan, agreement, arrangement and commitment referred to in Sections
2.2(m) and (n) is legally valid and binding and in full force and effect.
s. Payments to Retirees. Neither the Company, any of its Subsidiaries nor
any Welfare Plan has any obligation to make any payment to or with respect
to any former or current employee of the Company pursuant to any retiree
medical benefit or other Welfare Plan.
t. Litigation Under Plans. Neither the Company, any of Subsidiaries nor
any Plan is a party to any litigation relating to, or seeking benefits
under, any Plan.
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u. Employment Agreements. Neither the Company nor any of its Subsidiaries
is a party to any employment, severance or similar agreements.
v. Change in Control Provisions. Neither the Company nor any of its
Subsidiaries is a party to any agreement which contains any provision
pursuant to which the Company or any of its Subsidiaries will be obligated
to make any payment as a result of the transactions contemplated hereby.
w. Labor Matters. There are no controversies pending between the Company
and its Subsidiaries and any of their employees or officers. Neither the
Company nor any of its Subsidiaries is subject to any collective agreements
and, to the Company's knowledge after due inquiry, there is no current
prospect for any union election.
x. Employees. The Disclosure Schedule contains a true and complete list
of all the employees of the Company and its Subsidiaries, their ages, pay
levels and length of service.
y. Absence of Certain Changes or Events. Since December 31, 1994 there
has not been (i) any change, or any development involving a prospective
change, which, individually or in the aggregate, has had or could have a
material adverse effect ("Material Adverse Effect") on the financial
condition, business, operations, or prospects of the Company and its
Subsidiaries taken as a whole; (ii) any damage, destruction or other loss
with respect to property owned by the Company or any of its Subsidiaries,
whether or not covered by insurance, or any strike, work stoppage or
slowdown or other labor trouble involving the Company or any of its
Subsidiaries; (iii) any direct or indirect redemption, purchase or other
acquisition by the Company or any of its Subsidiaries of any shares of the
capital stock of the Company or any of its Subsidiaries; (iv) any
declaration, setting aside or payment of any dividend or distribution
(whether in cash, capital stock or property); or (v) the entry by the
Company or any of its Subsidiaries into any commitment or transaction which
is not in the ordinary course of business.
z. Absence of Undisclosed Liabilities and Agreements. Except as
specifically provided for in the Balance Sheet, the Company and its
Subsidiaries (i) did not have, as of December 31, 1994, any material debts,
liabilities or obligations, whether accrued, absolute, contingent or
otherwise and whether due or to become due (including, without limitation,
any liabilities resulting from the failure to comply with any law
applicable to the Company, any of its Subsidiaries or to the conduct of
their business) (ii) have not incurred, since December 31, 1994, any such
debts, liabilities or obligations other than in the ordinary and usual
course of their business, (iii) are not a party to any material agreement
which contains unusual or burdensome terms and conditions, or (iv) except
in connection with the transactions contemplated in this Agreement, has
not, since December 31, 1994, conducted their business otherwise than in
the ordinary and usual course.
aa. Insurance. The Company and its Subsidiaries have insurance policies
in full force and effect which provide for coverages which are normal in
both amount and scope for the business conducted by the Company and its
Subsidiaries. The current insurance coverage of the Company and its
Subsidiaries is as described in the Disclosure Schedule.
ab. Payments. The Company and its Subsidiaries have not, directly or
indirectly, paid or delivered any fees, commissions or other sums of money
or items of property however characterized to any finders, agents,
customers, government officials or other parties, in the United States or
in any other country, which in any manner are related to the business or
operations of the Company and its Subsidiaries, and which have been illegal
under any federal, state or local laws of the United States or any other
country or territory having jurisdiction over the Company or any of its
Subsidiaries. The Company and its Subsidiaries have not participated,
directly or indirectly, in any boycotts or similar practices.
ac. Renegotiation. The Company and its Subsidiaries are not subject to
renegotiation, redetermination or excess profit recovery with respect to
any fiscal year by reason of U.S. Government contracts performed by them.
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ad. Inventories. All inventories carried by the Company and its
Subsidiaries as of June 16, 1995 and reflected on the Interim Balance
Sheet, are valued at the lower of cost or market on a first-in-first-out
basis consistent with generally accepted accounting principles. For this
purpose, the lower of cost or market shall be determined on an item by item
rather than an aggregate basis. Except to the extent of inventory reserves
reflected in the Interim Balance Sheet, the items included in said
inventories are normal items of inventory carried by the Company and its
Subsidiaries, and are current, suitable and merchantable for the filling of
orders in the normal course of business, and are not obsolete, damaged,
defective or slow moving.
ae. Products Liability. There are no facts or the occurrence of any event
known or which reasonably should be known to the Company or the Selling
Shareholders forming the basis for any claim against the Company or any of
its Subsidiaries for products liability, whether in tort or strict
liability or on account of any express or implied warranty.
af. Notes and Accounts Receivable and Liabilities. Each of the material
liabilities of the Company and its Subsidiaries as of December 31, 1994 and
June 16, 1995 is reflected or reserved for on the Balance Sheet and the
Interim Balance Sheet, respectively, and the amounts so reflected or
reserved are true and correct according to GAAP. Notes and accounts
receivable will be fully collectible, except to the extent of reserves for
doubtful accounts reflected in the Interim Balance Sheet.
ag. Proprietary Rights. The proprietary rights listed in the Disclosure
Schedule are all those used in the business of the Company and its
Subsidiaries. To the knowledge of the Company after due inquiry, the
Company's and its Subsidiaries' use of such Proprietary Rights is not
infringing upon or otherwise violating the rights of any third party in or
to such proprietary rights, and no proceedings have been instituted against
or notices received by the Company or any of its Subsidiaries that are
presently outstanding alleging that the Company's or any Subsidiary's use
of such Proprietary Rights infringes upon or otherwise violates any rights
of a third party in or to such Proprietary Rights.
ah. Books of Account. The books of account of the Company and its
Subsidiaries have and will adequately reflect all of their respective items
of income and expense and all of their assets, liabilities and accruals, in
accordance with generally accepted accounting principles.
ai. Purchase Commitments and Outstanding Bids. As of the date of this
Agreement and as of the Closing Date, there are no claims against the
Company or any of its Subsidiaries to return in excess of an aggregate of
$50,000 by reason of alleged over-shipments, defective merchandise or
otherwise, or of merchandise in the hands of customers under an
understanding that such merchandise would be returnable. No outstanding
purchase or outstanding lease commitment of the Company or any of its
Subsidiaries presently is in excess of the normal, ordinary and usual
requirements of its business or contains terms and conditions more onerous
than those usual and customary in the business of the Company and its
Subsidiaries.
aj. Customers and Suppliers. The Disclosure Schedule contains a complete
and accurate list of (i) the 10 largest customers of the Company and its
Subsidiaries in terms of revenues during the Company's last fiscal year,
showing the approximate total sales to each such customer during such
fiscal year; (ii) the 10 largest suppliers of the Company and its
Subsidiaries in terms of purchases during the Company's last fiscal year,
showing the approximate total purchases from each such supplier during such
fiscal year. Since December 31, 1994, to the Company's knowledge after due
inquiry, there has been no adverse change in the business relationship of
the Company and its Subsidiaries with any customer or supplier named in the
Disclosure Schedule.
ak. Permits. The Disclosure Schedule contains a complete and accurate
list of all permits held by the Company or any of its Subsidiaries or for
which the Company or any Subsidiary has applied, which are the only
material permits necessary for or used by the Company and its Subsidiaries
to carry on their business as presently conducted.
al. Environmental Matters. (1) The Company and each of its
Subsidiaries is in compliance in all material respects with all
applicable Environmental Laws, and for the past five years has been in
such compliance; and the Company and each Selling Shareholder have no
reason to believe that
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circumstances exist which could prevent or interfere with continued
compliance in all material respects by the Company and each of its
Subsidiaries with all applicable Environmental Laws after the Closing
Date.
(2) The Company and its Subsidiaries hold all material Environmental
Permits necessary to conduct their operations as they are currently
conducted; the Disclosure Schedule includes a true and complete list of
all such Environmental Permits and their expiration dates, and the
Company and the Selling Shareholders have no reason to believe that
such permits (A) will not be renewed, or (B) will be renewed under
terms that could reasonably be expected to have an adverse effect on
the Company and its Subsidiaries.
(3) There are no Materials of Environmental Concern present at, and
no Materials of Environmental Concern are or have been in any way
released or threatened to be released from, any Kilovac Property,
former Kilovac Property, or as a result of present or former operations
of the Company or any of its Subsidiaries or any predecessor entity
(including without limitation the disposal of Materials of
Environmental Concern at any location other than a Kilovac Property or
former Kilovac Property), that could reasonably be expected to be in
material violation of or otherwise to give rise to material liability
of the Company or any of its Subsidiaries under any Environmental Law.
(4) No reports of any kind have been made to or required by any
Governmental Authority pursuant to any Environmental Law concerning
spills or any other releases of any kind at, or in any way from, any
Kilovac Property, former Kilovac Property, or as a result of present or
former operations of the Company or any of its Subsidiaries or any
predecessor entity, for which spills, releases, or reports thereof the
Company or any of its Subsidiaries may be liable under any
Environmental Law; true and complete copies of all written reports
concerning such spills and other releases have been provided or made
available to Buyer.
(5) None of the following are or have been on, under, in or at any
Kilovac Property, or to the Company's knowledge after due inquiry, any
former Kilovac Property: (A) underground or aboveground storage tanks
containing Materials of Environmental Concern; (B) polychlorinated
biphenyls; (C) asbestos or asbestos-containing materials; (D) septic
tanks, septic fields, dry-wells, or similar structures; (E) lagoons or
impoundments; or other bodies of water to which Materials of
Environmental Concern may have been discharged; (F) landfills or
dumping areas; or similar locations where Materials of Environmental
Concern may have been placed.
(6) Neither the Company nor any of its Subsidiaries has received any
Environmental Claim, and to Company's knowledge after due inquiry, no
Environmental Claim has been threatened against the Company or any of
its Subsidiaries by any person.
(7) Neither the Company nor any of its Subsidiaries has entered into,
agreed to, nor is the Company or any of its Subsidiaries otherwise
subject to any judgment, decree, order or similar requirement under any
Environmental Law, nor to the Company's knowledge after due inquiry is
any such judgment, decree, order or requirement being negotiated that
may obligate or affect the Company or any of its Subsidiaries.
(8) Neither the Company nor any of its Subsidiaries has assumed or
retained, contractually or by operation of law, any liabilities or
obligations of other persons, contingent or otherwise, in connection
with any Environmental Law.
(9) There are no past or present actions, activities, events,
conditions or circumstances, including without limitation the release,
threatened release, emission, discharge, generation, treatment, storage
or disposal of Materials of Environmental Concern, that could
reasonably be expected to give rise to any material liability or
obligation of the Company or any of its Subsidiaries under any
Environmental Laws. None of the matters set forth on the Disclosure
Schedule, or any aggregation thereof, could reasonably be expected to
have a Material Adverse Effect.
(10) True and complete copies of all reports, studies, assessments,
audits, and similar documents in the possession or control of the
Company, any of its Subsidiaries or any Selling Shareholder that
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address any issues of actual or potential noncompliance in any material
respect with, or actual or potential material liability under, any
Environmental Laws that may affect the Company or any of its
Subsidiaries have been provided to Buyer prior to the signing hereof.
(11) As used in this Section 2.2(al):
"Environmental Claim" means any written or oral notice, claim,
demand, action, suit, complaint, proceeding or other communication
by any person alleging liability or potential liability (including
without limitation liability or potential liability for
investigatory costs, cleanup costs, governmental response costs,
natural resource damages, property damage, personal injury, fines or
penalties) arising out of, relating to, based on or resulting from
(i) the presence, discharge, emission, release or threatened release
of any Materials of Environmental Concern at any location, (ii)
circumstances forming the basis of any violation or alleged
violation of any Environmental Law or Environmental Permit, or (iii)
otherwise relating to obligations or liabilities under any
Environmental Law.
"Environmental Laws" means all foreign (to the extent applicable),
federal, state and local statutes, rules, regulations, ordinances,
orders, judgments, decrees and common law relating in any manner to
contamination, pollution, or protection of human health or the
environment, including without limitation the Comprehensive
Environmental Response, Compensation and Liability Act, the Solid
Waste Disposal Act, the Clean Air Act, the Clean Water Act, the
Toxic Substances Control Act, the Endangered Species Act, the
National Environmental Protection Act, the Occupational Safety and
Health Act, the Emergency Planning and Community-Right-to-Know Act,
the Safe Drinking Water Act, all as amended, and similar laws of any
other Governmental Authority.
"Environmental Permits" means all permits, licenses, registrations
and other governmental authorizations or exemptions required under
Environmental Laws.
"Materials of Environmental Concern" refers to any waste,
pollutant, contaminant or other substance of any kind (including
without limitation odors, radioactivity, and electromagnetic fields)
regulated by or under, or which may otherwise give rise to liability
under, any Environmental Law.
