<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 16, 1998
REGISTRATION NO. 333-38057
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
CVC, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 35633821 16-1383279
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
525 LEE ROAD
ROCHESTER, NEW YORK 14606
(716) 458-2550
(Address, including zip code and telephone number, including
area code, of registrant's principal executive offices)
CHRISTINE B. WHITMAN
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
CVC, INC.
525 LEE ROAD
ROCHESTER, NEW YORK 14606
(716) 458-2550
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
FREDERICK W. KANNER, ESQ. JOHN HESSION, ESQ.
DEWEY BALLANTINE LLP TESTA, HURWITZ & THIBEAULT, LLP
1301 AVENUE OF THE AMERICAS 125 HIGH STREET
NEW YORK, NEW YORK 10019 BOSTON, MASSACHUSETTS 02110
(212) 259-8000 (617) 248-7000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION,
JANUARY 16, 1998
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.
<PAGE>
3,900,000 SHARES
[LOGO]
COMMON STOCK
-----------
Of the 3,900,000 shares of common stock offered hereby (the "Common Stock"),
3,000,000 shares are being sold by CVC, Inc. ("CVC" or the "Company") and
900,000 shares are being sold by a Selling Stockholder ("the Offering"). See
"Principal and Selling Stockholders." The Company will not receive any proceeds
from the sale of the shares by the Selling Stockholder. Prior to the Offering,
there has been no public market for the Common Stock. It is currently estimated
that the initial public offering price will be between $12.00 and $14.00 per
share. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price. Application has been made to list
the Common Stock on the Nasdaq National Market under the symbol "CVCI."
--------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
-------------
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>
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS
TO DISCOUNTS AND TO TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDER
<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
Total(3)...................... $ $ $ $
</TABLE>
(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities under the Securities Act of 1933,
as amended. See "Underwriting."
(2) Before deducting estimated expenses payable by the Company of $750,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 585,000 additional shares of Common Stock solely to cover
over-allotments, if any. To the extent that such option is exercised, the
Underwriters will offer the additional shares at the Price to Public shown
above. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions, Proceeds to Company and Proceeds to
Selling Stockholder will be $ , $ , $ and $ ,
respectively. See "Underwriting."
--------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of BT Alex. Brown Incorporated, Baltimore, Maryland, on or about ,
1998.
BT ALEX. BROWN
HAMBRECHT & QUIST
PAINEWEBBER INCORPORATED
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE>
[OUTSIDE FLAP]
CVC MAKES THE CONNEXION-REGISTERED TRADEMARK-
CVC's Connexion-Registered Trademark- Cluster Tool offers data storage and
semiconductor customers an integrated thin film process solution using Physical
Vapor Deposition (PVD), Metal-Organic Chemical Vapor Deposition (MOCVD) and
Rapid Thermal Chemical Vapor Deposition (RTCVD).
[Upper Right-hand Corner] Graphic of laptop computer with (i) magnified graphic
of semiconductor chip with accompanying text reading "Advanced semiconductors
for semiconductor industry"; and (ii) magnified graphics of magnetic recording
head and recording head reading/writing to disk drive with accompanying text
reading "MR and GMR read/write heads for data storage industry."
[Left Margin] Photo of two persons operating Connexion-Registered Trademark-800
cluster tool with accompanying text reading "Front view of Connexion-Registered
Trademark-800 with dual load-lock doors."
[Lower Right-hand Corner] Graphic representing overhead view of
Connexion-Registered Trademark-800 Cluster Tool with accompanying text reading
"Connexion-Registered Trademark-800 Cluster Tool configured for MOCUD process."
CONNEXION-Registered Trademark- is a registered trademark of the Company.
OPEN CONNEXION-TM- and INFINITY-TM- are trademarks of the Company.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES AND THE IMPOSITION OF A PENALTY BID, DURING AND AFTER THE OFFERING.
SEE "UNDERWRITING."
[INSIDE FRONT COVER GATE #1]
<PAGE>
CVC PROVIDES WORLDWIDE SERVICE AND SUPPORT
CVC operates advanced product development, systems engineering, applications
engineering, customer service and technical support centers in New York,
California, Minnesota, Texas, Europe and Asia.
[Upper Right-hand Corner] Graphic of Connexion-Registered Trademark-800 Central
Wafer Handler with accompanying text reading "Connexion-Registered Trademark-800
Central Wafer Handler supports six process modules and a high throughput robot."
[Upper-Middle Left margin] Software image graphic of overhead view of
Connexion-Registered Trademark-800' cluster tool with accompanying text reading
"CVC Open Connexion-Registered Trademark-Plug and Play Software Application."
[Middle of Page] Graphic of globe with sites of CVC, Inc.'s manufacturing
facilities highlighted.
[Lower-Middle Left Margin] Graphic of semiconductor chip on transport
superimposed over a bed of semiconductor chips.
[Lower Left-hand Corner] Graphic depicting Fremont, California facilities with
accompanying text reading "Fremont, California Facilities."
[Lower-Middle Right Margin] Graphic depicting rows of cluster tool modules in
process of assembly with accompanying text reading "Manufacturing facilities --
sub-assembly."
[Lower Right-hand Corner] Graphic depicting CVC headquarters in Rochester, New
York with accompanying text reading "CVC headquarters in Rochester, NY."
[INSIDE FRONT COVER GATE #2]
We deliver thin film
CVC's Connexion-Registered Trademark- Cluster Tool Technology for Semiconductor
Integrated Circuits and Advanced Metal Interconnect Processes
[Upper Left Hand Corner] Graphic representing wafer.
[Center of Page] Graphic representing MOCVD .13 micro meter 10:1 Aspect Ratio
Copper Gap Fill SEM with accompanying text reading "MOCVD .13 micro meter 10:1
Aspect Ratio Copper Gap Fill SEM."
[Lower-Middle Left Margin] Graphic representing side view of
Connexion-Registered Trademark-MOCVD copper process module with accompanying
text reading "Connexion-Registered Trademark-MOCVD copper process module, side
view."
[Lower Left-hand Corner] Graphic representing semiconductor chip.
[Lower Right-hand Corner] Graphic representing Connexion-Registered
Trademark-800 with attached process modules with accompanying text reading
"Connexion-Registered Trademark-800 accommodates six process modules and two
load-locks."
[INSIDE BACK COVER]
Process Solutions
CVC's Connexion-Registered Trademark- Cluster Tool Technology for Data Storage
MR and GMR Head Thin Film Deposition
[Upper Right-hand Corner] Graphic of Connexion-Registered Trademark-GMR process
module with six 12-inch [cathodes] with accompanying text reading
"Connexion-Registered Trademark-GMR process module with six 12-inch [cathodes]."
<PAGE>
[Middle Left Margin] Graphic of Connexion-Registered Trademark-GMR multi-station
process module with 12-inch targets with accompanying text reading
"Connexion-Registered Trademark-GMR multi-station process modules with 12-inch
targets."
[Middle Right Margin] Graphic of Connexion-Registered Trademark-600 with
attached process modules with accompanying text reading "Connexion 600
accommodating process modules and two load locks."
[Lower Left] Graphic of magnetoresistive head with accompanying text reading
"Magnetoresistive Head."
[Lower Right-hand Corner] Graphic of recording head and hard disk drive.
[Lower Center] Graphic of Infinity-Registered Trademark-Magnetron Plasma with
accompanying text reading "Infinity-Registered Trademark-Magnetron Plasma."
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
CVC is a leading worldwide supplier of deposition equipment for the
fabrication of thin film recording heads for the data storage industry. The
Company also has made significant advances in the development and initial
delivery of copper deposition equipment for the semiconductor industry. The
Company has leveraged key innovations in integrated process development, vacuum
technology, materials science, chemical and physical vapor deposition
technologies, and software applications to develop process equipment solutions
for the manufacture of both disk drive recording heads and advanced
semiconductor devices. These integrated solutions are optimized for the precise,
highly uniform, repetitive steps required for the deposition of thin film
materials.
The fabrication of disk drive recording heads and semiconductor devices
involves a sequential series of complex but, in many cases, similar processing
steps. Both recording heads and semiconductor devices are formed by building up
a succession of extremely thin, uniform layers of conducting or insulating films
onto substrates or wafers. The need to increase storage density and boost
performance of disk drives has led to the development of smaller device features
and the transition to more advanced recording heads with multiple layers of
different materials and surface structures. In order to increase speed and
performance of semiconductor devices, semiconductor manufacturers are shrinking
the geometries and line widths of integrated circuits, while at the same time
adding multiple, thin film layers of insulating or conducting materials. These
developments in disk drive recording heads and semiconductor devices are being
made possible in large part by significant advancements in the equipment and
processes involved in the deposition of thin films.
The Company's principal product offerings are its CONNEXION Cluster Tool
system and integrated process modules for depositing thin film materials onto
substrates. CVC's CONNEXION Cluster Tool is a modular system with stations for
locating up to six process modules around a central wafer handling system. Each
module is equipped to deposit materials using specified deposition methods and
processes in a precise, integrated, vacuum-controlled environment. The Company
currently offers advanced process modules for physical vapor deposition,
metal-organic chemical vapor deposition, inductively-coupled-plasma soft clean
and rapid thermal processing. CVC's CONNEXION Cluster Tool utilizes a
distributed open architecture design platform and industry-standard
specifications which enable the integration of either Company-supplied or
third-party process modules. Principal applications for the Company's systems
include advanced, magnetoresistive ("MR") and giant magnetoresistive ("GMR")
thin film recording heads for the data storage industry, and high performance,
multi-level interconnect technology for semiconductor device fabrication. The
Company believes that its cluster-oriented approach offers its customers a low
cost of ownership with optimal manufacturing process control, and the
flexibility to extend, with enhanced process capabilities, various deposition
methods across multiple generations of fabrication technologies.
The Company's strategy is to continue its leadership in thin film process
solutions for the data storage industry by focusing its resources on the
advancement of integrated thin film process technology that enables the
fabrication of advanced recording heads used in hard disk drives. The Company
intends to leverage its strategic partnerships with industry-leading data
storage and semiconductor manufacturing customers and research and development
centers. In addition, the Company is targeting copper and other advanced
metallization opportunities in the semiconductor industry. The Company is
committed to providing worldwide customer service and support as it expands its
existing sales and service activities to address on a global basis the advanced
device manufacturing priorities of its customers.
3
<PAGE>
The Company sells its products in the United States and Europe through a
direct sales force supported by its marketing and sales organization. In Japan,
Malaysia, Singapore and Thailand, the Company utilizes a foreign distributor to
sell and service its products, and markets its products in China, Korea and
Taiwan through independent sales representatives. Among the Company's most
significant customers are many of the leading manufacturers of thin film
recording heads for the data storage industry, including Applied Magnetics,
Fujitsu, IBM, Quantum, Read-Rite, Seagate Technology, Inc. ("Seagate
Technology") and TDK, as well as manufacturers of semiconductor devices,
including Analog Devices, General Semiconductor, Sharp and Texas Instruments.
Seagate Technology is the Company's largest customer, representing approximately
47% of the Company's revenues for the year ended September 30, 1997, and is also
the Company's largest stockholder, holding approximately 41% of the Company's
voting stock prior to the Offering.
The Company was incorporated in 1990 in connection with its acquisition of
CVC Products, Inc. CVC Products, Inc. was founded in 1934 as the experimental
vacuum processing group of Eastman Kodak. In 1997, the Company changed its name
to CVC, Inc. The Company's executive offices are located at 525 Lee Road,
Rochester, New York 14606, and its telephone number at that location is (716)
458-2550.
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company................ 3,000,000 shares
Common Stock offered by the Selling Stockholder.... 900,000 shares
Common Stock to be outstanding after the
Offering......................................... 11,947,410 shares(1)
For general corporate purposes,
including working capital, capital
expenditures and repayment of debt. See
"Use of Proceeds."
Use of proceeds....................................
Proposed Nasdaq National Market symbol............. CVCI
</TABLE>
- ------------------------
(1) Includes 7,673,520 shares of Common Stock to be issued upon conversion of
outstanding shares of Series A and Series B Convertible Preferred Stock
concurrently with the consummation of the Offering. See "Principal and
Selling Stockholders." Excludes 2,630,160 shares issuable upon exercise of
outstanding stock options with a weighted average exercise price of $1.41
per share and 1,186,140 shares issuable upon the exercise of outstanding
warrants at an exercise price of $3.72 per share as of September 30, 1997.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................................. $ 12,851 $ 13,915 $ 21,358 $ 48,378 $ 62,588
Cost of goods sold........................................................ 8,239 11,795 15,630 33,755 41,286
--------- --------- --------- --------- ---------
Gross margin.............................................................. 4,612 2,120 5,728 14,623 21,302
Operating expenses
Research and development................................................ 909 1,271 1,214 4,346 9,055
Sales and marketing..................................................... 2,342 2,354 2,924 4,777 5,613
General and administrative.............................................. 1,459 1,248 1,447 2,124 2,539
--------- --------- --------- --------- ---------
Total................................................................... 4,710 4,873 5,585 11,247 17,207
--------- --------- --------- --------- ---------
Income (loss) from operations............................................. (98) (2,753) 143 3,376 4,095
Interest income (expense), net............................................ (430) (533) (559) (197) (593)
--------- --------- --------- --------- ---------
Income (loss) before income taxes......................................... (528) (3,286) (416) 3,179 3,502
Income taxes (benefit).................................................... 4 36 (546) -- 1,457
--------- --------- --------- --------- ---------
Net income (loss)......................................................... $ (532) $ (3,322) $ 130 $ 3,179 $ 2,045
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma net income per share(1)......................................... $ 0.02 $ 0.29 $ 0.18
Weighted average common and common equivalent shares outstanding(1)(2).... 8,693 11,408 12,684
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------
<S> <C> <C>
AS
ACTUAL ADJUSTED(3)
--------- -------------
BALANCE SHEET DATA:
Cash and cash equivalents................................................................ $ 2,161 $ 21,477
Working capital.......................................................................... 9,259 30,829
Total assets............................................................................. 43,833 75,149
Short-term borrowings and current portion of long-term debt.............................. 2,295 41
Long-term debt, less current portion..................................................... 5,309 3,359
Total stockholders' equity............................................................... 11,428 46,948
</TABLE>
- ------------------------
(1) Pro forma historical earnings per share has been omitted for each of the
fiscal years ended September 30, 1993 and 1994 since net losses existed in
each of those years and, therefore, pro forma earnings per share information
is not considered meaningful in light of the conversion of outstanding
preferred stock which would have a material anti-dilutive effect on pro
forma earnings per share in such years. See Notes to Consolidated Financial
Statements for further discussion of the computation of pro forma earnings
per share.
(2) See Notes to Consolidated Financial Statements for information concerning
weighted average common and common equivalent shares used in computing pro
forma earnings per share.
(3) Adjusted to give effect to the sale of the 3,000,000 shares of Common Stock
offered by the Company hereby (at an assumed initial public offering price
of $13.00 per share) and the application of the estimated net proceeds
thereof as set forth under "Use of Proceeds."
------------------------------
EXCEPT AS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS (I) GIVES
RETROACTIVE EFFECT TO AN INCREASE IN THE NUMBER OF AUTHORIZED SHARES OF THE
COMMON STOCK ON OCTOBER 15, 1997 AND A 3-FOR-1 SPLIT OF THE COMMON STOCK ON
OCTOBER 31, 1997 AND (II) ASSUMES NO EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION. SEE "UNDERWRITING."
5
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS, THE
FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN
INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS. CERTAIN
STATEMENTS IN THIS PROSPECTUS ARE 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 SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE
"EXCHANGE ACT"). SUCH FORWARD-LOOKING STATEMENTS MAY BE FOUND IN THE MATERIAL
SET FORTH UNDER THE HEADINGS "PROSPECTUS SUMMARY," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS," AS
WELL AS ELSEWHERE IN THIS PROSPECTUS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS AS A RESULT
OF CERTAIN FACTORS, INCLUDING THOSE DISCUSSED BELOW AND ELSEWHERE IN THIS
PROSPECTUS. ANY FORWARD-LOOKING STATEMENTS ARE MADE AS OF THE DATE OF THIS
PROSPECTUS AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY SUCH
FORWARD-LOOKING STATEMENTS OR TO UPDATE THE FACTORS WHICH COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING
STATEMENTS.
FLUCTUATIONS IN OPERATING RESULTS. The Company derives a substantial
portion of its revenue from a relatively small number of systems which typically
range in price from approximately $1.0 million to $3.0 million. As a result, the
timing of significant orders or a reduction in the number of systems shipped in
a quarter could have a material effect on the Company's revenue and results of
operations for that quarter. The Company's quarterly and annual results have in
the past significantly varied and may in the future vary significantly due to a
number of factors, including: market acceptance of the Company's products; the
timing, seasonality, cancellation or delay of customer orders; the loss of a
significant customer; increased research, development or marketing expenses
associated with new product introductions, and the Company's ability to
introduce new products and technologies successfully and on a timely basis; the
introduction of new products or enhancements by competitors; changes in the
Company's pricing policies or those of its competitors; customer order deferrals
in anticipation of upgrades and new products; the level of utilization of the
Company's production capacity; the ability of the Company to manufacture, test
and deliver products in a timely and cost-effective manner; the sufficiency of
personnel and capital resources to support operations; the publication of
opinions by industry analysts about the Company and its products, or its
competitors or their products; and other factors, such as levels of expenses
relative to revenue levels, personnel changes and general conditions in the data
storage and semiconductor industries. Due to all of the foregoing factors, in
some future quarter the Company's operating results may be below the
expectations of public market analysts and investors. In such event, the price
of the Common Stock would likely be materially adversely affected. The impact of
these and other factors on the Company's revenues and operating results in any
future period cannot be forecasted with certainty.
The Company's expense levels are based, in part, on its expectations as to
future revenues. Because the Company's sales are generally made pursuant to
purchase orders that are subject to cancellation, modification, quantity
reduction or rescheduling on short notice and without significant penalties, the
Company's backlog as of any particular date may not be indicative of sales for
any future period, and such changes could cause the Company's net sales to fall
below expected levels. If revenue levels are below expectations, operating
results are likely to be materially and adversely affected. Net income, if any,
and gross margins may be disproportionately affected by a reduction in net sales
because a proportionately smaller amount of the Company's expenses varies with
its revenues.
Due to potential fluctuations in quarterly operating results, the Company
believes that quarter-to-quarter comparisons of its results of operations should
not be relied upon as indicators of future performance.
The Company is party to a demand line and term loan agreement (the "Loan
Agreement") with Manufacturers and Traders Trust Company (the "Lender") which
provides the Company with a $10.0 million line of credit as of September 30,
1997. The Loan Agreement requires compliance by the Company with specified
financial tests as of the end of each quarter during the term of the Loan
Agreement. As of
6
<PAGE>
the end of two quarters in fiscal 1997, the Company was not in compliance with
certain of these tests and thus was in technical default of the Loan Agreement.
The Lender has waived its rights regarding the prior lack of compliance and, as
of September 30, 1997, the Company was in compliance with all covenants in the
Loan Agreement. Future fluctuations in operating results could cause the Company
to be out of compliance with one or more of the financial tests of the Loan
Agreement. In such a circumstance, there can be no assurance that the Lender
would grant a waiver, in which case the Company would be in default of the Loan
Agreement. Any such default could cause an acceleration of any amounts
outstanding thereunder which could have a material adverse effect on the
Company's business, financial condition or operating results.
DEPENDENCE ON DATA STORAGE AND SEMICONDUCTOR MARKETS. The Company's
business depends upon the capital expenditures of manufacturers of data storage
systems and semiconductors which, in turn, depend upon the current and
anticipated market demand for computer disk drives and for products utilizing
semiconductor devices. Those markets are highly cyclical and have historically
experienced periodic downturns which have had a material adverse effect on the
demand for the type of capital equipment and process technology offered by the
Company. In addition, the need for continued investment in research and
development, substantial capital equipment requirements and extensive ongoing
customer service and support requirements worldwide will limit the Company's
ability to reduce expenses in response to any such downturn or slowdown. The
Company's revenue, gross margins and results of operations would likely be
materially and adversely affected if downturns or slowdowns in the rate of
capital investment in the data storage or semiconductor industries occur in the
future. Moreover, although the data storage and semiconductor industries may
experience growth that causes significant growth in the data storage and
semiconductor capital equipment industries, there can be no assurance that such
growth can be sustained or that the Company will be positioned to benefit from
such growth. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
DEPENDENCE ON THE COMPANY'S CONNEXION CLUSTER TOOL SYSTEM. The Company's
principal product is a line of capital equipment, known as the CONNEXION Cluster
Tool, which together with its associated process modules is used to manufacture
thin film recording heads and semiconductor devices. Through September 30, 1997,
the Company had shipped more than 60 of such tools, along with over 200 such
modules. The Company's CONNEXION Cluster Tool systems accounted for 45%, 71% and
85% of its net sales for fiscal 1995, 1996 and 1997, respectively. The Company
believes that its future growth depends in large part upon its ability to gain
customer acceptance of its CONNEXION Cluster Tool and related technology. Market
acceptance of the Company's CONNEXION Cluster Tool system depends upon numerous
factors, including cost of ownership, throughput, process flexibility,
performance and reliability and availability of customer support. The Company
intends periodically to develop and introduce enhanced versions of its CONNEXION
Cluster Tool system. Failure to enhance continually the Company's CONNEXION
Cluster Tool system may impact its future market acceptance. There can be no
assurance that the Company will be successful in obtaining broad market
acceptance of the CONNEXION Cluster Tool system or any future enhanced version
of the system. Any technical or manufacturing difficulties with the CONNEXION
Cluster Tool (or subsequent enhancements of the CONNEXION Cluster Tool system),
or the failure to gain customer acceptance thereof, would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Competition."
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCTS AND PROCESSES. The
data storage and semiconductor equipment manufacturing industries are subject to
rapid technological change and new product introductions, as well as evolving
industry standards. The development of more complex data storage systems and
semiconductor devices and the increased overall demand for such products has
driven the need for new facilities, equipment and processes to produce such
systems and devices at an acceptable cost. As a result of these factors, the
Company believes that data storage systems and semiconductor device
manufacturers are increasingly relying on equipment manufacturers like the
Company to design and
7
<PAGE>
develop more efficient equipment, design and implement improved processes, and
integrate their equipment with that of other equipment manufacturers. Therefore,
the Company believes that its future success will depend, in part, upon its
ability to continue to meet such evolving industry standards by enhancing its
existing products and their process capabilities and by designing and developing
new technologies, processes and products which compete effectively on the basis
of price and performance and which adequately address customer requirements.
There can be no assurance that the Company will be successful in the
introduction and volume manufacture of new products or that the Company will be
able to develop and introduce, in a timely manner, new products or enhancements
to its existing products and processes which satisfy customer needs or achieve
market acceptance. The failure of the Company to accomplish any of the above
would adversely affect the Company's business, financial condition and results
of operations. The success of the Company in developing, introducing and selling
new and enhanced equipment depends upon a variety of factors, including product
selection, timely and efficient completion of product design and development,
timely and efficient implementation of manufacturing and assembly processes,
product performance in the field and effective sales and marketing.
The Company has committed significant resources to the development of
advanced copper deposition technology for high performance integrated circuit
fabrication for the semiconductor market. The development of this technology is
emerging and highly complex. Recently, several semiconductor device
manufacturers have announced that they have made advancements in copper-based
technology, and other competitors with substantially greater resources than the
Company's can be expected to invest in research and development of similar
technologies. There can be no assurance that the Company's efforts in this area
will be technologically successful or, even if technologically successful, will
be commercially accepted by the marketplace. Failure by the Company to achieve
commercial success in its pursuit of copper-based technology for the
semiconductor industry could have a material adverse effect on the Company's
prospects. See "Business--Industry Background," "Business--Strategy," and
"Business--Research, Development and Engineering."
CONCENTRATION OF CUSTOMERS. The Company's customer base is highly
concentrated among a limited number of large customers, primarily because the
data storage and the semiconductor industries are dominated by a limited number
of large companies. In fiscal 1995, 1996 and 1997, revenues from the Company's
five largest customers represented approximately 72%, 81% and 78%, respectively,
of the Company's total revenues. In fiscal year 1995, three customers each
accounted for more than 10% of the Company's revenues, and in fiscal years 1996
and 1997, two customers each accounted for more than 10% of the Company's
revenues. The Company generally does not have continuing purchase agreements
with its customers and does not have any written agreements that require
customers to purchase fixed minimum quantities of products. The Company's sales
to specific customers tend to vary significantly from year to year depending
upon customers' budgets for capital expenditures and new product introductions.
The Company anticipates that its revenue will continue to depend on a limited
number of major customers, although the companies considered to be major
customers and the percentage of the Company's revenue represented by each major
customer may vary from quarter to quarter.
The loss of, or reduced demand for products or related services from, any of
the Company's major customers could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company's
future success will depend, in part, upon its ability to obtain orders from new
customers, as well as the financial condition of its customers and industry
conditions in the data storage and semiconductor markets. See
"Business--Customers" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
RELATIONSHIP WITH SEAGATE TECHNOLOGY. A significant portion of the
Company's revenues for the last three years has been attributable to one
customer, Seagate Technology. In fiscal 1995, 1996 and 1997, revenues derived
from sales of products to Seagate Technology accounted for 27%, 57% and 47%,
8
<PAGE>
respectively, of the Company's total revenues. The Company has no marketing,
distribution, technology licensing, guaranteed purchase or any other type of
collaborative agreement or commitment with Seagate Technology. The loss of
Seagate Technology as a customer, any material reduction in orders by Seagate
Technology, including reductions due to market or competitive conditions or the
determination by Seagate Technology not to adopt the Company's next generation
of products, would have a material adverse effect on the Company's business,
financial condition and results of operations.
On October 16, 1997, Seagate Technology announced that, due to weakness in
demand for its high-performance products and greater than anticipated pricing
pressure, it was reviewing its operations worldwide and is contemplating actions
which will result in significant restructuring and other one-time charges. The
Company is unable to determine the impact, if any, that such weakness in demand,
pricing pressure and consequent restructuring by Seagate Technology will have on
its results of operations in future periods. Nevertheless, the Company believes
that Seagate Technology will significantly reduce purchases of Company products
in fiscal 1998 as compared to fiscal 1997.
Seagate Technology is also the Company's largest stockholder and two of its
representatives are members of the Company's Board of Directors. Following
completion of the Offering, Seagate Technology will own 3,629,520 shares
representing approximately 30.4% of the Company's outstanding Common Stock
(29.0% of such stock if the Underwriters' over-allotment option is exercised in
full). In addition, pursuant to a warrant acquired by Seagate Technology in
1995, Seagate Technology has the right to acquire 1,186,140 shares of Common
Stock at an exercise price of $3.72 per share. Assuming full exercise of such
warrant (and no other change in the Company's outstanding Common Stock), Seagate
Technology would own an aggregate of approximately 36.7% of the Company's
outstanding Common Stock (35.1% of such stock if the Underwriters'
over-allotment option is exercised in full). As a result, Seagate Technology may
be in a position to influence the election of the Company's directors and the
outcome of corporate actions. This concentration of ownership may have the
effect of delaying or preventing a change in control of the Company and of
influencing the business and affairs of the Company. See "Business--Relationship
with Seagate Technology," "Management" and "Certain Transactions."
HIGHLY COMPETITIVE INDUSTRIES. The data storage and semiconductor equipment
industries are highly competitive. The Company faces substantial competition in
the markets in which it competes from both established competitors and potential
new entrants. In the data storage market, principal competitors for the
Company's products include Balzers Process Systems ("Balzers"), Sputtered Films,
Inc. ("Sputtered Films"), Nordiko Ltd. ("Nordiko") and Veeco Instruments. In the
semiconductor market, the Company's competitors include Applied Materials and
Novellus Systems ("Novellus"). Certain of the Company's major competitors have
more experience with high volume manufacturing, have broader product lines and
name recognition, have substantially larger customer bases and greater customer
service capabilities and have substantially greater financial and marketing
resources than the Company. The Company may also face future competition from
new market entrants.
The Company expects its competitors to continue to improve the design and
performance of their products. There can be no assurance that the Company's
competitors will not develop enhancements to, or future generations of,
competitive products that will offer superior price or performance features. In
addition, a substantial investment is required by customers to install and
integrate capital equipment into a production line. As a result, once a
manufacturer has selected a particular supplier's capital equipment, the Company
believes that the manufacturer will be generally reliant upon that equipment for
the specific production line application. Accordingly, the Company may
experience difficulty in selling a product to a particular customer for a
significant period of time if that customer selects a competitor's product.
Increased competitive pressure could lead to lower prices for the Company's
products, thereby adversely affecting the Company's operating results. There can
be no assurance that the Company will be able to compete successfully in the
future. See "Business--Competition."
9
<PAGE>
LENGTHY SALES CYCLE. Sales of the Company's systems depend, in significant
part, upon the decision of a prospective customer to add new manufacturing
capacity or to expand existing manufacturing capacity, both of which typically
involve a significant capital commitment. The Company may experience delays in
finalizing system sales following initial system qualification while the
customer evaluates and receives approvals for the initial purchase of the
Company's systems and completes a sales cycle of 12 to 18 months, during which
the Company may expend substantial funds and management effort. Lengthy sales
cycles subject the Company to a number of significant risks, including inventory
obsolescence and fluctuations in operating results over which the Company has
little or no control. See "Business--Marketing, Sales and Service."
DEPENDENCE ON CERTAIN SUPPLIERS. Certain of the components and
subassemblies included in the Company's systems are purchased from a limited
number of suppliers. Although the Company seeks to reduce its dependence on
these suppliers, disruption or termination of certain of these sources could
occur and such disruptions could have at least a temporary adverse effect on the
Company's operations. A prolonged inability to obtain certain components could
have a material adverse effect on the Company's business and results of
operations. See "Business--Manufacturing."
RISKS ASSOCIATED WITH INTERNATIONAL SALES. In fiscal 1995, 1996 and 1997,
sales to customers located outside of the United States accounted for 13%, 19%
and 31%, respectively, of the Company's revenues in each such period. The
Company intends to expand its operations outside the United States and enter
additional international markets, which will require significant management
attention and financial resources. The Company's international business may be
affected by factors such as the risk of government-financed competition, changes
in trade policies, tariff regulations and difficulties in obtaining U.S. export
licenses.
Most international sales are made through several independent sales
representatives and a third party distributor. There can be no assurance that
they will continue to market and distribute the Company's products successfully.
The implementation of new distribution and sales arrangements could result in
delays and disruptions in the Company's international sales and customer support
efforts, which could reduce sales and have a material adverse effect on the
Company's business, financial condition and results of operations. There can be
no assurance that these factors will not have a material adverse effect on the
Company's future international sales and, consequently, on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business--Strategy" and "Business--Marketing, Sales and Service."
DEPENDENCE ON KEY PERSONNEL. The Company's future operating results depend
in significant part upon the continued contributions of its officers and
personnel, many of whom would be difficult to replace. Many of the Company's
employees are not bound by noncompetition agreements, and competitors may
attempt to recruit the Company's key employees. The loss of its officers or
other key personnel, who are critical to the Company's success, could have a
material adverse effect on the business, financial condition and results of
operations of the Company. Among the competitive factors in attracting personnel
are compensation and benefits, equity incentives and geographic location. There
can be no assurance that the Company will be successful in attracting or
retaining such personnel. The loss of the services of existing personnel, as
well as the failure to recruit additional personnel, could materially and
adversely affect the Company's business, financial condition and results of
operations. See "Business--Employees," "Management--Directors and Executive
Officers," and "Management--Key Employees."
MANAGEMENT OF GROWTH. The Company is experiencing a period of rapid growth
and expansion which has placed, and is expected to continue to place,
significant demands on the Company's resources. The management of such growth
will require the Company to continue to improve and expand its management,
operational and financial systems, manufacturing procedures and controls, and
other internal management systems, quality control, production and service
capabilities. The failure to manage growth effectively, including delays or
difficulties in implementing new products, procedures and controls in a timely
manner
10
<PAGE>
and without disruption of the Company's operations, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The recent growth in the Company's product offerings has required the
Company to invest in additional equipment, personnel, physical facilities and
other infrastructure to meet current and anticipated manufacturing demands. The
Company has hired, and expects that it will need to continue to hire, a number
of new employees, particularly personnel with technical backgrounds for the
Company's engineering and technical support staffs. The future success of the
Company also will depend on its ability to attract and retain qualified
technical, marketing and management personnel, particularly highly skilled
design, process and test engineers, for whom competition is intense. In
particular, the current availability of qualified engineers is limited, and
competition among companies for experienced engineering personnel is very
strong. The market for such personnel has become increasingly competitive,
particularly in California where there has been a significant increase in the
business activities of other companies in the data storage systems and
semiconductor device manufacturing sectors. Because of this competition for
qualified labor, the Company has occasionally experienced delays in meeting its
staffing requirements. Protracted inability of the Company to recruit and train
adequate numbers of qualified personnel on a timely basis could adversely affect
the Company's ability to manufacture, sell and support its products. The Company
has significantly expanded its infrastructure to support increased revenues,
including the hiring of additional personnel, and has made and expects to
continue to make substantial investments in research, development and
engineering, sales and marketing and business information systems. There can be
no assurance that the Company will be able to achieve a rate of growth or level
of sales in any future period commensurate with its increased level of expenses.
There can be no assurance that the Company will be able to adequately increase
its manufacturing facilities and capacity to meet demand for its products or
that, in the event of a downturn or slowdown in such demand, the Company will be
able to reduce its production activities or absorb its increased overhead and
outsourcing costs. The Company expects that its operating expenses will continue
to increase. There can be no assurance that the Company's future sales will
increase in an amount necessary to cover planned increases in operating
expenses. Continued expansion of the Company's operations could significantly
strain the Company's management, financial and other resources. See
"Business--Marketing, Sales and Service" and "Business--Employees."
PATENTS AND OTHER INTELLECTUAL PROPERTY. The Company believes that the
success of its business depends more on such factors as the technical expertise
and innovative skills of its employees than on patents, copyrights, trade
secrets or other intellectual property rights. Nevertheless, the success of the
Company may depend in part on patents. As of September 30, 1997, the Company had
obtained two U.S. patents and had 15 U.S. patent applications pending on its
behalf. In addition, the Company had eight foreign patent applications pending
on its behalf as of that date. There can be no assurance that the Company's
pending patent applications or any future applications will be approved, that
any patents will provide it with competitive advantages or will not be
challenged by third parties, or that the patents of others will not have an
adverse effect on the Company's ability to do business. Because foreign patents
may afford less protection under foreign law than is available under U.S. patent
law, there can be no assurance that any such patents issued to the Company will
adequately protect the Company's proprietary information. There can be no
assurance that others will not independently develop similar products, duplicate
the Company's products or, if patents are issued to the Company, design around
the patents issued to the Company. In addition to patent protection, the Company
also relies upon trade secret protection, employee and third-party nondisclosure
agreements and other intellectual property protection methods to protect its
confidential and proprietary information. Despite these efforts, there can be no
assurance that others will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to the Company's
trade secrets or disclose such technology or that the Company can meaningfully
protect its trade secrets.
There has been substantial litigation regarding patent and other
intellectual property rights in the semiconductor, data storage and related
industries. The Company has in the past been, and may in the
11
<PAGE>
future be, notified of allegations that it may be infringing intellectual
property rights possessed by others. No assurance can be given that infringement
claims by third parties will not be asserted. In the future, protracted
litigation may be necessary to defend the Company against alleged infringement
of third party rights. Any such litigation, even if ultimately successful in
defense of the Company, could result in substantial cost and diversion of time
and effort by management, which by itself could have a material adverse effect
on the Company's business, financial condition and results of operations.
Adverse determinations in such litigation could result in the Company's loss of
proprietary rights, subject the Company to significant liabilities (including
treble damages under certain circumstances), require the Company to seek
licenses from third parties, or prevent the Company from manufacturing or
selling its products, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations. Further,
there can be no assurance that any such third party license will be available on
reasonable terms or at all. See "Business--Patents and Other Intellectual
Property."
ENVIRONMENTAL REGULATION. The Company is subject to a variety of
governmental regulations related to the use, storage, handling, discharge or
disposal of toxic, volatile or otherwise hazardous chemicals used in the
manufacturing process. The Company believes that it is currently in compliance
in all material respects with these regulations and that it has obtained all
necessary environmental permits to conduct its business, which permits generally
relate to the discharge of hazardous waste. Any failure by the Company to comply
with regulations or to control the use, disposal or storage of, or adequately
restrict the discharge of, hazardous substances could subject the Company to
future liabilities. See "Business--Manufacturing."
ABSENCE OF PUBLIC MARKET; VOLATILITY OF STOCK PRICE. Prior to the Offering,
there has been no public market for the Common Stock and there can be no
assurance that an active trading market will develop or be sustained upon the
completion of the Offering, or that the market price of the Common Stock will
not decline below the initial public offering price. The initial public offering
price of the Common Stock offered hereby has been determined by negotiations
among the Company, the Selling Stockholder and the Underwriters. The market
price for shares of the Common Stock may be highly volatile depending on news
announcements of the Company, its competitors, customers or other entities
related to quarterly operating results or other matters, general trends in the
Company's industry, changes in general market conditions and other factors. In
addition, in recent years the stock market in general and the market for shares
of small capitalization and semiconductor industry-related companies in
particular, have experienced extreme price fluctuations which have often been
unrelated to the operating performance of affected companies. Any such
fluctuations in the future could adversely affect the market price of the Common
Stock. See "Underwriting."
DILUTION. The public offering price is substantially higher than the book
value per share of the currently outstanding Common Stock. Investors purchasing
shares of Common Stock in the Offering will therefore suffer immediate and
substantial dilution of $9.07 per share in the net tangible book value of the
Common Stock from the assumed initial public offering price of $13.00 per share.
See "Dilution."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS. The Company's Restated
Certificate of Incorporation and Restated By-laws, as well as the Delaware
General Corporation Law, contain provisions that may make it more difficult for
a third party to acquire, or may discourage acquisition bids for, the Company.
These provisions could limit the price that certain investors might be willing
to pay in the future for shares of the Common Stock. In addition, shares of the
Company's preferred stock may be issued in the future without further
stockholder approval and upon such terms and conditions, and having such rights,
privileges and preferences, as the Board of Directors may determine. The rights
of the holders of Common Stock will be subject to, and may be materially and
adversely affected by, the rights of any holders of preferred stock that may be
issued in the future, including preferential rights with respect to voting,
payment of dividends or distributions upon liquidation. The issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or discourage a third
party from acquiring, a
12
<PAGE>
majority of the outstanding voting stock of the Company. The Company has no
present plans to issue any shares of preferred stock. See "Description of
Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE. Upon consummation of the Offering, there
will be 11,947,410 outstanding shares of Common Stock. The shares sold in the
Offering will be freely tradable without restriction under the Securities Act,
except to the extent acquired by affiliates of the Company. The executive
officers, directors and certain employees of the Company, and certain
stockholders, who in the aggregate will hold approximately 8,044,935 shares of
Common Stock, have agreed that for a period of 180 days following the date of
this Prospectus, they will not offer, pledge, sell, contract to sell, or
otherwise transfer or dispose of, Common Stock without the prior written consent
of BT Alex. Brown Incorporated. Upon expiration of the 180-day period, at least
7,852,260 shares of Common Stock will be eligible for sale pursuant to Rule 144
under the Securities Act, subject in some cases to compliance with Rule 144
volume limitations, of which 6,665,460 shares are held by officers, directors
and affiliates of the Company. Sales of a substantial amount of such shares, or
the perception that such sales will occur, could have a significant adverse
effect on the market price of the Common Stock. See "Shares Eligible for Future
Sale."
CONTROL BY EXISTING STOCKHOLDERS. The Company's principal stockholders and
the Company's executive officers and directors will beneficially own
approximately 64.8% of the Company's outstanding shares of Common Stock (67.9%
if Seagate Technology exercises in full its warrant to purchase Common Stock)
immediately following the Offering (assuming no exercise of currently
exercisable stock options). Accordingly, these stockholders will be able to
elect all of the Company's directors, control the management and affairs of the
Company and determine the outcome of corporate actions requiring stockholder
approval, such as mergers and acquisitions, regardless of how other stockholders
of the Company may vote. Such a concentration of ownership by such persons or
entities may have a significant effect in delaying, deferring or preventing a
change in control of the Company and may adversely affect the voting and other
rights of other holders of Common Stock. See "Management--Executive Officers and
Directors," "Certain Transactions" and "Principal and Selling Stockholders."
ABSENCE OF DIVIDENDS. The Company has never paid cash dividends on its
Common Stock. The Company currently intends to retain earnings to finance the
growth and development of its business and does not anticipate paying cash
dividends in the foreseeable future. In addition, the Company is currently
restricted under the terms of certain of its credit agreements from paying any
dividends to stockholders without the prior written consent of the lenders. See
"--Fluctuations in Operating Results," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Dividend Policy."
13
<PAGE>
THE COMPANY
The Company's principal executive offices are located at 525 Lee Road,
Rochester, New York 14606, and its telephone number at that address is (716)
458-2550. References in this Prospectus to the "Company" refer collectively to
CVC, Inc. and its subsidiary, CVC Products, Inc. ("CVC Products"). The Company's
operations are conducted through such subsidiary.
USE OF PROCEEDS
The net proceeds from the sale of the 3,000,000 shares of Common Stock being
sold by the Company hereby (assuming an initial public offering price of $13.00
per share) are estimated to be $35.5 million ($42.6 million if the Underwriters'
over-allotment option is exercised in full), after deducting the underwriting
discounts and commissions and estimated offering expenses. The Company will not
receive any proceeds from the sale of shares by the Selling Stockholder. See
"Principal and Selling Stockholders."
The principal purposes of the Offering are to increase the Company's equity
capital, to create a public market for the Common Stock and to facilitate future
access by the Company to public equity markets. The Company intends to use the
proceeds of the Offering for general corporate purposes, including approximately
$12.0 million for capital expenditures relating to facility expansion and
manufacturing and demonstration equipment, $4.2 million for the repayment of
debt and the balance for additional working capital. The amounts actually
expended by the Company for working capital purposes will vary significantly
depending upon a number of factors, including future revenue growth, the amount
of cash generated by the Company's operations and the progress of the Company's
product development efforts.
A portion of the net proceeds may also be used for the acquisition of
businesses, products and technologies that are complementary to those of the
Company. The Company has no plans, commitments or agreements with respect to any
such acquisition as of the date of this Prospectus. The Company has not yet
identified specific uses for such proceeds and will have discretion over their
use and investment. Pending such uses, the Company intends to invest the net
proceeds from the Offering in short-term, investment grade, interest-bearing
securities.
DIVIDEND POLICY
The Company has never paid or declared cash dividends on its Common Stock.
The Company currently intends to retain all future earnings for its business and
does not anticipate paying cash dividends in the foreseeable future. The Company
is currently restricted under the terms of certain of its credit agreements from
paying any dividends to stockholders without the prior written consent of the
lenders. Future dividends, if any, will depend on, among other things, the
Company's results of operations, capital requirements, restrictions in loan
agreements and on such other factors as the Company may, in its discretion,
consider relevant. See "Risk Factors--Fluctuations in Operating Results."
14
<PAGE>
CAPITALIZATION
The following table sets forth as of September 30, 1997 (i) the
capitalization of the Company and (ii) such capitalization, as adjusted to
reflect the issuance and sale of 3,000,000 shares of Common Stock by the
Company, at an assumed initial public offering price of $13.00 per share, and
after deducting underwriting discounts and commissions and estimated offering
expenses, and the application of the estimated net proceeds thereof as set forth
under "Use of Proceeds," as well as the conversion of all the outstanding shares
of the Company's Series A and Series B Convertible Preferred Stock into an
aggregate of 7,673,520 shares of Common Stock upon consummation of the Offering.
This table should be read in conjunction with the Company's Consolidated
Financial Statements and the Notes thereto and Management's Discussion and
Analysis of Financial Condition and Results of Operations included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED(2)
--------- --------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Short-term borrowings and current portion of long-term debt............................ $ 2,295 $ 41
Long-term debt, less current portion(1)................................................ 5,309 3,359
Stockholders' equity:
Preferred stock, $.01 par value, 102,500 shares authorized; shares issued and
outstanding:
Series A - 1,685 shares (none as adjusted)........................................... 1,685 --
Series B - 60,492 shares (none as adjusted).......................................... 8,355 --
Common stock, $.01 par value per share; 50,000,000 shares authorized; 1,273,890
shares issued and outstanding; 11,947,410 shares issued and outstanding (as
adjusted).......................................................................... 4 119
Additional paid-in capital........................................................... 776 46,221
Unamortized deferred compensation.................................................... (254) (254)
Retained earnings.................................................................... 949 949
Minimum pension liability............................................................ (87) (87)
--------- -------
Total stockholders' equity........................................................... 11,428 46,948
--------- -------
Total capitalization............................................................... $ 19,032 $ 50,348
--------- -------
--------- -------
</TABLE>
- ------------------------
(1) For information concerning the Company's long-term debt, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and Notes to Consolidated
Financial Statements.
(2) Gives effect as of September 30, 1997 to the increase in authorized shares
of Common Stock and the issuance of Common Stock as a dividend to effect a
3-for-1 split of the Common Stock on October 31, 1997. See Notes to
Consolidated Financial Statements.
15
<PAGE>
DILUTION
The net tangible book value of the Company, as of September 30, 1997, was
$11,428,288, or $1.28 per share of Common Stock. Net tangible book value per
share represents the amount of total tangible assets of the Company reduced by
the amount of its total liabilities divided by the total number of shares of
Common Stock outstanding (which assumes the conversion of Series A and Series B
Convertible Preferred Stock upon consummation of the Offering). Without taking
into account any other change in such net tangible book value after September
30, 1997, other than to give effect to the receipt by the Company of the
estimated net proceeds of $35,520,000 (assuming an initial public offering price
of $13.00 per share) from the sale of the 3,000,000 shares of Common Stock
offered by the Company hereby (after deducting the estimated underwriting
discounts and commissions and estimated offering expenses), the pro forma net
tangible book value of the Company as of September 30, 1997, would have been
$46,948,288, or $3.93 per share. This represents an immediate increase in such
net tangible book value of $2.65 per share to existing stockholders and an
immediate dilution of $9.07 per share to new investors purchasing shares in the
Offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........... $ 13.00
Net tangible book value per share before the Offering... $ 1.28
Increase per share attributable to new investors........ 2.65
-----------
Pro forma net tangible book value per share after the
Offering................................................ 3.93
---------
Dilution per share to new investors....................... $ 9.07
---------
---------
</TABLE>
The following table sets forth on a pro forma basis, as of September 30,
1997, the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price per share paid by the
existing stockholders (which assumes the conversion of Series A and Series B
Convertible Preferred Stock upon consummation of the Offering) and by the
purchasers of the shares of Common Stock offered by the Company hereby (before
deduction of estimated underwriting discounts and commissions and estimated
offering expenses), assuming an initial public offering price of $13.00 per
share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)........................... 8,947,410 74.9% $ 11,203,859 22.3% $ 1.25
New investors...................................... 3,000,000 25.1 39,000,000 77.7 13.00
------------ ----- ------------- -----
Total............................................ 11,947,410 100.0% $ 50,203,859 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>
- ------------------------
(1) The sale by the Selling Stockholder in the Offering will reduce the number
of shares held by existing stockholders to 8,047,410 shares, or 67% of the
total number of shares of Common Stock to be outstanding after the Offering
and will increase the number of shares held by the new investors to
3,900,000 shares, or 33% of the total number of shares of Common Stock to be
outstanding after the Offering. See "Principal and Selling Stockholders."
The foregoing discussion and tables assume no exercise of any outstanding
stock options or warrants. As of September 30, 1997, an aggregate of 3,657,540
shares of Common Stock were issuable upon the exercise by officers, directors
and affiliates of the Company of outstanding options to purchase 2,471,400
shares of Common Stock (of which options to purchase 1,770,600 shares were then
exercisable) and a warrant to purchase 19,769 shares of Series B Convertible
Preferred Stock, convertible into 1,186,140 shares of Common Stock. Assuming the
exercise of all such options and warrant, the total number of shares held by
officers, directors and affiliates of the Company would be 12,604,950 or 80.8%
of the shares outstanding. The total consideration paid by such persons would be
$19,263,910 or 33.1% of the total consideration, and the average price per share
for officers, directors and affiliates of the Company would be $1.53.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected financial data of the Company for
and as of the fiscal years ended September 30, 1993, 1994, 1995, 1996 and 1997.
The selected financial data as of September 30, 1996 and 1997 and for the three
years ended September 30, 1997 have been derived from the Company's audited
consolidated financial statements which appear elsewhere in this Prospectus. The
selected financial data as of September 30, 1993, 1994 and 1995 and for the two
years ended September 30, 1994 have been derived from the Company's consolidated
financial statements. The selected financial data should be read in conjunction
with Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................................. $ 12,851 $ 13,915 $ 21,358 $ 48,378 $ 62,588
Cost of goods sold........................................................ 8,239 11,795 15,630 33,755 41,286
--------- --------- --------- --------- ---------
Gross margin.............................................................. 4,612 2,120 5,728 14,623 21,302
Operating expenses:
Research and development................................................ 909 1,271 1,214 4,346 9,055
Sales and marketing..................................................... 2,342 2,354 2,924 4,777 5,613
General and administrative.............................................. 1,459 1,248 1,447 2,124 2,539
--------- --------- --------- --------- ---------
Total................................................................... 4,710 4,873 5,585 11,247 17,207
--------- --------- --------- --------- ---------
Income (loss) from operations............................................. (98) (2,753) 143 3,376 4,095
Interest income (expense), net............................................ (430) (533) (559) (197) (593)
--------- --------- --------- --------- ---------
Income (loss) before income taxes......................................... (528) (3,286) (416) 3,179 3,502
Income taxes (benefit).................................................... 4 36 (546) -- 1,457
--------- --------- --------- --------- ---------
Net income (loss)......................................................... $ (532) $ (3,322) $ 130 $ 3,179 $ 2,045
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma net income per share(1)......................................... $ 0.02 $ 0.29 $ 0.18
Weighted average common and common equivalent shares outstanding(1)(2).... 8,693 11,408 12,684
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER
SEPTEMBER 30, 30, 1997
------------------------------------------ ---------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1996 ACTUAL
--------- --------- --------- --------- ---------
BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 505 $ 2 $ 3,157 $ 730 $ 2,161
Working capital............................................ 1,259 (2,312) 5,429 8,816 9,259
Total assets............................................... 14,635 11,425 23,554 31,837 43,833
Short term borrowings and current portion of long-term
debt..................................................... 2,489 2,229 188 894 2,295
Long-term debt, less current portion....................... 4,117 3,935 3,528 5,635 5,309
Total stockholders' equity................................. 933 (2,363) 6,183 9,319 11,428
<CAPTION>
<S> <C>
AS ADJUSTED(3)
---------------
BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 21,477
Working capital............................................ 30,829
Total assets............................................... 75,149
Short term borrowings and current portion of long-term
debt..................................................... 41
Long-term debt, less current portion....................... 3,359
Total stockholders' equity................................. 46,948
</TABLE>
- ------------------------
(1) Pro forma historical earnings per share has been omitted for each of the
fiscal years ended September 30, 1993 and 1994 since net losses existed in
each of those years and therefore, pro forma earnings per share information
is not considered meaningful in light of the conversion of outstanding
preferred stock which would have a material anti-dilutive effect on pro
forma earnings per share in such years. See Notes to Consolidated Financial
Statements for further discussion of the computation of pro forma earnings
per share.
(2) See Notes to Consolidated Financial Statements for information concerning
weighted average common and common equivalent shares used in computing pro
forma earnings per share.
(3) Adjusted to give effect to the sale of the shares of Common Stock offered
hereby (at an assumed initial public offering price of $13.00 per share) and
the application of the estimated net proceeds thereof as set forth under
"Use of Proceeds."
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
In 1990, the Company acquired CVC Products, Inc. in a transaction (the
"Acquisition") led by the current Chief Executive Officer of the Company,
Christine Whitman. CVC Products, Inc. had been founded in 1934 in Rochester, New
York as the experimental vacuum processing group of Eastman Kodak. Since the
Acquisition, the management of the Company has restructured the operations
formerly conducted by CVC Products and refocused its product direction on
development of the CONNEXION Cluster Tool system for the thin film recording
head equipment market and semiconductor device market. The Company established a
commercial production equipment research, development and engineering ("RD&E")
effort with the goal of creating a modular, multi-process, single wafer cluster
tool deposition system designed for commercial production of thin film recording
heads and semiconductor devices. The result of this effort was the 1993
introduction of CVC's CONNEXION Cluster Tool system. In order to accelerate its
growth, in 1995 the Company acquired additional equity capital through a private
placement to one of its major customers, Seagate Technology.
Since the introduction of the CONNEXION Cluster Tool, the Company has
invested aggressively in the introduction of new systems and technologies.
Specifically, the Company has developed a number of process modules, including
physical vapor deposition ("PVD"), metal-organic chemical vapor deposition
("MOCVD"), inductively-coupled-plasma soft clean ("ICP"), and rapid thermal
process/rapid thermal chemical vapor deposition ("RTP/RTCVD").
During the past fiscal year approximately 75% of the Company's revenue was
derived from sales made to thin film recording head manufacturers, approximately
15% from sales to manufacturers of semiconductor devices, with the remainder of
the revenue derived from ancillary products and services. The Company derives a
substantial portion of its revenue from a relatively small number of high value
orders for Company systems. These orders range in price from approximately $1.0
million to $3.0 million. As a result, the timing of significant orders or a
reduction in the number of systems shipped in a quarter could have a material
effect on the Company's revenue and results of operations for that quarter. See
"Risk Factors-- Fluctuations in Operating Results."
Since 1993, the Company has invested in RD&E at a rate of approximately 6%
to 14% of its annual revenues. The Company funds its RD&E requirements through a
combination of internal funds, U.S. government contracts and joint development
programs with certain of its customers. The Company's RD&E efforts have
benefited in the past from the receipt of research and development program
grants from the U.S. Department of Defense Advanced Research Project Agency
("DARPA"). In 1994, the Company was awarded a two-year, $3.6 million RD&E
program from the DARPA to refine its universal thermal and plasma modules and to
establish advanced metallization and silicide formation cluster tool products
for state-of-the-art semiconductor technologies.
The Company also derives ancillary revenues from sales of vacuum gauges,
vacuum pump fluids and its thin film coating services to magnetic head
producers, and sales of its HYGE shock testing systems used in the automobile
industry for non-destructive vehicle testing.
18
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenues for certain items
in the Company's consolidated statement of operations data for the years ended
September 30, 1995, 1996 and 1997.
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues........................................................................ 100.0% 100.0% 100.0%
Cost of goods sold.............................................................. 73.2 69.8 66.0
--------- --------- ---------
Gross margin.................................................................... 26.8 30.2 34.0
Operating expenses
Research and development...................................................... 5.7 9.0 14.5
Sales and marketing........................................................... 13.7 9.9 9.0
General and administrative.................................................... 6.8 4.4 4.1
--------- --------- ---------
Total......................................................................... 26.2 23.3 27.5
Income from operations.......................................................... 0.6 6.9 6.5
Interest income (expense), net.................................................. (2.6) (0.4) (0.9)
--------- --------- ---------
Income (loss) before income taxes............................................... (2.0) 6.5 5.6
Income taxes (benefit).......................................................... (2.6) 0.0 2.3
--------- --------- ---------
Net income...................................................................... 0.6 6.5 3.3
--------- --------- ---------
--------- --------- ---------
</TABLE>
YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO YEAR ENDED SEPTEMBER 30, 1996
REVENUES. Revenues increased by 29.4% to $62.6 million in fiscal 1997 from
$48.4 million in fiscal 1996. The increase in revenues is attributable to a 55%
increase in cluster tool revenues due to higher volumes shipped in both the
United States and overseas data storage markets, as well as an initial launch
into the semiconductor market. This increase was offset, in part, by reduced
sales of 600 Series systems and HYGE shock testing systems.
GROSS MARGIN. Gross margin increased to 34.0% in fiscal 1997 from 30.2% in
fiscal 1996. This margin improvement was attributable to manufacturing
efficiencies driven by higher volumes of cluster tools and cost reductions
resulting from improved processes in the 1997 period, offset, in part, by the
initial sale to SEMATECH (a non-profit research and development consortium of 11
major U.S. semiconductor manufacturers and the U.S. Government) of an advanced
copper MOCVD CONNEXION Cluster Tool for research and development purposes and
thus at a price not intended to produce a profit.
RESEARCH AND DEVELOPMENT. Research and development expenses increased to
$9.1 million in fiscal 1997 from $4.3 million in fiscal 1996, an increase of
108.4%. As a percentage of revenues, research and development expenses increased
to 14.5% in fiscal 1997 compared to 9.0% in fiscal 1996. This increase was
driven by hiring a significant number of experienced engineers in fiscal 1997
and the fourth quarter of fiscal 1996 to support technological advancements in
the data storage market for next generation magnetic recording heads, as well as
the Company's commitment to advanced copper deposition technology for high
performance semiconductor device fabrication. The Company believes that research
and development expenditures are essential to maintaining its competitive
position in the data storage and semiconductor equipment market and expects
these expenditure levels to increase in terms of absolute dollars for the
foreseeable future.
19
<PAGE>
SALES AND MARKETING. Sales and marketing expenses increased to $5.6 million
in fiscal 1997 from $4.8 million in fiscal 1996, an increase of 17.5%. As a
percentage of revenues, sales and marketing expenses decreased to 9.0% in fiscal
1997 from 9.9% in fiscal 1996. Functions directly related to revenue, such as
sales and field service, grew at a combined pace of 22.4%, on a consistent basis
with the rate of revenue growth in this period. Marketing expenses increased
9.7%, as a result of additional staffing requirements to support new market
opportunities. The Company expects expenditure levels to support the growth of
its worldwide sales and support organizations to continue for the foreseeable
future at or above current levels reflecting the Company's commitment to further
penetrate both U.S. and international markets.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
by 19.5% to $2.5 million in fiscal 1997 from $2.1 million in fiscal 1996. This
increase in general and administrative expenses is a result of increased
personnel to support the rate of revenue growth in this period. As a percentage
of revenues, general and administrative expenses decreased to 4.1% in fiscal
1997 from 4.4% in fiscal 1996.
NET INTEREST INCOME (EXPENSE). Net interest expense increased to $0.6
million in fiscal 1997 from $0.2 million in fiscal 1996, reflecting an increase
in borrowings on a credit line and a $3.0 million term loan obtained in
September 1996. Reduced interest income resulted from lower available cash
balances.
INCOME TAXES (BENEFIT). Income tax expense amounted to $1.5 million in
fiscal 1997, compared to no such expense in fiscal 1996. During 1996, net
operating loss carryforwards and state investment tax credits were recognized as
a result of the Company's return to profitability and management's assessment
that the realizability of these loss carryforwards was more likely than not. No
similar benefits were available in fiscal 1997 as the net operating loss
benefits had been previously recognized in fiscal 1996. The effective tax rate
of 41.6% for fiscal 1997 is more representative of the expected tax rate for the
Company in future periods.
YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO YEAR ENDED SEPTEMBER 30, 1995
REVENUES. Revenues increased by 126.5% to $48.4 million in fiscal 1996 from
$21.4 million in fiscal 1995. The increase in revenues is primarily attributable
to a 256.0% increase in cluster tool sales which were the result of higher
volumes shipped for customers in the data storage market. Higher sales volumes
for 600 Series systems also contributed to the increase in revenues. These
increases were offset, in part, by a decline in revenue resulting from the
completion of the DARPA contract in fiscal 1995 and lower revenues from sales of
HYGE shock testing systems.
GROSS MARGIN. Gross margin increased to 30.2% in fiscal 1996 from 26.8% in
fiscal 1995. This margin improvement was attributable to manufacturing
efficiencies resulting from higher volumes of cluster tools and increased sales
volumes of higher margin spare parts. Also contributing to the improvement in
gross margin was the completion of a lower margin DARPA contract in fiscal 1995.
RESEARCH AND DEVELOPMENT. Research and development expenses increased to
$4.3 million in fiscal 1996 from $1.2 million in fiscal 1995, an increase of
258%. As a percentage of revenues, research and development expenses increased
to 9.0% in fiscal 1996 compared to 5.7% in fiscal 1995. The increase in research
and development expense was primarily attributable to increased salaries and
related employee benefits due to significant increases in the engineering staff
to support the development of new technologies. Also contributing to the
increase was the costs of engineers dedicated to new product development in
fiscal 1996 who previously had been assigned to the DARPA contract in fiscal
1995.
SALES AND MARKETING. Sales and marketing expenses increased to $4.8 million
in fiscal 1996 from $2.9 million in fiscal 1995, an increase of 63.4%. As a
percentage of revenues, sales and marketing expenses decreased to 9.9% in fiscal
1996 from 13.7% in fiscal 1995. Functions more directly related to revenues such
as sales and field service increased at an aggregate rate of 73.6% over fiscal
1995 due to increased salaries, commissions and travel expenses. Marketing
expenses increased 49.3% due to increased salary costs and costs to develop
marketing programs for new product introductions.
20
<PAGE>
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
by 46.8% to $2.1 million in fiscal 1996 from $1.4 million in fiscal 1995. As a
percentage of revenues, general and administrative expenses decreased to 4.4% in
fiscal 1996 compared to 6.8% in fiscal 1995, as revenue growth exceeded the
increase in administrative costs.
NET INTEREST INCOME (EXPENSE). Net interest expense decreased to $0.2
million in fiscal 1996 from $0.6 million in fiscal 1995, reflecting lower
average outstanding debt balances during fiscal 1996 as compared to fiscal 1995.
Higher interest income in fiscal 1996 compared to fiscal 1995 is the result of
higher average balances of cash and cash equivalents during fiscal 1996. Both
the lower debt balance and the higher average cash balance resulted from the
funds received upon the sale of convertible preferred stock in May 1995.
INCOME TAXES (BENEFIT). During fiscal 1996 and 1995, benefits for net
operating loss carryforwards were recognized based upon management's assessment
as to the extent to which it was more likely than not that the Company would be
able to realize these net operating losses for each of the respective years.
Management expects that the effective tax rate in the future will be more
consistent with a normalized combined US federal and state tax rate.
QUARTERLY OPERATING RESULTS
The following tables set forth the Company's operating results for each of
the eight quarters ended September 30, 1997. The information for each of these
quarters is unaudited but has been prepared on the same basis as the audited
consolidated financial statements appearing elsewhere in this Prospectus and
includes all adjustments, consisting only of normal recurring adjustments, that
the Company considers necessary to present fairly this information when read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto and Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere in this Prospectus. The Company's
operating results for any one quarter are not necessarily indicative of results
for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1995 1996 1996 1996 1996 1997 1997 1997
--------- --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues.............................. $ 8,303 $ 13,402 $ 12,917 $ 13,756 $ 13,403 $ 9,528 $ 20,693 $ 18,964
Cost of goods sold.................... 6,116 9,722 8,679 9,238 8,972 7,378 12,859 12,077
--------- --------- --------- --------- --------- --------- --------- ---------
Gross margin.......................... 2,187 3,680 4,238 4,518 4,431 2,150 7,834 6,887
Operating expenses
Research and development............ 1,080 801 1,294 1,171 1,878 2,095 2,570 2,512
Sales and marketing................. 773 1,022 1,346 1,636 1,278 1,251 1,566 1,518
General and administrative.......... 410 642 626 446 587 581 715 656
--------- --------- --------- --------- --------- --------- --------- ---------
Total............................... 2,263 2,465 3,266 3,253 3,743 3,927 4,851 4,686
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations......... (76) 1,215 972 1,265 688 (1,777) 2,983 2,201
Interest income (expense), net........ (49) (73) (32) (43) (146) (147) (138) (162)
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes..... (125) 1,142 940 1,222 542 (1,924) 2,845 2,039
Income taxes (benefit)................ -- -- -- -- 225 (800) 1,184 848
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)..................... $ (125) $ 1,142 $ 940 $ 1,222 $ 317 $ (1,124) $ 1,661 $ 1,191
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1995 1996 1996 1996 1996 1997
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
PERCENTAGE OF REVENUE:
Revenues.................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross margin................................ 26.3 27.5 32.8 32.8 33.1 22.6
Operating expenses
Research and development.................. 13.0 6.0 10.0 8.5 14.0 22.0
Sales and marketing....................... 9.3 7.6 10.4 11.9 9.5 13.1
General and administrative................ 4.9 4.8 4.8 3.2 4.4 6.1
----- ----- ----- ----- ----- -----
Total..................................... 27.2 18.4 25.2 23.6 27.9 41.2
----- ----- ----- ----- ----- -----
Income (loss) from operations............... (0.9) 9.1 7.5 9.2 5.1 (18.7)
Interest income (expense), net.............. (0.6) (0.5) (0.2) (0.3) (1.1) (1.5)
Net income (loss)........................... (1.5) 8.5 7.3 8.9 2.4 (11.8)
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
<CAPTION>
JUNE 30, SEPT. 30,
1997 1997
----------- -----------
<S> <C> <C>
PERCENTAGE OF REVENUE:
Revenues.................................... 100.0% 100.0%
Gross margin................................ 37.9 36.3
Operating expenses
Research and development.................. 12.4 13.2
Sales and marketing....................... 7.6 8.0
General and administrative................ 3.5 3.5
----- -----
Total..................................... 23.5 24.7
----- -----
Income (loss) from operations............... 14.4 11.6
Interest income (expense), net.............. (0.7) (0.9)
Net income (loss)........................... 8.0 6.3
----- -----
----- -----
</TABLE>
The Company's quarterly and annual operating results are affected by a wide
variety of factors that could materially and adversely affect net sales and
profitability from period to period, including: competitive pressures on selling
prices; the timing and cancellation of customer orders; changes in product mix;
the Company's ability to introduce new products and process technologies on a
timely basis; introduction of products and technologies by the Company's
competitors; market acceptance of the Company's and its customers' products; the
level of orders received which can be shipped in a quarter; the timing of
investments in research and development, process improvements and production
capability; and the cyclical nature of the data storage and semiconductor
industries. Because the Company is continuing to increase its operating expenses
for personnel and new product development and for inventory in anticipation of
increasing sales levels, operating results would be adversely affected if
increased sales are not achieved. In addition, the Company is limited in its
ability to reduce costs quickly in response to any revenue shortfalls.