"Kilovac Property" means all real property in which the Company or
any of its Subsidiaries have any legal interest, including without
limitation a leasehold interest, and any equipment or other property
owned or leased by the Company or any of its Subsidiaries.
am. Transactions with Certain Persons. Neither any officer, director,
shareholder or employee of the Company and its Subsidiaries nor any member
of any such person's immediate family is presently a party to any material
transaction with the Company or any of its Subsidiaries relating to the
business of the Company and its Subsidiaries, including without limitation,
any contract, agreement or other arrangement (i) providing for the
furnishing of material services by (other than for services as officers,
directors or employees of the Company and its Subsidiaries), (ii) providing
for the rental of material real or personal property from, or (iii)
otherwise requiring material payments to (other than for services as
officers, directors or employees of the Company and its Subsidiaries) any
such person or corporation, partnership, trust or other entity in which any
such person has a substantial interest as a shareholder, officer, director,
trustee or partner.
an. Information. The Company and the Selling Shareholders have furnished
and will continue to furnish to Buyer detailed information with respect to
the assets, earnings, and business of the Company and its Subsidiaries, and
acknowledge that Buyer has relied and will rely thereon in entering into
this Agreement and consummating the transaction contemplated by this
Agreement. No such information, the preparation of which was under the
Company's and any Selling Shareholder's direct control, as it has been
corrected from time to time by the Company or Selling Shareholders,
contains an untrue statement of material fact or omits to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made not
misleading.
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ARTICLE III
ACTIONS PRIOR TO THE CLOSING
3.1 Conduct of the Company. During the period from the date hereof to the
Closing Date:
a. Operations in the Ordinary Course of Business. Except as contemplated
by this Agreement, the Company and its Subsidiaries shall, and the Selling
Shareholders shall cause the Company and its Subsidiaries to, conduct their
business operations according to the ordinary and usual course of business
and will use their best efforts (i) to preserve intact their business
organization; (ii) to maintain their books and records in accordance with
past practices; (iii) to keep available the services of their officers and
employees; and (iv) to maintain satisfactory relationships with licensors,
suppliers, distributors, customers and others having business relationships
with them. The Company and the Selling Shareholders shall confer with Buyer
or its representatives to keep it informed with respect to operational
matters of a material nature and to report the general status of the
ongoing operations of the business of the Company and its Subsidiaries.
b. Forbearances by the Company. Except as contemplated by this Agreement,
the Company and its Subsidiaries will not, and the Selling Shareholders
will not permit the Company and its Subsidiaries to, without the prior
written consent of Buyer:
(1) incur any indebtedness for borrowed money, except in the ordinary
course of business consistent with past practice in an amount not to
exceed $100,000;
(2) assume, guarantee, endorse or otherwise become responsible for
the obligations of, or make any loans or advances to, any other
individual, firm or corporation;
(3) make any direct or indirect redemption, purchase or other
acquisition of any shares of its capital stock or declare, set aside or
pay any dividend or distribution (whether in cash, capital stock or
property) other than the dividend or distribution to the Company's
shareholders of the shares of Kilovac Development, any dividends to the
Company from any of its Subsidiaries and the repurchase of Common Stock
held by Richard Edict or Harvey Clement for an amount not to exceed
$85,000 in the aggregate;
(4) mortgage, pledge or otherwise encumber any of its properties or
assets (other than the pledge of after acquired property as security
for indebtedness under the Bank of America Loan Agreement);
(5) sell, lease, transfer or dispose of any of its properties or
assets (other than the shares of Kilovac Development waive or release
any rights of material value, or cancel, compromise, release or assign
any indebtedness owed to it or any claims held by it except for sales
of inventory in the ordinary and usual course of business and
consistent with past practice;
(6) except for capital expenditures not to exceed $20,000 or items
included in the capital budget included in the Disclosure Schedule,
make any investment or expenditure of a capital nature either by
purchase of stock or securities, contributions to capital, property
transfers or otherwise, or by the purchase of any property or assets of
any other individual, firm or corporation;
(7) enter into any transaction other than in the ordinary and usual
course of its business and consistent with past practice;
(8) enter into or terminate any agreement, plan or lease, or make any
change in any of its agreements, plans or leases;
(9) permit any insurance policy naming it as a beneficiary or a loss
payable payee to be cancelled or terminated or any of the coverage
thereunder to lapse;
(10) enter into any collective bargaining agreements;
(11) increase in any manner the compensation, remuneration or fringe
benefits of any of its officers or employees (other than increases in
the hourly compensation of nonofficer employees in the ordinary course
of business consistent with past practice) or pay or agree to pay any
pension, retirement
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allowance, or other benefit not required by any existing employee
benefit plan to any such officers or employees, commit itself to any
employment agreement or employee benefit plan with or for the benefit
of any of its officers or employees or any other person, or alter,
amend, terminate in whole or in part, or curtail or permanently
discontinue distributions to, any pension plan or any other employee
benefit plan;
(12) issue any shares of capital stock or issue any warrants,
options, calls, subscriptions, or other agreements or commitments
obligating it to issue shares of capital stock;
(13) enter into an agreement to do any of the things described in
clauses (1) through (12) of this Section 3.1; or
(14) take any action which would render inaccurate any representation
and warranty made herein.
3.2 Regulatory Consents, Authorizations, etc. Each party hereto will use its
best efforts to obtain all consents, authorizations, orders and approvals of,
and make all filings and registrations with, any governmental commission,
board or other regulatory body or any other person required for or in
connection with the consummation of the transactions contemplated hereby and
will cooperate fully with the other parties in assisting them to obtain such
approvals and to make such filings and registrations. No party hereto will
take or omit to take any action for the purpose of delaying, impairing or
impeding the receipt of any required consent, authorization, order or approval
or the making of any required filing or registration.
3.3 Investigation by Buyer. Prior to the Closing Date, Buyer may make or
cause to be made such investigation of the business, properties, assets and
liabilities of the Company and its financial and legal conditions as Buyer
deems necessary or advisable to familiarize itself therewith, provided that
such investigation shall not unreasonably interfere with the normal operations
of the Company. Such investigation may include, without limitation, an
examination and valuation of inventory by Buyer's accountants and an appraisal
of all assets of the Company. Prior to the Closing Date, upon reasonable prior
notice, the Company and the Selling Shareholders agree to permit Buyer and its
authorized representatives, or cause them to be permitted, to have full access
to the premises, books and records, officers, employees, and independent
accountants (including the independent accountant's work-papers) of the
Company at reasonable hours, and prior to the Closing Date the officers of the
Company shall furnish Buyer with such financial and operating data and other
information with respect to the business, properties and assets of the Company
as Buyer shall from time to time reasonably request. No investigation by Buyer
heretofore or hereafter made shall affect the representations and warranties
of the Company contained herein. Prior to the Closing Date, or in the event
this Agreement is terminated, Buyer shall not use any information relating to
the Company obtained by it from the Company or the Selling Shareholders
pursuant to this Section 3.3, which is not otherwise publicly available, for
any purpose unrelated to the consummation of the transactions contemplated
hereby, and prior to such Closing Date, Buyer will not disclose any such
information to any person, unless and until such time as such information is
otherwise publicly available or as Buyer is advised by counsel that such
information is required by law to be disclosed. In the event this Agreement is
terminated, Buyer agrees to keep confidential all information it has obtained
concerning the Company under the terms of this Agreement for a five-year
period and to return promptly, if so requested by the Company, every document
furnished to Buyer by the Company and the Selling Shareholders, in connection
with the transactions contemplated hereby, and any copies thereof Buyer may
have made, and to use its best efforts to cause its representatives to whom
such documents were furnished promptly to return such documents, and any
copies thereof any of them may have made.
3.4 Expenses. Subject to Section 3.7, the Selling Shareholders joint and
severally agree to pay all of the fees, costs and expenses of the Selling
Shareholders, and Buyer agrees to pay all of the fees, costs and expenses of
Buyer, (including, without limitation, those of advisors, financial advisors,
lawyers or accountants) incurred in connection with the negotiation,
preparation, execution, delivery and performance of this Agreement and the
transactions contemplated hereby.
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3.5 Negotiations with Others. During the period from the date of this
Agreement to the Closing Date, or until this Agreement is terminated in
accordance with the provisions of Article V, if it is so terminated, the
Company, the Selling Shareholders and their agents shall not, directly or
indirectly, without the prior written consent of Buyer, solicit or initiate
discussions or engage in negotiations with, or provide any information other
than publicly available information to, or authorize any financial advisor or
other person to solicit or initiate discussions or engage in negotiations
with, or provide any information to, any corporation, partnership, person or
other entity or group (other than Buyer) concerning any possible proposal
regarding a sale of shares of capital stock of, or a merger, consolidation,
sale of assets or other similar transaction involving the Company, and the
Company and the Selling Shareholders will promptly notify Buyer if any such
discussions or negotiations are sought to be initiated with, any such
information is requested from, or any such proposal or possible proposal is
received by the Company, the Selling Shareholders and/or their agents.
3.6 Publicity. Until the Closing Date, each party hereto agrees not to issue
any press release or to otherwise make any public statement with respect to
the transactions contemplated hereby except as may be required by law, in
which event such press release or public statement shall be made only after
consultation with the Company or Buyer, as the case may be; then and
thereafter no such public announcement shall be made without the consent,
which shall not be unreasonably withheld, of the Company (in the case of
releases or statements issued or made by Buyer) or Buyer (in the case of
releases or statements issued or made by the Company or the Selling
Shareholders).
3.7 Environmental Audit. If required by any prospective provider of
financing for the transactions contemplated by this Agreement, the parties
hereto agree that Buyer may have a Phase II environmental audit (the
"Environmental Audit") completed prior to Closing at the Company's facilities.
The environmental consultant shall be chosen by Buyer. The Company shall have
the right to approve each phase of the Environmental Audit, which approval
shall not be unreasonably withheld. The fees, costs and expenses relating to
the Environmental Audit shall be borne as follows: (x) the first $10,000 by
the Selling Shareholders, (y) the next $10,000 by Buyer and (z) any balance in
excess of $20,000 equally by the Selling Shareholders and Buyer.
3.8 Kilovac Development. Prior to the Closing, the Company shall (i) cause
Kilovac Development to assign and transfer to the Company all of its material
assets other than the Palm Avenue Property, if any, and (ii) cancel any
intercompany debt of Kilovac Develoment to the Company and (iii) contribute
funds to Kilovac Development sufficient to discharge any third party
indebtedness and the guarantee by the Company thereof in an amount not to
exceed $230,000.
3.9 Additional Agreements. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its best efforts to take,
or cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated hereby as soon as
reasonably practicable hereinafter.
ARTICLE IV
CONDITIONS TO THE CLOSING
4.1 Conditions to the Closing Relating to Buyer. Consummation of the
transaction contemplated hereby is subject to the fulfillment to the
reasonable satisfaction of Buyer, prior to or at the Closing Date, of each of
the following conditions:
a. Regulatory Consents, Authorizations, etc. All consents,
authorizations, orders and approvals of, and filings and registrations with
any governmental commission, board or other regulatory body or any other
person which are required, prior to the Closing Date, for or in connection
with the execution and delivery of this Agreement and the consummation by
each party hereto and the Company of the transactions contemplated hereby,
or which are required in order to avoid violation or termination of any
agreement listed in the Disclosure Schedule, shall have been obtained or
made.
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b. Representations and Warranties. The representations and warranties of
the Company and the Selling Shareholders contained in this Agreement are
true and correct in all material respects at and as of the Closing Date,
except for changes contemplated by this Agreement, with the same force and
effect as if made at and as of the Closing Date; and the Selling
Shareholders and the Company shall have performed or complied in all
material aspects with all agreements and covenants required by this
Agreement to be performed or complied with by them at or prior to the
Closing Date.
c. Certificate. Each of the Selling Shareholders who is a member of the
Board of Directors of the Company shall have delivered to Buyer
certificates to the effect that (i) he is familiar with the provisions of
this Agreement and (ii) the conditions specified in Sections 4.1(a) and (b)
have, to his knowledge after inquiry of the Company's officer level
employees having responsibility for matters in the subject area of the
condition to be satisfied and review of the Company's records with respect
to such subject matter, been satisfied.
d. Litigation; Other Events. No action, suit or proceeding shall have
been instituted by any person which seeks to prohibit, restrict or delay
consummation of the transaction contemplated herein or any of the
conditions to the transactions contemplated herein, or seeks damages as a
result of the consummation of the transactions contemplated herein, or
speaks to the conduct of the business of the Company after the Closing
Date.
e. Financing. Buyer shall have completed arrangements, on terms and
conditions reasonably satisfactory to it, for the financing of a portion of
the purchase price and the ongoing working capital requirements of the
Company.
f. Environmental Audit. If required pursuant to Section 3.7, Buyer shall
have completed the Environmental Audit and the results of such audit shall
be satisfactory to it.
g. Existing Indebtedness. Bank of America shall have released and
discharged its lien securing the outstanding indebtedness against payment
by Buyer of the outstanding balance of such indebtedness without premium or
penalty. On the Closing Date, the aggregate outstanding indebtedness of the
Company and its Subsidiaries shall not exceed $430,000.
h. Related Agreements. The Escrow Agreement, the Paying Agent Agreement
and the Employment Agreement shall have been executed and delivered by the
applicable parties thereto substantially in the forms of Exhibits A, B and
C hereto.
i. Legal Opinion. Buyer shall have received a legal opinion, dated as of
the Closing Date, from Adams, Duque & Hazeltine, special counsel to the
Company, in the form of Exhibit D hereto.