Historically, the Company has also experienced quarterly fluctuations in net
sales and gross profit, principally arising from the amount and timing of
orders. Should sales of products decline more rapidly than the Company
anticipates in the near future, such decline could have the effect of causing
further fluctuations in quarterly or annual operating results. As a result of
the foregoing or other factors, the Company may experience material fluctuations
in future operating results on a quarterly or annual basis which could
materially and adversely affect its business, financial condition and results of
operations. See "Risk Factors--Fluctuations in Operating Results."
On October 16, 1997, Seagate Technology announced that, due to weakness in
demand for its high-performance products and greater than anticipated pricing
pressure, it was reviewing its operations worldwide and is contemplating actions
which will result in significant restructuring and other one-time charges. The
Company is unable to determine the impact, if any, that such weakness in demand,
pricing pressure and consequent restructuring by Seagate Technology will have on
its results of operations in future periods. Nevertheless, the Company believes
that Seagate Technology will significantly reduce purchases of Company products
in fiscal 1998 as compared to fiscal 1997.
Due to potential quarterly fluctuations in operating results, the Company
believes that quarter-to-quarter comparisons of its results of operations should
not be relied upon as indicators of future performance. Further, in the event
that in some future quarter the Company's net sales or operating results were to
be below the expectations of public market securities analysts and investors,
the price of the Common Stock would likely be materially adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the Company had working capital of $9.3 million,
including cash and cash equivalents of $2.2 million, compared to working capital
of $8.8 million at September 30, 1996, including $0.7 million of cash and cash
equivalents. In fiscal years 1995, 1996 and 1997, the Company did not
22
<PAGE>
generate sufficient cash flow to fund operations primarily due to the need to
increase its investment in inventories and receivables at a rate that exceeded
its sales growth. During fiscal years 1995 and 1996, the Company financed its
working capital needs primarily through the net proceeds of $8.4 million from
the sale in 1995 of Series B Convertible Preferred Stock and a warrant to
Seagate Technology and a $3.0 million 5-year term bank loan in 1996. During
1997, the Company's operating activities provided $3.1 million of operating cash
flow. Net income provided $2.0 million, depreciation and amortization another
$1.3 million, and increases in accounts payable, advances from customers and
other liabilities provided $4.6 million, $3.0 million and $1.3 million,
respectively. Accounts receivable increased by 70% to $8.3 million in fiscal
1997 from $4.9 million in fiscal 1996. This increase is primarily due to a 95%
increase in revenue in the last month of fiscal 1997 as compared to the last
month of fiscal 1996. Of this increase in accounts receivables, related party
receivables increased by 57% while receivables from other customers increased by
81% for such period, both increases primarily due to an increase in purchases of
Company products which were not shipped until late in fiscal 1997. There were no
preferential terms provided to the related party in connection with such
purchases, and all amounts due at year end 1997 (September 30) from the related
party are expected to be collected. Increases in accounts receivable and
inventories used $3.4 million and $5.8 million of operating cash flow in 1997.
In, 1997, the Company invested $2.8 million in capital expenditures. The
capital expenditures primarily consisted of $1.3 million for facilities,
machinery and equipment, $0.6 million for computers and for related equipment
and $0.9 million for demonstration system tools. Although the Company currently
has no significant capital commitments, it expects to spend in excess of $12.0
million on capital expenditures over the next 12 months. A portion of the
planned capital expenditures are for the selection and implementation of a new
business information system. As a result of implementing this new system, which
will be year 2000 compliant, the Company does not believe that year 2000 issues
will have an impact on the Company's operations.
As of September 30, 1997, the Company's principal sources of liquidity
consisted of $2.2 million in cash and cash equivalents, and a $10.0 million line
of credit under a demand line and term loan agreement (the "Loan Agreement")
with Manufacturers and Traders Trust Company (the "Lender") under which there
were $0.5 million in borrowings. As of the end of two quarters in fiscal 1997,
the Company was not in compliance with certain financial tests required to be
met under the Loan Agreement, and thus, the Company was in technical default of
the Loan Agreement. The Lender has waived in writing its rights regarding the
prior lack of compliance and, as of September 30, 1997, the Company was in
compliance with all covenants in the Loan Agreement. At September 30, 1997, the
Company also had indebtedness of $2.5 million in promissory notes that require
quarterly interest payments. In August 1997, the Company renegotiated $1.5
million of such notes and extended the term to November 1998. In October 1997,
the Company repaid $1.0 million of such notes. At September 30, 1997, borrowings
associated with amounts due former stockholders of CVC Products, which require
annual interest payments of 9%, amounted to $0.1 million. Borrowings associated
with a term loan from a commercial bank as of September 30, 1997 amounted to
$2.5 million. Such loan requires monthly payments of principal and interest at
prime plus 1/2%. In September 1997, the Company paid off the remaining principal
of an industrial revenue bond with the proceeds of a new mortgage credit
facility with a principal of $2.0 million. The mortgage credit facility requires
monthly payments of principal and interest at 5.29% on the first $0.5 million of
the mortgage credit facility through October 1, 1999, after which the rate
increases to 8.29% through September 30, 2002, consistent with the interest rate
on $1,500,000 of the credit facility. Subsequent to September 30, 2002, the
Company may select the interest rate on the remaining principal from certain
interest rate alternatives specified in the mortgage credit facility agreement.
The Company intends to use the proceeds of the Offering for general
corporate purposes, including approximately $12.0 million for capital
expenditures relating to facility expansion and manufacturing and demonstration
equipment, $4.2 million for repayment of debt and the balance for additional
working capital. See "Use of Proceeds." The Company believes that cash from
operations, and bank borrowings, together with the net proceeds of the sale of
Common Stock by the Company in the Offering, will be adequate to fund operations
for at least the next 12 months.
23
<PAGE>
The Company's long-term capital requirements will be affected by many
factors, including the success of the Company's current product offerings, the
Company's ability to enhance its current products and to develop and introduce
new products that keep pace with technological developments and general trends
in the data storage and semiconductor industries. The Company plans to finance
its long-term capital needs with the net proceeds of the Offering, together with
borrowings and cash flow from operations. To the extent that such funds are
insufficient to finance the Company's activities, the Company will have to raise
additional funds through the issuance of additional equity or debt securities or
through other means. There can be no assurance that additional financing will be
available on acceptable terms.
RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share," which established standards for computing and presenting earnings per
share. See Notes to Consolidated Financial Statements for further discussion.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." See Notes to Consolidated Financial Statements for further
discussion.
24
<PAGE>
BUSINESS
INTRODUCTION
CVC is a leading worldwide supplier of deposition equipment for the
fabrication of thin film recording heads for the data storage industry. The
Company also has made significant advances in the development and initial
delivery of copper deposition equipment for the semiconductor industry. The
Company has leveraged key innovations in integrated process development, vacuum
technology, materials science, chemical and physical vapor deposition
technologies, and software applications to develop process equipment solutions
for the manufacture of both disk drive recording heads and advanced
semiconductor devices. These integrated solutions are optimized for the precise,
highly uniform, repetitive steps required for the deposition of thin film
materials.
INDUSTRY BACKGROUND
The worldwide markets for magnetic disk drives and semiconductor devices
have experienced rapid growth in recent years and are expected to continue to
experience significant growth. For example, according to International Data
Corporation ("IDC"), worldwide shipments of hard disk drives were 112 million
units in 1996 and are projected to be 231 million units in 2000. Growth in unit
volume of disk drives is being accompanied by rapid advancement in data storage
densities. Mean storage capacity per disk drive has increased from 213 megabytes
in 1993 to 2.7 gigabytes in 1997. At the same time, the market for semiconductor
devices is expected to grow from $138 billion in 1996 to over $343 billion in
2001, according to VLSI Research Inc.
This growth is due in large part to the ability of disk drive and
semiconductor manufacturers to deliver these devices with consistently enhanced
performance characteristics and functionality, improved reliability, higher
memory capacity and reduced size, weight, power consumption and cost. The rapid
advancement in the performance characteristics of disk drive recording heads and
of semiconductor devices has been made possible by significant advancements in
the fabrication processes involved in depositing the successive layers of thin
film materials on substrates and wafers.
The fabrication of thin film recording heads and semiconductor devices
involves a sequential series of complex but, in many cases, similar processing
steps including deposition. During deposition, both recording heads and
semiconductor devices are formed by building up a succession of extremely thin,
uniform layers of conducting, semiconducting or insulating films onto patterned
and unpatterned substrates. The basic deposition process consists of many
interrelated precise steps and requires a clean, vacuum environment. Minor
deviations in the process, minute impurities in materials used or particulate
contamination will result in product defects and manufacturing yield losses.
Precise surface and microstructure measurement devices, known as metrology
systems, are used to monitor the accuracy of the deposition process by measuring
critical dimensions and other physical, electrical and magnetic properties of
the various layers. These thin film layers can range from one-thousandth to
one-millionth of a millimeter in thickness. The composition, atomic scale
microstructure and surface/interface properties of these layers and the
subsequent patterning of the layered materials determine the magnetic and
electrical properties of the disk drive recording heads and electrical
properties of semiconductor devices. Different material layers produce different
performance characteristics and necessitate particular processes to deposit the
thin film layer.
The need to increase the storage capacity of disk drives has led to the
development of smaller device features and the transition from inductive
recording ("IR") heads towards more advanced magneto-resistive ("MR") and giant
magnetoresistive ("GMR") heads. MR heads consist of separate read and write
elements formed over each other and sharing common material layers. The write
element is a thin-film inductive head while the read element consists of an
alloy magneto resistive thin film that significantly improves performance. A
typical MR head may have 18 to 22 structured thin-film layers of several
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differing materials and surface structures which enable enhanced storage
capacity, while GMR heads can consist of 22 to 28 thin-film layers.
In addition, the market for non-volatile memory ("NVM") devices is expanding
in response to the growing consumer demand for consumer electronic equipment
that retains stored information in the absence of externally provided (E.G.,
battery) power sources. Although NVM technologies currently comprise only 4% of
the memory market, NVM technologies' share of such market should grow as
technologies emerge which eliminate the need for memory that is refreshed by an
external source of power. Electronic devices containing magnetoresistive random
access memory ("MRAM") data storage cells, which incorporate NVM technologies,
are considered by the industry to be superior to devices incorporating
conventional electrically programmable read only memory ("EPROM") cells with
respect to data storage memory requirements as EPROM storage cells have only a
limited number of write cycles.
In order to increase speed and performance, semiconductor device
manufacturers have continued to shrink geometries and line widths of
semiconductor devices, while at the same time adding multiple metal layers.
Semiconductor devices currently being manufactured use aluminum or aluminum
alloys as the interconnect, the "wires" that connect the integrated circuit
devices. However, manufacturers are beginning to consider other interconnect
metal conductor materials, such as copper, which provide less resistance to
electron flow and thus can provide increased circuit speed and performance. The
reduced resistance of copper may enable a fewer number of interconnect levels
and simpler fabrication process, resulting in improved performance and a
reduction in manufacturing cost. However, copper degrades the physical
properties of silicon and must, therefore, be completely isolated from the
transistors embedded in the silicon by use of a barrier layer. These critical
barrier layers are formed using similar deposition equipment and processes.
THE CVC SOLUTION
CVC has developed broad, technical expertise in thin film deposition
processes and technologies that enable the production of advanced thin film
recording heads and semiconductor devices in both the data storage and
semiconductor industries. Specifically, the Company has leveraged key
innovations in integrated process vacuum technology, materials science, chemical
and physical vapor deposition technologies and software applications to develop
process equipment solutions for data storage and semiconductor manufacturers.
CVC's solutions are optimized for the highly uniform, repetitive steps required
for both MR and GMR head manufacture, MRAM data storage cells and fabrication of
advanced semiconductor devices. The Company's principal product offerings are
its CONNEXION Cluster Tool and integrated process modules.
The CONNEXION Cluster Tool is an integrated modular system with stations for
locating up to six process modules clustered around a central wafer handling
system. Each module is equipped to deposit a thin film layer of material on a
substrate using a specified deposition method and process in an integrated,
vacuum controlled environment. CVC's Cluster Tool and process solutions employ
distributed control software applications which facilitate "plug and play"
reconfigurability, extensions to next generation cluster tool process solutions,
and integration with third-party fabrication technologies. The combination of
CVC's Cluster Tool system and multi-station process modules provide a number of
advanced process solutions which are rapidly transferable from research and
development to production across a range of applications. Based on this flexible
process module strategy, the Company has also developed an advanced process
module for deposition of copper and barrier layers for semiconductor device
manufacturing. The Company believes that this cluster-integrated approach offers
its customers optimal manufacturing process control, flexibility, extendibility
across multiple generations of fabrication technologies, and enhanced process
capabilities and manufacturing yields.
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<PAGE>
STRATEGY
CVC is a leading provider of deposition equipment for the fabrication of
thin film recording heads for the data storage industry. The Company believes
that it has also made significant advances in the development and initial
delivery of cluster-integrated copper deposition technologies for the
semiconductor industry. The Company's objective is to become one of the leading
suppliers of advanced thin film process solutions to both the data storage and
semiconductor industries. To meet this objective, the Company is pursuing the
following strategies:
EXTEND LEADERSHIP IN THIN FILM PROCESS SOLUTIONS FOR THE DATA STORAGE
INDUSTRY. Since 1990, the Company has focused on the advancement of integrated
thin film process technology that enables the fabrication of MR and
next-generation GMR recording heads used in hard disk drives. The Company
intends to continue to combine its expertise in thin film processing with the
open architecture, modular design of its CONNEXION Cluster Tool. The Company
believes that its CONNEXION Cluster Tool offers a high degree of operational
reliability, repeatability and throughput, as well as the ability to migrate
seamlessly from research and development to production using the same tool. The
Company intends to continue to broaden its product offerings with third-party
ion beam etch and deposition modules integrated with CVC's CONNEXION Cluster
Tool. The Company also plans to develop cluster-integrated metrology
capabilities that will allow precise measurement and testing functions to take
place in a process module without disrupting the production process and without
disturbing the tightly controlled vacuum environment.
LEVERAGE STRATEGIC PARTNERSHIPS WITH MARKET LEADERS. The Company has
established joint development programs and strategic relationships with a number
of industry-leading data storage and semiconductor manufacturing customers, as
well as research and development centers. By teaming with industry leaders in
the research and development stage, CVC can identify and develop customized
integrated process solutions that more precisely fit the customers' exact
requirements. Having met the specific needs of market leaders with innovative
integrated process solutions, the Company is then able to leverage the
experience gained to create product families that will meet the demands of an
expanded set of customers. The Company's ability to implement new process
solutions also helps the Company meet its customers' time-to-market demands and
advances the Company's goal of having products designed early into its
customers' planning cycles.
MAINTAIN AND LEVERAGE TECHNOLOGICAL LEADERSHIP. The Company has developed
expertise in the deposition of uniform layers of many different types of
materials over a wide range of material layer thicknesses on either planar or
patterned topography surfaces. The Company is committed to continuing its
investment in advanced engineering, research and development activities,
particularly in the development of thin film deposition processes for magnetic
data storage products and advanced metallization technologies for
next-generation data storage and semiconductor products. The Company intends to
continue to enhance and expand upon its technical expertise, proprietary
processes and equipment design to develop increasingly efficient and
cost-effective integrated process solutions for existing and new customers.
TARGET ADVANCED METALLIZATION OPPORTUNITIES IN THE SEMICONDUCTOR
INDUSTRY. The Company believes that as semiconductor manufacturing geometries
continue to shrink, copper will replace aluminum interconnect in many device
applications, offering improved performance and reliability with lower
manufacturing costs. Since 1993, the Company has committed significant resources
to the development of advanced copper deposition technology for high-performance
integrated circuit fabrication. The Company believes that its proprietary
metal-organic chemical vapor deposition ("MOCVD") and integrated barrier
technologies represent significant progress toward realization of the
opportunities that copper-based technology offer the semiconductor industry. The
Company has recently delivered integrated barrier and MOCVD copper deposition
tools, including one to SEMATECH (a non-profit research and development
consortium of 11 major U.S. semiconductor manufacturers and the U.S.
Government), which is being
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tested by members of the consortium. The Company has also delivered an
integrated MOCVD barrier and MOCVD copper tool to one of its strategic
customers. The Company intends to continue to address opportunities in the area
of emerging advanced metallization technology.
CONTINUE TO EMPHASIZE WORLDWIDE CUSTOMER SERVICE AND SUPPORT. The Company's
dedicated service staff and affiliated distributors in Japan, East Asia and
Europe provide timely and efficient customer service and support worldwide. The
Company believes that its worldwide sales and service organization is an
important competitive advantage. Approximately 31% of the Company's revenues for
1997 were from customers outside the United States, while revenues from such
customers for fiscal 1995 and 1996 were 13% and 19%, respectively. The Company
intends to continue to focus on expanding its existing sales and service
activities on a global basis to address the current and emerging manufacturing
priorities of its customers.
PRODUCTS
The Company's principal product line is its CONNEXION Cluster Tool system,
including its integrated process modules used in the manufacture of thin film
recording heads and semiconductor devices. Since the Company began delivering
its CONNEXION Cluster Tool in 1993, the Company has shipped more than 60
systems. Depending on the configuration, the process modules sell for
approximately $400,000 to $1.3 million each, and individual system sales range
from $1.0 million for substrate handling and stand-alone modules to in excess of
$3.0 million for fully integrated systems equipped with extensive process
controls. The Company believes its CONNEXION Cluster Tool configured with the
basic central wafer handling platform and one process module allows a customer
to purchase an advanced cluster tool system at a lower entry cost. The CONNEXION
Cluster Tool system incorporates the Company's thin film process technology and
provides improved process control and flexibility designed to result in lower
cost of ownership.
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CONNEXION CLUSTER TOOL SYSTEM
The CONNEXION Cluster Tool utilizes a distributed open architecture design
and standard specifications established by the Modular Equipment Standards
Committee ("MESC") of the Semiconductor Equipment and Materials International
("SEMI"), the semiconductor industry's primary standard-setting organization.
This open platform design enables the use of either Company-supplied process
modules or other MESC-compatible process modules supplied by third parties and
allows for easy upgrades as process and throughput requirements change over
time. The integrated, modular design enables the deposition of several thin film
layers, using a different deposition technique in each process module, without
breaking vacuum. The CONNEXION Cluster Tool uses a standard wafer handling robot
and one or two cassette elevator loaders.
[LOGO]
The Company believes that the competitive advantages provided by its
CONNEXION Cluster Tool technology include the following:
OPTIMAL PROCESS SOLUTIONS. Thin film deposition places a premium on the
ability of the deposition equipment to ensure tight uniformity and quality, as
well as on the control of the composition materials, atomic microstructures and
surface/interface properties. The Company has developed an array of process
energy sources and components, such as its proprietary INFINITY direct-current
("DC") magnetron, radio frequency ("RF") magnetron and RF diode sputtering
sources, gas showerheads and substrate heating and cooling accessories to ensure
this uniformity and film properties over a wide range of substrate materials and
sizes, thereby enabling the fabrication of data storage MR and GMR heads, MRAM
devices and semiconductor devices.
IMPROVED PROCESS CONTROL. The Company's CONNEXION Cluster Tool system
offers the precision, repeatability and reliability required by the Company's
customers. Substrates and wafers are sequentially processed in a controlled,
integrated vacuum environment which enables improved manufacturing yields,
enhanced tool uptime and device reliability and performance. The CONNEXION
Cluster Tool system employs a distributed control software application called
OPEN CONNEXION. This software application facilitates the addition and deletion
of modules to meet deposition process requirements, the integration of third
party modules and extensions to next generation cluster tool products.
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<PAGE>
FLEXIBILITY. CVC's CONNEXION Cluster Tool's open architecture, modular
SEMI/MESC-compatible substrate handling platforms and process modules offer an
integrated process solution that can include a variety of process modules on the
same platform. Various RF and DC energy sources, substrate cooling and heating
accessories, and gas distribution methods are available as standard options. The
tool is designed for handling silicon wafers up to 200 millimeters in diameter
or thin film head substrates up to six inch square or eight inch round. New
processes may be developed on a stand-alone basis on a single process module and
easily integrated onto a production tool at any time. The Company is planning to
introduce in 1998 a tool capable of handling 300 millimeter wafers.
Selected applications and materials for data storage and semiconductor
markets deposited by CVC's CONNEXION Cluster Tool are shown in the following
tables:
<TABLE>
<CAPTION>
DATA STORAGE (MR, GMR, MRAM)
APPLICATION SPECIFIC MATERIALS
<S> <C> <C>
Conductors Copper Molybdenum
Tantalum Gold
Chromium
Magnetic Materials Nickel Iron Cobalt Platinum
Nickel Iron Rhodium Cobalt Chromium Platinum
Aluminum Silicon Iron Cobalt Iron
Iron Tantalum Nitride Iron Manganese
Cobalt Zirconium Iridium Manganese
Tantalum Nickel Manganese
Cobalt Zirconium Niobium
Insulators Aluminum Oxide Silicon Nitride
Aluminum Oxynitride Silicon Carbide
Silicon Dioxide Diamond-Like-Carbon
<CAPTION>
SEMICONDUCTOR DEVICES
<S> <C> <C>
<CAPTION>
APPLICATION SPECIFIC MATERIALS
<S> <C> <C>
Conductors Copper Nickel
Titanium Silicide Aluminum
Titanium Tungsten
Cobalt
Barrier/Liner/Glue/Layers Titanium Tantalum Nitride
Titanium Nitride Titanium Silicon Nitride
Tantalum Tantalum Silicon Nitride
High-k dielectrics Barium Strontium Tantalum Pentoxide
Titinate
Other Specialty Tantalum Nitride Nickel Chromium
Materials Silicon Chromium Blue Phosphor
</TABLE>
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CVC PROCESS MODULES
The combination of CVC's CONNEXION cluster platform, single-wafer products
and multi-station modules and low-cost stand-alone handler provide a number of
advanced process solutions which are rapidly transferable from research and
development to production across a wide range of applications. The Company
currently offers modules for PVD, MOCVD, ICP soft clean and RTP/RTCVD, based on
its developed equipment and advanced process technologies.
PHYSICAL VAPOR DEPOSITION MODULE
PVD is used to deposit materials such as aluminum alloys, titanium, cobalt
alloys, nickel iron, and a wide range of magnetic, conductive and insulating
materials on various substrates and different topographies. PVD is performed in
a high vacuum chamber by applying a strong DC or RF electric field to create a
plasma of inert gas, usually argon. The electrically charged ions are
accelerated toward a target made of the material which is to be deposited. When
the ions hit the target, atoms are physically knocked off the target and are
scattered on the wafer or substrate, slowly building up a thin film layer.
CVC offers single-wafer and multi-station modules with improved vacuum
integrity and process capabilities for data storage and semiconductor
applications. The Company's MESC-compatible single wafer PVD modules provide
capabilities for RF and DC sputtering, collimation, substrate heating and
cooling, substrate bias and magnetic orientation. Standard process recipes are
available for a wide range of materials. The Company also offers multi-station
PVD modules for sequential deposition of various materials within a single
module.
METAL-ORGANIC CHEMICAL VAPOR DEPOSITION MODULE
CVD is used to deposit insulators such as silicon dioxide and silicon
nitride and conductors such as copper and tungsten. The CVD process causes
heated gases that contain atoms of the material to be deposited to react at the
wafer surface resulting in the formation of the thin film layer of material on
the substrate or silicon wafer. In order for the chemical reactions to occur,
the CVD process can use either elevated temperatures as in thermal CVD and/or
electro-magnetic energy as in plasma enhanced CVD. Some of these methods require
a vacuum environment. MOCVD uses a metal organic compound to provide the
materials to be deposited. MOCVD technology is being considered where it is
necessary to deposit a highly uniform layer of copper in complex, structured
topographies to form fully embedded copper interconnect structures in advanced
semiconductor devices. The use of copper instead of aluminum should improve the
overall chip reliability and reduce manufacturing costs due to a reduction in
the required number of multi-level interconnect process steps. The Company
currently offers advanced MOCVD process modules for deposition of copper and
barrier layers for semiconductor device manufacturing.
INDUCTIVELY-COUPLED-PLASMA SOFT CLEAN MODULE
The Company offers a multi-zone inductively-coupled-plasma or MZ-ICP soft
clean module for surface preparation prior to material depositions. CVC's MZ-ICP
module technology employs the design features of the ICP system licensed by the
Company from Texas Instruments and enhanced by the Company through internal
developments. The MZ-ICP module design provides the capability for damage-free
cleaning of semiconductor surfaces in order to enable formation of low
resistivity interconnect structures such as with copper metallization and with
controlled device interfaces for enhanced interconnect reliability and
performance.
RAPID THERMAL PROCESS/RAPID THERMAL CHEMICAL VAPOR DEPOSITION MODULE
The Company's multi-zone axisymmetric RTP module with multi-zone temperature
control optimizes temperature and process uniformity and repeatability control.
The Company's RTP module has been designed for various thermal processing
applications including anneal, oxidation, and CVD processes. The
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<PAGE>
Company plans to offer its advanced RTP technology for integrated processing
applications (silicide deposition and thermal treatment) using a CONNEXION
Cluster Tool.
600 SERIES PHYSICAL VAPOR DEPOSITION SYSTEMS
Introduced in 1988, the 610 and 611 products are automated sputter
deposition systems, handling up to 6-inch diameter substrates. Systems sell for
$400,000 to $750,000, depending on configuration. The 611 system is equipped
with a loadlock and eight work stations which accept combinations of RF
magnetron, RF diode and DC magnetron planar sputtering cathodes enabling up to
eight materials to be deposited with sequential or co-sputter deposition
processes. The CVC 600 Series system is the basic design with many 611 features
but without the loadlock and less automated process control. A soft clean ion
source can be installed in any work station for low damage cleaning of
semiconductor surfaces.
OTHER PRODUCTS
Ancillary products of the Company include a line of vacuum gauges and vacuum
pump fluids that the Company manufactures and distributes. In addition, the
Company is a leading manufacturer of shock testing systems used in the
automotive industry for non-destructive vehicle testing. Collectively, these
products generated revenues of $1.9 million, or 3% of the Company's gross
revenues for fiscal 1997.
CUSTOMERS
The Company's customers include most of the leading manufacturers of thin
film recording heads for the data storage industry and certain manufacturers of
semiconductor devices in the United States and abroad. During the past fiscal
year, approximately 75% of the Company's revenues were derived from sales made
to thin film recording head manufacturers and approximately 15% of the Company's
revenues were derived from sales made to semiconductor device manufacturers.
Representative customers of the Company include the following:
<TABLE>
<CAPTION>
DATA STORAGE SEMICONDUCTOR
- ------------------------- -------------------------
<S> <C>
Alps Analog Devices
Applied Magnetics Bourns
DAS Devices General Semiconductor
Fujitsu SEMATECH
IBM Sharp Microelectronics
Quantum SRI
Read-Rite Texas Instruments
Samsung Electronics Viking
Sanyo
Seagate Technology
TDK
</TABLE>
Historically, a few large customers have accounted for a substantial portion
of the Company's revenues, primarily due to the fact that the data storage and
semiconductor industries are dominated by a limited number of large companies.
In fiscal 1995, 1996 and 1997, revenues from the Company's five largest
customers represented approximately 72%, 81% and 78%, respectively, of the
Company's total revenues. In fiscal 1995, three customers each accounted for
more than 10% of the Company's revenues and in fiscal 1996 and 1997, two
customers each accounted for more than 10% of the Company's revenues. The
Company has experienced and expects to continue to experience fluctuations in
its customer mix. The Company believes that sales to relatively few customers
will continue to account for a high percentage of the Company's revenues in
future periods. None of the Company's customers has entered into long-term
purchase agreements with the Company. The loss of, or a substantial reduction or
delay in, orders from any significant customer could have a material adverse
effect on the Company's business, financial condition or results of operations.
See "Risk Factors--Concentration of Customers."
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<PAGE>
RELATIONSHIP WITH SEAGATE TECHNOLOGY
Seagate Technology, which provides products for storing, managing and
accessing digital information on computers and data communications systems, is
the Company's largest customer. For fiscal 1995, 1996 and 1997, Seagate
Technology accounted for 27%, 57% and 47%, respectively, of total Company
revenues. On October 16, 1997, Seagate Technology announced that, due to
weakness in demand for its high-performance products and greater than
anticipated pricing pressure, it was reviewing its operations worldwide and is
contemplating actions which will result in significant restructuring and other
one-time charges. The Company is unable to determine the impact, if any, that
such weakness in demand, pricing pressure and consequent restructuring by
Seagate Technology will have on its results of operations in future periods.
Nevertheless, the Company believes that Seagate Technology will significantly
reduce purchases of Company products in fiscal 1998 as compared to fiscal 1997.
The Company and Seagate Technology currently are not parties to any licensing,
development, technology sharing, guaranteed purchase or any other type of
collaborative agreements. In addition, Seagate Technology is the Company's
largest stockholder. In 1995, Seagate Technology made an equity investment of
approximately $9.0 million in the Company. In connection with such investment,
Seagate Technology obtained the right to elect two members of the Company's
Board of Directors. That right will terminate upon consummation of the Offering.
See "Risk Factors--Relationship with Seagate Technology," "Shares Eligible for
Future Sale" and "Certain Transactions."
Following completion of the Offering, Seagate Technology will own shares
representing approximtely 30.4% of the Company's outstanding Common Stock (29.0%
of such stock if the Underwriters' over-allotment option is exercised in full).
In addition, pursuant to a warrant acquired by Seagate Technology in 1995,
Seagate Technology has the right to acquire 1,186,140 shares of Common Stock at
an exercise price of $3.72 per share. Assuming full exercise of such warrant
(and no other change in the Company's outstanding Common Stock), Seagate
Technology would own an aggregate of approximately 36.7% of the Company's
outstanding Common Stock (35.1% of such stock if the Underwriters'
over-allotment option is exercised in full).
BACKLOG
At September 30, 1997, the Company's backlog was approximately $29.2
million, as compared to a backlog of $24.0 million at September 30, 1996. The
Company schedules production based on firm customer commitments and anticipated
orders during the planning cycle. The Company includes in its backlog only those
customer orders for which it has accepted written purchase orders against which
it expects to ship within the following 12 months. All orders are subject to
cancellation or rescheduling by the customer with limited or no penalty. The
Company's backlog at any particular date is not necessarily a reliable indicator
of actual sales for any succeeding period.
MARKETING, SALES AND SERVICE
The Company sells its products in the United States and Europe through its
direct sales force that is supported by its 12-person marketing and sales
organization. In Japan, Malaysia, Singapore and Thailand, the Company utilizes a
distributor, Nikko Tecno Co., Inc. ("Nikko Tecno"), to distribute its products.
The Company markets its products in China, Korea and Taiwan through independent
sales representatives. International sales accounted for 31% of the Company's
total revenues for fiscal 1997 and 13% and 19% of the Company's total revenues
for fiscal years 1995 and 1996, respectively. The Company's sales and marketing
organization employs a consultative sales process, working closely with
customers to understand and define their deposition process and equipment needs
and to determine that those needs are addressed by the Company's process
technologies, as well as complementary technologies offered by other equipment
providers. The Company works closely with the senior management and research and
development personnel of its existing customer base to gain insight into their
industries and to focus on selling new process technologies tailored to their
customers' requirements.
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<PAGE>
The sales cycles for the Company's systems vary depending upon whether the
system is an initial purchase or a repeat order. New customer sales cycles are
typically 12 to 18 months, whereas repeat order sales cycles are typically four
to six months. The sales cycle for a new customer begins with the generation of
a sales lead, which is followed by qualification of the lead, an analysis of the
customer's particular applications needs and problems, one or more presentations
to the customer, frequently including extensive participation by the Company's
senior management, two to three product sample demonstrations, followed by
customer testing of the results and extensive negotiations regarding the
equipment's process and reliability specifications. New customer sales cycles
are monitored closely by senior management for correct strategy approach and
prioritization. See "Risk Factors--Lengthy Sales Cycles."
Prompt and effective field service and support is critical to the Company's
sales efforts, due to the substantial commitments made by customers that
purchase the Company's equipment. As of September 30, 1997, the Company had 26
full-time employees dedicated to customer service and support. The Company's
strategy of supporting its installed base through both customer support and
research and development groups has served to encourage the use of the Company's
equipment and process technologies in customer production applications. The
Company's process engineers and field support personnel work closely with
customers to help define their production and process requirements, and
customers often collaborate in trial production runs at the Company's Fremont,
California and Rochester, New York research and demonstration facilities. The
Company believes that its marketing efforts are enhanced by the technical
expertise of its process engineers who also provide customer process support and
participate in industry forums, conferences and user groups.
The Company generally warrants its new systems for 15 months from the date
of shipment. The Company generally warrants to an original purchaser of its new
systems that the products and parts manufactured or assembled by the Company and
the application software supplied will be free from defects in materials and
workmanship under normal use. Installation is included in the price of the
system. The Company's field service engineers provide customers with call-out
repair and maintenance services for a fee. Customers may also enter into repair
and maintenance service contracts, covering the Company's systems. For a fee,
the Company trains its customers' service engineers to perform routine services,
and, in addition, the Company provides its customers with 24-hour a day, seven
day a week, telephone consultation services. The Company has customer support
centers located in New York, California, Texas, Minnesota, Northern Ireland and
Japan.