4.2 Conditions to the Closing Related to the Company and the Selling
Shareholders. Consummation of the transaction contemplated hereby is subject
to the fulfillment to the reasonable satisfaction of the Company and the
Selling Shareholders, prior to or at the Closing Date, of each of the
following conditions:
a. Regulatory Consents, Authorizations, etc. All consents,
authorizations, orders and approvals of, and filings and registrations with
any governmental commission, board or other regulatory body or any other
person which are required, prior to the Closing Date, for or in connection
with the execution and delivery of this Agreement and the consummation by
each party hereto and the Company of the transactions contemplated hereby,
or which are required in order to avoid violation or termination of any
agreement listed in the Disclosure Schedule, shall have been obtained or
made.
b. Representations and Warranties. The representations and warranties of
Buyer contained in this Agreement are true and correct in all material
respects on the date hereof and shall also be true and correct in all
material respects at and as of the Closing Date, except for changes
contemplated by this Agreement, with the same force and effect as if made
at and as of the Closing Date; and Buyer shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the Closing
Date.
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c. Certificate. Buyer shall have delivered to the Selling Shareholders a
certificate, dated as of the Closing Date, of the Chairman of the Board and
Chief Executive Officer of Buyer to the effect that (i) he is familiar with
the provisions of this Agreement and (ii) the conditions specified in
Sections 4.2(a) and (b) have, to his knowledge after due inquiry, been
satisfied.
d. Litigation; Other Events. No action, suit or proceeding shall have
been instituted by any person which seeks to prohibit, restrict or delay
consummation of the transaction contemplated herein or any of the
conditions to the transactions contemplated herein, or seeks damages as a
result of the consummation of the transactions contemplated herein, or
speaks to the conduct of the business of the Company after the Closing
Date.
e. Related Agreements. The Escrow Agreement, the Paying Agent Agreement
and the Employment Agreement shall have been executed and delivered by the
applicable parties thereto substantially in the forms of Exhibits A, B and
C hereto.
ARTICLE V
TERMINATION
5.1 Termination. This Agreement may be terminated by:
(1) By mutual action of the Company and Buyer;
(2) By the Company, if any of the conditions set forth in Section 4.2
shall not have been complied with or performed and such noncompliance or
nonperformance shall not have been cured or eliminated (or by its nature
cannot be cured or eliminated) by Buyer on or before the Closing Date; or
(3) By Buyer, if any of the conditions set forth in Section 4.1 shall not
have been complied with or performed and such noncompliance or
nonperformance shall not have been cured or eliminated (or by its nature
cannot be cured or eliminated) by the Company and the Selling Shareholders
on or before the Closing Date.
5.2. Effects of Termination. In the event of the termination of this
Agreement, this Agreement shall thereafter become void and have no effect, and
no party hereto shall have any liability to the other parties hereto or their
respective stockholders or directors or officers in respect thereof, except
for the obligations of the parties hereto in the last two sentences of Section
3.3 and the Confidentiality Agreement (as defined below), and except that
nothing herein will relieve any party from liability for any breach of this
Agreement prior to such termination.
ARTICLE VI
INDEMNITY
6.1 Survival of Representations and Warranties Indemnity. The
representations, warranties, agreements and covenants by the Company and
Selling Shareholders (other than the agreements and covenants set forth in
Article VII) shall survive until the 12 month anniversary of the Closing Date,
except that the representations, warranties, agreements and covenants of the
Company and the Selling Shareholders contained in (i) Section 2.2(al) shall
survive until the 24 month anniversary of the Closing Date and (ii) Section
2.2(i) shall survive indefinitely.
6.2 Indemnity. Subject to said applicable survival periods, the Shareholders
agree to indemnify Buyer, the Company and/or their Affiliates for any and all
claims, demands, losses, costs, charges, expenses, obligations, liabilities,
actions, suits, damages, judgments, and deficiencies, including interest and
penalties, reasonable counsels' fees and all reasonable amounts paid in
settlement of any claim, action, or suit (collectively referred to as
"CLAIMS") which may be sustained, suffered or incurred by Buyer, the Company
and/or their Affiliates and arising out of or by reason of any breaches of the
representations, warranties, agreements and covenants of the
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Company or the Selling Shareholders contained herein; provided, that, (i) the
obligations of the Selling Shareholders under this Section 6.2 relating to
taxes shall be limited to the Escrowed Funds and the setoff of any amounts
then due to the Selling Shareholders under this Agreement and (ii) all other
obligations of the Selling Shareholders under this Section 6.2 shall be
limited to the Escrowed Funds. Each of the Selling Shareholders agrees that
Buyer, the Company and/or their Affiliates will have the rights to setoff the
amounts referred to in the preceding proviso.
6.3 Cooperation. The term "Claims" as used in this Article is not limited to
matters asserted by third parties against Buyer and/or the Company. Claims
does not include any damages for which the Company receives insurance
reimbursement. In the event a Claim is asserted by any third party against
Buyer and/or the Company, it shall notify Selling Shareholders of such Claim
by giving to Selling Shareholders written notice, and shall give Selling
Shareholders and their counsel access to any and all such files, records and
other documents as may be necessary to enable Selling Shareholders to
investigate or participate in the defense against such Claim (but at the cost
and expense of such Selling Shareholders) and Buyer shall otherwise cooperate
in connection therewith and shall not assume a position contrary to that of
Selling Shareholders with respect to all such third party Claims.
ARTICLE VII
CERTAIN POST-CLOSING AGREEMENTS
7.1 Noncompete. Each of Pat McPherson, Robert Helman, Dan McAllister and
Rick Danchuk agree on behalf of himself and his Affiliates that he will not
anywhere in the State of California, including all the counties listed on
Schedule 2 hereto, or anywhere else at any time for three years after the date
hereof and Douglas Campbell agrees on behalf of himself and his Affiliates
that he will not anywhere in the State of California, including all the
counties listed on Schedule 2 hereto, or anywhere else at any time for five
years after the date hereof, except with the express prior written consent of
Buyer: (a) directly or indirectly, engage in any Competitive Business
(meaning, any business engaged in by the Company as of the Closing Date),
whether such engagement shall be as an owner, partner, agent, consultant or
shareholder (except as the holder of not more than five percent (5%) of the
outstanding shares of a corporation whose stock is listed on any national or
regional securities exchange or reported by the National Association of
Securities Dealers Automated Quotations System or any successor thereto); (b)
directly or indirectly solicit, divert or accept business from or otherwise
take away or interfere with any customer of Buyer, the Company or their
Affiliates engaged in any Competitive Business, including without limitation
any person who was a customer or whose business was being pursued by Buyer,
the Company or their Affiliates prior to the date hereof; or (c) directly or
indirectly, accept employment with, be employed by or be a principal of any
business or enterprise operating within the United States of America which
then employs or has as a principal or holder of any interest therein (except
as the holder of not more than one percent (1%) of the outstanding shares of a
corporation whose shares are publicly traded) any individual who was
previously employed in a managerial or consultant position with Buyer, the
Company or any of their Affiliates, provided however, that this prohibition
shall not be applicable if such business or enterprise is not a Competitive
Business. The Company and each of the individuals subject to this Section
acknowledge that the Company's products are sold and used in each county in
the State of California.
7.2 Nondisclosure. Each of the Selling Shareholders, agree that, for a
period of seven years following the Closing Date, except as required by law or
by the order of any court or government agency or in the performance of his
duties as an employee of the Company or its Subsidiaries, he shall keep secret
and retain in strictest confidence and shall not, except with the express
prior written consent of Buyer, directly or indirectly disclose, communicate
or divulge to any person, or use for the benefit of any person, any
Proprietary Information (meaning, all information or data with respect to the
conduct or details of the business of the Company including, without
limitation, methods of operation, customers and customer lists, details of
contracts with customers, consultants, suppliers or employees, products,
proposed products, former products, proposed, pending or completed
acquisitions of any company, division, product line or other business unit,
prices and pricing policies,
24
<PAGE>
fees, costs, plans, designs, technology, inventions, trade secrets, know-how,
software, marketing methods, policies, plans, personnel, suppliers,
competitors, markets or other specialized information or proprietary matters
of the business of the Company). The restriction contained in the preceding
sentence shall not apply to any Proprietary Information that (i) is a matter
of public knowledge on the date of this Agreement or (ii) becomes a matter of
public knowledge after the date of this Agreement from another source which is
under no known obligation of confidentiality to Buyer or its Affiliates.
7.3 Anti-dilution. In the event of the issuance, sale, grant or distribution
by the Company to Buyer or any of its Affiliates of any shares of Common
Stock, the Selling Shareholders shall be entitled to participate in such
issuance, sale, grant or distribution on a pro rata basis, and on the same
terms and conditions, so that following such issuance, sale, grant or
distribution each Selling Shareholder will, if such Selling Shareholder has
elected to purchase or otherwise receive the shares to be issued, sold,
granted or distributed, have the same percentage of the Common Stock ownership
of the Company as such Selling Shareholder had prior to such issuance, sale,
grant or distribution. This Section 7.3 shall not apply to registered public
offerings.
7.4 Contributions to ESBP. Each of the parties hereto agrees and
acknowledges that neither Buyer nor the Company shall have any obligation to
make any contributions to the Kilovac Corporation Employee Stock Bonus Plan
(the "ESBP") after the Closing Date.
7.5 Additional Restrictions. Except with the prior written approval of the
Paying Agent, after the Closing Date and until a Liquidity Event, the Company:
(a) shall not issue any additional shares of capital stock of the
Company;
(b) shall not amend the charter or by-laws of the Company or any of its
subsidiaries,
(c) shall not effect the voluntary liquidation, dissolution or winding up
of the Company or any of its subsidiaries, or the sale, lease or exchange
of all or substantially all of the assets, property or business of the
Company or any of its subsidiaries, or the merger or consolidation of the
Company with or into any other corporation (except a wholly-owned
subsidiary of the Company),
(d) shall not incur any indebtedness for borrowed money, except (i)
pursuant to financing arrangements entered into in connection with the
Closing between Buyer and Bank of America, N.A. (and any extensions
thereof), and (ii) other indebtedness incurred in the ordinary course of
business, consistent with past practice,
(e) shall not guaranty any indebtedness of any person or entity other
than financing arrangements entered into in connection with the Closing
between Buyer and Bank of America, N.A. (and any extensions thereof),
(f) shall not make any acquisition or disposition of securities other
than as a result of the reorganization of a debtor of the Company or a
business or line of business in a single transaction or a series of related
transactions,
(g) shall not repurchase or redeem any capital stock of the Company or
any of its subsidiaries,
(h) shall not declare or pay any dividends or distributions on Common
Stock (except as specifically provided herein),
(i) shall not make any initial public offering of shares of common stock
of the Company or of any of its subsidiaries or grant any registration
rights with respect to common stock of the Company or of any of its
subsidiaries,
(j) shall not create or dissolve any subsidiary of the Company, or
(k) shall not adopt or amend any personnel policies or personnel plans of
the Company or any of its subsidiaries, including those relating to
compensation or benefits.
(l) shall not enter into, or be a party to, any transaction with Buyer or
any affiliate of Buyer, except in the ordinary course of business and upon
fair and reasonable arms-length terms, which are no less favorable to the
Company than would be obtained in an arm's length transaction with an
unaffiliated third party.
25
<PAGE>
(m) shall in reduction of intercompany advances to the Company, deliver
all excess cash of the Company to Buyer, and borrow all working capital
needs from Buyer and the terms of intercompany advances in favor of the
Company shall be subject to only the charges and interest as applicable on
Buyer's senior credit accomodations.
(n) shall, until satisfaction of all obligations of Buyer and the Company
with respect to the Continuing Shares, be operated, and Buyer shall so
cause the Company to be operated as a separate subsidiary or division in a
manner to permit the computation and verification of the Determination
Numbers.
7.6 Restrictions on Transfer.
(a) Subject to paragraph (b) below, commencing on the Closing Date and
ending on December 31, 2005, no Selling Shareholder shall sell, transfer,
pledge or otherwise encumber any of his or her shares of Common Stock. Subject
to paragraph (b) below, any shares during such period shall be null and void.
(b) Any Selling Shareholder may at any time transfer to another Selling
Shareholder or by devise effective upon his or her death or by gift any or all
of his or her Continuing Shares to the heirs or beneficiaries of such Selling
Shareholder's estate (or of the estate of a family member of such Selling
Shareholder) (or their respective guardians, custodians or one or more trusts,
partnerships, corporations or similar entities principally for the benefit of
such spouse or children), provided however, that such transferee continues to
be bound by the terms of this Agreement in the event of any such transfer by a
Selling Shareholder to more than one person or entity, all of such persons or
entities shall collectively have right equal to the rights of such respective
Selling Shareholder under this Agreement.