RESEARCH, DEVELOPMENT AND ENGINEERING
The data storage and semiconductor manufacturing industries are
characterized by rapid technological change and requirements for new product
introductions and enhancements. The Company's ability to remain competitive in
this market will depend in part upon its ability to develop new and enhanced
systems and to introduce these systems at competitive prices and on a timely and
cost-effective basis. Accordingly, the Company devotes a significant portion of
its personnel and financial resources to research, development and engineering
programs and seeks to maintain close relationships with its customers to remain
responsive to their equipment needs. The Company continuously conducts research
and development efforts in existing products to extend performance and process
capabilities as well as on next generation products. In the data storage market,
the Company is developing an advanced cluster-integrated metrology module to
enable precise, real-time measurements during the production process of thin
film structures for MR and GMR heads and MRAM storage devices. The Company is
also enhancing its magnetic orientation energy source to achieve more accurate
and programmable characteristics of magnetic thin films. In the area of advanced
interconnect technologies, the Company is developing programmable electrical
collimation capability for its PVD process module for tightly-controlled
deposition of liner and barrier layers and enhanced temperature and process
controls. In addition, the Company has already established state-of-the-art
class 100 clean room process development and applications engineering facilities
in New York and California with process and metrology capabilities for data
storage thin film recording head and semiconductor technologies.
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<PAGE>
As of September 30, 1997, the Company had 69 full-time employees dedicated
to its research, development and engineering programs. In fiscal years 1995,
1996 and 1997, the Company expended $1.2 million, $4.3 million and $9.1 million
on these programs, constituting 6%, 9% and 15% of revenues during those periods,
respectively. Research and development expenditures consist primarily of
salaries, project materials and other costs associated with the Company's
ongoing research and development efforts. The Company expects in future years
that research, development and engineering expenditures will continue to
represent a substantial percentage of revenues. The Company augments its
internal technology development efforts by licensing technology from others and
establishing strategic research and development relationships with universities
and various major customers. See "Risk Factors--Rapid Technological Change;
Dependence on New Products and Processes."
Trade, industry standards and development consortia organizations, such as
the SEMI, SEMATECH and SEMI/SEMATECH, help to define the methods, measurement
parameters, manufacturing requirements and specifications influencing commercial
transactions within the semiconductor industry. Christine Whitman, the Chief
Executive Officer of the Company, is on the Board of Directors of SEMI/
SEMATECH. The Company believes that its involvement with such organizations has
helped to ensure that the Company's new products conform to industry standards
and emerging requirements.
MANUFACTURING
The Company's manufacturing activities consist primarily of assembling and
testing components and subassemblies which are acquired from third party
suppliers and then integrated by the Company into finished systems. The
manufacturing operations are conducted in the Company's 90,000 square foot
headquarters facility in Rochester, New York. As of September 30, 1997, the
Company had 119 full-time employees dedicated to its manufacturing efforts. The
Company manufactures its systems in controlled clean environments which are
similar to the clean rooms used by data storage and semiconductor manufacturers.
All final assembly and systems tests are performed within the Company's
manufacturing facilities. Quality control of suppliers is maintained through
incoming verification of components, in-process inspection during equipment
assembly and final inspection and operation of all manufactured equipment prior
to shipment. The Company's customers frequently participate in systems testing
during the final assembly and inspection process. The Company's manufacturing
facilities recently were awarded designation as ISO 9001 certified. The Company
believes that ISO 9001 certification, a quality assurance model for companies
that design, produce, install and inspect items as part of their businesses,
offers the Company a competitive advantage over competitors who are not ISO 9001
certified and, in some cases, is a condition of doing business with certain of
its customers.
The Company procures components and subassemblies included in its products
from a limited group of suppliers and occasionally from a single source. The
Company does not maintain long-term supply contracts with its key suppliers but
believes that alternative suppliers could be found if necessary. A prolonged
inability to obtain components or subassemblies, as well as difficulties or
delays shifting to alternative sources, could have a material adverse effect on
the Company's operations and could result in damage to existing customer
relationships.
The Company is subject to a variety of governmental regulations related to
the use, storage, handling, discharge or disposal of toxic, volatile or
otherwise hazardous chemicals used in the manufacturing process. The Company
believes that it is currently in compliance with these regulations and that it
has obtained all necessary environmental permits to conduct its business, which
permits generally relate to the discharge of hazardous wastes. Any failure by
the Company to comply with regulations or the use, disposal or storage of
hazardous substances could subject the Company to future liabilities. See "Risk
Factors-- Environmental Regulation."
35
<PAGE>
COMPETITION
The data storage and semiconductor manufacturing equipment industries are
highly competitive. A substantial investment is required to install and
integrate capital equipment into a data storage or semiconductor production
line. The Company believes that once a device manufacturer has selected a
particular supplier's capital equipment, that manufacturer generally relies upon
that supplier's equipment for the specific production line application and, to
the extent possible, subsequent generations of similar systems. Accordingly, it
may be extremely difficult to achieve significant sales to a particular customer
once another supplier's manufacturing equipment has been selected by that
customer, unless there are compelling reasons to do so, such as significant
performance or cost advantages. Increased competitive pressure could lead to
lower prices for the Company's products, thereby adversely affecting the
Company's operating results.
The Company believes that its ability to compete in the data storage and
semiconductor manufacturing equipment markets depends on a number of factors,
including the ability to develop and introduce new products rapidly, product
innovation, product quality and reliability, product performance, breadth of its
product line, price, technical service and support, adequacy of manufacturing
quality and capacity and sources of raw materials, efficiency of production,
delivery capabilities and protection of the Company's products by intellectual
property laws. The Company competes in the data storage and semiconductor
manufacturing markets based on differentiated value-added process technologies,
system performance, customer support and the cost of ownership of its equipment.
In the data storage market, the Company's current competitors include
Balzers, Sputtered Films, Nordiko and Veeco Instruments. In the semiconductor
market, the Company's competitors include Applied Materials and Novellus.
Certain of the Company's competitors have substantially greater financial
resources, more extensive engineering, manufacturing, marketing and customer
service and support capabilities, larger installed bases of semiconductor
capital equipment and broader semiconductor process equipment offerings as well
as greater name recognition than the Company.
The Company expects its competitors in the data storage and semiconductor
process equipment industries to continue to improve the design and performance
of their current systems and processes and to introduce new systems and
processes with improved price and performance characteristics. No assurance can
be given that the Company will be able to compete successfully in the United
States or worldwide. See "Risk Factors--Highly Competitive Industries."
PATENTS AND OTHER INTELLECTUAL PROPERTY
The Company relies on a combination of patent, copyright, trademark and
trade secret laws and non-disclosure agreements to protect its proprietary
process technology. While the Company believes that these patents may have
significant value, CVC also believes that due to the rapid technological changes
that characterize the data storage and semiconductor equipment industries, the
innovative skills, technical expertise and know-how of its personnel may be more
important than patent protection. As of September 30, 1997, the Company had
obtained two U.S. patents and had 15 U.S. patent applications pending on its
behalf. In addition, the Company had eight foreign patent applications pending
on its behalf as of that date. The Company's two U.S. patents expire July 29,
2012 and May 20, 2014.
There can be no assurance that the Company's pending patent applications
will be approved, that any patents will provide it with competitive advantages
or will not be challenged by third parties, or that the patents of others will
not have an adverse effect on the Company's business. There can be no assurance
that others will not independently develop similar products, duplicate the
Company's products or, if patents are issued to the Company, design around the
patents issued to the Company.
The Company also relies upon trade secret protection and employee and
third-party nondisclosure agreements to protect its confidential and proprietary
information. Despite these efforts, there can be no assurance that others will
not independently develop substantially equivalent proprietary information and
36
<PAGE>
techniques or otherwise gain access to the Company's trade secrets or disclose
such technology or that the Company can meaningfully protect its trade secrets.
The data storage and semiconductor industries are characterized by frequent
litigation regarding patent and other intellectual property rights. Although the
Company is not aware of any pending or threatened patent litigation, there can
be no assurance that third parties will not assert claims against the Company
with respect to existing or future products or technologies. In the event of
litigation to determine the validity of any third-party claims, such litigation,
whether or not determined in favor of the Company, could result in significant
expense to the Company and divert the efforts of the Company's technical and
management personnel from productive tasks. In the event of an adverse ruling in
such litigation, the Company might be required to discontinue the use of certain
processes, cease the manufacture, use and sale of infringing products, expend
significant resources to develop non-infringing technology, or obtain licenses
to the infringing technology. In the event of a successful claim against the
Company and the Company's failure to develop or license a substitute technology
at a reasonable cost, the Company's business, financial condition and results of
operations would be materially and adversely affected. See "Risk
Factors--Patents and Other Intellectual Property."
EMPLOYEES
As of September 30, 1997, the Company had a total of 263 full-time employees
at all of its locations, consisting of 119 in manufacturing, 69 in research and
development, 22 in marketing and sales, 26 in customer service and support, 23
in administration and four in facilities maintenance.
Management believes that the Company's ongoing success depends in part on
its continued ability to attract and retain highly skilled employees, especially
employees with extensive technological backgrounds. This is particularly
important in the areas of product design and development, where competition for
skilled personnel is intense. There can be no assurance that the Company will be
successful in attracting or retaining such personnel.
As of September 30, 1997, 55 employees at the Company's site in Rochester,
New York were members of Local 342 of the International Union of Electronic,
Electrical, Salaried, Machine & Furniture Workers union and covered by a
collective bargaining agreement scheduled to expire in October 1998. The Company
believes that its relations with its employees, and the bargaining unit which
represents certain of them, are good.
FACILITIES
The Company's principal office is located in Rochester, New York and
consists of 90,000 square feet used for manufacturing, research and development
and administration. The Company entered into a financing agreement with the
County of Monroe Industrial Development Agency (the "Agency") in 1974 under
which such agency's bond proceeds were used to purchase the land and construct
such Rochester facility for lease to the Company. On September 29, 1997, the
Company entered into an amended lease agreement with the Agency that extended
the term of the original lease from the year 2000 to December 31, 2007. Upon the
expiration of such amended lease, the Company is obligated to purchase the
Rochester facility from the Agency for nominal consideration.
In addition, the Company leases 14,400 square feet in Fremont, California
for research and process development, product engineering and as a base for
regional sales and field service for the West Coast of the United States and
3,400 square feet in Dallas, Texas for engineering, equipment design, process
development, sales and customer support. The Company also leases space in
Minneapolis, Minnesota; Austin, Texas; Japan, Northern Ireland, Singapore and
Taiwan for sales and customer support. Although the Company believes that its
current facilities are adequate to meet its current requirements for the near
term, it may seek to lease or acquire additional facilities in the future.
LEGAL PROCEEDINGS
In the ordinary course of business, the Company may be involved in legal
proceedings from time to time. As of the date of this Prospectus, there are no
material legal proceedings pending against the Company.
37
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------- ----------- -------------------------------------------------------
<S> <C> <C>
Christine B. Whitman............................. 46 President, Chief Executive Officer and Chairman
Giovanni Nocerino, Ph.D.......................... 45 Executive Vice President
Emilio O. DiCataldo.............................. 46 Senior Vice President and Chief Financial Officer
Mehrdad M. Moslehi, Ph.D......................... 38 Senior Vice President and Chief Technical Officer
Christopher J. Mann.............................. 39 Senior Vice President, Data Storage Products
Richard J. Chicotka, Ph.D........................ 56 Vice President, Operations
Robert C. Fink................................... 62 Director
James Geater..................................... 64 Director
Brendan C. Hegarty, Ph.D......................... 54 Director
Victor E. Mann................................... 72 Director
Seiya Miyanishi.................................. 51 Director
Andrew C. Peskoe................................. 40 Director
Donald L. Waite.................................. 64 Director
</TABLE>
Ms. Whitman joined CVC Products in 1978 and has served as President, Chief
Executive Officer and Chairman of the Company since its acquisition of CVC
Products in 1990. Ms. Whitman received a BA from Syracuse University and is a
member and Secretary of the Board of Directors of SEMI/SEMATECH. She also serves
as a member of the Board of Directors of Rochester Telephone Corp. and The M&T
Bank Rochester Advisory Council. Ms. Whitman serves on the Executive Committee
of the Board of Directors of the Industrial Management Council, the Board of
Trustees for the Greater Rochester Chamber of Commerce, the United Way Board of
Directors, the New York State International Business Council and is a member of
the Board of Trustees of Rochester Institute of Technology.
Dr. Nocerino joined the Company in the fall of 1997 as Executive Vice
President. From 1994 to 1997, Dr. Nocerino worked as Vice President and General
Manager of Sales and Marketing at Varian Associates, a supplier of semiconductor
manufacturing equipment. Prior to his employment at Varian Associates, Dr.
Nocerino was Executive Vice President with Materials Research Corporation
("MRC"), a subsidiary of Sony and a manufacturer of thin film equipment and
material for the data storage and semiconductor industries. Dr. Nocerino holds a
joint honors B.Sc. in Physics and Electronic Engineering and a Ph.D from the
University of Manchester, England in 1977.
Mr. DiCataldo joined the Company in 1995 as Senior Vice President and Chief
Financial Officer. From 1991 to 1995, Mr. DiCataldo served as Senior Vice
President, Finance and Administration of MedImmune, Inc., a therapeutic and
vaccine company. Prior to his employment at MedImmune, Mr. DiCataldo held Vice
President-level positions at Bausch & Lomb, Inc. and Praxis Biologics and worked
for the firm of Price Waterhouse LLP. Mr. DiCataldo is a Certified Public
Accountant and holds a BS in Accounting from St. John Fisher College.
Dr. Moslehi joined the Company in 1994 as Senior Vice President and Chief
Technical Officer. From 1988 to 1994, Dr. Moslehi served in various positions at
Texas Instruments, a semiconductor manufacturer, most recently as Branch Manager
in their Semiconductor Process and Design Center where he developed process and
equipment technologies such as RTP, PVD and photochemical cleaning. Dr. Moslehi
is named as an inventor on over 80 U.S. patents and in 1993 he earned the
American Electronics Association's Technologist/Inventor of the Year. Dr.
Moslehi received a BS in Electrical Engineering at Arya-Mehr University of
Technology and a MS and Ph.D in Electrical Engineering from Stanford University.
Dr. Moslehi also serves on the consulting faculty of Stanford University.
38
<PAGE>
Mr. Christopher Mann joined CVC Products in 1979 and now serves as Senior
Vice President, Data Storage Products. Mr. Mann has previously held the
positions of Field Service Manager, Engineering Services Manager and Vice
President, Marketing at the Company and CVC Products prior to the Acquisition.
Prior to joining CVC in 1979, Mr. Mann worked for CVC Scientific Products, Ltd.
in the United Kingdom.
Dr. Chicotka joined the Company in 1995 as Vice President, Operations. From
1994 to 1995, Dr. Chicotka served as Director of Development Engineering of
Conner Peripherals, a manufacturer of disk drives. From 1993 to 1994, Dr.
Chicotka served as Director of Process Engineering of Seagate Magnetics, a
division of Seagate Technology. From 1962 to 1992, Dr. Chicotka served in
various positions at IBM, most recently as Manager of Head Process Manufacturing
and Engineering of Storage Products Development and Manufacturing in San Jose,
California. Dr. Chicotka received a BS and MS in Metallurgical Engineering and a
Ph.D in Materials Science from Polytechnic Institute of Brooklyn.
Mr. Fink has been a director of the Company since 1997. In 1993, Mr. Fink
joined Lam Research Corporation, a manufacturer of semiconductor processing
equipment, and served as Vice President and Chief Operating Officer, following
the Company's acquisition of Drytek, Inc. Mr. Fink served as the President of
Drytek from 1983 to 1988. Prior to Drytek, Mr. Fink spent four years with ITT
Corporation's Semiconductor Division as Director of VLSI Operations for North
America and 12 years with General Instrument Corporation's Microelectronics
Division as Director of Worldwide Manufacturing Resources. Mr. Fink's career
also includes 13 years with General Electric Corporation. He received a BS
degree in Metallurgical Engineering from Polytechnical Institute of New York.
Mr. Geater has been a director of the Company since 1990. Since 1992, Mr.
Geater has served as President of Geater Associates, a management consulting
firm. He previously held the position of General Business Manager at Eastman
Kodak and was a faculty member of the Wm. E. Simon Graduate School of Business
Administration at the University of Rochester. Mr. Geater received a BA in
Economics from Miami University and an MBA from the University of Rochester.
Dr. Hegarty has been a director of the Company since 1995. Since 1989, Dr.
Hegarty has served in various positions for Seagate Technology, most recently as
Executive Vice President and Chief Operating Officer--Recording Heads. Dr.
Hegarty received a Ph.D in Solid State Physics from the University of Sussex in
England.
Mr. Victor Mann has been a director of the Company since 1990. Since 1990,
Mr. Mann has been a self-employed consultant to various businesses in the United
Kingdom as well as to the British Government. Mr. Mann has also served as a
Technical Director of Plessey.
Mr. Miyanishi has been a director of the Company since 1990. Since 1987, Mr.
Miyanishi has served as President and Chief Executive Officer of Nikko Tecno, a
company dealing in the import and export of capital equipment, which was founded
in 1946. Mr. Miyanishi has served as owner, President and Chief Executive
Officer of several other companies in Japan. Mr. Miyanishi received a BS of
managerial economics from Keio University.
Mr. Peskoe has been a director of the Company since 1990. Mr. Peskoe joined
the law firm of Golenbock, Eiseman, Assor & Bell in 1986, and currently serves
as a partner of such firm, concentrating on corporate finance and securities
matters. Mr. Peskoe received his undergraduate degree from Harvard College and a
JD from Harvard Law School.
Mr. Waite has been a director of the Company since 1995. Since 1983, Mr.
Waite has served in various positions for Seagate Technology, most recently as
Chief Administrative Officer, Chief Financial Officer and Executive Vice
President. Mr. Waite received a BS in Accounting from Creighton University and a
JD from Georgetown University Law Center. Mr. Waite is a Certified Public
Accountant.
39
<PAGE>
All directors hold office until the next annual meeting of the stockholders
and until their successors have been elected and qualified. Executive officers
of the Company are elected by the Board of Directors on an annual basis and
serve until their successors are duly elected and qualified. There are no family
relationships among any of the executive officers or directors of the Company
(except for Victor Mann, a director, whose son Christopher Mann is Senior Vice
President, Data Storage Products).
KEY EMPLOYEES
Certain key employees of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------------------- ----------- ----------------------------------------------------
<S> <C> <C>
Judd C. Prozeller................................... 46 Vice President, Quality
Phillip Chapados, Ph.D.............................. 35 Director of Control Systems Engineering
Boris Relja......................................... 48 Director of Semiconductor Marketing
William Starks...................................... 56 Director of Systems Engineering
</TABLE>
Mr. Prozeller joined the Company in 1995 and currently serves as Vice
President, Quality. From 1990 to 1995, Mr. Prozeller served as the Senior
Program Director for the Department of Training and Professional Development at
the Rochester Institute of Technology. From 1990 to 1995, Mr. Prozeller also
served as a total quality consultant for a number of large institutional
clients. From 1979 to 1988, Mr. Prozeller served in various positions at the
Xerox Corporation, most recently as a Total Quality Consultant, providing
consulting services to various suppliers. Mr. Prozeller received a BS from New
York State University at Brockport, an MEd from Nazareth College of Rochester,
and an MBA from Rochester Institute of Technology.
Dr. Chapados joined the Company in 1994, and currently serves as Director of
Control Systems Engineering. From 1985 to 1994, Dr. Chapados served in various
positions at Texas Instruments, most recently as a member of the Technical Staff
of the Semiconductor Process Development Center in Dallas, Texas. Dr. Chapados
received a BS in Electrical Engineering and Computer Science from The Johns
Hopkins University, an MS in Electrical Engineering from Southern Methodist
University and a Ph.D in Electrical Engineering from Southern Methodist
University.
Mr. Relja joined the Company in 1997 and currently serves as Director of
Semiconductor Marketing. From February 1990 to December 1993 and from July 1994
to 1997, Mr. Relja served in a number of positions with Varian Associates, most
recently as Product Marketing Manager, where he focused on process development
and marketing strategy. From January 1994 to June 1994, Mr. Relja served as
Director of Total Equipment Solutions of MRC. Mr. Relja received a BS in
Material Science from IHK Munich.
Mr. Starks joined the Company in 1996 and currently serves as Director of
Systems Engineering. From 1971 to 1996, Mr. Starks served in various positions
at Varian Associates, most recently as Chief Technical Architect for Varian's
Thin Film Systems division. Mr. Starks received a BS in Electrical Engineering
from Iowa State University and an MS in Electrical Engineering from the
Massachusetts Institute of Technology.
DIRECTOR COMMITTEES AND COMPENSATION
DIRECTOR COMMITTEES
The Audit Committee of the Board of Directors (the "Audit Committee")
consists of Messrs. Victor Mann and Waite. The Audit Committee reviews with the
Company's independent accountants the scope and timing of their audit services
and any other services they are asked to perform, the accountants' report on the
Company's Consolidated Financial Statements following completion of their audit
and the Company's policies and procedures with respect to internal accounting
and financial controls. In addition,
40
<PAGE>
the Audit Committee makes annual recommendations to the Board of Directors for
the appointment of independent accountants for the ensuing year.
The Compensation Committee of the Board of Directors (the "Compensation
Committee") consists of Messrs. Fink, Geater and Peskoe. The Compensation
Committee reviews and evaluates the compensation and benefits of all officers of
the Company, reviews general policy matters relating to compensation and
benefits of employees of the Company and makes recommendations concerning these
matters to the Board of Directors. The Compensation Committee will also
administer the Company's 1997 Stock Option Plan (the "Plan"). See "--Stock
Plans."
DIRECTOR COMPENSATION
Directors who are employees of the Company will receive no additional
compensation for their services as members of the Board of Directors or as
members of Board committees. Directors who are not employees of the Company are
paid an annual retainer of $8,000, payable in shares of Common Stock, as well as
additional fees paid in cash of $1,500 for each meeting of the Board and $500
for each meeting of a Board committee attended by such Director. The Company's
Directors are reimbursed for their out-of-pocket expenses incurred in connection
with their service as Directors, including travel expenses.
The Company's 1997 Nonemployee Directors' Stock Option Plan (the "Directors'
Plan") contains provisions pursuant to which options for 10,000 shares of Common
Stock are granted to each nonemployee director upon commencement of service on
the Board, and options for 3,000 shares of Common Stock are granted to each
nonemployee director on March 31 of each year of continued service on the Board.
The Company has authorized and reserved 250,000 shares of Common Stock for
issuance under the Plan. At the time Mr. Fink was elected to the Board of
Directors in October 1997, he was granted an option to purchase 10,000 shares of
Common Stock pursuant to the Plan, subject to consummation of the Offering. The
exercise price of such option is equal to the initial public offering price.
41
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the total compensation for fiscal 1997 of the
Chief Executive Officer and each of the other four most highly compensated
executive officers of the Company whose total salary and bonus for fiscal 1997
exceeded $100,000 (each, a "Named Executive Officer", and collectively, the
"Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION NUMBER OF
---------------------------------------------------- SECURITIES
OTHER UNDERLYING ALL
ANNUAL OPTIONS OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) /SARS COMPENSATION(3)
- ----------------------------------------- --------- ---------- ----------- ---------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Christine B. Whitman..................... 1997 $ 167,250 -- -- 51,000 $ 2,325
President, Chief Executive Officer and
Chairman
Mehrdad M. Moslehi....................... 1997 140,078 -- -- 12,000 1,905
Senior Vice President and
Chief Technical Officer
Christopher J. Mann...................... 1997 122,406 -- $ 31,962(4) 22,500 2,506
Senior Vice President,
Data Storage Products
Emilio O. DiCataldo...................... 1997 142,551 -- 46,930(5) 48,000 1,330
Senior Vice President and
Chief Financial Officer
Richard J. Chicotka...................... 1997 127,266 -- -- 18,000 887
Vice President, Operations
</TABLE>
- ------------------------
(1) Bonus compensation for the fiscal year ended September 30, 1997 has not yet
been approved by the Board of Directors. Bonuses for fiscal 1996 were as
follows: Ms. Whitman, $46,600; Dr. Moslehi, $29,100; Mr. Mann, $28,500; Mr.
DiCataldo, $34,400; and Dr. Chicotka, $27,300.
(2) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits
has been omitted in those instances where such perquisites and other
personal benefits constituted less than the lesser of $50,000 or 10% of the
total annual salary and bonus for the Named Executive Officer for the fiscal
year.
(3) Represents matching contributions made by the Company on behalf of the Named
Executive Officer to the Company's 401(k) Plan.
(4) Represents auto allowance of $10,488 and commission of $21,474.
(5) Represents relocation expense of $17,500, relocation allowance of $26,670
and dues of $2,760.
OPTION GRANTS
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF STOCK
NUMBER OF TOTAL OPTIONS PRICE APPRECIATION FOR
SECURITIES GRANTED TO EXERCISE OR OPTION TERM
UNDERLYING EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME OPTIONS FISCAL 1997 ($/SHARE) DATE 5% 10%
- ------------------------------------------- ----------- --------------- ----------- ----------- ----------- ----------
Christine B. Whitman....................... 36,000 5.90% $ 2.46 12/06/06 $ 113,027 $ 142,627
15,000 2.46 3.82 8/26/07 73,131 92,282
Mehrdad M. Moslehi......................... 12,000 1.97 3.82 8/26/07 58,505 73,826
Christopher J. Mann........................ 10,500 1.72 2.46 12/06/06 32,966 41,599
12,000 1.97 3.82 8/26/07 58,505 73,826
Emilio O. DiCataldo........................ 24,000 3.94 2.46 12/06/06 75,352 95,085
24,000 3.94 3.82 8/26/07 117,009 147,652
Richard J. Chicotka........................ 6,000 0.98 2.46 12/06/06 18,838 23,771
12,000 1.97 3.82 8/26/07 58,505 73,826
</TABLE>
42
<PAGE>
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------------------------------------
<S> <C> <C> <C> <C>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
---------------------------- ---------------------------
<CAPTION>
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Christine B. Whitman................................... 510,000 51,000 $ 6,417,500 $ 517,190
Mehrdad M. Moslehi..................................... 240,000 12,000 3,020,000 110,200
Christopher J. Mann.................................... 300,000 22,500 3,775,000 220,870
Emilio O. DiCataldo.................................... 155,000 88,000 1,782,644 908,416
Richard J. Chicotka.................................... 80,000 58,000 870,144 608,496
</TABLE>
- ------------------------
(1) The value of the unexercised, in-the-money options on September 30, 1997 is
based on the difference between the assumed initial public offering price of
the Common Stock ($13.00 per share), and the per share option exercise
price, multiplied by the number of shares of Common Stock underlying the
options.
STOCK OPTION PLANS
STOCK OPTION PROGRAM
Until June 1996, the Company had an informal stock option program under
which selected employees were granted non-qualified options to purchase shares
of Common Stock. The primary purpose of this program had been to provide
long-term incentives to the Company's selected employees and to further align
their interests with those of the Company. The selection of the participants,
the determination of the number of shares of Common Stock offered to each
participant, the terms of the repurchase rights for each participant and other
terms of sale had been made by the Compensation Committee and/or the Board of
Directors. Options granted under this informal plan generally vested over a
period of three years from the date of grant and were exercisable at the fair
market value of a share of Common Stock at the date of grant. Under this
program, options to purchase 2,012,760 shares of Common Stock have been
purchased or granted, of which options to purchase 150,000 shares of Common
Stock have been exercised and options to purchase 180,000 shares of Common Stock
have been cancelled.
1996 STOCK OPTION PLAN
The Company's 1996 Stock Option Plan (the "1996 Plan") was adopted by the
Board of Directors effective June 30, 1996 under which selected employees were
granted nonqualified stock options and incentive stock options to purchase
shares of Common Stock. The primary purpose of the 1996 Plan was to provide
long-term incentives to the Company's selected employees and to further align
their interests with those of the Company. The selection of participants, the
determination of the form and number of shares of Common Stock offered to each
participant, the exercise period of each option, the terms of the repurchase
rights for each participant and other terms of sale were made by the
Compensation Committee and/or the Board of Directors. Options granted to
employees under the 1996 Plan were generally at fair market value as of the
grant date based upon valuations obtained contemporaneously from an independent
appraiser. Options granted under the 1996 Plan generally vested over a period of
three-to-five years from the date of grant and were exercisable, for incentive
stock options, at the fair market value of a share of Common Stock at the date
of grant and, for nonqualified stock options, at least 85% of the fair market
value of a share of Common Stock at the date of grant. As of September 30, 1997,
options to purchase 853,200 shares of Common Stock have been granted under the
1996 Plan, of which options to purchase 300 shares of Common Stock have been
exercised and options to purchase 73,500 shares have been cancelled.
1997 STOCK OPTION PLAN
The Board of Directors of the Company has adopted and the stockholders of
the Company have approved the Company's 1997 Stock Option Plan (the "Plan"),
under which stock options may be granted to employees of the Company and its
subsidiaries. The Plan permits the grant of stock options that qualify as
incentive stock options ("ISOs") under Section 422 of the Internal Revenue Code,
and nonqualified stock options ("NSOs"), which do not so qualify. The Company
has authorized and reserved 1,250,000
43
<PAGE>
shares of the Common Stock for issuance under the Plan. As of September 30,
1997, no options had been granted under the Plan. The shares may be unissued
shares or treasury shares. If an option expires or terminates for any reason
without having been exercised in full, the unpurchased shares subject to such
option will again be available for grant under the Plan.
The Plan is administered by the Compensation Committee. Subject to the
limitations set forth in the Plan, the Compensation Committee has the authority
to determine the persons to whom options will be granted, the time at which
options will be granted, the number of shares subject to each option, the
exercise price of each option (which may not be less than the fair market value
of the underlying Common Stock), the time or times at which the options will
become exercisable and the duration of the exercise period. The Compensation
Committee may provide for the acceleration of the exercise period of an option
at any time prior to its termination or upon the occurrence of specified events,
subject to limitations set forth in the Plan. The Compensation Committee has the
authority to cancel and replace stock options previously granted with new
options for the same or a different number of shares and having a higher or
lower exercise price, and may amend the terms of any outstanding stock option to
provide for an exercise price that is higher or lower than the current exercise
price.
All officers, employees and consultants of the Company and its subsidiaries
are eligible to receive grants of stock options under the Plan, as selected by
the Compensation Committee. The exercise price of shares of Common Stock subject
to options granted under the Plan may not be less than 100 percent of the fair
market value of the Common Stock on the date of grant. The maximum term of
options granted under the Plan is ten years from the date of grant. The maximum
number of shares of Common Stock that may be subject to Options granted to any
participant of the Plan during any one calendar year is 500,000. Options granted
under the Plan will generally become vested and exercisable over a five-year
period in equal annual installments, unless the Compensation Committee specifies
a different vesting schedule. In the event of a "change in control" of the
Company (as defined in the Plan), each option that was not then vested will
become fully and immediately vested and exercisable, unless such options are
assumed by the acquiring party in such transaction.
All options granted under the Plan are nontransferable by the optionee,
except for transfers approved by the Compensation Committee to certain permitted
transferees (such as immediate family members of the optionee and charitable
institutions) and transfers upon the optionee's death in accordance with his
will or applicable law. In the event of an optionee's death or permanent and
total disability, outstanding options that have become exercisable will remain
exercisable for a period of one year, and the Compensation Committee will have
the discretion to determine the extent to which any unvested options shall
become vested and exercisable in connection with death or disability. In the
case of any other termination of employment, outstanding options that have
previously become vested will remain exercisable for a period of 90 days, except
for a termination "for cause" (as defined in the Plan), in which case all
unexercised options will be immediately forfeited. Under the Plan, the exercise
price of an option is payable in cash or, in the discretion of the Compensation
Committee, in Common Stock or a combination of cash and Common Stock. An
optionee must satisfy all applicable tax withholding requirements at the time of
exercise.
The Plan has a term of ten years, subject to earlier termination or
amendment by the Board of Directors, and all options granted under the Plan
prior to its termination remain outstanding until they have been exercised or
are terminated in accordance with their terms. The Board may amend the Plan at
any time.
The Board of Directors of the Company has also adopted and the stockholders
of the Company have also approved the Directors' Plan, under which stock options
are granted to each member of the Company's Board of Directors who is not an
employee of the Company. See "--Director Committees and Compensation" and
"--Director Compensation."
PENSION PLAN
The Company maintains a defined benefit retirement plan for its employees
which provides retirement benefits based upon a formula that takes into account
the employees' compensation and length of
44
<PAGE>
service with the Company as well as benefits employees may be entitled to
receive under certain prior plans of the Company. Such plan was frozen effective
September 30, 1991 and no further benefits will be accrued under such plan. Mr.
Christopher Mann and Ms. Christine Whitman will receive $157.68 and $394.28,
respectively, on a monthly basis commencing at retirement at attainment of age
65.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee are Messrs. Fink, Geater
and Peskoe. None of these directors was at any time during the fiscal year ended
September 30, 1997, nor at any other time within the past five years, an officer
or employee of the Company. No executive officer of the Company serves as a
member of the board of directors or compensation committee of any entity which
has one or more executive officers serving as a member of the Company's Board of
Directors or the Compensation Committee.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements (the "Agreements") with
each of its Named Executive Officers. The Agreements provide that the employees
will serve the Company in the respective offices listed in the Summary
Compensation Table for a term of three years (with automatic one-year renewals),
subject to earlier termination as provided in the Agreements. The Agreements set
forth the minimum base salary of each employee during the term of the
Agreements, subject to possible increase at the sole discretion of the
Compensation Committee. Each employee is also eligible to receive, at the sole
discretion of the Compensation Committee, an annual bonus based on the
contribution of its employee towards achievement of the annual business goals of
the Company. Under the Agreements, the employees are entitled to participate in
the employee benefit plans of the Company and are eligible for the grant of
stock options, in the sole discretion of the Compensation Committee.