ARTICLE VIII
MISCELLANEOUS
8.1 Notices. Any notice or other communication required or permitted
hereunder shall be sufficiently given if delivered personally or sent by
telecopy (receipt confirmed by telephone) or by registered or certified mail,
postage prepaid, addressed as follows:
If to Buyer:
Communications Instruments, Inc.
c/o Stonebridge Partners
Westchester Financial Center
50 Main Street
White Plains, New York 10606
Attention: Michael S. Bruno, Jr.
Telecopy No.: (914) 682-0834
Telephone No.: (914) 682-2285
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Richard C. Weisberg, Esq.
Telecopy No.: (212) 455-2502
Telephone No.: (212) 455-3240
26
<PAGE>
If to the Company or the Selling Shareholders:
Kilovac Corporation
P.O. Box 4422
Santa Barbara, California 93140
Attention: Douglas Campbell
Telecopy No.: (805) 684-1681
Telephone No.: (805) 684-4560,
(following closing, notices to the
Company shall also be sent to Buyer)
with a copy to:
Adams, Duque & Hazeltine
777 South Figueroa Street, 10th Floor
Los Angeles, California 90017
Attention: R. Stephen Doan, Esq.
Telecopy No.: (213) 896-5500
Telephone No.: (213) 620-1240
or such other person or address as shall be furnished in writing by any party
to the other parties prior to the giving of the applicable notice or
communication, and such notice or communication shall be deemed to have been
given ten (10) days after mailed, or in the case of personal delivery or
telecopy, upon receipt of transmission.
8.2 Financial Advisors and Brokers. Other than ING Capital, the Company and
the Selling Shareholders represent and warrant, jointly and severally, that no
investment banker, broker or finder is entitled to any financial advisory,
brokerage or finder's fee or other similar payment from the Company based on
agreements, arrangements or undertakings made by it or any of its respective
directors, officers or employees in connection with the transactions
contemplated hereby.
8.3 Counterparts. This Agreement shall be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.4 Disclosure Schedule. The Disclosure Schedule is an integral part of this
Agreement.
8.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement, and shall not be deemed to limit or
affect any of the provisions hereof.
8.6 Exhibits. The attached Exhibits are an integral part of this Agreement.
8.7 Miscellaneous. This Agreement (including the Schedules and Exhibits
hereto and the Disclosure Schedule) (a) constitutes (together with that
certain letter agreement, dated June 5, 1995, between Stonebridge Partners and
ING Capital (the "CONFIDENTIALITY AGREEMENT")) the entire Agreement and
understanding and supersedes all prior agreements and understandings, both
written and oral, among the parties hereto with respect to the subject matter
hereof, (b) is not intended to confer upon any other person any rights or
remedies hereunder, (c) shall not be assigned, by operation of law or
otherwise, and (d) shall be governed in all respects, including validity,
interpretation and effect, by the internal laws of the State of California. If
there is a conflict between the provisions of the Confidentiality Agreement
and this Agreement, the provisions of the Confidentiality Agreement shall
control.
8.8 Arbitration. Any party shall have the right to submit any dispute
arising out of this Agreement to neutral binding arbitration in the City of
Los Angeles with a partner of Price Waterhouse, L.L.P. In the event of
arbitration, the matter shall be heard before a single arbitrator and all
submissions shall be made in writing. Any party requesting arbitration shall
give notice to the other party stating the issue to be resolved. The decision
of the arbitrator shall be final and binding on both parties, with each party
or parties bearing its own costs and expenses with respect to the dispute.
Each party hereby consents to the entry of a judgment in any court of
competent jurisdiction enforcing any arbitration decision made in accordance
herewith.
27
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first above written:
Communications Instruments, Inc.
/s/ Michael Bruno
Attest ______________________________ By___________________________________
Michael Bruno,
Its Director
Kilovac Corporation
/s/ Douglas Campbell
Attest ______________________________ By___________________________________
Douglas Campbell,
Its President
SELLING SHAREHOLDERS
/s/ Douglas L. Campbell
Witness _____________________________________
Douglas L. Campbell,
Trustee of the Kilovac Corporation
Employee Stock Bonus Plan
/s/ Douglas L. Campbell
Witness _____________________________________
Douglas L. Campbell,
as Trustee of the Campbell
Charitable Remainder Unitrust
Witness /s/ Milo Filip
_____________________________________
Milo Filip,
as Trustee of the Erin Campbell
Trust
Witness /s/ Douglas L. Campbell
_____________________________________
Douglas L. Campbell
Witness /s/ Ronald D. Klingensmith
_____________________________________
Ronald D. Klingensmith,
as Trustee of the Donald C.
Campbell Charitable Unitrust
Witness /s/ Pat McPherson
_____________________________________
Pat McPherson
/s/ Robert Helman
Witness _____________________________________
Robert Helman
28
<PAGE>
Witness /s/ Dan McAllister
_____________________________________
Dan McAllister
/s/ Rick Danchuk
Witness _____________________________________
Rick Danchuk
/s/ Harry Jabagchourian
Witness _____________________________________
Harry Jabagchourian
Witness /s/ John Stewart
_____________________________________
John Stewart
Witness /s/ Rick Steen
_____________________________________
Rick Steen
Witness /s/ Susan Reid
_____________________________________
Susan Reid
Witness /s/ Robin Hamilton
_____________________________________
Robin Hamilton
Witness /s/ Gary Clancy
_____________________________________
Gary Clancy
Witness /s/ Hugh Vos
_____________________________________
Hugh Vos
/s/ Norm Blankenship
Witness _____________________________________
Norm Blankenship
/s/ Carmen Rivera
Witness _____________________________________
Carmen Rivera
29
<PAGE>
ATTACHMENTS TO STOCK SUBSCRIPTION AND PURCHASE AGREEMENT
<TABLE>
<S> <C> <C>
Disclosure Schedule Section 2.2
Schedule 1 Capitalization Section 2.2 (b)
Schedule 2 Continuing Share Examples Section 1.7.6
Schedule 3 All California Counties Section 7.1
Exhibit A Escrow Agreement Section 1.4
Exhibit B Paying Agent Agreement Section 1.4
Exhibit C Employment Agreement (Campbell) Section 4.1 (h)
Exhibit D Opinion of Counsel to Company Section 4.1 (i)
</TABLE>
30
<PAGE>
SCHEDULE 1
Douglas L. Campbell, Trustee of the Kilovac Corporation Employee Stock Bonus
Plan ("ESBP")
Douglas L. Campbell, as Trustee of the Campbell Charitable Remainder
Unitrust
Milo Filip, as Trustee of the Erin Campbell Trust
Don Campbell
Rick Steen
Pat McPherson
Robert Helman
Dan McAllister
Rick Danchuk
State of
County of ss.:
On , 1995, before me, the undersigned, a Notary Public in and for said
County and State, personally appeared , known to me to be the person that
executed the within instrument and acknowledged to me that such person
executed the same.
____________________________________
Notary Public in and for said County
and State
31
<PAGE>
EXHIBIT 10.13
ENVIRONMENTAL REMEDIATION AND ESCROW AGREEMENT
----------------------------------------------
THIS ENVIRONMENTAL REMEDIATION AND ESCROW AGREEMENT ("Agreement") is made
as of July 2, 1996, by and among Figgie International Inc., a Delaware
corporation ("Seller"), Communications Instruments, Inc., a North Carolina
corporation ("Buyer"), and Bank One Trust Company, NA (the "Escrow Agent").
RECITALS:
--------
A. Pursuant to the Lease, dated as of July 2, 1996 (the "Lease") by and
between a subsidiary of each of Seller and Buyer, a subsidiary of Seller agreed
to lease to a subsidiary of Buyer certain real property (the "Site").
B. Seller agrees to put Five Hundred Fifteen Thousand Five Hundred
Dollars ($515,500) in escrow for the payment of certain Remediation Costs
(defined below) relating to the real property leased to Buyer or one of its
subsidiaries by Seller or one of its subsidiaries pursuant to the Lease (the
"Escrow Fund").
C. To secure the payment of the Remediation Costs, Seller has agreed to
deliver to and deposit with the Escrow Agent the Escrow Fund, which shall be
held by the Escrow Agent pursuant to the terms of this Agreement.
D. Capitalized terms used herein, unless otherwise indicated, have the
same meaning given to them in the Lease.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises contained herein, the parties agree as follows:
1. Appointment of Escrow Agent. Seller and Buyer hereby appoint Bank One
---------------------------
Trust Company, NA to be the Escrow Agent and to hold the Escrow Funds in
accordance with the terms of this Agreement.
2. Delivery of Funds. Seller shall deposit, or cause to be deposited, the
Escrow Funds with the Escrow Agent, on the date of this Agreement, to secure
payment of the Remediation Costs.
3. Term. The Escrow Funds shall be held in escrow for a term beginning
----
with the date of this Agreement and ending with the earlier of: (i) the
expiration or termination of the Lease; or (ii) the delivery of all of the
Escrow Funds, as the case may be, in accordance with the terms of this Agreement
(the "Escrow Period").
4. Disbursement of Escrow Funds. The Escrow Agent shall release and
----------------------------
disburse the Escrow Funds: (i) for the purpose of the payment of the costs of
conducting any remedial activities incurred by Seller pursuant to the
requirements of Exhibit A attached hereto and made a part hereof ("Remediation
Costs"); and (ii) in accordance with Section 7 hereof. Remediation Costs shall
include all environmental consulting fees, engineering fees, costs of testing,
sampling and laboratory work, contractor's fees, legal fees, and all other costs
associated with the planning and implementation of work performed pursuant to
Exhibit A.
2
<PAGE>
5. Remediation.
-----------
(a) From and after the date of the Lease, Seller shall diligently pursue
to completion the remedial activities identified in Exhibit A (the
"Remediation") in accordance with all applicable Environmental Laws. Such
process shall include, but not necessarily be limited to, the following:
(1) developing a plan or plans of remediation to address the
Remediation, which plan or plans (individually, a "Remediation Plan" and
collectively "Remediation Plans") shall be acceptable to Seller and Buyer;
and
(2) implementing each Remediation Plan.
(b) A Remediation Plan shall be deemed to have been completed upon the
first to occur of any of the following events: (i) Buyer approves, in writing,
the completion of such work; (ii) Seller's environmental consultant states in
good faith and in exercise of a reasonable degree of professional competence
that in its professional opinion, the work required by the Remediation Plan has
been satisfactorily completed and requires no further action; or (iii) the
expiration or termination of the Lease. If Buyer disagrees with Seller's
environmental consultant's opinion concerning the completion of the Remediation
Plan, then the propriety of the consultant's opinion on this issue shall be
settled by arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association before a single arbitrator who is a
"Certified Professional" environmental consultant pursuant to Ohio Revised Code
Chapter 3746.01(E) and who is appointed in accordance with the Commercial
Arbitration Rules. The award of the arbitrator shall be limited to (i)
confirming Seller's environment consultant's opinion, or
3
<PAGE>
(ii) requiring Seller to conduct further Remediation pursuant to the terms of
this Agreement, and (a) shall indicate the arbitrator's decision respecting the
matters in question presented by each party, and (b) shall contain a brief
statement of the reasons supporting the arbitrator's decision. A judgment upon
the award rendered by the arbitrator may be entered in any court having
jurisdiction thereof. Such arbitration proceeding shall be conducted in
Cleveland, Ohio. The pendency of a demand for arbitration or any arbitration
proceedings hereunder shall not, in and of itself, discharge or excuse
continuing performance by the parties of their obligations and duties under this
Agreement or under the Lease. Any arbitration arising out of or relating to this
Agreement shall include, by consolidation, joinder or joint filing, any
additional persons or entities not parties to this Agreement to the extent
reasonably necessary to the final resolution of the matter in controversy. Once
the Remediation Plan or Remediation Plans have been completed or the Lease
expires or is terminated, the Remediation shall for all purposes of this
Agreement be deemed completed, the Escrow Agent shall disburse any remaining
Escrow Funds in accordance with Section 9 and this Agreement shall terminate.
(c) As between Seller and Buyer, the work to be performed pursuant to this
Section 5 shall be supervised and controlled by Seller. Seller shall contact,
consult and otherwise deal with all governmental authorities in connection
therewith; provided that Seller shall afford Buyer, and Buyers' legal and
technical consultants, a reasonable opportunity to review all final Remediation
Plan(s) and will use its best efforts to cause to be considered and incorporated
in any proposals or plans any comments or suggestions that Buyers' or its
consultants may request.
4
<PAGE>
(d) In the conduct of the Remediation, Seller agrees to use only URS
Consultants or another environmental consulting firm that has as a member
of its firm a "Certified Professional" pursuant to Ohio Revised Code
Chapter 3746.01(E).
(e) The costs of the Remediation to be performed pursuant to this
Section 5 shall be paid for and discharged first from the Escrow Funds as
evidence of such costs is from time to time submitted by Seller to the
Escrow Agent for payment. Any costs of Remediation in excess of the Escrow
Funds shall be paid by Seller; provided, however, that Seller shall not be
required to expend more than $12.0 million for Remediation Costs by the
terms of this Agreement.