The Agreements include provisions that are effective upon the termination of
employment of the employees under certain circumstances. In general, the
employees are entitled to a lump-sum cash severance payment upon termination by
the Company without "cause" or termination by the employee for "good reason"
following a "change in control" (each such term as defined in the Agreements).
Such lump-sum severance payment is equal to the employee's base salary as in
effect immediately prior to termination multiplied by a specified number of
months (24 months for Ms. Whitman, 18 months for Mr. DiCataldo, 12 months for
Drs. Moslehi, Chicotka. Nocerino and Mr. Christopher Mann) and then discounted
to present value from the dates such payments would otherwise have been made.
Under certain circumstances, upon a "change in control," all options to purchase
shares of Common Stock held by the employees that were not then vested will
become fully and immediately vested and exercisable. An employee terminated
after a "change in control" shall retain the right to exercise any options to
purchase shares of Company stock for 12 months following the date of such
termination (or, if earlier, the expiration of the original term of the option).
The Agreements include certain restrictive covenants for the benefit of the
Company relating to non-disclosure by the employee of the Company's confidential
business information and the Company's right to inventions and technical
improvements of the employee.
45
<PAGE>
CERTAIN TRANSACTIONS
Seagate Technology, a Delaware corporation, is a principal stockholder and
major customer of the Company. Mr. Waite, a director of the Company, is the
Executive Vice President, Chief Administrative Officer and Chief Financial
Officer of Seagate Technology. Dr. Hegarty, a director of the Company, is the
Executive Vice President and Chief Operating Officer for the Recording Heads
division of Seagate Technology. See "Principal and Selling Stockholders."
In May 1995, the Company sold 60,492 shares of Series B Convertible
Preferred Stock for a price of $148.78 per share and a warrant to purchase
19,769 shares of Series B Convertible Preferred Stock (the "Warrant") to Seagate
Technology in a private placement. The Warrant is exercisable by Seagate
Technology for $223.17 per share during the seven-year period commencing on the
warrant issuance date (May 22, 1995). Following the closing of the Offering, the
Warrant will become exercisable for 1,186,140 shares of Common Stock at an
exercise price of $3.72 per share of Common Stock. See "Description of Capital
Stock."
In connection with such issuance, the Company also entered into a
Registration Rights Agreement with Seagate Technology and certain executive
officers and stockholders of the Company. Such agreement grants certain demand
and piggy-back registration rights to Seagate Technology with respect to shares
of Common Stock issuable upon conversion of all outstanding shares of the Series
B Convertible Preferred Stock, and also grants certain piggy-back registration
rights to certain executive officers and stockholders of the Company. See
"Shares Eligible for Future Sale--Registration Rights."
Nikko Tecno, a Japanese corporation, is a principal stockholder and a
distributor of the Company's products in Japan. Mr. Miyanishi, a director of the
Company, is the President and Chief Executive Officer of Nikko Tecno. See
"Principal and Selling Stockholders." At September 30, 1997, the Company had
borrowings of $2.5 million from Nikko Tecno. Of the $2.5 million, the Company
had borrowed $1.5 million in November of 1990 and the remaining $1.0 million in
December of 1991. These borrowings are evidenced by notes, which are unsecured
and require quarterly interest payments calculated at an annual rate of 9%. The
principal of the $1.0 million note was paid in October of 1997; the principal of
the $1.5 million note is due in November 1998. See Notes to Consolidated
Financial Statements.
In connection with the private placement of Series B Convertible Preferred
Stock to Seagate Technology, the Company entered into an Amended and Restated
Stockholders' Agreement with Seagate Technology, Nikko Tecno and certain
executive officers and stockholders of the Company providing for voting and
pre-emptive rights with respect to the acquisition and sale of shares by the
Company and certain matters affecting corporate governance. These rights will
terminate when the Series A and Series B Convertible Preferred Stock are
converted into Common Stock upon the consummation of the Offering.
Andrew Peskoe, a director of the Company, is a partner in the law firm of
Golenbock, Eiseman, Assor & Bell, which has provided legal services to the
Company in connection with a variety of business and organizational matters.
46
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of September 30, 1997, giving effect as of that
date to the conversion of all shares of the Company's Series A and Series B
Convertible Preferred Stock into Common Stock, which will occur upon the closing
of the Offering, and to the issuance of shares of Common Stock as a dividend to
effect a 3-for-1 split of the Company's Common Stock on October 31, 1997, by (i)
each person or entity known to the Company to own beneficially more than 5% of
the outstanding shares of Common Stock, (ii) each of the Company's directors and
officers, (iii) the Selling Stockholder and (iv) all directors and executive
officers as a group. Unless otherwise indicated below, to the knowledge of the
Company, all persons listed below have sole voting and investment power with
respect to their shares of Common Stock, except to the extent authority is
shared by spouses under applicable law.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE SHARES TO OWNED AFTER THE
OFFERING(1)(2) BE OFFERING(1)(2)
------------------------ SOLD IN THE ------------------------
BENEFICIAL OWNER NUMBER PERCENT OFFERING NUMBER PERCENT
- --------------------------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Seagate Technology(3).............................. 4,815,660 47.5% -- 4,815,660 36.7%
920 Disc Drive
Scotts Valley, CA 95066-4544
Nikko Tecno(4)..................................... 2,112,000 23.6 -- 2,112,000 17.7
P.O. Box 139
Central Tokyo, Japan
Anne G. Whitman(5)................................. 1,836,000 20.5 900,000 936,000 7.8
Christine B. Whitman(5)............................ 1,062,000 11.2 -- 1,062,000 8.5
Mehrdad M. Moslehi(5).............................. 456,000 5.0 -- 456,000 3.7
Christopher J. Mann................................ 383,940 4.2 -- 383,940 3.1
Emilio O. DiCataldo................................ 155,000 1.7 -- 155,000 1.3
Richard J. Chicotka................................ 80,000 * -- 80,000 *
Robert C. Fink..................................... 0 * -- 0 *
James Geater....................................... 50,475 * -- 50,475 *
Brendan C. Hegarty(6).............................. 2,475 * -- 2,475 *
Victor E. Mann..................................... 26,475 * -- 26,475 *
Seiya Miyanishi(7)................................. 2,114,475 23.6 -- 2,114,475 17.7
Andrew C. Peskoe(8)................................ 197,475 2.2 -- 197,475 1.6
Donald L. Waite(9)................................. 2,475 * -- 2,475 *
All directors and executive officers as
a group (12 persons)(10)......................... 2,418,790 23.5 -- 2,418,790 18.2
</TABLE>
- ------------------------
* Less than one percent.
(1) The number of shares of Common Stock shown in the table above as
beneficially owned includes shares issuable pursuant to options and warrants
that may be exercised within 60 days after September 30, 1997. Shares
issuable pursuant to such options and warrants are deemed outstanding for
computing the percentage of beneficial ownership of the person holding such
options and warrants but are not deemed outstanding for computing the
percentage of beneficial ownership of any other person.
(2) Includes shares of Common Stock issuable upon exercise of options, as
follows: Christine B. Whitman--510,000 shares; Mehrdad M. Moslehi--240,000
shares; Christopher J. Mann--300,000
47
<PAGE>
shares; Emilio O. DiCataldo--155,000 shares; Richard Chicotka--80,000
shares; and Andrew C. Peskoe--75,000 shares.
(3) Includes 3,629,520 shares of Common Stock issuable upon conversion of
outstanding shares of Series B Convertible Preferred Stock and 1,186,140
additional shares of Common Stock issuable upon exercise of the Warrant. See
"Certain Transactions."
(4) Includes 2,088,000 shares of Common Stock issuable upon conversion of Series
A Convertible Preferred Stock.
(5) The stockholders' address is: c/o CVC, Inc., 525 Lee Road, Rochester, New
York, 14606.
(6) Excludes 4,815,660 shares of Common Stock beneficially owned by Seagate
Technology. Mr. Hegarty is an executive officer and stockholder of Seagate
Technology. Mr. Hegarty disclaims beneficial ownership of the shares of
Common Stock owned by Seagate Technology except to the extent of his
indirect pecuniary interest therein as a stockholder of Seagate Technology.
(7) Includes 2,112,000 shares of Common Stock beneficially owned by Nikko Tecno
of which Mr. Miyanishi is a director, officer and principal stockholder. Mr.
Miyanishi disclaims beneficial ownership of the shares of Common Stock owned
by Nikko Tecno except to the extent of his indirect pecuniary interest
therein as a stockholder of Nikko Tecno. Mr. Miyanishi's address is: c/o
Nikko Tecno, P.O. Box 139, Central Tokyo, Japan.
(8) Includes 96,000 shares of Common Stock, and 75,000 additional shares of
Common Stock issuable upon exercise of an option, beneficially owned by
Julie Peskoe, Mr. Peskoe's wife, as to which Mr. Peskoe disclaims beneficial
ownership.
(9) Excludes 4,815,660 shares beneficially owned by Seagate Technology. Mr.
Waite is an executive officer and stockholder of Seagate Technology. Mr.
Waite disclaims beneficial ownership of the shares of Common Stock owned by
Seagate Technology except to the extent of his indirect pecuniary interest
therein as a stockholder of Seagate Technology.
(10) Includes 96,000 shares of Common Stock and 75,000 additional shares of
Common Stock issuable upon exercise of an option beneficially owned by the
wife of a director of CVC and excludes 2,112,000 shares held of record by
Nikko Tecno, the ownership of which is attributed to a director of the
Company.
------------------------
Anne G. Whitman is not related to Christine B. Whitman.
48
<PAGE>
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED STOCK; ISSUED AND OUTSTANDING SHARES
Upon the completion of the Offering, the authorized capital stock of the
Company will consist of 50,000,000 shares of Common Stock, par value $0.01 per
share, and 5,000,000 shares of new Preferred Stock, par value $0.01 per share.
As of September 30, 1997, 1,273,890 shares of Common Stock, 1,685 shares of
Series A Convertible Preferred Stock and 60,492 shares of Series B Convertible
Preferred Stock were outstanding. Simultaneously with the closing of the
Offering, the outstanding shares of Series A and Series B Convertible Preferred
Stock will automatically be converted into an aggregate of 7,673,520 shares of
Common Stock. As of September 30, 1997, an aggregate of 11,489,820 shares of
Common Stock were reserved for issuance as follows: 2,630,160 shares upon the
exercise of outstanding stock options; 4,044,000 shares upon conversion of
Series A Convertible Preferred Stock; 3,629,520 shares upon conversion of Series
B Convertible Preferred Stock and 1,186,140 shares upon the exercise of the
Warrant.
COMMON STOCK
Assuming conversion of all outstanding Series A and Series B Convertible
Preferred Stock, at September 30, 1997 there were 8,947,410 shares of Common
Stock outstanding held by approximately 20 stockholders of record. Holders of
Common Stock are entitled to one vote for each share held of record on any
matters voted upon by stockholders and do not have any cumulative voting rights.
Subject to preferences that may be applicable to any outstanding Preferred
Stock, holders of Common Stock are entitled to receive ratably such dividends as
may be declared by the Board of Directors out of funds legally available
therefor. In the event of a liquidation, dissolution or winding up of the
Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preferences of any
outstanding Preferred Stock. Holders of Common Stock have no preemptive rights
and no right to convert their Common Stock into any other securities. There are
no redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are, and all shares of Common Stock to be
outstanding upon completion of the Offering will be, validly issued, fully paid
and nonassessable. The rights, preferences and privileges of holders of Common
Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future.
PREFERRED STOCK
Upon the closing of the Offering, the conversion of the outstanding Series A
and Series B Convertible Preferred Stock and the filing of a Certificate of
Amendment to the Company's Restated Certificate of Incorporation removing the
designation of those series, the Company's Restated Certificate of Incorporation
will authorize the issuance of up to 5,000,000 shares of new Preferred Stock,
and none of those shares will be outstanding or designated into any series.
Under the terms of the Restated Certificate of Incorporation, the Board of
Directors is authorized, subject to any limitations prescribed by law, without
further stockholder approval, to issue such shares of Preferred Stock in one or
more series. Each such series of Preferred Stock shall have such rights,
preferences, privileges and restrictions, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation preferences, as
shall be determined by the Board of Directors.
The purpose of authorizing the Board of Directors to issue Preferred Stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding voting stock of the Company. The Company has no
present plans to issue any shares of Preferred Stock.
49
<PAGE>
WARRANTS
The Company has issued the Warrant to purchase 19,769 shares of Series B
Convertible Preferred Stock at an exercise price of $223.17 per share of Series
B Convertible Preferred Stock during the seven-year period commencing on the
warrant issuance date (May 22, 1995). Upon the consummation of the Offering, the
Warrant will become exercisable for 1,186,140 shares of Common Stock at an
exercise price of $3.72 per share of Common Stock.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Under Section 203, certain "business
combinations" between a Delaware corporation whose stock generally is publicly
traded or held of record by more than 2,000 stockholders and an "interested
stockholder" are prohibited for a three-year period following the date that such
a stockholder became an interested stockholder, unless (i) the corporation has
elected in its original certificate of incorporation not to be governed by
Section 203 (the Company did not make such an election); (ii) the business
combination was approved by the Board of Directors of the corporation before the
other party to the business combination became an interested stockholder; (iii)
upon consummation of the transaction that made it an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the commencement of the transaction (excluding voting stock owned
by directors who are also officers or held in employee benefit plans in which
the employees do not have a confidential right to tender or vote stock held by
the plan); or (iv) the business combination was approved by the Board of
Directors of the corporation and ratified by two-thirds of the voting stock
which the interested stockholder did not own. The three-year prohibition also
does not apply to certain business combinations proposed by an interested
stockholder following the announcement or notification of certain extraordinary
transactions involving the corporation and a person who had not been an
interested stockholder during the previous three years or who became an
interested stockholder with the approval of the majority of the corporation's
directors. The term "business combination" is defined generally to include
mergers or consolidations between a Delaware corporation and an interested
stockholder, transactions with an interested stockholder involving the assets or
stock of the corporation or its majority-owned subsidiaries and transactions
which increase an interested stockholder's percentage ownership of stock. The
term "interested stockholder" is defined generally as a stockholder who,
together with affiliates and associates, owns (or, within three years prior, did
own) 15% or more of a Delaware corporation's voting stock. Section 203 could
prohibit or delay a merger, takeover or other change in control of the Company
and therefore could discourage attempts to acquire the Company.
50
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 11,947,410 shares of
Common Stock outstanding. Of these shares, the 3,900,000 shares of Common Stock
sold in the Offering will be freely tradable without restriction under the
Securities Act, except that any shares purchased by "affiliates" of the Company
("Affiliates"), as that term is defined in Rule 144 ("Rule 144") under the
Securities Act, generally may be sold only in compliance with the limitations of
Rule 144 described below.
SALES OF RESTRICTED SECURITIES
The remaining shares of Common Stock outstanding upon completion of the
Offering are deemed "Restricted Shares" under Rule 144. Of the Restricted
Shares, up to 1,186,800 shares will be eligible for sale in the public market
after the Offering pursuant to Rule 144(k) under the Securities Act; all of
these shares are subject to the 180-day Lock-up Agreements described below, but
will be eligible for sale in the public market beginning 180 days after the
closing of the Offering. An additional 1,784,301 Restricted Shares will be
eligible for sale in the public market in accordance with Rule 701 under the
Securities Act beginning 90 days after the date of this Prospectus; 1,482,303 of
these shares are subject to the 180-day Lock-up Agreements. Of the remaining
Restricted Shares outstanding, 6,665,460 shares will be eligible for resale
under Rule 144 commencing 90 days after the date of this Prospectus; 6,662,985
of these shares are subject to the 180-day Lock-up Agreements.
In general, under Rule 144 as currently in effect, a holder of Restricted
Shares who beneficially owns shares that were not acquired from the Company or
an Affiliate within the previous two years would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of one
percent of the then outstanding shares of Common Stock (approximately 119,474
shares immediately after the Offering) or the average weekly trading volume of
the Common Stock in the over-the-counter market during the four calendar weeks
preceding the date on which notice of the sale is filed with the Securities and
Exchange Commission. Sales under Rule 144 are subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. A person who is not deemed an affiliate of the
Company at any time during the three months preceding a sale and who
beneficially owns shares that were not acquired from the Company or an Affiliate
within the previous two years is entitled to sell such shares under Rule 144(k)
without regard to volume limitations, manner of sale provisions, notice
requirements or the availability of current public information concerning the
Company.
Any employee, officer or director of or consultant to the Company who
received his or her shares pursuant to a written compensatory plan or contract
is entitled to rely on the resale provisions of Rule 701, which, beginning 90
days after the date of this Prospectus, permit persons, other than Affiliates,
to sell their Rule 701 shares without having to comply with the
public-information, holding period, volume limitation or notice provisions of
Rule 144 and permit Affiliates to sell their Rule 701 shares without having to
comply with Rule 144's holding-period restrictions.
OPTIONS
Upon completion of the Offering, 1,784,301 shares of Common Stock issuable
upon exercise of stock options will become eligible for sale in the public
market subject to compliance with Rule 701 beginning 90 days after the Offering;
1,482,303 of these shares underlying these options are subject to the 180-day
Lock-up Agreements. An additional 1,490,000 shares of Common Stock are available
for future grants under the Company's stock option plans.
The Company intends to file one or more registration statements on Form S-8
under the Securities Act to register all shares of Common Stock subject to
outstanding stock options and Common Stock issuable pursuant to the Company's
stock option plans that do not qualify for an exemption under Rule 701 from the
registration requirements of the Securities Act. The Company has agreed with the
Underwriters
51
<PAGE>
not to file these registration statements earlier than 180 days following the
date of this Prospectus, and any such registration statements are expected to
become effective upon filing. Shares covered by these registration statements
will thereupon be eligible for sale in the public markets, subject to the
Lock-up Agreements, to the extent applicable.
REGISTRATION RIGHTS
At the time of the Offering, the holders of 8,009,235 shares of Common Stock
(the "Registrable Securities") are entitled to certain rights with respect to
the registration of such shares under the Securities Act. Those registration
rights have been waived with respect to the Offering. Under the terms of an
agreement between the Company and the holders of the Registrable Securities, if
the Company proposes to register any of its securities under the Securities Act,
either for its own account or the account of other security holders exercising
registration rights, those holders are entitled to notice of registration and
are entitled to include shares of Registrable Securities in the Offering,
provided that the managing underwriters have the right to limit the number of
such shares included in the registration. Holders of 3,629,520 Registrable
Securities may also require the Company to file a registration statement under
the Securities Act at its expense with respect to their Registrable Securities,
and the Company is required to use its best efforts to effect that registration,
subject to, among other things, the right of the Company not to effect any
registration within the earlier of May 22, 1998 or six months following the
Offering made hereby. Further, stockholders may require the Company to file
additional registration statements on Form S-3 when such form becomes available
to the Company, subject to certain conditions and limitations. All expenses
incurred in connection with such registrations must be borne by the Company,
other than underwriting discounts and commissions.
EFFECT OF SALES OF SHARES
No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock or the availability of shares for future sale will have
on the prevailing market price for the Common Stock. Sales of substantial
amounts of Common Stock, or the perception that such sales could occur, could
adversely affect prevailing market prices for the Common Stock and could impair
the Company's future ability to raise capital through an offering of equity
securities.
52
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives BT
Alex. Brown Incorporated, Hambrecht & Quist LLC and PaineWebber Incorporated,
have severally agreed to purchase from the Company and the Selling Stockholder
the following respective number of shares of Common Stock at the initial public
offering price less the underwriting discounts and commissions set forth on the
front cover of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
BT Alex. Brown Incorporated......................................................
Hambrecht & Quist LLC............................................................
PaineWebber Incorporated.........................................................
----------
Total.......................................................................... 3,900,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, and that the Underwriters will
purchase all shares of Common Stock offered hereby, if any such shares are
purchased.
The Company and the Selling Stockholder have been advised by the
Representatives of the Underwriters that the Underwriters propose to offer the
shares of Common Stock to the public at the initial public offering price set
forth on the cover page of this Prospectus and to certain other dealers at such
price less a concession not in excess of $ per share. The Underwriters
may allow, and such dealers may reallow, a concession not in excess of
$ per share to certain other dealers. After the public offering, the
public offering price and other selling terms may be changed by the
Representatives of the Underwriters.
The Company has granted the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 585,000
additional shares of Common Stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent such option is exercised, each of the Underwriters
will have a firm commitment, to purchase approximately the same percentage
thereof that the number of shares of Common Stock to be purchased shown in the
above table bears to 3,900,000 and the Company will be obligated, pursuant to
the option, to sell such shares to the Underwriters. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of Common Stock hereby. If purchased, the Underwriters will offer such
additional shares on the same terms as those on which the 3,900,000 shares are
being offered.
The Underwriters have reserved up to 150,000 shares of the Common Stock
offered hereby for sale at the public offering price to certain employees,
consultants and other persons associated with the Company. The number of shares
of Common Stock available for sale to the general public will be reduced to the
extent such persons purchase such reserved shares. Any reserved shares not so
purchased will be offered by the Underwriters to the general public on the same
basis as the other shares offered hereby.
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
The Company, the Selling Stockholder and all executive officers, directors
and certain employees of the Company, and certain stockholders, who in the
aggregate will hold approximately 8,044,935 shares of Common Stock, have agreed
that for a period of 180 days following the date of this Prospectus, they will
not offer, pledge, sell, contract to sell, grant any option to purchase,
purchase any option to sell, or
53
<PAGE>
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock without the prior written consent of BT Alex. Brown Incorporated.
In connection with the Offering, the Underwriters may purchase and sell
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the Offering. The Underwriters also may impose
penalty bids, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the Common Stock sold in the Offering for their
account may be reclaimed by the syndicate if such securities are repurchased by
the syndicate in stabilizing or short-covering transactions. These activities
may stabilize, maintain or otherwise affect the market price of Common Stock,
which may be higher than the price that might otherwise prevail in the open
market. These transactions may be effected on the Nasdaq National Market or
otherwise and these activities, if commenced, may be discontinued at any time.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price was determined through
negotiation among the Company, representatives of the Selling Stockholder and
the Representatives of the Underwriters. Among the factors considered in such
negotiations were the prevailing market conditions, the results of operations of
the Company in recent periods, the market capitalizations and stages of
development of other companies that the Company, the Selling Stockholder and the
Representatives of the Underwriters believe to be comparable to the Company,
estimates of the business potential of the Company, the present state of the
Company's development and other factors deemed relevant.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Dewey Ballantine LLP, New York, New York and for the
Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
EXPERTS
The consolidated financial statements as of September 30, 1997 and 1996 and
for the three years in the period ended September 30, 1997 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement on Form S-1 under the
Securities Act with respect to the shares of Common Stock offered hereby. This
Prospectus does not contain all of thc information set forth in the Registration
Statement and the exhibits and schedules thereto. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
the Registration Statement and the exhibits and schedules filed therewith.
Statements contained in this Prospectus as to the contents of any contract or
any other document referred to are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference. A copy of the Registration Statement may be
inspected without charge at the offices of the Commission in Washington, D.C.
20549, and copies of all or any part of the Registration Statement may be
obtained from the Public Reference Section of the Commission, Washington, D.C.
20549 upon the payment of the fees prescribed by the Commission.
54
<PAGE>
CVC, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants..................................................... F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Operations................................................. F-4
Consolidated Statements of Stockholders' Equity....................................... F-5
Consolidated Statements of Cash Flows................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of CVC, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of CVC, Inc.
(the "Company") and its subsidiary at September 30, 1997 and 1996 and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1997 in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note 8, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 106, "Accounting for Postretirement Benefits
Other than Pensions," in 1996.
Price Waterhouse LLP
Rochester, New York
October 24, 1997, except as to Note 13, which is as of December 31, 1997
F-2
<PAGE>
CVC, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------- PRO FORMA
(IN THOUSANDS, EXCEPT SHARE DATA) 1996 1997 (NOTE 1)
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 730 $ 2,161 $ 2,161
Accounts receivable:
Trade (includes related party receivables of $2,224 and $3,485 in 1996 and
1997, respectively) less allowance for doubtful accounts of $92 and $149
in 1996 and 1997, respectively........................................... 4,882 8,288 8,288
Inventories.................................................................. 16,304 22,360 22,360
Deferred income taxes........................................................ 1,693 1,153 1,153
Other current assets......................................................... 338 651 651
--------- --------- -----------
23,947 34,613 34,613
Property, plant and equipment, net............................................. 7,886 9,130 9,130
Other assets................................................................... 4 90 90
--------- --------- -----------
Total assets............................................................. $ 31,837 $ 43,833 $ 43,833
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current portion of long-term debt (includes related
party notes of $1,000 in 1997)............................................. $ 894 $ 2,295 $ 2,295
Accounts payable............................................................. 5,437 9,993 9,993
Advances from customers (includes related party advances of $3,817 and $1,691
in 1996 and 1997, respectively)............................................ 5,617 8,652 8,652
Other current liabilities.................................................... 3,183 4,414 4,414
--------- --------- -----------
15,131 25,354 25,354
Long-term debt (includes related party notes of $2,500 and $1,500 in 1996 and
1997, respectively).......................................................... 5,635 5,309 5,309
Deferred income taxes.......................................................... 1,483 1,403 1,403
Other liabilities.............................................................. 269 339 339
--------- --------- -----------
Total liabilities........................................................ 22,518 32,405 32,405
Commitments
Stockholders' equity:
Preferred stock, $.01 par value per share; 102,500 shares authorized; shares
issued and outstanding:
Series A--1,685 shares in 1996 and 1997 (liquidation preference of
$1,685,000).............................................................. 1,685 1,685 --
Series B--60,492 shares in 1996 and 1997 (liquidation preference of
$9,000,000).............................................................. 8,355 8,355 --
Common stock, $.01 par value per share; 7,500,000 shares authorized;
1,102,740 shares issued and outstanding in 1996 and 1,273,890 in 1997...... 4 4 89
Additional paid-in capital................................................... 457 776 10,731
Unamortized deferred compensation............................................ -- (254) (254)
Retained earnings (accumulated deficit)...................................... (1,096) 949 949
Minimum pension liability.................................................... (86) (87) (87)
--------- --------- -----------
Total stockholders' equity............................................... 9,319 11,428 11,428
--------- --------- -----------
Total liabilities and stockholders' equity............................... $ 31,837 $ 43,833 $ 43,833
--------- --------- -----------
--------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
CVC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1996 1997
--------- --------- ---------
Revenues
Trade (includes sales to related party of $5,827, $27,795 and $29,244 in 1995,
1996 and 1997, respectively)................................................ $ 18,200 $ 48,378 $ 62,588
Contract...................................................................... 3,158 -- --
--------- --------- ---------
21,358 48,378 62,588
Cost of goods sold
Trade (includes cost of goods sold to related party of $4,002, $16,162 and
$17,352 in 1995, 1996 and 1997, respectively)............................... 13,089 33,755 41,286
Contract...................................................................... 2,541 -- --
--------- --------- ---------
15,630 33,755 41,286
Gross margin.................................................................... 5,728 14,623 21,302
Operating expenses
Research and development...................................................... 1,214 4,346 9,055
Sales and marketing........................................................... 2,924 4,777 5,613
General and administrative.................................................... 1,447 2,124 2,539
--------- --------- ---------
5,585 11,247 17,207
--------- --------- ---------
Income from operations.......................................................... 143 3,376 4,095
Interest income................................................................. 86 102 11
Interest expense................................................................ (645) (299) (604)
--------- --------- ---------
Income (loss) before income taxes............................................... (416) 3,179 3,502
Income taxes (benefit).......................................................... (546) -- 1,457
--------- --------- ---------
Net income...................................................................... $ 130 $ 3,179 $ 2,045
--------- --------- ---------
--------- --------- ---------
Pro forma net income per share.................................................. $ 0.02 $ 0.29 $ 0.18
--------- --------- ---------
--------- --------- ---------
Weighted average common and common equivalent shares............................ 8,693 11,408 12,684
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
CVC, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A PREFERRED STOCK SERIES B PREFERRED STOCK COMMON STOCK
------------------------ ------------------------ -----------------------------------
(IN THOUSANDS, EXCEPT SHARE NUMBER NUMBER NUMBER PAR PAID-IN
DATA) OF SHARES AMOUNT OF SHARES AMOUNT OF SHARES VALUE CAPITAL
- ------------------------------- ----------- ----------- ----------- ----------- --------- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30,
1994......................... 1,685 $ 1,685 911,940 $ 3 $ 378
Issuance of common stock....... 190,800 1 79
Issuance of Series B preferred
stock........................ 60,492 $ 8,355
Minimum pension liability......
Net income.....................
--
----------- ----------- ----------- ----------- --------- -----
Balance at September 30,
1995......................... 1,685 1,685 60,492 8,355 1,102,740 4 457
Minimum pension liability......
Net income.....................
--
----------- ----------- ----------- ----------- --------- -----
Balance at September 30,
1996......................... 1,685 1,685 60,492 8,355 1,102,740 4 457
Issuance of common stock....... 171,150 -- 58
Minimum pension liability......
Deferred compensation.......... 261
Amortization of deferred
compensation.................
Net income.....................
--
----------- ----------- ----------- ----------- --------- -----
Balance at September 30,
1997......................... 1,685 $ 1,685 60,492 $ 8,355 1,273,890 $ 4 $ 776
--
--
----------- ----------- ----------- ----------- --------- -----
----------- ----------- ----------- ----------- --------- -----
<CAPTION>
RETAINED
UNAMORTIZED EARNINGS MINIMUM
(IN THOUSANDS, EXCEPT SHARE DEFERRED (ACCUMULATED PENSION
DATA) COMPENSATION DEFICIT) LIABILITY
- ------------------------------- --------------- ------------- -------------
<S> <C> <C> <C>
Balance at September 30,
1994......................... $ (4,405) $ (23)
Issuance of common stock.......
Issuance of Series B preferred
stock........................
Minimum pension liability...... (19)
Net income..................... 130
------ ------------- ---
Balance at September 30,
1995......................... (4,275) (42)
Minimum pension liability...... (44)
Net income..................... 3,179
------ ------------- ---
Balance at September 30,
1996......................... (1,096) (86)
Issuance of common stock.......
Minimum pension liability...... (1)
Deferred compensation.......... $ (261)
Amortization of deferred
compensation................. 7
Net income..................... 2,045
------ ------------- ---
Balance at September 30,
1997......................... $ (254) $ 949 $ (87)
------ ------------- ---
------ ------------- ---
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
CVC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
<S> <C> <C> <C>
(IN THOUSANDS) 1995 1996 1997
- ---------------------------------------------------------------------------------- --------- --------- ---------
Cash flows from operating activities:
Net income...................................................................... $ 130 $ 3,179 $ 2,045
Adjustments to reconcile net income to net cash provided (used) by operating
activities:
Depreciation and amortization................................................... 431 937 1,285
Provision for deferred taxes.................................................... (561) (452) 460
Changes in operating assets and liabilities -
Accounts receivable (including related party)................................. (2,978) (579) (3,406)
Inventories................................................................... (5,758) (6,433) (5,767)
Other assets.................................................................. (265) 212 (405)
Accounts payable.............................................................. (823) 3,198 4,556
Advances from customers (including related party)............................. 6,397 (2,585) 3,035
Other liabilities............................................................. 1,281 1,004 1,300
--------- --------- ---------
Total adjustments........................................................... (2,276) (4,698) 1,058
--------- --------- ---------
Net cash provided (used) by operating activities............................ (2,146) (1,519) 3,103
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures............................................................ (524) (3,680) (2,805)
--------- --------- ---------
Net cash used in investing activities....................................... (524) (3,680) (2,805)
--------- --------- ---------
Cash flows from financing activities:
Net proceeds from line of credit................................................ -- -- 527
Proceeds from notes payable (including related party)........................... 1,050 -- --
Payments on notes payable (including related party)............................. (3,200) -- --
Proceeds from long-term debt.................................................... -- 3,000 2,000
Payments on long-term debt and capital lease obligations........................ (458) (229) (1,452)
Proceeds from issuance of common stock and sale of preferred stock.............. 8,434 -- 58
--------- --------- ---------
Net cash provided by financing activities................................... 5,826 2,771 1,133
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents.............................. 3,156 (2,428) 1,431
Cash and cash equivalents, beginning of year...................................... 2 3,158 730
--------- --------- ---------
Cash and cash equivalents, end of year............................................ $ 3,158 $ 730 $ 2,161
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest........................................................................ $ 590 $ 346 $ 542
Income taxes.................................................................... $ 3 $ 147 $ 782
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
CVC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1-- NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
THE COMPANY
In 1990, CVC, Inc. (CVC or the Company) acquired CVC Products, Inc. (CVC
Products) at which time the Company was incorporated under the laws of the State
of Delaware. CVC Products had been originally founded in 1934 in Rochester, New
York as the experimental vacuum processing group of Eastman Kodak Company. The
Company maintains offices in Rochester, New York, Fremont, California, Dallas,
Texas and Minneapolis, Minnesota. Technical support and sales offices are
located in Europe and Japan.