(f) Buyer hereby grants entry and access to the Site to Seller and/or
Seller's agents, employees, representatives and contractors, as necessary
to conduct the Remediation pursuant to this Agreement. Buyer shall not
materially interfere with Seller's conduct of the Remediation and Seller
shall use reasonable care in its conduct of the Remediation to not
materially interfere with Buyer's normal business operations at the Site.
Seller shall have no liability to Buyer for any loss, damage, expense or
other liability arising as a result of interference with Buyer's normal
business operations at the Site in the conduct of the Remediation by
Seller, if Seller has used reasonable best efforts to minimize disturbance
of Buyer's ability to conduct business at the Site.
6. Investment of Funds. The Escrow Agent shall act as custodian of the
-------------------
Escrow Funds and shall invest the Escrow Funds in any of the following:
(a) direct obligations of (including obligations issued or held in
book entry form on the books of the Department of Treasury of the United
States of America), or
5
<PAGE>
obligations the principal of and interest on which are unconditionally
guaranteed by the United States of America;
(b) bonds, debentures or notes or other evidence of indebtedness
payable in cash and issued or guaranteed by any one or a combination of any
federal agencies whose obligations represent the full faith and credit of
the United States of America;
(c) certificates of deposit properly secured at all times, by
collateral security described in (a) and (b) above, (which agreements are
only acceptable with commercial banks, savings and loan associations and
mutual savings banks);
(d) the following investments fully insured by the Federal Savings
and Loan Insurance Corporation:
(i) certificates of deposit
(ii) savings accounts
(iii) deposit accounts
(iv) depository receipts of banks, savings and loan
associations and mutual savings banks;
(e) commercial paper rated in one of the two highest rating
categories by at least one nationally recognized rating agencies or
commercial paper backed by a letter of credit or line of credit rated in
one of the two highest rating categories;
(f) investments in a money market fund, including the Escrow Agent or
any of its affiliates, rated AAAM or AAAM-G by Standard & Poor's
Corporation, the assets of which consist of either tax-exempt obligations
or direct obligations of the United States of America.
6
<PAGE>
The Escrow Agent shall have the power to sell or liquidate the foregoing
investments whenever the Escrow Agent is required to release all or any portion
of the Escrow Funds pursuant to this Agreement. Any interest or income earned
on such investment and reinvestment of the Escrow Funds shall become part of the
Escrow Funds. The Escrow Agent shall have no liability for any investment
losses resulting from the investment reinvestment, sale or liquidation of the
Escrow Funds, which losses shall be the sole responsibility of Seller, except in
the case of negligence or willful misconduct of the Escrow Agent.
7. Fees and Expenses of Escrow Agent. All costs and expenses of the
---------------------------------
Escrow Agent shall be paid out of the Escrow Fund. In the event that such costs
and expenses exceed the amount in the Escrow Fund, the Seller agrees to pay such
excess costs and expenses.
8. Liability of Escrow Agent. The duties and obligations of the Escrow
-------------------------
Agent hereunder shall be determined solely by the provisions of this Agreement
and the Escrow Agent shall be under no obligation to refer to any other
documents between or among the parties it being specifically understood that the
following provisions are accepted by all parties hereto:
(a) The Escrow Agent shall not be liable to anyone by reason of any
error of judgment or for any act done or step taken or omitted by it in
good faith or for any mistake of fact or law for anything which it may do
or refrain from doing in connection herewith unless caused by or arising
out of its gross negligence or willful misconduct. Seller shall indemnify
and hold the Escrow Agent harmless from any and all liability and expense
which may arise out of any action taken or omitted by it as Escrow Agent in
accordance with this Agreement, as the same may be amended, modified or
supplemented, except such liability and expense as may result from the
gross negligence or willful
7
<PAGE>
misconduct of the Escrow Agent. This indemnification shall survive the
release, discharge, termination, and/or satisfaction of the Agreement. The
Escrow Agent may act upon advice of counsel of its own choosing and shall
be fully protected in acting or refraining from acting in good faith and in
accordance with the opinion of such counsel in reference to any matter
connected herewith and shall not be liable for any action taken or omitted
in accordance with such advice. Without limiting the foregoing, the Escrow
Agent shall in no event be liable in connection with its investment or
reinvestment of any cash held by it hereunder in good faith, in accordance
with the terms hereof, including, without limitation, any liability for any
delays (not resulting from its negligence or willful misconduct) in the
investment or reinvestment of the Escrow Funds, or any loss of interest
incident to any such delays.
(b) If the Escrow Agent is entitled to receive, pursuant to this
Agreement, any amount in indemnification, then, Seller will be responsible
for such amount.
(c) In the event any demand, direction, instruction or request, not
contemplated by the terms of this Agreement, is made upon Escrow Agent,
then Buyer and Seller hereby jointly and severally authorize Escrow Agent,
at its election, to hold any funds deposited hereunder until an action
shall be brought in a court of competent jurisdiction to determine the
rights of Buyer and Seller or to interplead such parties by an action
brought in any such court. Deposit by Escrow Agent of such funds with such
court, or holding such funds until such court determines their disposition,
after deducting therefrom its expenses incurred in connection with any such
court action, shall relieve Escrow Agent of all liability and
responsibility hereunder.
8
<PAGE>
9. Balance of Escrow Funds. Upon the termination of the escrow in
-----------------------
accordance with the provisions of Section 3, the Escrow Agent shall distribute
the remaining Escrow Funds and any interest earned thereon to Seller and Seller
shall have no further obligation of any kind to Buyer or the Escrow Agent under
this Agreement.
10. Notices. Notice of any submission or other communication to the
-------
Escrow Agent by the Seller seeking the disbursement of funds shall be given to
the Buyer within three (3) business days of such submission or communication.
Notice of any disbursement from the Escrow Funds shall be given to the Buyer
within three (3) business days of such disbursement. Any notice to be given
hereunder shall be deemed given if in writing and delivered personally or mailed
by certified mail, postage prepaid, return receipt requested, or by courier, fee
prepaid, guaranteeing overnight delivery, and to the party to receive notice at
the following address or such address as any party may designate by notice to
the other:
If to Seller: Figgie International Inc.
4420 Sherwin Road
Willoughby, Ohio 44094
Attn: Steven L. Siemborski
Fax: (216) 951-1724
with a copy to: Benesch, Friedlander, Coplan &
Aronoff
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114-2378
Attn: Chairperson, Real Estate Dept.
Fax: (216) 363-4588
If to Buyer: Communications Instruments, Inc.
POB 520
1396 Charlotte Highway
Fairview, North Carolina 28730
Attn: Dan Taylor
Fax: (704) 628-1439
9
<PAGE>
with a copy to: Parker, Poe, Adams & Bernstein
One Exchange Plaza
POB 389
Raleigh, North Carolina 27603
Attn: John T. Butler
Fax: (919) 834-4564
If to the Escrow Agent: Bank One Trust Company, NA
100 East Broad Street
Columbus, Ohio 43271-0181
Attn: Michael Dockman
Fax: 612-248-5195
11. Authorized Persons. The Escrow Agent is authorized to disregard any
------------------
notices or instructions given by any party hereto or by any other person, firm
or corporation, except only such notices or instructions as are herein provided
for and given by the individuals listed on Exhibit B attached hereto and made a
part hereof ("Authorized Person(s)"). Exhibit B may be amended from time to time
by Seller or Buyer with respect to each of such party's Authorized Persons. The
Escrow Agent may rely, and shall be protected in acting or refraining from
acting, upon any instrument furnished to it hereunder and believed by it, in
good faith, to be genuine and have been signed by an Authorized Person.
12. Resignation of Escrow Agent. It is understood that the Escrow Agent
---------------------------
reserves the right to resign as Escrow Agent at any time by giving no less than
thirty (30) days written notice of its resignation, specifying the effective
date thereof, to each other party hereto. Within thirty (30) days after
receiving the aforesaid notice, the other party or parties hereto shall appoint
a successor Escrow Agent to which the Escrow Agent may distribute the property
then held hereunder, less its fees, costs and expenses (including counsel fees
and expenses) which may remain unpaid at that time. If a successor Escrow Agent
has not been appointed and has not accepted such appointment by the end of such
thirty (30) day period, the Escrow Agent may
10
<PAGE>
apply to a court of competent jurisdiction for the appointment of a successor
Escrow Agent and the fees, costs and expenses (including counsel fees and
expenses) which it incurs in connection with such a proceeding shall be paid
from the Escrow Fund.
13. Miscellaneous.
-------------
(a) This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Ohio applicable to agreements made
and to be entirely performed within such state.
(b) This Agreement, the Asset Purchase Agreement and the Lease set
forth the entire agreement and understanding of the parties in respect to
this transaction and supersedes all prior agreements, arrangements and
understandings relating to the subject matter hereof.
(c) All the terms and conditions of this Agreement shall be binding
upon, and inure to the benefit of and be enforceable by, the parties hereto
and their respective successors and assigns.
(d) Except for Exhibit B which may be amended by either party from
time to time pursuant to Section 11 hereof, this Agreement may be amended,
modified, superseded or cancelled, and any of the terms or conditions
hereof may be waived, only by a written instrument executed by each party
hereto or, in the case of a waiver, by the party waiving compliance. The
failure of any party at any time or times to require performance of any
provisions hereof will in no manner affect the right at a later time to
enforce the same. No waiver by any party of any condition, or of the
breach of any term contained in this Agreement whether by conduct or
otherwise, in any one or more
11
<PAGE>
instances shall be deemed to be or construed as a further or continuing
waiver of any such condition or breach or a waiver of any other condition
of or the breach of any other term of this Agreement.
(e) This Agreement shall be construed as if jointly prepared by
Seller and Buyer.
12
<PAGE>
(f) This Agreement may be executed simultaneously in two or more
counterparts, each of which will be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
FIGGIE INTERNATIONAL INC.
By:______________________________
Name:____________________________
Title:___________________________
"Seller"
COMMUNICATIONS INSTRUMENTS,
INC.
By:______________________________
Name:____________________________
Title:___________________________
"Buyer"
BANK ONE TRUST COMPANY, NA
By:______________________________
Name:____________________________
Title:___________________________
"Escrow Agent"
13
<PAGE>
EXHIBIT A
---------
Environmental Remediation
Hartman Electrical Manufacturing Company
Mansfield, Ohio
1. HAZARDOUS WASTE STORAGE SHED.++
-----------------------------
(A) Removal of the existing hazardous waste storage shed. The shed is
assumed to be approximately 10 feet by 10 feet and constructed of sheet
metal. The shed will be power washed and approximately four drums of
solid waste will be collected and disposed of as a listed hazardous
waste. The washed demolition debris will fill approximately one roll-
off and will be disposed of as a solid waste.
$10,000
(B) Excavation, transportation and disposal as a listed hazardous waste of
potentially contaminated soil.
$50,000
(C) Sampling of soil at new location for new hazardous waste storage shed
and construction of new hazardous waste storage shed.
$40,000
2. EXCAVATION AND DISPOSAL OF SOIL "HOT SPOTS" CONTAMINATED BY VOCs.*
-------------------------------------------------------------------
$80,000
* [Subject to final Ohio cleanup standards promulgated under Ohio Revised
Code Chapter 3746; other remedial methods may be appropriate.]
3. VOCs IN SHALLOW AQUIFER ON-SITE.
-------------------------------
Determination of the source and extent of contamination. The source could
be determined through testing and study of the drains and pipes. The source
and the extent can be approximated with a soil gas survey under the floor
slab of the building and east and north of the building. Additional
monitoring wells would confirm the results of the survey. Determine for
risk characterization purposes if there are any receptors. Risk assessment
may be performed based on the results of the characterization activities.
Some remediation may have to be performed such as source removal and/or
pump and treat.
14
<PAGE>
The costs for additional investigation and the installation of a pump
and treat system and operation for three years are included in the cost
estimate. $250,000
4. PETROLEUM HYDROCARBONS IN SOIL ON NORTHERN PORTION OF SITE.
-----------------------------------------------------------
The source of the contamination is unknown. Therefore, based on current
knowledge, it is not possible to determine the party responsible for
remediating this petroleum contamination. Further investigation will
be conducted into the source and extent of contamination through a
soil gas survey and confirmatory sampling. Sufficient information
needs to be collected to perform a risk assessment. Soil excavation or
some other type of remediation may not be necessary.
Additional Subsurface Assessment. $30,000
Risk Characterization. $20,000
5. VOCs IN DEEP AQUIFER.
--------------------
Low levels of chlorinated VOCs are present in the deep aquifer on the
southern portion of the site. However, there is not sufficient
information to conclude that these contaminants are from upgradient
off-site sources. The certified professional will gather additional
information regarding the aquifer flow direction and use from well logs
of other wells in the vicinity. In the meantime, it may be prudent not
to use the well for any purposes until the aquifer system is better
understood.
$10,000
6. REGULATORY COMPLIANCE.++
---------------------
(A) Establish an appropriate, monthly hazardous waste tracking system
including facility-wide labeling at satellite and permanent storage
areas that meet letter size requirements and contain all necessary
information. Instruction and training on proper drum labeling
involving two or three individuals at the facility. Establish a
hazardous waste management plan, including "Emergency Preparedness
and Prevention." $10,000
15
<PAGE>
(B) Complete air emissions evaluation. If necessary, prepare permit for
and/or register all air emissions.