CVC is engaged in the design, development, manufacturing and marketing of
thin film fabrication and processing equipment for the data storage and
semiconductor industries worldwide. The Company's products are focused on the
thin film recording head equipment market and semiconductor integrated circuit
market. In particular, the Company designs and manufactures modular,
multi-process, single wafer cluster tool deposition systems for commercial
production of thin film recording heads and semiconductor integrated circuits.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include its subsidiary,
CVC Products, after elimination of all significant intercompany balances and
transactions.
UNAUDITED PRO FORMA BALANCE SHEET
The Company's Series A and Series B Non-Cumulative Convertible Preferred
Stock automatically converts into Common Stock concurrent with the closing of an
initial public offering (Note 9). Accordingly, the unaudited pro forma balance
sheet has been presented on a basis to give effect to the automatic conversion
of such stock as of the closing date of the initial public offering which is
assumed to have been converted as of September 30, 1997.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
year-end as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose the Company to significant
concentrations of credit risk consist principally of bank deposits, temporary
investments and accounts receivable (including related party receivables--Note
10). Cash is placed primarily in high quality short-term interest bearing
financial instruments.
The Company performs ongoing credit evaluations of its customers' financial
condition and the Company maintains an allowance for uncollectible accounts
receivable based upon the expected collectibility of all accounts receivable.
F-7
<PAGE>
CVC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1-- NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments, including cash
and cash equivalents and accounts receivable approximates their fair value at
September 30, 1997 and 1996 as the maturity of these instruments are all short
term. Due to differences in the stated interest rates on certain short and long-
term debt obligations compared to prevailing rates, the fair value of these
instruments does vary from their carrying amounts; however, such differences are
immaterial.
REVENUE RECOGNITION
Revenue from the sale of equipment is recognized upon shipment. A provision
for estimated product warranty cost is recorded at the time revenue is
recognized. The Company generally warrants its new systems for 15 months from
the date of shipment. Such warranties provide that new systems are free from
defects in materials and workmanship under normal use. Warranty costs incurred
by the Company and the related warranty accrual for each of the three years in
the period ended September 30, 1997 are immaterial.
Amounts received from customers in advance of product shipment are
classified as advances from customers. Contract revenue for a research and
development program is recognized as services are performed in accordance with
such cost-plus-fixed-fee arrangement.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid debt instruments with original
maturities of three months or less.
INVENTORIES
Inventories, which include materials, labor and overhead, are recorded at
the lower of cost, determined by the first-in, first-out method, or market
value. The Company provides inventory reserves for excess, obsolete or
slow-moving inventory based on changes in customer demand, technology
developments, and other economic factors.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is provided
on a straight-line basis over the estimated useful lives of 3 to 10 years for
equipment, furniture and fixtures and 40 years for buildings. Building
improvements are depreciated over the shorter of 10 years or the remaining life
of the building or the useful life of the improvement. Maintenance and repairs
are expensed as incurred. Improvements which extend the useful life of property,
plant and equipment are capitalized. Upon retirement or disposal of an asset,
the asset and the related accumulated depreciation are eliminated from the
accounts with gains and losses recorded in the statement of operations.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
F-8
<PAGE>
CVC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1-- NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company accounts for income taxes using the asset and liability approach
which requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the carrying
amounts and the tax basis of such assets and liabilities.
This method utilizes enacted statutory tax rates in effect for the year in
which the temporary differences are expected to reverse and gives immediate
effect to changes in income tax rates upon enactment. Deferred tax assets are
recognized, net of any valuation allowance, for deductible temporary differences
and net operating loss and tax credit carryforwards.
CHANGE IN ACCOUNTING ESTIMATE
Effective October 1, 1995, the Company decreased the estimated service lives
of certain depreciable assets. The Company believes that the revised lives more
accurately reflect the estimated period of benefit of such assets. The change
resulted in a decrease in pre-tax income of $191,000 for the year ended
September 30, 1996.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share," which established standards for computing and presenting earnings per
share. The new standard replaces the presentation of primary earnings per share
prescribed by Accounting Principles Board Opinion (APB) No. 15, "Earnings per
Share," with a presentation of basic earnings per share and also requires dual
presentation of basic and diluted earnings per share on the face of the
statement of operations for all entities with complex capital structures. Basic
earnings per share excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share is computed similarly to
fully diluted earnings per share pursuant to APB 15. The Company will be
required to implement SFAS 128 in the first quarter of fiscal 1998 and to
restate all prior periods. The Company believes that adoption of SFAS 128 will
not have a significant impact on its earnings per share disclosures.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." The Company will implement SFAS 130 and SFAS 131 as required in
fiscal 1999, which will require the Company to report and display certain
information related to comprehensive income and operating segments,
respectively. Adoption of SFAS 130 and SFAS 131 will not impact the Company's
financial position or results of operations.
PRO FORMA EARNINGS PER SHARE
Pro forma earnings per share is computed using the weighted average number
of common and common equivalent shares outstanding during the period. Common
equivalent shares consist of stock options, stock warrants and non-cumulative
convertible preferred stock as computed using the modified treasury stock
method, based upon the midpoint of the estimated initial public offering price
of $13.00. Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin, common and common equivalent shares issued by the Company during the
twelve month period prior to the initial filing of the
F-9
<PAGE>
CVC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1-- NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
registration statement relating to the initial public offering through the
effective date, have been included in the computation using the treasury stock
method, as if they were outstanding for all periods prior to the initial public
offering.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year presentation.
NOTE 2--INVENTORIES
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Component parts............................................................................. $ 10,962 $ 14,954
Work-in-process............................................................................. 4,838 5,879
Finished goods.............................................................................. 954 1,812
--------- ---------
16,754 22,645
Less-Reserve for obsolescence........................................................... (450) (285)
--------- ---------
$ 16,304 $ 22,360
--------- ---------
--------- ---------
</TABLE>
NOTE 3--PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Land......................................................................................... $ 625 $ 625
Buildings and improvements................................................................... 3,924 4,490
Machinery and equipment...................................................................... 5,140 6,862
--------- ---------
9,689 11,977
Less-Accumulated depreciation............................................................ (1,803) (2,847)
--------- ---------
$ 7,886 $ 9,130
--------- ---------
--------- ---------
</TABLE>
Fixed assets include $2,326,000 and $2,220,000 of buildings and equipment
held under capital lease agreements at September 30, 1996 and 1997,
respectively. Related accumulated amortization at September 30, 1996 and 1997
was $339,000 and $347,000, respectively.
Total depreciation and amortization expense on fixed assets was $219,000,
$727,000 and $1,215,000 in 1995, 1996 and 1997, respectively. Total depreciation
expense on assets under capital leases was $68,000, $83,000 and $56,000 in 1995,
1996 and 1997, respectively.
F-10
<PAGE>
CVC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Accrued payroll and benefits................................................................... $ 1,133 $ 1,176
Other current liabilities...................................................................... 2,050 3,238
--------- ---------
$ 3,183 $ 4,414
--------- ---------
--------- ---------
</TABLE>
NOTE 5--NOTES PAYABLE AND LONG-TERM DEBT
In August 1974, the Company entered into an agreement with a local
government agency under which the agency's bond proceeds of $2,400,000 were used
to purchase land and construct an operating facility for lease to the Company.
The industrial revenue bond obligation requires monthly payments of principal
and interest at 8% of approximately $19,000. In September 1997, the Company paid
off the remaining principal of the industrial revenue bond with the proceeds of
a new mortgage credit facility with a principal of $2,000,000. The lease term
extends to December 31, 2007, at which time title to the property passes, upon
payment of nominal consideration by the Company, to CVC. The new mortgage credit
facility requires monthly payments of approximately $16,000 through October 1,
2007, calculated based upon an amortization period of twenty years. In addition,
on October 1, 2007, the Company will pay a final installment equal to the
outstanding principal and interest on the credit facility based upon the actual
term of this facility which is ten years. The interest rate on $500,000 of the
mortgage credit facility is 5.29% until October 1, 1999, after which the rate
increases to 8.29% through September 30, 2002, consistent with the interest rate
on $1,500,000 of the credit facility. Beginning October 1, 2002, the Company
will elect to pay interest on the remaining principal at the then prime rate
plus one-half percent, or a rate equal to 225 basis points above the yield on
U.S. Treasury Bonds. The obligation is secured by certain land and buildings
with a net book value of $2,498,000 at September 30, 1997.
In December 1990, the Company borrowed $254,000 from former stockholders of
CVC Products, Inc. The obligation requires annual interest payments at 9%
through December 1997.
In November 1990, the Company borrowed $1,500,000 from a company whose
president is a director and shareholder of the Company. In December 1991, the
Company borrowed an additional $1,000,000 from this company. The borrowings are
evidenced by notes, which are unsecured and require quarterly interest payments
at an annual rate of 9%. In August 1997, the Company renegotiated the $1,500,000
note and extended the term to November 1998. The $1,000,000 note is due in
November 1997, however, the Company repaid this note in October 1997. Interest
expense on these notes totaled approximately $225,000 in 1995, 1996 and 1997.
In September 1996, the Company borrowed $3,000,000 from a commercial bank.
The five year term loan requires monthly payments of principal and interest at
prime plus 1/2% through October 1, 2001. The obligation is secured by certain
equipment and capital assets with a net book value of $2,450,000 at September
30, 1997.
The term loan contains financial covenants requiring the Company to maintain
certain debt to equity, capital, and current ratios, as well as certain customer
order, income, and operating cash flow levels. The agreement also imposes
limitations on the incurrence of additional debt. The Company is in compliance
with all covenants at September 30, 1997.
F-11
<PAGE>
CVC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
In connection with this term loan, the Company entered into an interest rate
cap contract in October 1996 to hedge the risk associated with rising interest
rates and capping the rate on this loan at 10 1/2%. The cost of the contract was
$29,000, which is being amortized over the term of the loan.
Bank lines of credit at September 30, 1997 aggregated $10,000,000.
Borrowings under the agreements are at an interest rate of prime plus 1/2%.
There was $527,000 outstanding under the lines of credit at September 30, 1997.
A summary of the notes payable and long-term debt outstanding is as follows:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Term loan...................................................................................... $ 3,000 $ 2,450
Notes payable due former stockholders.......................................................... 254 127
Notes payable due related party................................................................ 2,500 2,500
Mortgage credit facility....................................................................... 775 2,000
Borrowings on line of credit................................................................... -- 527
--------- ---------
6,529 7,604
Less--Current portion...................................................................... 894 2,295
--------- ---------
$ 5,635 $ 5,309
--------- ---------
--------- ---------
</TABLE>
The aggregate maturities for debt over the next five years and thereafter
are as follows: 1998-- $2,295,000, 1999--$2,148,000, 2000--$652,000,
2001--$656,000 and 2002 and thereafter--$1,853,000.
NOTE 6--INCOME TAXES
The components of income taxes (benefit) are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal............................................................................ -- $ 145 $ 604
State.............................................................................. $ 15 307 392
--------- --------- ---------
15 452 996
Deferred:
Federal............................................................................ (874) (145) 475
State.............................................................................. (129) (307) (14)
--------- --------- ---------
(1,003) (452) 461
--------- --------- ---------
Benefit of acquired loss carryforwards used to reduce goodwill....................... 442 -- --
--------- --------- ---------
$ (546) -- $ 1,457
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-12
<PAGE>
CVC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--INCOME TAXES (CONTINUED)
The significant components of deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............................................................ $ 1,382 $ 228
Inventories................................................................................. 230 266
State and federal tax credits............................................................... 176 100
Allowance for doubtful accounts............................................................. 37 59
Accrued compensation and benefits........................................................... 117 182
Other accruals.............................................................................. 188 707
--------- ---------
2,130 1,542
--------- ---------
Deferred tax liabilities:
Unamortized inventory accounting change..................................................... (1,008) (805)
Property, plant and equipment............................................................... (757) (832)
--------- ---------
(1,765) (1,637)
--------- ---------
Deferred tax asset valuation allowance........................................................ (155) (155)
--------- ---------
Net deferred tax asset (liability)............................................................ $ 210 $ (250)
--------- ---------
--------- ---------
</TABLE>
The differences between income taxes (benefit) at the U.S. statutory rate
and the effective rate are summarized as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Provision (benefit) at federal statutory rate......................................... $ (141) $ 1,081 $ 1,191
State taxes, net of federal benefit................................................... (11) 228 213
Meals and entertainment............................................................... 22 31 53
Recognition of loss carryforwards..................................................... (433) (1,459) --
Other................................................................................. 17 119 --
--------- --------- ---------
$ (546) -- $ 1,457
--------- --------- ---------
--------- --------- ---------
</TABLE>
During 1996, the valuation allowance, which relates to net operating loss
carryforwards and state investment tax credits, was reduced by $1,459,000.
During 1995, the valuation allowance was reduced by $875,000. This recognition
of the net operating loss was accounted for as a reduction of the remaining
$442,000 of goodwill recorded on the acquisition of CVC Products by CVC and a
reduction of income tax expense of $433,000.
The net operating tax loss carryforwards of approximately $570,000 expire at
various times through 2010. Their use is limited to approximately $135,000 per
year; however, the annual limitation may be increased by any unused amount from
the prior year.
F-13
<PAGE>
CVC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) profit sharing plan covering substantially
all employees who meet certain age and length of service requirements. The
Company contributes a percentage of the amount of salary deferral contributions
made by each participating employee. Any additional contributions by the Company
are discretionary. The amounts charged to expense related to this plan were
approximately $34,000, $80,000 and $92,000 in 1995, 1996 and 1997, respectively.
The Company had a noncontributory defined benefit pension plan. The Company
froze this plan effective September 30, 1991 at which time all benefits became
fully vested. Benefits were based on historical compensation levels and years of
service. The Company's funding policy is to contribute annually an amount, based
on actuarial computations, which would satisfy the Internal Revenue Service's
funding standards.
Net pension expense includes the following components:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Service cost........................................................... $ 10 $ 10 $ 9
Interest cost on projected benefit obligation.......................... 146 148 147
Actual return on plan assets........................................... (143) (144) (193)
Net amortization and deferral.......................................... (10) (6) 42
--- --- ---
Net pension expense.................................................... $ 3 $ 8 $ 5
--- --- ---
--- --- ---
</TABLE>
The funded status of the Plan was as follows:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation........................................... $ 2,071 $ 2,059
--------- ---------
Projected benefit obligation............................................... 2,024 2,002
Plan assets at fair value.................................................. 1,901 1,936
--------- ---------
Projected benefit obligation in excess of plan assets...................... (123) (66)
Unrecognized net loss...................................................... (19) (21)
Unrecognized net transition asset.......................................... 77 68
Minimum pension liability.................................................. (143) (145)
--------- ---------
Accrued pension liability.................................................. $ (170) $ (122)
--------- ---------
--------- ---------
</TABLE>
The projected benefit obligation at September 30, 1996 and 1997 was
determined using a discount rate of 7.5%. The expected long-term rate of return
on plan assets was 8.5% in 1996 and 1997. Plan assets are maintained in group
annuity contracts with an insurance company.
The unamortized transition asset is being amortized over the remaining
service lives of the participants which approximates seven years.
The Company has recorded an additional minimum pension liability
representing the excess of the unfunded accumulated benefit obligation over plan
assets. The additional minimum liability was charged to stockholders' equity,
net of income taxes.
F-14
<PAGE>
CVC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--POSTRETIREMENT HEALTH CARE BENEFITS
The Company provides health care benefits to all retirees and life insurance
benefits to retired hourly employees. The Company adopted the provisions of SFAS
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," as of October 1, 1995. As permitted under SFAS No. 106, the Company
has elected to amortize the unfunded accrued postretirement benefit obligation
at adoption over a 20-year period.
Details of costs for retiree benefits are as follows:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Service cost for benefits earned.............................................. $ 31 $ 68
Interest cost on benefit obligation........................................... 81 82
Amortization.................................................................. 56 56
--------- ---------
Retiree health care cost...................................................... $ 168 $ 206
--------- ---------
--------- ---------
</TABLE>
An analysis of amounts shown in the consolidated balance sheet is as
follows:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................................. $ 879 $ 852
Active participants...................................................... 272 346
--------- ---------
1,151 1,198
Unrecognized net gain...................................................... -- 18
Unrecognized transition obligation......................................... (1,055) (1,000)
--------- ---------
Retirement benefit liability............................................... $ 96 $ 216
--------- ---------
--------- ---------
</TABLE>
The funding policy for retiree health care and life insurance benefits is
generally to pay covered expenses as they are incurred.
The actuarial calculation assumes a health care average inflation assumption
of 6.1% in 1997 and grades down uniformly to 4% in 2004 and remains level
thereafter. The health care cost trend rate has an effect on the amounts
reported. Increasing the health care inflation rate by 1% would increase the
September 30, 1997 accumulated postretirement benefit obligation by $150,000,
and the 1997 net postretirement health care cost by $34,000. The weighted
average rate of compensation increase and discount rate used in determining the
accumulated postretirement benefit obligation was 3% and 7.5%, respectively.
NOTE 9--STOCKHOLDERS' EQUITY
In 1990, the Company issued 1,685 shares of 8% Series A Non-Cumulative
Convertible Preferred Stock (Series A Preferred Stock). The Series A Preferred
Stock is convertible at any time at the option of the holder into common stock
at the rate of 2,400 shares of common stock for each share of Series A Preferred
Stock. The liquidation preference of each share of Series A Preferred Stock is
$1,000 and all declared but unpaid dividends. Preferred voting rights are one
vote for each share of common stock into which the preferred shares may be
converted. The Series A Preferred Stock will be automatically
F-15
<PAGE>
CVC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--STOCKHOLDERS' EQUITY (CONTINUED)
converted to 4,044,000 shares of common stock upon the closing of an initial
public offering with a net price per share in excess of $8.33 and aggregate
gross proceeds of $10,000,000.
In May 1995, the Company issued 60,492 shares of Series B Non-Cumulative
Convertible Preferred Stock (Series B Preferred Stock). The Series B Preferred
Stock is convertible at any time at the option of the holder into common stock
at the rate of 60 shares of common stock for each share of Series B Preferred
Stock. Preferred voting rights are one vote for each share of common stock into
which the preferred shares may be converted. The Series B Preferred Stock will
be automatically converted to 3,629,520 shares of common stock upon the closing
of an initial public offering with a net price per share in excess of $8.33 and
aggregate gross proceeds of $10,000,000.
In connection with the issuance of Series B Preferred Stock, the holder was
granted a seven-year warrant to purchase 19,769 shares of Series B Preferred
Stock at an exercise price of $223.17 per share of Series B Preferred Stock.
Expenses directly associated with this issuance of approximately $645,000 were
netted against proceeds. The liquidation preference of each share of Series B
Preferred Stock is $148.78 and all declared but unpaid dividends. Upon the
automatic conversion of the Company's then outstanding shares of Series B
Preferred Stock coincident to the closing of an initial public offering, the
Company will execute a new warrant to the holder, with terms similar to the
original Series B warrant, to purchase 1,186,140 shares of the Company's Common
Stock at an exercise price of $3.72 per share in lieu of Series B Preferred
Stock.
On October 14, 1997, the Company filed a Certificate of Amendment to the
Certificate of Incorporation which increased total authorized common stock to
50,000,000 shares, $.01 par value.
The Company grants options to key employees to purchase its common stock,
generally at fair market value as of the date of grant, based upon valuations
obtained contemporaneously from an independent appraiser. Such valuations have
been obtained by the Company, primarily on a quarterly basis, since June 30,
1995. The Company recognizes compensation expense in accordance with APB Opinion
No. 25, "Accounting for Stock Issued to Employees," which requires compensation
cost to be recognized based on the fair market value of options on the grant
date. Options vest over a 3 to 5 year period and expire after 10 years from the
date of grant.
During fiscal 1997, approximately 305,000 options were granted to employees
at an amount which was less than the fair market value as of the grant date.
Accordingly, the Company recorded unamortized deferred compensation expense for
such options which vest over a 3-to-5 year period. Compensation expense will be
amortized over the vesting period and unamortized compensation expense has been
recorded as a reduction in stockholders' equity. Of the 305,000 options granted,
257,000 had an exercise price of $3.82 per share and 48,000 had an exercise
price of $2.00 per share.
F-16
<PAGE>
CVC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--STOCKHOLDERS' EQUITY (CONTINUED)
Stock option activity is as follows:
<TABLE>
<CAPTION>
NUMBER OF PRICE PER
SHARES SHARE
---------- --------------
<S> <C> <C>
Outstanding at September 30, 1995................................ 2,162,760 $ .42 - $2.12
Granted...................................................... 291,300 $ 2.69
Canceled..................................................... 76,500 $ .42 - $2.69
----------
Outstanding at September 30, 1996................................ 2,377,560 $ .42 - $2.69
Granted...................................................... 609,900 $ 2.00 - $3.82
Canceled..................................................... 177,000 $ .42 - $3.23
Exercised.................................................... 180,300 $ .42 - $2.69
----------
Outstanding at September 30, 1997................................ 2,630,160 $ .42 - $3.82
</TABLE>
At September 30, 1997, options for 1,929,360 shares were exercisable and
420,300 shares were available for grant.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This new standard encourages, but does not require, recognition
of compensation expense based on a fair value method of accounting for stock
options. The standard requires additional disclosure if the fair value method
materially differs from that calculated under APB Opinion No. 25. The Company
has elected to continue to account for its employee stock plans in accordance
with the provisions of APB Opinion No. 25 based on the fair market value of
options at the grant date. The Company has not disclosed pro forma information
under SFAS No. 123 as the effect of this pronouncement prior to the initial
public offering of the Company's common stock is not significant.
In October 1997, the Board of Directors and stockholders approved a new
stock option plan, the 1997 Stock Option Plan (the "Plan"), under which options
may be granted to employees of the Company. The Plan permits the grant of stock
options that qualify as incentive stock options under Section 422 of the
Internal Revenue Code, and nonqualified stock options, which do not so qualify.
The Company has authorized and reserved 1,250,000 shares of common stock for
issuance under the Plan. The Board of Directors and Stockholders have also
approved in October 1997, the Nonemployee Directors' Stock Option Plan, under
which options for 10,000 shares of common stock are granted to each nonemployee
director upon commencement of service on the Board, and options for 3,000 shares
of common stock are granted to each nonemployee director on March 31 of each
year of continued service on the Board. The Company has authorized and reserved
250,000 shares of common stock for issuance under such plan.
NOTE 10--TRANSACTIONS WITH RELATED PARTIES
At September 30, 1996 and 1997, the Company had borrowings of $2,500,000
from a company whose president is a director and shareholder of the Company
(Note 5). In addition to these borrowings, the Company borrowed and subsequently
repaid approximately $1,000,000 at 9% from this company during 1995. In August
1997, the Company renegotiated $1,500,000 of these borrowings and extended the
term to November 1998. In October 1997, the Company repaid $1,000,000 of the
aggregate $2,500,000 borrowings. Borrowings from this related party are reported
as such in the balance sheets.
Seagate Technology (Seagate), which provides products for storing, managing
and accessing digital information on computers and data communications systems,
is the Company's largest customer (Note 11)
F-17
<PAGE>
CVC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
and a significant stockholder. In 1995, the Company sold 60,492 shares of its
Series B Preferred Stock to Seagate, a previously unrelated party (Note 9).
Revenues, cost of goods sold, accounts receivable and customer advances
associated with transactions between the Company and Seagate are reported as
related party in the statements of operations and balance sheets. Management
believes the selling prices and sales terms of such transactions are
substantially consistent with those for unrelated third parties.
NOTE 11--SIGNIFICANT CUSTOMERS AND GEOGRAPHIC INFORMATION
For the year ended September 30, 1995, sales to the Company's three largest
customers comprised 27%, 15% and 15% of revenues, respectively. For the year
ended September 30, 1996 sales to the Company's two largest customers comprised
57% and 13% of revenues, respectively. For the year ended September 30, 1997
sales to the Company's two largest customers comprised 47% and 11% of revenues,
respectively.
Export sales to customers (including related party sales) outside the United
States represent 13%, 19% and 31% of the Company's revenues for the years ended
September 30, 1995, 1996 and 1997, respectively. These export sales were made to
the following geographic regions:
<TABLE>
<CAPTION>
EUROPE ASIA-PACIFIC CANADA TOTAL
------------ ------------- ---------- -------------
<S> <C> <C> <C> <C>
1995................................... $ 890,000 $ 1,775,000 $ 19,000 $ 2,684,000
1996................................... 6,238,000 3,013,000 33,000 9,284,000
1997................................... 5,746,000 13,209,000 507,000 19,462,000
</TABLE>
NOTE 12--COMMITMENTS
The Company leases various equipment and facilities under operating lease
agreements. Rental expense under operating lease agreements was approximately
$99,000, $237,000 and $289,000 in 1995, 1996 and 1997, respectively. The future
minimum lease payments under non-cancelable lease agreements are $298,000 in
1998, $258,000 in 1999, $207,000 in 2000, $76,000 in 2001 and $12,000 in 2002.
NOTE 13--SUBSEQUENT EVENTS
On October 14, 1997 the Company declared a 3-for-1 stock split in the form
of a stock dividend to stockholders of record at the close of business on
October 31, 1997. This increased the number of common shares outstanding by
849,260. All references in the consolidated financial statements referring to
share prices, conversion rates, per share amounts, stock option plans and common
shares issued and outstanding have been adjusted retroactively for the 3-for-1
stock split.
The Company granted 296,000 options to employees in the period October
1-December 31, 1997. Accordingly, the Company has reflected the options as
common equivalent shares outstanding and for purposes of computing earnings per
share, included the options in such calculation using the treasury stock method,
as if they were outstanding for all periods presented in accordance with the SEC
Staff Accounting Bulletin. A total of 240,000 of such options were granted on
October 1 with an exercise price of $3.82 per share which was less than the fair
market value of the Company's common stock on such date. Consequently, the
Company will record total compensation expense of approximately $163,000
amortized over a 3 year vesting period, beginning in fiscal 1998. A total of
56,000 options were granted to employees during
F-18
<PAGE>
CVC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--SUBSEQUENT EVENTS (CONTINUED)
the period November 19 through December 31, 1997 with an exercise price of $8.00
per share, representing the fair market value of the Company's common stock on
such date, and a vesting period of 5 years.
In addition to the above, approximately 296,000 options were exercised and
98,000 options were canceled during the period October 1 through December 31,
1997. No adjustments to the consolidated financial statements for this activity
have been made as these options were outstanding as of September 30, 1997 and
have appropriately been reflected in earnings per share and share data within
the consolidated financial statements.
F-19
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDER OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE COMMON STOCK OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 3
Risk Factors.................................... 6
The Company..................................... 14
Use of Proceeds................................. 14
Dividend Policy................................. 14
Capitalization.................................. 15
Dilution........................................ 16
Selected Consolidated Financial Data............ 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 18
Business........................................ 25
Management...................................... 38
Certain Transactions............................ 46
Principal and Selling
Stockholders.................................. 47
Description of Capital Stock.................... 49
Shares Eligible for Future Sale................. 51
Underwriting.................................... 53
Legal Matters................................... 54
Experts......................................... 54
Additional Information.......................... 54
Index to Consolidated Financial
Statements.................................... F-1
</TABLE>
--------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
3,900,000 SHARES
[LOGO]
COMMON STOCK
--------------
PROSPECTUS
--------------
BT ALEX. BROWN
HAMBRECHT & QUIST
PAINEWEBBER INCORPORATED
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized statement of the estimated amounts of all
expenses payable by the Registrant in connection with the registration of the
Common Stock offered hereby, other than underwriting discounts and commissions:
<TABLE>
<S> <C>
Registration Fee--Securities and Exchange Commission.............. $ 19,027
NASD Filing Fee................................................... 50,000
Blue Sky fees and expenses........................................ 10,000
Accountants' fees and expenses.................................... 160,000
Legal fees and expenses........................................... 200,000
Printing and engraving expenses................................... 120,000
Transfer agent and registrar fees................................. 10,000
Miscellaneous..................................................... 180,973
---------
Total......................................................... $ 750,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a Delaware corporation may indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no cause to believe his conduct was unlawful.
Section 145(b) of the DGCL provides that a Delaware corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted under similar standards, except that no
indemnification may be made in respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable to the corporation unless and
only to the extent that the court in which such action or suit was brought shall
determine that despite the adjudication of liability, such person is fairly and
reasonably entitled to be indemnified for such expenses which the court shall
deem proper.
Section 145 of the DGCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of any action, suit
or proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue, or matter therein, he shall be indemnified against any expenses
actually and reasonably incurred by him in connection therewith; that
indemnification provided for by Section 145 shall not be deemed exclusive of any
rights to which the indemnified party may be entitled; and that the corporation
may purchase and maintain insurance on behalf of a director or officer of the
corporation against any liability asserted against him or incurred by him in any
such capacity or arising out of his status as such whether or not the
corporation would have the power to indemnify him against such liabilities under
Section 145.
II-1
<PAGE>
Section 102(b)(7) of the DGCL provides that a corporation in its original
certificate of incorporation or an amendment thereto validly approved by
stockholders may eliminate or limit personal liability of members of its board
of directors or governing body for breach of a director's fiduciary duty.
However, no such provision may eliminate or limit the liability of a director
for breaching his duty of loyalty, failing to action good faith, engaging in
intentional misconduct or knowingly violating a law, paying a dividend or
approving a stock repurchase which was illegal, or obtaining an improper
personal benefit. A provision of this type has no effect on the availability of
equitable remedies, such as injunction or rescission, for breach of fiduciary
duty. The Company's Restated Certificate of Incorporation contains such a
provision.
The Company's Certificate of Incorporation and By-Laws provide that the
Company shall indemnify officers and directors and, to the extent permitted by
the Board of Directors, employees and agents of the Company, to the full extent
permitted by and in the manner permissible under the laws of the State of
Delaware. In addition, the By-Laws permit the Board of Directors to authorize
the Company to purchase and maintain insurance against any liability asserted
against any director, officer, employee or agent of the Company arising out of
his capacity as such.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Registrant has issued securities to a
limited number of persons, as described below. No underwriter or underwriting
discounts or commissions were involved. There was no public offering in such
transaction and the Company believes that such transaction was exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), by reason of Section 4(2) thereof based on the private nature
of the transactions and the sophistication of the purchasers, all of whom had
access to information concerning the Registrant and acquired the securities for
investment and not with a view to the distribution thereof.
In May 1995, the Company issued and sold 60,492 shares of Series B
Convertible Preferred Stock to Seagate Technology, Inc. for a price of $148.78
per share. Upon completion of the Offering, these shares are convertible into
3,629,520 shares of such Common Stock. The Company also sold to Seagate
Technology a warrant to purchase 19,769 shares of Series B Convertible Preferred
Stock at an exercise price of $223.17 per share of Series B Convertible
Preferred Stock during the seven-year period commencing on the warrant issuance
date (May 22, 1995). Upon consummation of the Offering, such warrant will become
exercisable for 1,186,140 shares of Common Stock at an exercise price of $3.72
per share of Common Stock. See "Certain Transactions" and "Description of
Capital Stock."
The following figures give effect to a 20-1 stock split in December 1995 and
a 3-1 stock split in October 1997.
On October 18, 1994, Victor Mann purchased 24,000 shares of Common Stock for
$10,000.
On November 29, 1994, Lino Velo purchased 28,800 shares of Common Stock for
$12,000.
On December 5, 1994, Phillip Chapados purchased 24,000 shares of Common
Stock for $12,500.
On December 5, 1994, Yong Jin Lee purchased 30,000 shares of Common Stock
for $10,000.
On December 7, 1994, Thomas Omstead purchased 12,000 shares of Common Stock
for $5,000.
On December 30, 1994, Mehrdad Moslehi, Senior Vice President and Chief
Technical Officer, purchased 48,000 shares of Common Stock for $20,000.
During the fiscal year ended September 30, 1995, the Company granted options
to acquire an aggregate of 414,000 shares of Common Stock at exercise prices
ranging from $0.42 to $2.12. During this period, options to acquire an aggregate
of 120,000 shares of Common Stock at an exercise price of $0.42 were cancelled.
During the fiscal year ended September 30, 1996, the Company granted options
to acquire an aggregate of 291,300 shares of Common Stock at an exercise price
of $2.69 to various directors, officers, employees and/or consultants. During
this period, options to acquire an aggregate of 76,500 shares of Common Stock at
exercise prices ranging from $0.42 to $2.69 were cancelled.
II-2
<PAGE>
On March 18, 1997, Mehrdad Moslehi, Senior Vice President and Chief
Technical Officer, purchased 30,000 shares of Common Stock for $12,500.
On March 18, 1997, Patrick Borrelli purchased 300 shares of Common Stock for
$808.
On April 1, 1997, the Company issued 14,850 shares of Common Stock to
various non-employee directors as payment of their annual retainer.
On June 6, 1997, Mehrdad Moslehi, Senior Vice President and Chief Technical
Officer, purchased 90,000 shares of Common Stock for $37,500.
On August 11, 1997, Yong Jin Lee purchased 30,000 shares of Common Stock for
$12,500.
On September 15, 1997, Cecil Davis purchased 30,000 shares of Common Stock
for $25,000.