$5,000
(C) Conduct asbestos survey and, if necessary, implement appropriate
training and compliance plan.
$7,500
(D) Install oil/water separators or other devices, as appropriate, on
sumps and drains.
$3,000
(E) Withdraw General Permit for Stormwater from Ohio EPA.
$0
- --------------------------------------------------------------------------------
TOTAL:
- --------------------------------------------------------------------------------
$515,500
++ Certain of these costs may have been paid for by Seller in advance and
prior to the date of this Agreement or assumed by Seller pursuant to the
Asset Purchase Agreement between the parties. If so, these costs will be
subtracted from the Escrow Fund total and returned to Seller but the
obligation to complete the tasks will remain.
16
<PAGE>
EXHIBIT B
---------
Authorized Persons
Figgie International Inc. Communications Instruments, Inc.
- ------------------------- --------------------------------
Name: STEVEN SIEMBORSKI Name: RAMZI DABBACH
Signature_______________ Signature____________________
Name: TODD S. DAVIS Name: DAVID HENNING
Signature_______________ Signature____________________
Name: KEVIN D. MARGOLIS Name: G. DANIEL TAYLOR
Signature_______________ Signature____________________
Name: ROBERT VILSACK Name: MICHAEL STEINBACK
Signature_______________ Signature____________________
Name: JEROME M. FERSTMAN
Signature_______________
17
<PAGE>
EXHIBIT 10.15
CII TECHNOLOGIES INC.
1996 MANAGEMENT STOCK PLAN
SECTION 1- PURPOSE
------------------
The purpose of the CII Technologies Inc. 1996 Management Stock Plan
(the "Plan") is to strengthen Communications Instruments Holdings, Inc. (to be
renamed CII Technologies Inc.) (the "Company") by providing selected employees
of the Company with the opportunity to acquire a proprietary and vested interest
in the growth and performance of the Company, thus generating an increased
incentive to contribute to the Company's future success and prosperity,
enhancing the value of the Company for the benefit of stockholders, and
enhancing the Company's ability to attract and retain individuals of exceptional
talent.
The purposes of the Plan are to be achieved through the grant of
various types of stock-based awards
SECTION 2- DEFINITIONS
----------------------
For purposes of the Plan, the capitalized terms shall have the
meanings ascribed to them in Exhibit A hereof.
SECTION 3 - SHARES SUBJECT TO THE PLAN
--------------------------------------
(a) Shares of Common Stock which may be issued under the Plan may be
either authorized and unissued shares of Common Stock or authorized and issued
shares of Common Stock. Subject to adjustment as provided in Section 14, the
number of shares of Common Stock with respect to which Awards (whether
distributable in shares of Common Stock or in cash) may be granted under the
Plan shall be shall be ___ million [newly issued] shares[.][and, in addition,
____ percent of the total outstanding shares of (Common Stock outstanding on the
last day of the preceding calendar year (including treasury shares) such shares
to be acquired through market purchases]; provided, however, that no more than a
-------- -------
total of [ ] shares of Common Stock during the term of the Plan may be subject
to incentive stock options; provided, further, that grants excluded from the
--------- -------
definition of derivative security by Rule 16a-l(c)(3)(ii) promulgated under the
Securities Exchange Act of 1934, shall not be subject to the limit placed on the
total shares of Common Stock with respect to which Awards may be granted
hereunder. The maximum number of shares of Common Stock available for stock
options, stock appreciation rights or other stock-based Awards that may be
granted to a Participant during a calendar year shall not exceed ___________.
(b) Notwithstanding Section 3(a), to the extent that the number of
shares of Common Stock with respect to which Awards may be granted under the
Plan in any calendar year exceeds the number of shares of Common Stock with
respect to which Awards were granted under the Plan during that calendar year,
such excess shall be available for grant under the Plan in succeeding calendar
years.
<PAGE>
2
(c) In the event that (i) a stock option expires or is terminated
unexercised as to any shares of Common Stock covered thereby (except with
respect to a stock option which terminates on the exercise of a stock appreciate
right) or (ii) any other Award is forfeited for any reason under the Plan, any
Common Stock allocated in connection with such Award, shall thereafter again be
available for grant pursuant to the Plan.
SECTION 4 - ELIGIBILITY
-----------------------
All Employees are eligible to be Participants In the Plan.
SECTION 5 - ADMINISTRATION
--------------------------
The Plan shall be administered by the Committee, which shall have the
power to select those Employees who shall receive Awards and to determine the
terms of such Awards. As to the selection of, and the terms of Awards granted
to, Participants who are not Executive Officers, the Committee may delegate any
or all of its responsibilities to officers or employees of the Company.
The Committee's authority hereunder shall include, without limitation,
the establishment of vesting schedules or exercisability in installments with
respect to Awards. The Committee may, in its sole discretion, accelerate or
waive vesting periods or installment exercise of Awards or extend the
exercisability (including to extend or provide for post-termination
exercisability) of Stock Options or Stock Appreciation Rights; provided that
such exercisability shall not extend past l0 years from the date of grant of
any incentive stock options.
Subject to the provisions of the Plan, the Committee shall be
authorized to interpret the Plan, to establish, amend, and rescind any rules and
regulations relating to the Plan, to determine the terms and provisions of any
agreements entered into hereunder, and to make all other determinations
necessary or advisable for the administration of the Plan. The Committee may
correct any defect, supply any omission or reconcile any inconsistency in the
Plan or in any Award in the manner and to the extent it shall deem desirable to
carry the Plan or any such Award into effect. The determinations of the
Committee in the administration of the Plan, as described herein, shall be final
and conclusive.
The validity, construction and effect of the Plan and any rules and
regulations relating to the Plan shall be determined in accordance with the laws
of the State of Delaware and applicable Federal law.
SECTION 6 - STOCK OPTIONS
-------------------------
(a) Any stock options granted under the Plan shall be in such form as the
Committee may from time to time approve and shall be subject to the terms and
conditions provided herein and such additional terms and conditions not
inconsistent with the terms of the Plan, as the Committee shall deem desirable
<PAGE>
3
(b) Stock options may be granted to any Participant. Each grant of stock
options shall specify whether the underlying options are intended to be
incentive stock options or non-incentive stock options. In the case of incentive
stock options, the terms and conditions of such grants shall be subject to and
comply with such requirements as may be prescribed by Section 422(b) of the
Code, as from time to time amended, and any implementing regulations,
including, but not limited to, the requirement that such stock options are
exercisable during the Participant's lifetime, only by such Participant. The
Committee shall establish the option price at the time cash stock option is
granted, which price in the case of an incentive stocks option shall not be less
than 100 percent of the Fair Market Value of the Common Stock on the date of
grant.
(c) No stock options may not be exercisable later than 10 years after
their date of grant. The option price of each share of Common Stock as to which
a stock option is exercised shall be paid in full at the time of such exercise.
Such payment may be made at the sole discretion of the Committee, pursuant so
and in accordance with criteria and guidelines established by the Committee
(which criteria and guidelines may be different for Executive Officers and for
other Participants), as the same may be modified from time to time, (i) in cash,
(ii) by tender of shares of Common Stock already owned by the Participant,
valued at Fair Market Value as of the date of exercise, (iii) if authorized by
the Committee, by withholding pursuant to the election of the Participant, which
election is subject to the disapproval of the Committee, from those shares that
would otherwise be obtained upon exercise of the option a number of shares
having a Fair Market Value equal to the option price, (iv) if authorized by the
Committee, and in combination with services rendered by the exercising
Participant, by delivery of a properly executed exercise notice together with
irrevocable instructions to a securities broker (or, in the case of pledges,
lender) approved by the Company to, (a) sell shares of Common Stock subject to
the option and to deliver promptly to the Company a portion of the proceeds of;
such sale transaction on behalf of the exercising Participant to pay the option
price, or (b) pledge shares of Common Stock subject to the option to a margin
account maintained with such broker or lender, as security for a loan, and such
broker or lender, pursuant to irrevocable instructions, delivers to the Company
the loan proceeds, at the time of exercise to pay the option price, or (v) by
any combination of (i), (ii), (iii) or (iv) above.
(d) A stock option holder may, in the discretion of the Committee, have
the right (a "Limited Right") to surrender a Stock Option or any portion thereof
to the Company within 30 days following a Change in Control and to receive from
the Company in exchange therefor a cash payment in an amount equal to (a) the
number of unexercised shares of Common Stock under the option which are being
surrendered multiplied by (b) the excess of (i) the highest price per share of
Common Stock paid in connection with the Change in Control, over (ii) the
purchase price of the option as set forth in the underlying option agreement.
SECTION 7 - STOCK APPRECIATION RIGHTS
-------------------------------------
(a) Stock appreciation rights may be granted independent of any stock
option or in conjunction with all or any part of any stock option granted under
the Plan, either at the same
<PAGE>
4
time as the stock option is granted or at any later time during the term of the
option. Stock appreciation rights shall be subject to such terms and conditions
as determined by the Committee, not inconsistent with the provisions of the
Plan.
(b) Upon exercise, a stock appreciation right shall entitle the
Participant to receive from the Company an amount equal to excess of the Fair
Market Value of a share of Common Stock on the date of exercise of the stock
appreciation right over the per share grant or option price, as applicable (or
some lesser amount as the Committee may determine at the time of grant),
multiplied by the number of shares of Common Stock with respect to which the
stock appreciation rights is exercised. Upon the exercise of a stock
appreciation right granted in connection with a stock option, the stock option
shall be canceled to the extent of the number of shares as to which the stock
appreciation right is exercised, and upon the exercise of a stock option granted
in connection with a stock appreciation right or the surrender of such stock
option, the stock appreciation right shall be canceled to the extent of the
number of shares as to which the stock option is exercised or surrendered. The
Committee shall determine whether the stock appreciation right shall be settled
in cash, Common Stock or a combination of cash and Common Stock.
(c) A holder of a stock appreciation right may, in the discretion of the
Committee, have the right (a "Limited SAR Right") to surrender the stock
appreciation right or any portion thereof to the Company within 30 days
following a Change in Control and to receive from the Company in exchange
therefor a cash payment in an amount equal to (a) the number of shares of Common
Stock under the stock appreciation right which are being exercised, multiplied
by (b) the excess of (i) the highest price per share of Common Stock paid in
connection with the Change in Control, over (ii) the Fair Market Value of a
share of Common Stock on the date the appreciation right was granted as set
forth in the underlying agreement.
SECTION 8 - OTHER STOCK-BASED AWARDS
------------------------------------
(a) Other Awards of Common Stock and Awards that are valued in whole or
in part by reference to, or otherwise based on the Fair Market Value of Common
Stock (all such Awards being referred to herein as "Other Stock-based Awards"),
may be granted under the Plan in the discretion of the Committee. Other Stock-
based Awards, shall be in such form as the Committee shall determine, including
without limitation, (i) the right to purchase shares of Common Stock, (ii)
shares of Common Stock subject to restrictions on transfer until the completion
of a specified period of service, the occurence of an event or file attainment
of performance objectives, each as specified by the Committee, and (iii)
shares of Common Stock issuable upon the completion of a specified period of
service, the occurrence of an event or the attainment of performance objectives,
each as specified by the Committee. Other Stock-based Awards may be granted
alone or in addition to any other Awards made under the Plan. Subject to the
provisions of the Plan, the Committee shall have sole and absolute discretion to
determine to whom and when such Other Stock-based Awards will be made, the
number of shares of Common Stock to be awarded under (or otherwise related to)
such Other Stock-based Awards and all other terms and conditions of such Awards.
The Committee shall
<PAGE>
5
determine whether Other Stock-based Awards shall be settled in cash, Common
Stock or a combination of cash and Common Stock.
SECTION 9 - DIVIDENDS, EQUIVALENTS AND VOTING RIGHTS
----------------------------------------------------
Awards other than stock options may, at the discretion of the
Committee, provide the Participant with dividends or dividend equivalents and
voting rights prior to either vesting or earnout.
SECTION 10 - AWARD AGREEMENTS
-----------------------------
Each Award under the Plan shall be evidenced by an agreement setting
forth the terms and conditions, not inconsistent with the provisions of the
Plan. as determined by the Committee, which shall apply to such Award.
SECTION 11- WITHHOLDING
-----------------------
The Company shall have the right to deduct from all amounts paid to
any Participant in cash (whether under this Plan or otherwise) any taxes
required by law to be withheld therefrom. In the case of payments of Awards in
the form of Common Stock, at the Committee's discretion the Participant may be
required to pay to the Company the amount of any taxes required to be withheld
with respect to such Common Stock, or, in lieu thereof, the Company shall have
the right to retain the number of shares of Common Stock the Fair Market Value
of which equals the amount required to be withheld. Without limiting the
foregoing, the Committee may, in its discretion and subject to such conditions
as it shall impose, permit share withholding to be done at the Participant's
election.
SECTION 12 - NON-TRANSFERABILITY
--------------------------------
No Award shall be assignable or transferable, and no right or interest
of any Participant in any Award shall be subject to any lien, obligation or
liability of the Participant, except by will, the laws of descent and
distribution, or as otherwise set forth in the Award agreement.