During the fiscal year ended September 30, 1997, the Company granted options
to acquire an aggregate of 609,900 shares of Common Stock at exercise prices
ranging from $2.00 to $3.82 to various directors, officers, employees and/or
consultants; during the same period, options to acquire an aggregate of 177,000
shares of Common Stock at exercise prices ranging from $0.42 to $3.23 were
cancelled and options to acquire an aggregate of 180,300 shares of Common Stock
at exercise prices ranging from $0.42 to $2.69 were exercised.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<S> <C>
1.1 -- Underwriting Agreement*
3.1 -- Restated Certificate of Incorporation of the Registrant**
3.2 -- Restated By-Laws of the Registrant**
4.1 -- Specimen Certificate for Common Stock of the Registrant*
5.1 -- Opinion of Dewey Ballantine LLP*
10.1 -- 1997 Stock Option Plan+
10.3 -- Nonemployee Directors' Stock Option Plan+
10.4 -- Form of Employment Agreement+
10.5 -- Union Agreement, dated August 25, 1995, between the Registrant and Local 342,
International Union of Electronic, Electrical, Salaried, Machine & Furniture
Workers**
10.6 -- Securities Purchase Agreement, dated May 22, 1995, between the Registrant and
Seagate Technology, Inc.**
10.7 -- Registration Rights Agreement, dated May 22, 1995, among the Registrant, Seagate
Technology, Inc. and certain stockholders of the Registrant**
10.8 -- Series B Preferred Stock Purchase Warrant, dated May 22, 1995, between the
Registrant and Seagate Technology, Inc.**
10.9 -- U.S. $1,000,000 Subordinated Promissory Note, dated November 14, 1990, between the
Registrant and Nikko Tecno Co., Inc.**
10.10 -- U.S. $500,000 Subordinated Promissory Note, dated November 14, 1990, between the
Registrant and Nikko Tecno Co., Inc.**
10.11 -- Letter extending repayment of U.S. $1,000,000 and U.S. $500,000 Subordinated
Promissory Notes, dated August 18, 1997, by Nikko Tecno Co., Inc.**
10.12 -- Mortgage Note, dated September 29, 1997, between Registrant and M&T Real Estate,
Inc.**
10.13 -- Mortgage, dated September 29, 1997, between Registrant and M&T Real Estate, Inc.**
10.14 -- Continuing Guaranty, dated September 29, 1997, between Registrant and M&T Real
Estate, Inc.**
10.15 -- General Assignment of Rights, dated September 29, 1997, between Registrant and M&T
Real Estate, Inc.**
10.16 -- Amendment No. 1 to General Security Agreement, dated September 29, 1997, by and
among the Registrant, M&T Trust Company and M&T Real Estate, Inc.**
10.17 -- Amended and Restated Lease Agreement, dated September 29, 1997, between Registrant
and M&T Real Estate, Inc.**
10.18 -- Bill of Sale, dated September 29, 1997, executed by Registrant**
10.19 -- Lease Agreement, dated October 19, 1995, between Registrant and SCI Limited
Partnership - I**
10.20 -- $3,000,000 Term Loan Note Agreement, dated September 30, 1996, by Registrant and
M&T Company**
10 .21 -- Letter of Credit Reimbursement Agreement**
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
10.22 -- Continuing Guaranty of CVC Holdings, dated September 30, 1996, by Registrant**
10.23 -- Continuing Guaranty of CVC Products, dated February 2, 1996, by Registrant**
10.24 -- General Security Agreement of CVC Products, dated September 30, 1996, by
Registrant**
10.25 -- General Security Agreement of CVC Holdings, dated September 30, 1996, by
Registrant**
10.26 -- U.S. $1,000,000 subordinated Promissary Note, dated December 20, 1991, between the
Registrant and Nikko Tecno Co., Inc.**
10.27 -- Employment Agreement, dated as of December 15, 1997, between the Registrant and
Christine B. Whitman+
10.28 -- Employment Agreement, dated as of December 15, 1997, between the Registrant and
Giovanni Nocerino+
10.29 -- Employment Agreement, dated as of December 15, 1997, between the Registrant and
Emilio O. Dicataldo+
10.30 -- Employment Agreement, dated as of December 15, 1997, between the Registrant and
Mehrdad M. Moslehi+
10.31 -- Employment Agreement, dated as of December 15, 1997, between the Registrant and
Christopher J. Mann+
10.32 -- Employment Agreement, dated as of December 15, 1997, between the Registrant and
Richard J. Chicotka+
11.0 -- Computation of Earnings Per Share**
21.1 -- List of Subsidiary**
23.1 -- Consent of Price Waterhouse LLP+
23.3 -- Consent of Dewey Ballantine LLP (contained in Exhibit 5.1)
24.1 -- Power of Attorney (included on page II-5)**
27.1 -- Financial Data Schedule**
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed
+ Filed herewith
(b) Consolidated Financial Statement Schedules
All schedules have been omitted because they are not required or because the
required information is given in the Consolidated Financial Statements or Notes
thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriters,
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
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
II-5
<PAGE>
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.
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 shall be deemed to be 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 the
time shall be deemed to be the initial bona fide offering thereof.
II-6
<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 Rochester,
State of New York, on January 16, 1998.
CVC, INC.
By: /s/ CHRISTINE B. WHITMAN
-----------------------------------------
Christine B. Whitman
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to the Registration Statement has been signed by the following persons
on January 16, 1998 in the capacities indicated:
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
Chairman of the Board, January 16, 1998
/s/ CHRISTINE B. WHITMAN Chief Executive Officer and
- ------------------------------ President (principal
Christine B. Whitman executive officer)
Senior Vice President and January 16, 1998
/s/ EMILIO O. DICATALDO Chief Financial Officer
- ------------------------------ (principal accounting and
Emilio O. DiCataldo financial officer)
/s/ ROBERT C. FINK Director January 16, 1998
- ------------------------------
Robert C. Fink
/s/ JAMES GEATER* Director January 16, 1998
- ------------------------------
James Geater
/s/ BRENDAN C. HEGARTY* Director January 16, 1998
- ------------------------------
Brendan C. Hegarty
II-7
<PAGE>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ VICTOR E. MANN* Director January 16, 1998
- ------------------------------
Victor E. Mann
/s/ SEIYA MIYANISHI* Director January 16, 1998
- ------------------------------
Seiya Miyanishi
/s/ ANDREW C. PESKOE* Director January 16, 1998
- ------------------------------
Andrew C. Peskoe
/s/ DONALD L. WAITE* Director January 16, 1998
- ------------------------------
Donald L. Waite
*By: /s/ EMILIO O. DICATALDO
-------------------------
Emilio O. DiCataldo
(ATTORNEY IN FACT)
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit Page No.
- ----------- ---------------------------------------------------------------------------- -----------
<S> <C> <C>
1.1 -- Underwriting Agreement*
3.1 -- Restated Certificate of Incorporation of the Registrant**
3.2 -- Restated By-Laws of the Registrant**
4.1 -- Specimen Certificate for Common Stock of the Registrant*
5.1 -- Opinion of Dewey Ballantine LLP*
10.1 -- 1997 Stock Option Plan+
10.3 -- Nonemployee Directors' Stock Option Plan+
10.4 -- Form of Employment Agreement+
10.5 -- Union Agreement, dated August 25, 1995, between the Registrant and Local
342, International Union of Electronic, Electrical, Salaried, Machine &
Furniture Workers**
10.6 -- Securities Purchase Agreement, dated May 22, 1995, between the Registrant
and Seagate Technology, Inc.**
10.7 -- Registration Rights Agreement, dated May 22, 1995, among the Registrant,
Seagate Technology, Inc. and certain stockholders of the Registrant**
10.8 -- Series B Preferred Stock Purchase Warrant, dated May 22, 1995, between
the Registrant and Seagate Technology, Inc.**
10.9 -- U.S. $1,000,000 Subordinated Promissory Note, dated November 14, 1990,
between the Registrant and Nikko Tecno Co., Inc.**
10.10 -- U.S. $500,000 Subordinated Promissory Note, dated November 14, 1990,
between the Registrant and Nikko Tecno Co., Inc.**
10.11 -- Letter extending repayment of U.S. $1,000,000 and U.S. $500,000
Subordinated Promissory Notes, dated August 18, 1997, by Nikko Tecno Co.,
Inc.**
10.12 -- Mortgage Note, dated September 29, 1997, between Registrant and M&T Real
Estate, Inc.**
10.13 -- Mortgage, dated September 29, 1997, between Registrant and M&T Real
Estate, Inc.**
10.14 -- Continuing Guaranty, dated September 29, 1997, between Registrant and M&T
Real Estate, Inc.**
10.15 -- General Assignment of Rights, dated September 29, 1997, between
Registrant and M&T Real Estate, Inc.**
10.16 -- Amendment No. 1 to General Security Agreement, dated September 29, 1997,
by and among the Registrant, M&T Trust Company and M&T Real Estate, Inc.**
10.17 -- Amended and Restated Lease Agreement, dated September 29, 1997, between
Registrant and M&T Real Estate, Inc.**
10.18 -- Bill of Sale, dated September 29, 1997, executed by Registrant**
10.19 -- Lease Agreement, dated October 19, 1995, between Registrant and SCI
Limited Partnership - I**
10.20 -- $3,000,000 Term Loan Note Agreement, dated September 30, 1996, by
Registrant and M&T Company**
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
10.21 -- Letter of Credit Reimbursement Agreement**
10.22 -- Continuing Guaranty of CVC Holdings, dated September 30, 1996, by
Registrant**
10.23 -- Continuing Guaranty of CVC Products, dated February 2, 1996, by
Registrant**
10.24 -- General Security Agreement of CVC Products, dated September 30, 1996, by
Registrant**
10.25 -- General Security Agreement of CVC Holdings, dated September 30, 1996, by
Registrant**
10.26 -- U.S. $1,000,000 Subordinated Promissory Note, dated December 20, 1991,
between the Registrant and Nikko Tecno. Co., Inc.**
10.27 -- Employment Agreement, dated as of December 15, 1997, between the
Registrant and Christine B. Whitman+
10.28 -- Employment Agreement, dated as of December 15, 1997, between the
Registrant and Giovanni Nocerino+
10.29 -- Employment Agreement, dated as of December 15, 1997, between the
Registrant and Emilio O. Dicataldo+
10.30 -- Employment Agreement, dated as of December 15, 1997, between the
Registrant and Mehrdad M. Moslehi+
10.31 -- Employment Agreement, dated as of December 15, 1997, between the
Registrant and Christopher J. Mann+
10.32 -- Employment Agreement, dated as of December 15, 1997, between the
Registrant and Richard J. Chicotka+
11.0 -- Computation of Earnings Per Share+
21.1 -- List of Subsidiary**
23.1 -- Consent of Price Waterhouse LLP+
24.1 -- Power of Attorney (included on page II-5)**
27.1 -- Financial Data Schedule**
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed
+ Filed herewith
<PAGE>
EXHIBIT 10.1
CVC, INC.
1997 STOCK OPTION PLAN
ARTICLE I
PURPOSE
This CVC, Inc. 1997 Stock Option Plan is intended to advance the
interests of the Company and its stockholders and subsidiaries by attracting,
retaining and motivating the performance of selected officers, employees and
consultants of the Company of high caliber and potential upon whose judgment,
initiative and effort the Company is largely dependent for the successful
conduct of its business, and to encourage and enable such persons to acquire and
retain a proprietary interest in the Company by ownership of its stock.
ARTICLE II
DEFINITIONS
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" means the Company's Common Stock, par value $.01
per share.
(d) "Committee" means the Compensation Committee of the Board or any
other committee of the Board appointed by the Board to administer the Plan from
time to time. The full Board shall also have the authority to exercise the
powers and duties of the Committee under the Plan.
(e) "Company" means CVC, Inc., a Delaware corporation.
(f) "Date of Grant" means the date on which an Option becomes
effective in accordance with Section 6.1 hereof.
(g) "Eligible Person" means any person who is an officer, employee or
consultant of the Company or any Subsidiary.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(i) "Fair Market Value" means the last reported sales prices of the
Common Stock on the Nasdaq National Market on the date as of which fair market
value is to be
<PAGE>
determined or, in the absence of any reported sales of Common Stock on such
date, on the first preceding date on which any such sale shall have been
reported. If Common Stock is not listed on the Nasdaq National Market on the
date as of which fair market value is to be determined, the Committee shall
determine in good faith the fair market value in whatever manner it considers
appropriate.
(j) "Incentive Stock Option" means a stock option granted under the
Plan that is intended to meet the requirements of Section 422 of the Code and
the regulations promulgated thereunder.
(k) "Nonqualified Stock Option" means a stock option granted under
the Plan that is not an Incentive Stock Option.
(l) "Option" means an Incentive Stock Option or a Nonqualified Stock
Option granted under the Plan.
(m) "Optionee" means an Eligible Person to whom an Option has been
granted, which Option has not expired, under the Plan.
(n) "Option Price" means the price at which each share of Common
Stock subject to an Option may be purchased, determined in accordance with
Section 6.2 hereof.
(o) "Plan" means this CVC, Inc. 1997 Stock Option Plan.
(p) "Stock Option Agreement" means an agreement between the Company
and an Optionee under which the Optionee may purchase Common Stock under the
Plan.
(q) "Subsidiary" means a subsidiary corporation of the Company,
within the meaning of Section 424(f) of the Code.
(r) "Ten-Percent Owner" means an Optionee who, at the time an
Incentive Stock Option is granted, owns stock possessing more than ten percent
of the total combined voting power of all classes of stock of the Company, its
parent, if any, or any Subsidiary, within the meaning of Sections 422(b)(6) and
424(d) of the Code.
ARTICLE III
ELIGIBILITY
All Eligible Persons are eligible to receive a grant of an Option
under the Plan. The Committee shall, in its sole discretion, determine and
designate from time to time those Eligible Persons who are to be granted an
Option.
2
<PAGE>
ARTICLE IV
ADMINISTRATION
4.1 COMMITTEE MEMBERS. The Plan shall be administered by a
Committee comprised of no fewer than two persons selected by the Board, or by
the full Board. Solely to the extent deemed necessary or advisable by the
Board, each Committee member shall meet the definition of a "nonemployee
director" for purposes of such Rule 16b-3 under the Exchange Act and of an
"outside director" under Section 162(m) of the Code.
4.2 COMMITTEE AUTHORITY. Subject to the express provisions of the
Plan, the Committee shall have the authority, in its discretion, to determine
the Eligible Persons to whom an Option shall be granted, the time or times at
which an Option shall be granted, the number of shares of Common Stock subject
to each Option, the Option Price of the shares subject to each Option and the
time or times when each Option shall become exercisable and the duration of the
exercise period. Subject to the express provisions of the Plan, the Committee
shall also have discretionary authority to interpret the Plan, to prescribe,
amend and rescind rules and regulations relating to it, to determine the details
and provisions of each Stock Option Agreement, and to make all the
determinations necessary or advisable in the administration of the Plan. All
such actions and determinations by the Committee shall be conclusively binding
for all purposes and upon all persons. No Committee member shall be liable for
any action or determination made in good faith with respect to the Plan, any
Option or any Stock Option Agreement entered into hereunder.
ARTICLE V
SHARES OF STOCK SUBJECT TO PLAN
5.1 NUMBER OF SHARES. Subject to adjustment pursuant to the
provisions of Section 5.2 hereof, the maximum number of shares of Common Stock
which may be issued
and sold hereunder shall be 1,250,000 shares. Shares of Common Stock issued and
sold under the Plan may be either authorized but unissued shares or shares held
in the Company's treasury. Shares of Common Stock covered by an Option that
shall have been exercised shall not again be available for an Option grant. If
an Option shall terminate for any reason (including, without limitation, the
cancellation of an Option pursuant to Section 6.6 hereof) without being wholly
exercised, the number of shares to which such Option termination relates shall
again be available for grant hereunder.
5.2 ANTIDILUTION. In the event of a reorganization,
recapitalization, stock split, stock dividend, combination of shares, merger or
consolidation, or the sale, conveyance, or other transfer by the Company of all
or substantially all of its property, or any other change in the corporate
structure or shares of the Company, pursuant to any of
3
<PAGE>
which events the then outstanding shares of Common Stock are split up or
combined, or are changed into, become exchangeable at the holder's election for,
or entitle the holder thereof
to, other shares of stock, or in the case of any other transaction described in
Section 424(a) of the Code, the Committee may change the number and kind of
shares (including by substitution of shares of another corporation) subject to
the Options and/or the Option Price of such shares in the manner that it shall
deem to be equitable and appropriate. In no event may any such change be made
to an Incentive Stock Option which would constitute a "modification" within the
meaning of Section 424(h)(3) of the Code.
ARTICLE VI
OPTIONS
6.1 GRANT OF OPTION. An Option may be granted to any Eligible
Person selected by the Committee. The grant of an Option shall first be
effective upon the date it is approved by the Committee, except to the extent
the Committee shall specify a later date upon which the grant of an Option shall
first be effective. Each Option shall be designated, at the discretion of the
Committee, as an Incentive Stock Option or a Nonqualified Stock Option, provided
that Incentive Stock Options may only be granted to Eligible Persons who are
considered employees of the Company or any Subsidiary for purposes of Section
422 of the Code. The Company and the Optionee shall execute a Stock Option
Agreement which shall set forth such terms and conditions of the Option as may
be determined by the Committee to be consistent with the Plan, and which may
include additional provisions and restrictions that are not inconsistent with
the Plan. Notwithstanding anything elsewhere in the Plan to the contrary, the
maximum number of shares of Common Stock that may be subject to Options granted
to any Optionee during any one calendar year shall be 500,000 shares (subject to
adjustment as provided in Section 5.2 hereof).
6.2 OPTION PRICE. The Option Price shall be determined by the
Committee; PROVIDED, HOWEVER, that the Option Price shall not be less than 100
percent of the Fair Market Value of a share of Common Stock on the trading date
immediately preceding the Date of Grant.
6.3 VESTING; TERM OF OPTION. Unless otherwise specified by the
Committee in the Stock Option Agreement for an Optionee, an Option shall vest
and become exercisable in cumulative annual installments, each of which shall
relate to one-fifth of the number of shares of Common Stock originally covered
thereby (as may be adjusted in accordance with Section 5.2 hereof), on the
first, second, third, fourth and fifth anniversaries of the Date of Grant,
respectively, provided that the Optionee remains an Eligible Person on each such
anniversary. Notwithstanding the foregoing, the Committee, in its sole
discretion, may accelerate the exercisability of any Option at any time, and an
Option may become vested and exercisable in accordance with the provisions of
Articles VII and IX hereof. The period during which a vested Option may be
exercised shall be ten
4
<PAGE>
years from the Date of Grant, unless a shorter exercise period is specified by
the Committee in the Stock Option Agreement for an Optionee.
6.4 OPTION EXERCISE; WITHHOLDING. An Option may be exercised in
whole or in part at any time, with respect to whole shares only, within the
period permitted for the exercise thereof, and shall be exercised by written
notice of intent to exercise the Option with respect to a specified number of
shares delivered to the Company at its principal office, and payment in full to
the Company at said office of the amount of the Option Price for the number of
shares of the Common Stock with respect to which the Option is then being
exercised. Payment of the Option Price shall be made (i) in cash or by cash
equivalent, (ii) at the discretion of the Committee, in Common Stock owned by
the Optionee for more than six months on the date of exercise, valued at the
Fair Market Value of such shares on the trading date immediately preceding the
date of exercise or (iii) at the discretion of the Committee, by a combination
of such cash and such Common Stock. In addition to and at the time of payment
of the Option Price, the Optionee shall pay to the Company in cash or, at the
discretion of the Committee, in Common Stock the full amount of all federal and
state withholding and other employment taxes applicable to the taxable income of
such Optionee resulting from such exercise.
6.5 LIMITED TRANSFERABILITY OF OPTION. All Options shall be
nontransferable except (i) upon the Optionee's death, by the Optionee's will or
the laws of descent and distribution or (ii) in the case only of Nonqualified
Stock Options on a case-by-case basis as may be approved by the Committee in its
discretion, in accordance with the terms provided below. Each Option Agreement
for a Nonqualified Stock Option shall provide that the Optionee may, during his
or her lifetime and subject to the prior approval of the Committee at the time
of proposed transfer, transfer all or part of the Option to a Permitted
Transferee (as defined below), provided that such transfer is made by the
Optionee for estate and tax planning purposes or donative purposes and no
consideration (other than nominal consideration) is received by the Optionee
therefor. The transfer of a Nonqualified Stock Option shall be subject to such
other terms and conditions as the Committee may in its discretion impose from
time to time, including a condition that the portion of the Option to be
transferred be vested and exercisable by the Optionee at the time of the
transfer. Subsequent transfers of an Option transferred under this Section 6.5
shall be prohibited other than by will or the laws of descent and distribution
upon the death of the transferee.
For purposes hereof, a "Permitted Transferee" shall be any member of
the Optionee's immediate family or a charitable institution (each defined
below), or a trust for the exclusive benefit of such immediate family members
and/or charitable institution, or to a partnership or limited liability company
the equity interests of which are owned exclusively by the Optionee and/or one
or more members of his or her immediate family. For purposes of the preceding
definition, (i) the "immediate family" of the Optionee shall mean and include
the Optionee's spouse, any descendant of the Optionee or his or her spouse
(including descendants by adoption), and any descendant of either parent of the
Optionee (including descendants by adoption), and (ii) a "charitable
institution" shall mean and include any organization described in each of
section 170(b)(1)(A), 170(c), 2055(a)
5
<PAGE>
and 2522(a) of the Code, as well as any charitable remainder trust created under
section 664 of the Code, the income beneficiary of which is a member of the
Optionee's immediate family or a trust or other entity described above in this
Section 6.5.
No transfer of an Option by the Optionee by will or by laws of descent
and distribution shall be effective to bind the Company unless the Company shall
have been furnished with written notice thereof and an authenticated copy of the
will and/or such other evidence as the Committee may deem necessary to establish
the validity of the transfer. During the lifetime of an Optionee, the Option
shall be exercisable only by him, except that, in the case of an Optionee who is
legally incapacitated, the Option shall be exercisable by his guardian or legal
representative.
6.6 CANCELLATION, SUBSTITUTION AND AMENDMENT OF OPTIONS. The
Committee shall have the authority to effect, at any time and from time to time,
with the consent of the affected Optionees, (i) the cancellation of any or all
outstanding Options and the grant in substitution therefor of new Options
covering the same or different numbers of shares of Common Stock and having an
Option Price which may be the same as or different than the Option Price of the
cancelled Options or (ii) the amendment of the terms of any and all outstanding
Options.
ARTICLE VII
ADDITIONAL RULES FOR ISOS
7.1 TEN-PERCENT OWNERS. Notwithstanding any other provisions of
this Plan to the contrary, in the case of an Incentive Stock Option granted to a
Ten-Percent Owner, (i) the period during which any such Incentive Stock Option
may be exercised shall not be greater than five years from the Date of Grant and
(ii) the Option Price of such Incentive Stock Option shall not be less than 110
percent of the Fair Market Value of a share of Common Stock on the Date of
Grant.
7.2 ANNUAL LIMITS. No Incentive Stock Option shall be granted to an
Optionee as a result of which the aggregate fair market value (determined as of
the date of grant) of the stock with respect to which incentive stock options
are exercisable for the first time in any calendar year under the Plan, and any
other stock option plans of the Company, any Subsidiary or any parent
corporation, would exceed $100,000, determined in accordance with Section 422(d)
of the Code. This limitation shall be applied by taking options into account in
the order in which granted.
7.3 DISQUALIFYING DISPOSITIONS. If shares of Common Stock acquired
by exercise of an Incentive Stock Option are disposed of within two years
following the Date of Grant or one year following the transfer of such shares to
the Optionee upon exercise, the Optionee shall, within 10 days after such
disposition, notify the Company in writing of
6
<PAGE>
the date and terms of such disposition and provide such other information
regarding the disposition as the Committee may reasonably require.
7.4 OTHER TERMS AND CONDITIONS. Any Incentive Stock Option granted
hereunder shall contain such additional terms and conditions, not inconsistent
with the terms of this Plan, as are deemed necessary or desirable by the
Committee, which terms, together with the terms of this Plan, shall be intended
and interpreted to cause such Incentive Stock Option to qualify as an "incentive
stock option" under Section 422 of the Code.
ARTICLE VIII
TERMINATION OF SERVICE
8.1 DEATH. If an Optionee shall die at any time after the Date of
Grant and while he is an Eligible Person, the executor or administrator of the
estate of the decedent, or the person or persons to whom an Option shall have
been validly transferred in accordance with Section 6.5 hereof pursuant to will
or the laws of descent and distribution, shall have the right, during the period
ending one year after the date of the Optionee's death (subject to
Sections 6.3 and 7.1 hereof concerning the maximum term of an Option), to
exercise the Optionee's Option to the extent that it was exercisable at the date
of the Optionee's death and shall not have been previously exercised. The
Committee may determine at or after grant to make any portion of his Option that
is not exercisable at the date of death immediately vested and exercisable.
8.2 DISABILITY. If an Optionee's employment or other service with
the Company or any Subsidiary shall be terminated as a result of his permanent
and total disability (within the meaning of Section 22(e)(3) of the Code) at any
time after the Date of Grant and while he is an Eligible Person, the Optionee
(or in the case of an Optionee who is legally incapacitated, his guardian or
legal representative) shall have the right, during a period ending one year
after the date of his disability (subject to Sections 6.3 and 7.1 hereof
concerning the maximum term of an Option), to exercise an Option to the extent
that it was exercisable at the date of such termination of employment or other
service and shall not have been exercised. The Committee may determine at or
after grant to make any portion of his Option that is not exercisable at the
date of termination of employment or other service due to disability immediately
vested and exercisable.
8.3 TERMINATION FOR CAUSE. If an Optionee's employment or other
service with the Company or any Subsidiary shall be terminated for cause, the
Optionee's right to exercise any unexercised portion of an Option shall
immediately terminate and all rights thereunder shall cease. For purposes of
this Section 8.3, termination for "cause" shall include, but not be limited to,
embezzlement or misappropriation of corporate funds, any acts of dishonesty
resulting in conviction for a felony, misconduct resulting in material injury to
the Company or any Subsidiary, significant activities harmful to the reputation
of
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the Company or any Subsidiary, a significant violation of Company or Subsidiary
policy, willful refusal to perform, or substantial disregard of, the duties
properly assigned to the Optionee, or a significant violation of any
contractual, statutory or common law duty of loyalty to the Company or any
Subsidiary. The Committee shall have the power to determine whether the
Optionee has been terminated for cause and the date upon which such termination
for cause occurs. Any such determination shall be final, conclusive and binding
upon the Optionee.
8.4 OTHER TERMINATION OF SERVICE. If an Optionee's employment or
other service with the Company or any Subsidiary shall be terminated for any
reason other than death, permanent and total disability or termination for
cause, the Optionee shall have the right, during the period ending 90 days after
such termination (subject to Sections 6.3 and 7.1 hereof concerning the maximum
term of an Option and subject to the terms of any employment agreement between
the Company or a Subsidiary and the Optionee), to exercise an Option to the
extent that it was exercisable at the date of such termination and shall not
have been exercised. For purposes of this Section 8.4, an Optionee shall not be
considered to have terminated employment or other service with the Company or
any Subsidiary until the expiration of the period of any military, sick leave or
other bona fide leave of absence, up to a maximum period of 90 days (or such
greater period during which the Optionee is guaranteed reemployment either by
statute or contract).
ARTICLE IX
CHANGE IN CONTROL
9.1 CHANGE IN CONTROL. Upon a "change in control" of the Company
(as defined below), each outstanding Option, to the extent that it shall not
otherwise have become vested and exercisable, shall automatically become fully
and immediately vested and exercisable, without regard to any otherwise
applicable vesting requirement under Section 6.3 hereof; PROVIDED, HOWEVER, that
no such vesting shall occur if provision has been made in writing in connection
with such transaction for (a) the continuation of the Plan and/or the assumption
of such Options by a successor corporation (or a parent or subsidiary thereof)
or (b) the substitution for such Options of new options covering the stock of a
successor corporation (or a parent or subsidiary thereof), with appropriate
adjustments as to the number and kinds of shares and exercise prices. In the
event of any such continuation, assumption or substitution, the Plan and/or such
Options shall continue in the manner and under the terms so provided.
9.2 DEFINITION. For purposes of Section 9.1 hereof, a "change in
control" of the Company shall mean:
(i) an acquisition subsequent to the date hereof by any person,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person"), of beneficial
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ownership (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of 30% or more of either (A) the then outstanding shares of Common
Stock or (B) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); excluding,
however, the following: (1) any acquisition directly from the Company,
other than an acquisition by virtue of the exercise of a conversion
privilege unless the security being so converted was itself acquired
directly from the Company, (2) any acquisition by the Company and (3) any
acquisition by an employee benefit plan (or related trust) sponsored or
maintained by the Company;
(ii) a change in the composition of the Board such that during any
period of two consecutive years, individuals who at the beginning of such
period constitute the Board, and any new director (other than a director
designated by a person who has entered into an agreement with the Company
to effect a transaction described in paragraphs (i), (iii) or (iv) of this
section) whose election by the Board or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously
so approved, cease for any reason to constitute at least a majority of the
members thereof;
(iii) the approval by the stockholders of the Company of a merger,
consolidation, reorganization or similar corporate transaction, whether or
not the Company is the surviving corporation in such transaction, in which
outstanding shares of Common Stock are converted into (A) shares of stock
of another company, other than a conversion into shares of voting common
stock of the successor corporation (or a holding company thereof)
representing 80% of the voting power of all capital stock thereof
outstanding immediately after the merger or consolidation or (B) other
securities (of either the Company or another company) or cash or other
property;
(iv) the approval by the stockholders of the Company of (A) the sale
or other disposition of all or substantially all of the assets of the
Company or (B) a complete liquidation or dissolution of the Company; or
(v) the adoption by the Board of a resolution to the effect that any
person has acquired effective control of the business and affairs of the
Company.
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ARTICLE X
STOCK CERTIFICATES
10.1 ISSUANCE OF CERTIFICATES. Subject to Section 10.2 hereof, the
Company shall issue a stock certificate in the name of the Optionee (or other
person exercising the Option in accordance with the provisions of the Plan) for
the shares of Common Stock purchased by exercise of an Option as soon as
practicable after due exercise and payment of the aggregate Option Price for
such shares. A separate stock certificate or separate stock
certificates shall be issued for any shares of Common Stock purchased pursuant
to the exercise of an Option that is an Incentive Stock Option, which
certificate or certificates shall not include any shares of Common Stock that
were purchased pursuant to the exercise of an Option that is a Nonqualified
Stock Option.
10.2 CONDITIONS. The Company shall not be required to issue or
deliver any certificate for shares of Common Stock purchased upon the exercise
of any Option granted hereunder or any portion thereof prior to fulfillment of
all of the following conditions:
(i) the completion of any registration or other qualification of such
shares, under any federal or state law or under the rulings or regulations
of the Securities and Exchange Commission or any other governmental
regulatory body, that the Committee shall in its sole discretion deem
necessary or advisable;
(ii) the obtaining of any approval or other clearance from any
federal or state governmental agency which the Committee shall in its sole
discretion determine to be necessary or advisable;
(iii) the lapse of such reasonable period of time following the
exercise of the Option as the Committee from time to time may establish for
reasons of administrative convenience;
(iv) satisfaction by the Optionee of all applicable withholding taxes
or other withholding liabilities; and
(v) if required by the Committee, in its sole discretion, the receipt
by the Company from an Optionee of (i) a representation in writing that the
shares of Common Stock received upon exercise of an Option are being
acquired for investment and not with a view to distribution and (ii) such
other representations and warranties as are deemed necessary by counsel to
the Company.
10.3 LEGENDS. The Company reserves the right to legend any
certificate for shares of Common Stock, conditioning sales of such shares upon
compliance with applicable federal and state securities laws and regulations.
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ARTICLE XI
EFFECTIVE DATE, TERMINATION AND AMENDMENT
11.1 EFFECTIVE DATE. The Plan shall become effective upon its
adoption by the Board and its approval by the stockholders of the Company;
PROVIDED, HOWEVER, that the Plan shall not be effective and any options granted
hereunder shall be null and void if, prior to March 31, 1998, an initial public
offering of the Common Stock shall not have been consummated.
11.2 TERMINATION. The Plan shall terminate on the date immediately
preceding the tenth anniversary of the date the Plan is adopted by the Board.
The Board may, in its sole discretion and at any earlier date, terminate the
Plan. Notwithstanding the foregoing, no termination of the Plan shall in any
manner affect any Option theretofore granted without the consent of the Optionee
or the permitted transferee of the Option.
11.3 AMENDMENT. The Board may at any time and from time to time and
in any respect, amend or modify the Plan. Solely to the extent deemed necessary
or advisable by the Board, for purposes of complying with Sections 422 or 162(m)
of the Code or rules of any securities exchange or for any other reason, the
Board may seek the approval of any such amendment by the Company's stockholders.
Any such approval shall be by the affirmative votes of the stockholders of the
Company present, or represented, and entitled to vote at a meeting duly held in
accordance with applicable state law and the Certificate of Incorporation and
By-Laws of the Company. Notwithstanding the foregoing, no amendment or
modification of the Plan shall in any manner affect any Option theretofore
granted without the consent of the Optionee or the permitted transferee of the
Option.