SECT1ON 13 - NO RIGHT TO EMPLOYMENT OR
--------------------------------------
CONTINUED PARTICIPATION IN PLAN/NO
----------------------------------
RIGHTS AS SHAREHOLDERS
----------------------
(a) No person shall have any claim or right to the grant of an Award,
and the grant of an Award shall not be construed as giving a Participant the
right to be retained in the employ of the Company or to be eligible for any
subsequent Awards. Further, the Company expressly reserves the right at any time
to dismiss a Participant free from any liability, or any claim under the Plan,
except as provided herein or in any agreement entered into hereunder.
<PAGE>
6
(b) The grant of an Award shall not be construed as giving a
Participant the rights of a shareholder of Common Stock unless and until shares
of Common stock have been issued to Participants pursuant to Awards hereunder.
SECTION 14 - ADJUSTMENT OF AND CHANGES IN COMMON STOCK
------------------------------------------------------
In the event of any change in the outstanding shares of Common Stock
by reason of any Common Stock dividend or split recapitalization, merger,
consolidation, spin-off, combination or exchange of shares or other corporate
exchange, or any distribution to shareholders of Common Stock other than regular
cash dividends, the Committee may make such substitution or adjustment, if any,
as it deems to be equitable, as to the number or kind of shares of Common Stock
or other securities issued or reserved for issuance pursuant to the Plan, and to
outstanding Awards, as well as the option price or other affected terms of such
Awards.
After a merger of one or more into corporations into the Company or
after a consolidation of the Company and one or more corporations (a "Merger
Event")in which the Company shall be the surviving or resulting corporation, an
Award holder shall, where applicable, at the same cost, be entitled upon the
exercise of an Award, to receive (subject to any action required by
shareholders) such securities of the surviving or resulting corporation as shall
be equivalent to the shares underlying such Award as nearly as practicable to
the nearest whole number and class of shares of stock or other securities.
If the Company enters into any agreement with respect to any
transaction which would, if consummated, result in a Merger Event in which the
Company will not be the surviving corporation, the Committee in its sole
discretion and without liability to any person shall determine what actions
shall be taken with respect to outstanding Awards, if any, including without
limitation, the payment of a cash amount in exchange for the cancellation of an
Award or the requiring of the issuance of substitute Awards that will
substantially preserve the value, rights and benefits of any affected Awards
previously granted hereunder as of the date of the consummation of the Merger
Event.
SECTION 15 - AMENDMENT
----------------------
The Board may amend, suspend or terminate the Plan or any portion
hereof at any time, provided that no amendment shall be made without approval
of the shareholders of the Company which shall (i) increase (except as provided
in Section 14 hereof) the total number of shares or the percentage of shares
reserved for issuance pursuant to the Plan; (ii) change the class of Employees
eligible to be Participants; or (iii) extend the date after which Awards cannot
be granted under the Plan.
SECTION 16 - UNFUNDED STATUS OF PLAN
------------------------------------
The Plan is intended to constitute to constitute an "unfunded" plan
for long-term incentive compensation. With respect to any payments not yet made
to a Participant, including any
<PAGE>
7
Participant optionee, by the Company, nothing herein contained shall give any
Participant any rights that are greater than those of a general creditor of the
Company. In its sole discretion, the Committee may authorize the creation of
trusts or other arrangements to meet the obligations created under the Plan to
deliver Common Stock or payments in lieu thereof or with respect to options,
stock appreciation rights and other Awards under the Plan; provided, however,
-------- --------
that the existence of such trusts or other arrangements is consistent with the
unfunded status of the Plan.
SECTION 17 - EFFECTIVE DATE
---------------------------
Subject to approval of the shareholders of the Company, in accordance
with Rule 16b-3 under the Securities Exchange Act of 1934, and Code Sections
162(m) and 422, this Plan shall be effective on ______ ____, 1996. No Awards may
be granted under the Plan after ________ ___, 2006.
<PAGE>
8
EXHIBIT A
(a) "Award" shall mean any type of stock-based award granted pursuant
to the Plan
(b) "Board" shall mean the Board of Directors of the Company;
provided, however, that any action taken by a duly authorized committee of the
- --------- --------
Board within the scope of authority delegated to such committee by the Board
shall be considered an action of the Board for purposes of this Plan.
(c) "Change in Control" shall mean the occurrence during the term
of the Plan of:
a) The commencement (within the meaning of Rule 14d-2
under the Securities Exchange Act of 1934 (the "Exchange Act")) of a tender
offer for more than 20% of the Company's outstanding shares of capital stock
having ordinary voting power in the election of directors (the "Voting
Securities").
b) An acquisition (other than directly from the Company)
of any voting securities of the Company by any "Person" (as the term person is
used for purposes of Section 13(d) or 14(d) of the Exchange Act) immediately
after which such Person has "Beneficial Ownership" (within, the meaning of Rule
13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of the
combined voting power of the Company's then outstanding Voting Securities;
provided, however, in determining whether a Change in Control has occurred,
- -------- -------
Voting Securities which are acquired in a "Non-Control Acquisition" (as
hereinafter defined) shall not constitute an acquisition which would cause a
Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (i)
an employee benefit plan (or a trust forming a part thereof or a trustee thereof
acting solely in its capacity as trustee) maintained by (A) the Company or (B)
any corporation or other Person of which a majority of its voting power or its
voting equity securities or equity interest is owned, directly or indirectly, by
the Company (for purposes of this definition, a "Subsidiary"), (ii) the Company
or its Subsidiaries, or (iii) any Person who files in connection with such
acquisition a Schedule 13D which expressly disclaims any intention to seek
control of the Company and does not expressly reserves the right to seek such
control; provided, however, that any amendment to such statement of intent which
-------- -------
either indicates an intention or reserves the right to seek control shall be
deemed an "acquisition" of the securities of the Company reported in such filing
as beneficially owned by such Person for purposes of this paragraph (b).
c) The individuals who, as of the effective date of the
1994 initial public trading in Company shares, are members of the Board (the
"Incumbent Board"), ceasing for any reason to constitute at lease two-thirds of
the members of the Board; provided, however, that if the election, or nomination
for election by the Company's common stockholders, of any new director was
approved by a vote of at least two-thirds of the Incumbent Board, such new
director shall, for purposes of this Plan, be considered as a member of the
Incumbent Board: provided further, however, that no individual shall be
considered a member of Incumbent Board if such individual initially assumed
office as a result of either an actual or threatened "Election Contest"
(described in Rule 14a-11
<PAGE>
9
promulgated under the 1934 Act or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board (a "Proxy
Contest") including by reason of any agreement intended to avoid or settle any
Election Contest or Proxy Contest: or
d) Approval by stockholders of the Company of:
(i) A merger, consolidation or reorganization involving the
Company, unless such merger, consolidation or reorganization is a "Non-Control
Transaction"; i.e., meets each of the requirements described in (A), (B), and
----
(C) below:
(A) the stockholders of the Company, immediately
before such merger, consolidation or reorganization, own, directly or indirectly
immediately following such merger, consolidation or reorganization, at least
seventy percent (70%) of the combined voting power of the outstanding voting
securities of the corporation resulting from such merger or consolidation or
reorganization (the "Surviving Corporation") in substantially the same
proportion as their ownership of the Voting Securities immediately before such
merger, consolidation or reorganization;
(B) the individuals who were members of the Incumbent
Board immediately prior to the execution of the agreement providing for such
merger, consolidation or reorganization constitute at least two-thirds of the
members of the board of directors of the Surviving Corporation immediately
following the consummation of such merger, consolidation or reorganization; and
(C) no Person other than the Company, any Subsidiary,
any employee benefit plan (or any trust forming a part thereof or a trustee
thereof acting solely in its capacity as trustee) maintained by the Company, the
Surviving Corporation, or any Subsidiary, or any Person who, immediately prior
to such merger, consolidation or reorganization had Beneficial Ownership of
thirty percent (30%) or more of the then outstanding Voting Securities has
Beneficial Ownership of thirty percent (30%) or more of the combined voting
power of the Surviving Corporation's then outstanding voting securities
immediately following the consummation of such merger, consolidation or
reorganization.
(ii) A complete liquidation or dissolution of the Company;
or
(iii) An agreement for the sale or other disposition of all
or substantially all of the assets of the Company to any Person (other than a
transfer to a Subsidiary).
[Notwithstanding the foregoing, a Change in Control shall
not be deemed to occur solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the outstanding Voting
Securities as a result of the acquisition of Voting Securities by the Company
which, by reducing the number of Voting Securities outstanding, increases the
proportional number of shares Beneficially Owned by the Subject Persons,
provided that if a Change in Control would occur (but for the operation of this
sentence) as a result of the acquisition of Voting Securities by the Company,
and after such Beneficial owner of any additional Voting Securities which
increases the
<PAGE>
10
percentage of the then outstanding Voting Securities Beneficially Owned by the
Subject Person, then a Change in Control shall occur.]
(d) "Code" shall mean the Internal Revenue Code of 1986, as from
time to time amended.
(e) "Committee" shall mean the Compensation Committee of the
Company.
(f) "Common Stock" shall mean the common stock of the Company,
$.10 par value.
(g) "Company" shall mean CII Technologies Inc. and, except as
otherwise specified in this Plan in a particular context, any successor thereto,
whether by merger, consolidation, purchase of substantially all its assets or
otherwise.
(h) "Employee" shall mean any salaried employee of the Company
or any Subsidiary.
(i) "Executive Officer" shall mean a Participant who is subject
to the requirements of Sections 16(a) and 16(b) of the Securities Exchange Act
of 1934.
(j) "Fair Market Value" on any date means the closing price of
the shares on such date on the principal national securities exchange on which
such shares are listed or admitted to trading (or, if such exchange is not open
on such date, the immediately preceding date on which such exchange is open),
the arithmetic mean of the per share closing bid price and per share closing
asked price on such date as quoted on the National Association of Securities
Dealers Automated Quotation System, or such other market in which such prices
are regularly quoted, or, if there have been no published bid or asked
quotations with respect to share on such date, the Fair Market Value shall be
the value established by the Committee in good faith and, in the case of an
incentive stock option, in accordance with Section 422 of the Code.
(k) "Other Stock-based Award" shall mean any of those Awards
described in Section 8 hereof.
(l) "Participant" shall mean an Employee who is selected by the
Committee to receive an Award under the Plan.
(m) "Subsidiary" shall mean any corporation which at the time
qualifies as a subsidiary of the Company under the definition of "subsidiary
corporation" in Section 424(f) of the Code, as amended from time to time.
(n) "Total Disability" shall mean a physical or mental
incapacity, which would entitle the individual to benefits under the long-term
disability program sponsored by the Company employing such individual; provided,
--------
however, that if an individual has not elected
- -------
<PAGE>
11
coverage under the applicable program, the Committee shall determine utilizing
the criteria of such program whether the individual has incurred a Total
Disability.
<PAGE>
EXHIBIT 10.16
KILOVAC CORPORATION
FIRST AMENDMENT
TO
STOCK SUBSCRIPTION AND PURCHASE AGREEMENT
This FIRST AMENDMENT TO STOCK SUBSCRIPTION AND PURCHASE AGREEMENT (this
"AMENDMENT") dated as of August 26 , 1996 is made and entered into by and among
CII TECHNOLOGIES INC., a Delaware corporation ("CIIT"), COMMUNICATIONS
INSTRUMENTS, INC., a North Carolina corporation ("BUYER"), KILOVAC
CORPORATION, a California corporation (the "COMPANY"), and the shareholders
executing this Amendment (individually, a "SELLING SHAREHOLDER" and
collectively, the "SELLING SHAREHOLDERS").
W I T N E S S E T H :
WHEREAS, the parties hereto other than CIIT are parties to the Stock
Subscription and Purchase Agreement dated as of September 20, 1995 (the
"AGREEMENT"), which provides for redemption by the Company of 80% of its
outstanding Class A Common Shares, no par value (the "COMMON STOCK"), and the
purchase by Buyer of an equal number of shares of Common Stock; and
WHEREAS, the Agreement contains certain provisions relating to the shares of
Common Stock retained by the Selling Shareholders following the redemption
(such shares as defined in the Agreement, the "CONTINUING SHARES"); and
WHEREAS, CIIT, an affiliate of Buyer, desires to proceed with the sale of a
portion of its common stock ("CIIT STOCK") in an initial public offering (the
"IPO") registered with the Securities and Exchange Commission under the
provisions of the Securities Act of 1933, as amended (the "ACT"); and
WHEREAS, after reviewing the provisions of the Agreement regarding the
proportion of CIIT Stock that the holders of the Continuing Shares will be
entitled to receive on completion of an IPO of CIIT Stock, CIIT has determined
that the terms of the exchange ratio may need to be adjusted to allow for an
IPO at this time; and
WHEREAS, CIIT, Buyer and the Selling Shareholders have agreed that the
Selling Shareholders will agree to certain amendments to the Agreement in
consideration of the Selling Shareholders receiving, shares of CIIT Stock with
an aggregate initial public offering price of $4,500,000 based on the price at
which the CIIT Stock is offered in the IPO; and
WHEREAS, the Selling Shareholders, as holders of the Continuing Shares, have
determined that it is in the best interests of the Selling Shareholders to
proceed with an IPO of the CIIT Stock at this time, and in furtherance thereof
it is in the best interests of the Selling Shareholders to agree to certain
amendments of the Agreement set forth herein; and
WHEREAS, Buyer and CIIT have determined that it is in their best interests
to proceed with an IPO of the CIIT Stock at this time, and in furtherance
thereof it is in each of their best interests to agree to certain amendments
of the Agreement set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants, agreements, terms and conditions
contained herein, the parties hereto do hereby agree as follows:
1. Effectiveness of Amendment. The modifications to the Agreement set forth
herein shall be effective upon the execution and delivery of this Amendment by
all of the parties hereto. If CIIT has not completed an IPO of the CIIT Stock
on or before December 31, 1996 or if the Continuing Shares are not exchanged
for shares
1
<PAGE>
of CIIT Stock in connection therewith pursuant to the Agreement, as modified
by this Amendment, the modifications to the Agreement contained herein (other
than the provisions of Section 7 hereof) shall lapse and be void and of no
further force or effect. Thereafter, the provisions of the Agreement shall be
effective in accordance with their terms and without reference to this
Amendment (other than the provisions of Section 7 hereof), as if this
amendment to the Agreement had not been made. If CIIT completes an IPO of the
CIIT Stock on or before December 31, 1996 and the Continuing Shares are
converted into CIIT Stock in accordance with the provisions of the Agreement,
as modified by this Amendment, the condition subsequent set forth in the
foregoing sentences shall terminate effective on the closing of the IPO (the
"IPO CLOSING").
2. IPO Exchange. Notwithstanding the provisions of Section 1.7.5 of the
Agreement, at the time of and concurrent with the IPO Closing, the Continuing
Shares shall be exchanged for CIIT Stock having an aggregate value of
$4,500,000 (such shares of CIIT Stock, the "EXCHANGE STOCK") in accordance
with the formula set forth below. Each Continuing Share shall be exchanged for
the number of shares of CIIT Stock equal to the result of: $4,500,000 divided
by the initial per share offering price to the public of CIIT Stock in the IPO
(the "IPO PRICE") and dividing such result by 24,957 (the number of Continuing
Shares).
For example, if the IPO Price is $10, then 450,000 shares of CIIT Stock
will be exchanged for the Continuing Shares at a ratio of 18.031 shares of
CIIT Stock for each Continuing Share.
No fractional shares of Exchange Stock shall be issued. Selling Shareholders
who would otherwise be entitled to receive a fractional share of the Exchange
Stock shall receive in lieu thereof an amount in cash determined by
multiplying such fraction by the IPO Price.
3. Participation of the Selling Shareholders in the IPO. Notwithstanding the
provisions of Sections 1.7.5.1 and 1.7.5.2 of the Agreement, so long as CIIT
is the only seller of CIIT Stock in the IPO, the Selling Shareholders shall
have no right to sell any shares of the Exchange Stock in the IPO. The Selling
Shareholders shall have the right to participate in any secondary offering of
CIIT registered pursuant to the Act pari passu with all other holders of
unregistered CIIT Stock, and CIIT undertakes to use its best efforts to cause a
registration statement with respect to the Exchange Stock to be filed with the
Securities and Exchange Commission and become effective as soon as is reasonably
practicable following the first anniversary of the closing of the IPO.
4. Termination of Redemption Provisions. Notwithstanding the provisions of
Sections 1.7.3 and 1.7.4 of the Agreement, neither Buyer nor CIIT shall have
any obligation to purchase and redeem the Continuing Shares (or the Exchange
Stock) pursuant to Section 1.7.3 or Section 1.7.4 of the Agreement.
5. Manner of Exchange. CIIT and Buyer acknowledge that the conversion of
shares provided for in the Agreement and Plan of Merger among CIIT, CII and
Kilovac shall supersede Section 1.7.5.4 of the Agreement.
6. Restrictions on Sale of Exchange Stock. Each of the Selling Shareholders
other than the Kilovac Corporation Employee Stock Bonus Plan (the "ESBP")
agrees to enter into an agreement (the "LOCKUP AGREEMENT") in the form of
EXHIBIT A hereto with William Blair & Company, L.L.C. and Furman Selz LLC, as
representatives of the underwriters of the IPO, which Lockup Agreement shall
restrict the sale of Exchange Stock by each Selling Shareholder other than the
ESBP for a period of 365 days after the IPO Closing. Delivery of such Lockup
Agreement shall be conditioned upon the delivery of a substantially identical
Lockup Agreement by each and every beneficial owner of CIIT Stock or
securities convertible into CIIT Stock (other than the Selling Shareholders
and the ESBP), including optionees under currently outstanding options for the
purchase of CIIT Stock, which will not be registered in the IPO. Each of the
Selling Shareholders other than the ESBP specifically acknowledges and
agrees that Douglas L. Campbell (referred to herein as "CAMPBELL" or "PAYING
AGENT"), as attorney-in-fact for such Selling Stockholder pursuant to the
Paying Agent Agreement (as defined in the Agreement), has the power and
authority to execute and deliver the Lockup Agreement in the name of and on
behalf of such Selling Shareholder.
7. Indemnity. CIIT and Buyer, jointly and severally, agree to indemnify
Campbell, to the fullest extent possible under law, for any and all claims,
demands, losses, costs, charges, expenses, obligations, liabilities, actions,
suits, damages, judgments and deficiencies, including interest and penalties,
reasonable counsels' fees and costs and all reasonable amounts paid in
furtherance of the transactions contemplated herein or in settlement of any
claim, action or suit (collectively referred to as "CLAIMS") which may be
sustained, suffered or incurred
2
<PAGE>
by Campbell, arising out of or by reason of this Amendment and the
modifications to the Agreement contained herein or the preparation or
distribution of documents, instruments and materials necessary for the
consummation of this Amendment or the solicitation of the agreement of the
Selling Shareholders to this Amendment or the transactions contemplated
hereby. CIIT and Buyer, jointly and severally, agree to indemnify Campbell, to
the fullest extent possible under law, for any and all expenses incurred by
Campbell in implementing the modifications to the Agreement contemplated
herein and representing the interests of the Selling Shareholders in
connection therewith, such as legal fees and expenses incurred in connection
with the matters contemplated pursuant to Section 1.7.5.4 of the Agreement,
the costs of a fairness opinion and any other expenses incurred by Campbell
which he deems reasonable and necessary to complete the modifications to the
Agreement contained herein and the exchange of Continuing Shares into Exchange
Stock. The provisions of this Section 7 shall survive the IPO Closing or the
termination of this Amendment pursuant to Section 1.
8. Share Sale Adjustment. The parties acknowledge for the benefit of the
Share Escrow Holder pursuant to Section 1.7.2 of the Agreement that the IPO
Closing and the consummation of the exchange contemplated herein shall
constitute a Liquidity Event (as defined in the Agreement) and, on the
occurrence of such events, the Share Escrow Holder is to deliver to or at the
direction of the Paying Agent the Escrowed Continuing Shares. This
acknowledgement shall constitute a joint certification to the Share Escrow
Holder, as contemplated in Section 1.7.2.1 of the Agreement.
9. Miscellaneous.
9.1 Notices. Any notice or other communication required or permitted
hereunder shall be given in the manner provided in the Agreement. The address
of CIIT for notices shall be as follows:
If to CIIT: CII Technologies Inc. c/o
Stonebridge Partners Westchester
Financial Center 50 Main Street
White Plains, New York 10606
Attention: Michael S. Bruno, Jr.
Telecopy No.: (914) 682-0834
Telephone No.: (914) 682-2285
with a copy to:
Simpson Thacher & Bartlett 425
Lexington Avenue New York, New York
10017 Attention: Richard C.
Weisberg, Esq. Telecopy No.: (212)
455-2502 Telephone No.: (212) 455-
3240
9.2 Counterparts. This Amendment shall be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.3 Continuation of Agreement. Except as specifically modified hereby, all
provisions of the Agreement shall remain unaltered and in full force and
effect. From and after the date hereof, any reference in the Agreement (and in
any agreement referred to or contemplated in the Agreement) to the Agreement
and concerning a time from and after the date hereof shall be deemed to be a
reference to the Agreement as amended hereby.
9.4 Entire Agreement. This Amendment embodies the entire agreement and
understanding between the parties hereto with respect to the modification of
the Agreement and supersedes all prior negotiations, understandings and
agreements between the parties with respect thereto.
9.5 Defined Terms. All defined terms in this Amendment shall have the same
meaning which they have in the Agreement, unless otherwise defined in this
Amendment.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
Stock Subscription and Purchase Agreement to be duly executed as of the date
first above written.
CII Technologies Inc.
Attest ______________________________ By___________________________________
Ramzi A. Dabbagh,
Its Chief Executive Officer
Communications Instruments, Inc.
Attest ______________________________ By___________________________________
Ramzi A. Dabbagh,
Its President
Kilovac Corporation
Attest ______________________________
By___________________________________
Douglas Campbell,
Its President
SELLING SHAREHOLDERS
Witness _____________________________________
Douglas L. Campbell,
Trustee of the Kilovac Corporation
Employee Stock Bonus Plan
Witness _____________________________________
Douglas L. Campbell,
as Trustee of the Campbell
Charitable Remainder Unitrust
Witness _____________________________________
Milo Filip,
as Trustee of the Erin Campbell
Trust
Witness _____________________________________
Douglas L. Campbell
Witness _____________________________________
Ronald D. Klingensmith,
as Trustee of the Donald C.
Campbell Charitable Unitrust
4
<PAGE>
Witness
_____________________________________
Pat McPherson
Witness
_____________________________________
Robert Helman
Witness
_____________________________________
Dan McAllister
Witness
_____________________________________
Rick Danchuk
Witness
_____________________________________
Harry Jabagchourian
Witness
_____________________________________
John Stewart
Witness
_____________________________________
Rick Steen
Witness
_____________________________________
Susan Claire Anderson Reid
Witness
_____________________________________
Robin Hamilton
Witness
_____________________________________
Gary Clancy
Witness
_____________________________________
Hugh Vos
Witness
_____________________________________
Norm Blankenship
<PAGE>
EXHIBIT A
LOCK-UP AGREEMENT
_______, 1996
William Blair & Company L.L.C.
Furman Selz LLC
as Representatives of the
Several Underwriters
c/o William Blair & Company, L.L.C.
222 West Adams Street
Chicago, Illinois 60606-5312
CII Technologies, Inc.
1396 Charlotte Highway
Fairview, North Carolina 28730-0520
Ladies and Gentlemen:
Reference is made to that certain Underwriting Agreement by and among
CII Technologies, Inc. (the "Company"), and William Blair & Company, L.L.C. and
Furman Selz LLC as representatives (the "Representatives") of the several
Underwriters (the "Underwriters") named in Schedule A thereto. The Underwriting
Agreement provides for an initial public offering (the "Offering") of certain
shares of the Company's Common Stock, $.01 par value per share (the "Common
Stock") by the Underwriters, including the Representatives. The shares of
Common Stock to be sold in the Offering are being registered under the
Securities Act of 1933, as amended, pursuant to a registration statement on Form
S-1.
Please be advised that the undersigned (or an account over which the
undersigned has investment authority) is (or may become) the beneficial owner of
shares of Common Stock. In consideration of the Underwriters' management of the
Offering and for other good and valuable consideration, the receipt and
sufficiency of which is acknowledged, the undersigned agrees that without the
prior written consent of the Representatives, it will not (nor will it agree to)
assign, transfer, hypothecate, sell or otherwise dispose of any shares of Common
Stock or securities convertible into Common Stock (including Common Stock issued
pursuant to currently outstanding options), for a period of 365 days after the
date of this letter.
The undersigned understands that the Company may decline to register any
transfer of shares of Common Stock inconsistent with this letter ageement and
that stop transfer instructions will be given to the Company's transfer agent
with respect to shares of Common Stock subject to this letter agreement.
The undersigned also represents and warrants that it has full power and
authority to enter into this letter agreement, and that, upon request, the
undersigned will execute any additional documents necessary or desirable in
connection with the enforcement hereof. All authority herein conferred or
agreed to be conferred shall survive the death or incapacity of the undersigned
and any obligations of the undersigned shall be binding upon its heirs, personal
representatives, successors, and assigns.
Very truly yours,
----------------------------
Name:
-----------------------
Owner: shares
----------------
of Common Stock
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of CII Technologies Inc.
and subsidiaries on Form S-1 of our report on the financial statements of
Hartman Electrical Manufacturing Division of Figgie International dated June 28,
1996, appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
September 5, Ohio
July 12, 1996
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of CII Technologies Inc.
and subsidiaries on Form S-1 of our report dated March 21, 1996, appearing in
the Prospectus, which is part of this Registration Statement, and of our report
dated March 21, 1996, relating to the financial statement schedule appearing
elsewhere in this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
September 5, 1996
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of CII Technologies Inc.
and subsidiaries on Form S-1 of our report on the financial statements of
Kilovac Corporation and subsidiaries dated December 6, 1995, appearing in the
Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
Los Angeles, California
September 5, 1996