ARTICLE XII
MISCELLANEOUS
12.1 EMPLOYMENT OR OTHER SERVICE. Nothing in the Plan, in the grant
of any Option or in any Stock Option Agreement shall confer upon any Eligible
Person the right to continue in the capacity in which he is employed by or
otherwise provides services to the Company or any Subsidiary. Notwithstanding
anything contained in the Plan to the contrary, unless otherwise provided in a
Stock Option Agreement, no Option shall be affected by any change of duties or
position of the Optionee (including a transfer to or from the Company or any
Subsidiary), so long as such Optionee continues to be an Eligible Person.
12.2 RIGHTS AS SHAREHOLDER. An Optionee or the permitted transferee
of an Option shall have no rights as a shareholder with respect to any shares
subject to such Option prior to the purchase of such shares by exercise of such
Option as provided herein.
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Nothing contained herein or in the Stock Option Agreement relating to any Option
shall create an obligation on the part of the Company to repurchase any shares
of Common Stock purchased hereunder.
12.3 OTHER COMPENSATION AND BENEFIT PLANS. The adoption of the Plan
shall not affect any other stock option or incentive or other compensation plans
in effect for the Company or any Subsidiary, nor shall the Plan preclude the
Company from establishing any other forms of incentive or other compensation for
employees of the Company or any Subsidiary. The amount of any compensation
deemed to be received by an Optionee as a result of the exercise of an Option or
the sale of shares received upon such exercise shall not constitute compensation
with respect to which any other employee benefits of such Optionee are
determined, including, without limitation, benefits under any bonus, pension,
profit sharing, life insurance or salary continuation plan, except as otherwise
specifically determined by the Board or the Committee or provided by the terms
of such plan.
12.4 PLAN BINDING ON SUCCESSORS. The Plan shall be binding upon the
Company, its successors and assigns, and the Optionee, his executor,
administrator and permitted transferees.
12.5 CONSTRUCTION AND INTERPRETATION. Whenever used herein, nouns
in the singular shall include the plural, and the masculine pronoun shall
include the feminine gender. Headings of Articles and Sections hereof are
inserted for convenience and reference and constitute no part of the Plan.
12.6 SEVERABILITY. If any provision of the Plan or any Stock Option
Agreement shall be determined to be illegal or unenforceable by any court of law
in any jurisdiction, the remaining provisions hereof and thereof shall be
severable and enforceable in accordance with their terms, and all provisions
shall remain enforceable in any other jurisdiction.
12.7 GOVERNING LAW. The validity and construction of this Plan and
of the Stock Option Agreements shall be governed by the laws of the State of
Delaware.
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Exhibit 10.3
CVC, INC.
1997 NONEMPLOYEE DIRECTORS'
STOCK OPTION PLAN
ARTICLE I
PURPOSE
The CVC, Inc. 1997 Nonemployee Directors' Stock Option
Plan is intended to advance the interests of CVC, Inc., and its
stockholders by attracting, retaining and motivating the performance
of nonemployee directors of CVC, Inc., and to encourage and enable
such directors to acquire and retain a proprietary interest in CVC,
Inc., by ownership of its stock.
ARTICLE II
DEFINITIONS
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" means the Company's Common Stock, par
value $.01 per share.
(d) "Company" means CVC, Inc., a Delaware corporation.
(e) "Date of Grant" means the date on which an Option is
granted in accordance with Section 5.1 hereof.
(f) "Fair Market Value" means the closing price of the
Common Stock on the Nasdaq National Market on the date as of which
fair market value is to be determined or, in the absence of any
reported sales of Common Stock on such date, on the first preceding
date on which any such sale shall have been reported. If Common
Stock is not listed on Nasdaq National Market on the date as of
which fair market value is to be determined, the Board shall
determine in good faith the fair market value in whatever manner it
considers appropriate.
<PAGE>
(g) "Nonemployee Director" means any member of the Board
who is not an employee of the Company.
(h) "Option" means a stock option granted under the Plan.
(i) "Optionee" means a person to whom an Option has been
granted, which Option has not expired under the Plan.
(j) "Option Price" means the price at which each share of
Common Stock subject to an Option may be purchased, determined in
accordance with Section 5.2 hereof.
(k) "Plan" means this CVC, Inc. 1997 Nonemployee
Directors' Stock Option Plan.
(l) "Stock Option Agreement" means an agreement between
the Company and an Optionee under which the Optionee may purchase
Common Stock under the Plan.
ARTICLE III
ADMINISTRATION
Subject to the express provisions of the Plan, the Board
shall have discretionary authority to interpret the Plan, to
prescribe, amend and rescind rules and regulations relating to it,
to determine the details and provisions of each Stock Option
Agreement, and to make all the determinations necessary or advisable
in the administration of the Plan. All such actions and
determinations by the Board shall be conclusively binding for all
purposes and upon all persons. The Board shall not be liable for
any action or determination made in good faith with respect to the
Plan, any Option or any Stock Option Agreement entered into
hereunder.
ARTICLE IV
SHARES OF STOCK SUBJECT TO PLAN
4.1 Number of Shares. Subject to adjustment pursuant to
the provisions of this Article IV, the maximum number of shares of
Common Stock which may be issued and sold hereunder shall be 250,000
shares. Shares of Common Stock issued and sold under the Plan may
be either authorized but unissued shares or shares held in the
Company's treasury. Shares of Common Stock covered by an Option
that shall have been exercised shall not again be available for an
Option grant. If an Option shall terminate for any reason without
being wholly exercised, the number of shares to which such Option
termination relates shall again be available for grant hereunder.
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4.2 Antidilution. In the event of a reorganization,
recapitalization, stock split, stock dividend, combination of shares, merger
or consolidation, or the sale, conveyance, lease or other transfer by the
Company of all or substantially all of its property, or any other change in
the corporate structure or shares of the Company, pursuant to any of which
events the then outstanding shares of Common Stock are split up or combined,
or are changed into, become exchangeable at the holder's election for, or
entitle the holder thereof to, other shares of stock, or in the case of any
other transaction described in Section 424(a) of the Code, the Board may
change the number and kind of shares (including by substitution of shares of
another corporation) subject to the Options and/or the Option Price of such
shares in the manner that it shall deem to be equitable and appropriate.
ARTICLE V
OPTIONS
5.1 Grant of Options. Each Nonemployee Director shall
receive a grant of an Option to purchase 10,000 shares of Common
Stock on the date following the effective date of the Plan that he
or she first becomes a member of the Board, or any later date
specified by the Board (the "Initial Grant"). In addition to the
foregoing, each Nonemployee Director shall receive a grant of an
Option to purchase 3,000 shares of Common Stock on the March 31 of
each calendar year following the effective date of the Plan (the
"Annual Grant"). The Company and the Optionee shall execute a Stock
Option Agreement which shall set forth such terms and conditions of
an Option granted hereunder as may be determined by the Board to be
consistent with the Plan, and which may include additional
provisions and restrictions that are not inconsistent with the Plan.
5.2 Option Price The Option Price of each share of
Common Stock subject to an Option shall be 100 percent of the Fair
Market Value of a share of Common Stock on the trading date
immediately preceding the Date of Grant.
5.3 Vesting; Term of Option. Each Initial Grant of an
Option shall vest and become exercisable in cumulative annual
installments, each of which shall relate to one-third of the total
number of shares of the Initial Grant, on the first, second, and
third anniversaries of the Date of Grant, provided that the Optionee
is a member of the Board on each such date. Each Annual Grant of an
Option shall become 100 percent vested and exercisable on the first
anniversary of the Date of Grant, provided that the Optionee is a
member of the Board on such date. The period during which a vested
Option may be exercised shall be ten years from the Date of Grant.
5.4 Option Exercise. An Option may be exercised in whole
or in part at any time, with respect to whole shares only, within
the period permitted for the exercise thereof, and shall be
exercised by written notice of intent to exercise the Option with
respect to a specified number of shares delivered to the Company at
its principal office, and
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payment in full to the Company at said office of the amount of the
Option Price for the number of shares of the Common Stock with
respect to which the Option is then being exercised. Payment of the
Option Price shall be made (i) in cash or by cash equivalent, (ii)
in Common Stock valued at the Fair Market Value of such shares on
the trading date immediately preceding the date of exercise or (iii)
by a combination of such cash and such Common Stock.
5.5 Limited Transferability of Option. All Options shall
be nontransferable except (i) upon the Optionee's death, by the
Optionee's will or the laws of descent and distribution or (ii) on a
case-by-case basis as may be approved by the Board in its
discretion, in accordance with the terms provided below. Each
Option Agreement shall provide that the Optionee may, during his or
her lifetime and subject to the prior approval of the Board at the
time of proposed transfer, transfer all or part of the Option to a
Permitted Transferee (as defined below), provided that such transfer
is made by the Optionee for estate and tax planning purposes or
donative purposes and no consideration (other than nominal
consideration) is received by the Optionee therefor. The transfer
of an Option shall be subject to such other terms and conditions as
the Board may in its discretion impose from time to time, including
a condition that the portion of the Option to be transferred be
vested and exercisable by the Optionee at the time of the transfer.
Subsequent transfers of an Option transferred under this Section 5.5
shall be prohibited other than by will or the laws of descent and
distribution upon the death of the transferee.
For purposes hereof, a "Permitted Transferee" shall be any
member of the Optionee's immediate family or a charitable
institution (each defined below), or a trust for the exclusive
benefit of such immediate family members and/or charitable
institution, or to a partnership or limited liability company the
equity interests of which are owned exclusively by the Optionee
and/or one or more members of his or her immediate family. For
purposes of the preceding definition, (i) the "immediate family" of
the Optionee shall mean and include the Optionee's spouse, any
descendant of the Optionee or his or her spouse (including
descendants by adoption), and any descendant of either parent of the
Optionee (including descendants by adoption), and (ii) a "charitable
institution" shall mean and include any organization described in
each of section 170(b)(1)(A), 170(c), 2055(a) and 2522(a) of the
Code, as well as any charitable remainder trust created under
section 664 of the Code, the income beneficiary of which is a member
of the Optionee's immediate family or a trust or other entity
described above in this Section 5.5.
No transfer of an Option by the Optionee by will or by
laws of descent and distribution shall be effective to bind the
Company unless the Company shall have been furnished with written
notice thereof and an authenticated copy of the will and/or such
other evidence as the Board may deem necessary to establish the
validity of the transfer. During the lifetime of an Optionee, the
Option shall be exercisable only by him, except that, in the case of
an Optionee who is legally incapacitated, the Option shall be
exercisable by his guardian or legal representative.
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ARTICLE VI
TERMINATION OF SERVICE
6.1 Death. If an Optionee shall die at any time after the
Date of Grant and while he is a member of the Board, the executor or
administrator of the estate of the decedent, or the person or
persons to whom an Option shall have been validly transferred in
accordance with Section 5.5 hereof pursuant to will or the laws of
descent and distribution, shall have the right, during the period
ending one year after the date of the Optionee's death (subject to
Section 5.3 hereof concerning the maximum term of an Option), to
exercise the Optionee's Option to the extent that it was exercisable
at the date of such Optionee's death and shall not have been
previously exercised.
6.2 Disability. If an Optionee's service as a member of
the Board shall be terminated as a result of his permanent and total
disability (within the meaning of Section 22(e)(3) of the Code) at
any time after the Date of Grant, the Optionee (or in the case of an
Optionee who is legally incapacitated, his guardian or legal
representative) shall have the right, during a period ending one
year after the date of his disability (subject to Section 5.3 hereof
concerning the maximum term of an Option), to exercise an Option to
the extent that it was exercisable at the date of such Optionee's
disability and shall not have been previously exercised.
6.3 Removal for Cause. If an Optionee shall be removed
from the Board for cause, the Optionee's right to exercise any
unexercised portion of an Option shall immediately terminate and all
rights thereunder shall cease. An Optionee shall be considered to
have been removed for "cause" for purposes of this Section 6.3 when
he shall have been removed from the Board by the stockholders of the
Company for cause in accordance with applicable state law and the
Certificate of Incorporation and By-Laws of the Company.
6.4 Other Termination of Service. If an Optionee's
service as a member of the Board shall be terminated for any reason
other than death, permanent and total disability or removal for
cause, the Optionee shall have the right, during the period ending
90 days after such termination (subject to Section 5.3 hereof
concerning the maximum term of an Option), to exercise an Option to
the extent that it was exercisable at the date of such termination
of service and shall not have been previously exercised.
ARTICLE VII
CHANGE IN CONTROL
7.1 Change in Control. Upon a "change in control" of the
Company (as defined below), each outstanding Option, to the extent
that it shall not otherwise have become exercisable, shall become
fully and immediately vested and exercisable (without
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regard to the otherwise applicable installment exercise requirement
under Section 5.3 hereof).
7.2 Definition. For purposes of Section 7.1 hereof, a
"change in control" of the Company shall mean:
(i) an acquisition subsequent to the date hereof by any
person, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person"), of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or
more of either (A) the then outstanding shares of Common Stock or
(B) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election
of directors (the "Outstanding Company Voting Securities");
excluding, however, the following: (1) any acquisition directly
from the Company, other than an acquisition by virtue of the
exercise of a conversion privilege unless the security being so
converted was itself acquired directly from the Company, (2) any
acquisition by the Company and (3) any acquisition by an employee
benefit plan (or related trust) sponsored or maintained by the
Company;
(ii) a change in the composition of the Board such
that during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board, and any new
director (other than a director designated by a person who has
entered into an agreement with the Company to effect a transaction
described in clause (i), (iii) or (iv) of this paragraph) whose
election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election
was previously so approved, cease for any reason to constitute at
least a majority of the members thereof;
(iii) the approval by the stockholders of the Company
of a merger, consolidation, reorganization or similar corporate
transaction, whether or not the Company is the surviving corporation
in such transaction, in which outstanding shares of Common Stock are
converted into (A) shares of stock of another company, other than a
conversion into shares of voting common stock of the successor
corporation (or a holding company thereof) representing 80% of the
voting power of all capital stock thereof outstanding immediately
after the merger or consolidation or (B) other securities (of either
the Company or another company) or cash or other property;
(iv) the approval by the stockholders of the Company
of (A) the sale or other disposition of all or substantially all of
the assets of the Company or (B) a complete liquidation or
dissolution of the Company; or
(v) the adoption by the Board of a resolution to the
effect that any person has acquired effective control of the
business and affairs of the Company.
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ARTICLE VIII
STOCK CERTIFICATES
8.1 Issuance of Certificates. Subject to Section 8.2
hereof, the Company shall issue a stock certificate in the name of
the Optionee (or other person exercising the Option in accordance
with the provisions of the Plan) for the shares of Common Stock
purchased by exercise of an Option as soon as practicable after due
exercise and payment of the aggregate Option Price for such shares.
8.2 Conditions. The Company shall not be required to
issue or deliver any certificate for shares of Common Stock
purchased upon the exercise of any Option granted hereunder or any
portion thereof prior to fulfillment of all of the following
conditions:
(a) the completion of any registration or other
qualification of such shares, under any federal or state law or
under the rulings or regulations of the Securities and Exchange
Commission or any other governmental regulatory body, that the Board
shall in its sole discretion deem necessary or advisable;
(b) the obtaining of any approval or other clearance from
any federal or state governmental agency that the Board shall in its
sole discretion determine to be necessary or advisable;
(c) the lapse of such reasonable period of time following
the exercise of the Option as the Board from time to time may
establish for reasons of administrative convenience;
(d) satisfaction by the Optionee of any applicable
withholding taxes or other withholding liabilities; and
(e) if required by the Board, in its sole discretion, the
receipt by the Company from an Optionee of (i) a representation in
writing that the shares of Common Stock received upon exercise of an
Option are being acquired for investment and not with a view to
distribution and (ii) such other representations and warranties as
are deemed necessary by counsel to the Company.
8.3 Legends. The Company reserves the right to legend any
certificate for shares of Common Stock, conditioning sales of such
shares upon compliance with applicable federal and state securities
laws and regulations.
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ARTICLE IX
EFFECTIVE DATE, TERMINATION AND AMENDMENT
9.1 Effective Date. The Plan shall become effective upon
its adoption by the Board and its approval by the stockholders of
the Company; provided, however, that the Plan shall not be effective
and any Options granted hereunder shall be null and void if, prior
to March 31, 1998, an initial public offering of the Common Stock
shall not have been consummated.
9.2 Termination. The Plan shall terminate on the tenth
anniversary of the date the Plan is approved by the stockholders of
the Company. The Board may, in its sole discretion and at any
earlier date, terminate the Plan. Notwithstanding the foregoing, no
termination of the Plan shall in any manner affect any Option
theretofore granted without the consent of the Optionee or the
permitted transferee of the Option.
9.3 Amendment. The Board may at any time and from time to
time and in any respect, amend or modify the Plan. Solely to the
extent deemed necessary or advisable by the Board, for purposes of
complying with rules of any securities exchange or for any other
reason, the Board may seek the approval of any such amendment by the
Company's stockholders. Any such approval shall be by the
affirmative votes of the stockholders of the Company present, or
represented, and entitled to vote at a meeting duly held in
accordance with applicable state law and the Certificate of
Incorporation and By-Laws of the Company. Notwithstanding the
foregoing, no amendment or modification of the Plan shall in any
manner affect any Option theretofore granted without the consent of
the Optionee or the permitted transferee of the Option.
ARTICLE IX
MISCELLANEOUS
10.1 Service on Board. Nothing in the Plan, in the grant
of any Option or in any Stock Option Agreement shall confer upon any
Nonemployee Director the right to continue service as a member of
the Board.
10.2 Rights as Shareholder. An Optionee or the permitted
transferee of an Option shall have no rights as a shareholder with
respect to any shares subject to such Option prior to the purchase
of such shares by exercise of such Option as provided herein.
Nothing contained herein or in the Stock Option Agreement relating
to any Option shall create an obligation on the part of the Company
to repurchase any shares of Common Stock purchased hereunder.
10.3 Plan Binding on Successors. The Plan shall be binding
upon the Company, its successors and assigns, and the Optionee, his
executor, administrator and permitted transferees.
10.4 Construction and Interpretation. Whenever used
herein, nouns in the singular shall include the plural, and the
masculine pronoun shall include the feminine
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gender. Headings of Articles and Sections hereof are inserted for
convenience and reference and constitute no part of the Plan.
10.5 Severability. If any provision of the Plan or any
Stock Option Agreement shall be determined to be illegal or
unenforceable by any court of law in any jurisdiction, the remaining
provisions hereof and thereof shall be severable and enforceable in
accordance with their terms, and all provisions shall remain
enforceable in any other jurisdiction.
10.6 Governing Law. The validity and construction of this
Plan and of the Stock Option Agreements shall be governed by the
laws of the State of Delaware.
9
<PAGE>
10
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, dated as of December __, 1997, is by and
between _____________________ (the "Employee") and CVC, Inc., a Delaware
corporation (the "Company").
The Company and the Employee hereby agree as follows:
1. EMPLOYMENT. The Company hereby employs the Employee, and the
Employee hereby accepts employment by the Company, upon the terms and conditions
hereinafter set forth.
2. TERM. Subject to the provisions for earlier termination as
herein provided, the employment of the Employee hereunder will be for the period
commencing on the date hereof and ending on the third anniversary of such date.
Effective on the first anniversary of the date hereof and on each successive
anniversary date thereafter, the term shall automatically be extended by an
additional one year unless, no later than 90 days prior to any such anniversary
date, either the Company or the Employee gives written notice to the other that
the term will not be extended, in which case the Employee's employment hereunder
shall terminate upon the expiration of the then-current-term. The period of the
Employee's employment under this Agreement, as it may be terminated or extended
from time to time as provided herein, is referred to hereafter as the
"Employment Period."
<PAGE>
3. DUTIES AND RESPONSIBILITIES. The Employee will be employed by
the Company in the position set forth on Annex A, a copy of which is attached
hereto and the terms of which are incorporated herein by reference. The
Employee will faithfully perform the duties and responsibilities of such office,
as they may be assigned from time to time by the Board of Directors of the
Company (the "Board") or the Board's designee, as specified on Annex A.
4. TIME TO BE DEVOTED TO EMPLOYMENT. Except for vacation in
accordance with the Company's policy in effect from time to time and absences
due to temporary illness, the Employee shall devote full time, attention and
energy during the Employment Period to the business of the Company. During the
Employment Period, the Employee will not be engaged in any other business
activity which, in the reasonable judgment of the Board or its designee,
conflicts with the duties of the Employee hereunder, whether or not such
activity is pursued for gain, profit or other pecuniary advantage.
5. COMPENSATION; REIMBURSEMENT.
(a) BASE SALARY. The Company will pay to the Employee an annual base
salary of not less than the amount specified as the Initial Base Salary on Annex
A, payable in accordance with the Company's normal payroll policy. The
Employee's base salary shall be reviewed annually by the Compensation Committee
of the Board (the "Committee") and shall be subject to increase at the option
and sole discretion of the Committee.
(b) BONUS. The Employee shall be eligible to receive, at the sole
discretion of the Committee, an annual cash bonus based on pre-determined
performance standards of the Company, such as under the Company's Performance
Incentive Program as in effect on the date hereof.
2
<PAGE>
(c) BENEFITS; STOCK OPTIONS. In addition to the salary and cash
bonus referred to above, the Employee shall be entitled during the Employment
Period to participate in such employee benefit plans or programs of the Company,
and shall be entitled to such other fringe benefits, as are from time to time
made available by the Company generally to employees of the Employee's position,
tenure, salary, and other qualifications. Without limiting the generality of
the foregoing, the Employee shall be eligible for such awards, if any, under the
Company's stock option plan as shall be granted to the Employee by the Committee
or other appropriate designee of the Board acting in its sole discretion.
Except to the extent provided in the next paragraph, the Employee acknowledges
and agrees that the Company does not guarantee the adoption or continuance of
any particular employee benefit plan or program or other fringe benefit during
the Employment Period, and participation by the Employee in any such plan or
program shall be subject to the rules and regulations applicable thereto.
(d) EXPENSES. The Company will reimburse the Employee, in accordance
with the practices in effect from time to time for other officers or staff
personnel of the Company, for all reasonable and necessary traveling expenses
and other disbursements incurred by the Employee for or on behalf of the Company
in the performance of the Employee's duties hereunder, upon presentation by the
Employee to the Company of appropriate vouchers or documentation.
6. DEATH; DISABILITY. If the Employee dies or is incapacitated or
disabled by accident, sickness or otherwise, so as to render the Employee
mentally or physically incapable of performing the services required to be
performed by the Employee under this Agreement for a period that would entitle
the Employee to qualify for long-term disability benefits under the Company's
then-current long-term disability insurance program
3
<PAGE>
or, in the absence of such a program, for a period of 90 consecutive days or
longer (such condition being herein referred to as a "Disability"), then (i) in
the case of the Employee's death, the Employee's employment shall be deemed to
terminate on the date of the Employee's death or (ii) in the case of a
Disability, the Company, at its option, may terminate the employment of the
Employee under this Agreement immediately upon giving the Employee notice to
that effect. Disability shall be determined by the Board or the Board's
designee. In the case of a Disability, until the Company shall have terminated
the Employee's employment hereunder in accordance with the foregoing, the
Employee shall be entitled to receive compensation provided for herein
notwithstanding any such physical or mental disability.
7. TERMINATION FOR CAUSE. The Company may, with the approval of a
majority of the Board, terminate the employment of the Employee hereunder at any
time during the Employment Period for "cause" (such termination being
hereinafter called a "Termination for Cause") by giving the Employee notice of
such termination, upon the giving of which such termination will take effect
immediately. For purposes of this Agreement, "cause" means (i) the Employee's
willful and substantial misconduct, (ii) the Employee's repeated, after written
notice from the Company, neglect of duties or failure to act which can
reasonably be expected to affect materially and adversely the business or
affairs of the Company or any subsidiary or affiliate thereof, (iii) the
Employee's material breach of any of the agreements contained in Sections 12 or
13 hereof, (iv) the commission by the Employee of any material fraudulent act
with respect to the business and affairs of the Company or any subsidiary or
affiliate thereof or (v) the Employee's conviction of (or plea of NOLO
CONTENDERE to) a crime constituting a felony.
4
<PAGE>
8. TERMINATION WITHOUT CAUSE. The Company may terminate the
employment of the Employee hereunder at any time without "cause" (such
termination being hereinafter called a "Termination Without Cause") by giving
the Employee notice of such termination, upon the giving of which such
termination will take effect on the date specified on such notice which shall
not be later than 30 days from the date such notice is given.
9. VOLUNTARY TERMINATION. Any termination of the employment of the
Employee hereunder, otherwise than as a result of death or Disability, a
Termination For Cause, a Termination Without Cause or a termination for Good
Reason (as defined below) following a Change in Control (as defined below), will
be deemed to be a "Voluntary Termination." A Voluntary Termination will be
deemed to be effective immediately upon such termination or, at the Company's
option, up to 30 days following a notice of voluntary termination given by the
Employee.
10. EFFECT OF TERMINATION OF EMPLOYMENT.
(a) RIGHTS UPON TERMINATION. Upon the termination of the Employee's
employment hereunder, neither the Employee nor the Employee's beneficiaries or
estate will have any further rights or claims against the Company under this
Agreement except the right to receive (i) the unpaid portion of the base salary
provided for in Section 5(a) hereof, computed on a PRO RATA basis to the date of
termination, (ii) payment of his previously accrued but unpaid rights that are
then payable in accordance with the terms of any incentive compensation, stock
option, retirement, employee welfare or other employee benefit plans or programs
of the Company in which the Executive is then participating in accordance with
Sections 5(b) and 5(c) hereof and (iii) reimbursement for any expenses for which
the Employee shall not have theretofore been reimbursed as provided in Section
5(d) hereof.
5
<PAGE>
(b) FORFEITURE OF RIGHTS. In the event that, subsequent to
termination of employment hereunder, the Employee (i) breaches any of the
provisions of Section 12 or 13 hereof or (ii) directly or indirectly makes or
facilitates the making of any adverse public statements or disclosures with
respect to the business or securities of the Company, all payments and benefits
to which the Employee may otherwise have been entitled pursuant to Section 10(a)
hereof shall immediately terminate and be forfeited, and any portion of such
amounts as may have been paid to the Employee shall forthwith be returned to the
Company.
11. CHANGE IN CONTROL PROVISIONS.
(a) EFFECT OF CHANGE IN CONTROL. In the event of a Change in Control
during the Employment Period, all options held by the Employee to purchase
shares of the Company's stock that are not then vested and exercisable in
accordance with the terms of such options or the terms of any Company stock
option plan shall become immediately and fully vested and exercisable as of the
effective date of the Change in Control; PROVIDED, HOWEVER, that no such vesting
shall occur if provision has been made in writing in connection with such
transaction for (a) the continuation of such plan and/or the assumption of such
options by a successor corporation (or a parent or subsidiary thereof) or (b)
the substitution for such options of new options covering the stock of a
successor corporation (or a parent or subsidiary thereof), with appropriate
adjustments as to the number and kinds of shares and exercise prices. In the
event of any such continuation, assumption or substitution, such plan and/or
such options shall continue in the manner and under the terms so provided.
(b) EFFECT OF TERMINATION FOLLOWING CHANGE IN CONTROL. In the event
of a Change in Control and a subsequent termination of the Employee's employment
during the
6
<PAGE>
Employment Period, either by the Company as a Termination Without Cause or by
the Employee for Good Reason (as defined below), (i) the Employee shall be
entitled to receive the same payments and other rights as provided for in
Sections 10(a) hereof, (ii) the Employee shall be entitled to receive a
severance payment in the form a cash lump sum, paid within 15 days of the date
of termination, with the amount of such payment to be the aggregate amount of
the Employee's base salary as in effect immediately prior to such termination
payable over the period of months specified in Annex A, but discounted to
present value from the dates such payments would otherwise be made to the
Employee, based on the 100% short-term Applicable Federal Rate (compounded
annually) under Section 1274(d) of the Internal Revenue Code as in effect at the
time of payment, (iii) if such termination occurred within 12 months following
the effective date of a Change in Control, any options held by the Employee as
of such effective date to purchase shares of the Company's stock that were not
vested and exercisable as of such date of termination shall become immediately
and fully vested and exercisable as of such date of termination and (iv) the
Employee shall retain the right to exercise any options to purchase shares of
the Company's stock until the earlier of (a) 12 months following the date of
such termination or (b) the expiration of the original full term of each such
option.
(c) DEFINITION OF CHANGE IN CONTROL. For purposes of this Agreement,
a "Change in Control" shall be deemed to have occurred upon:
(i) an acquisition subsequent to the date hereof by any person,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person"), of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 30% or more of either (A) the then
outstanding shares of common stock of the
7
<PAGE>
Company ("Common Stock") or (B) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
excluding, however, the following: (1) any acquisition directly from the
Company, other than an acquisition by virtue of the exercise of a
conversion privilege unless the security being so converted was itself
acquired directly from the Company, (2) any acquisition by the Company and
(3) any acquisition by an employee benefit plan (or related trust)
sponsored or maintained by the Company;
(ii) a change in the composition of the Board such that during any
period of two consecutive years, individuals who at the beginning of such
period constitute the Board, and any new director (other than a director
designated by a person who has entered into an agreement with the Company
to effect a transaction described in clause (i), (iii) or (iv) of this
paragraph) whose election by the Board or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously
so approved, cease for any reason to constitute at least a majority of the
members thereof;
(iii) the approval by the stockholders of the Company of a merger,
consolidation, reorganization or similar corporate transaction, whether or
not the Company is the surviving corporation in such transaction, in which
outstanding shares of Common Stock are converted into (A) shares of stock
of another company, other than a conversion into shares of voting common
stock of the successor corporation (or a holding company thereof)
representing 80% of the voting power of
8
<PAGE>
all capital stock thereof outstanding immediately after the merger or
consolidation or (B) other securities (of either the Company or another
company) or cash or other property;
(iv) the approval by the stockholders of the Company of (A) the sale
or other disposition of all or substantially all of the assets of the
Company or (B) a complete liquidation or dissolution of the Company; or
(v) the adoption by the Board of a resolution to the effect that any
person has acquired effective control of the business and affairs of the
Company.
(d) GOOD REASON FOLLOWING CHANGE IN CONTROL. For purposes of this
Agreement, termination for "Good Reason" shall mean termination by the Employee
of his employment with the Company, within six months immediately following a
Change in Control, based on:
(i) any diminution in the Employee's position, title,
responsibilities or authority from those in effect immediately prior to
such Change in Control; or
(ii) the breach by the Company of any of its material obligations
under this Agreement.
12. NONDISCLOSURE OF INFORMATION. The Employee will not, at any time
during or after the Employment Period, disclose to any person, firm, corporation
or other business entity, except as required by law, any non-public information
concerning the business, products, clients or affairs of the Company or any
subsidiary or affiliate thereof for any reason or purpose whatsoever, nor will
the Employee make use of any of such non-public information for personal
purposes or for the benefit of any person, firm, corporation or other business
entity except the Company or any subsidiary or affiliate thereof.
9
<PAGE>
13. COMPANY RIGHT TO INVENTIONS. The Employee will promptly
disclose, grant and assign to the Company, for its sole use and benefit, any and
all inventions, improvements, technical information and suggestions relating in
any way to the business of the Company which the Employee may develop or acquire
during the Employment Period (whether or not during usual working hours),
together with all patent applications, letters patent, copyrights and reissues
thereof that may at any time be granted for or upon any such invention,
improvement or technical information. In connection therewith:
(i) the Employee shall, without charge, but at the expense of the
Company, promptly at all times hereafter execute and deliver such
applications, assignments, descriptions and other instruments as may be
necessary or proper in the opinion of the Company to vest title to any such
inventions, improvements, technical information, patent applications,
patents, copyrights or reissues thereof in the Company and to enable it to
obtain and maintain the entire right and title thereto throughout the
world; and
(ii) the Employee shall render to the Company, at its expense
(including a reasonable payment for the time involved in case the Employee
is not then in its employ), all such assistance as it may require in the
prosecution of applications for said patents, copyrights or reissues
thereof, in the prosecution or defense of interferences which may be
declared involving any said applications, patents or copyrights and in any
litigation in which the Company may be involved relating to any such
patents, inventions, improvements or technical information.
14. ENFORCEMENT. It is the desire and intent of the parties hereto
that the provisions of this Agreement be enforceable to the fullest extent
permissible under the laws
10
<PAGE>
and public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, to the extent that a restriction contained in this Agreement is
more restrictive than permitted by the laws of any jurisdiction where this
Agreement may be subject to review and interpretation, the terms of such
restriction, for the purpose only of the operation of such restriction in such
jurisdiction, will be the maximum restriction allowed by the laws of such
jurisdiction and such restriction will be deemed to have been revised
accordingly herein.
15. REMEDIES; SURVIVAL. () The Employee acknowledges and
understands that the provisions of the covenants contained in Sections 12 and 13
hereof, the violation of which cannot be accurately compensated for in damages
by an action at law, are of crucial importance to the Company, and that the
breach or threatened breach of the provisions of this Agreement would cause the
Company irreparable harm. In the event of a breach or threatened breach by the
Employee of the provisions of Section 12 or 13 hereof, the Company will be
entitled to an injunction (without the posting of any bond) restraining the
Employee from such breach. Nothing herein contained will be construed as
prohibiting the Company from pursuing any other remedies available for any
breach or threatened breach of this Agreement.
(b) Notwithstanding anything contained in this Agreement to the
contrary, the provisions of Sections 12, 13, 14 and 15 hereof will survive the
expiration or other termination of this Agreement until, by their terms, such
provisions are no longer operative.
16. NOTICES. Notices and other communications hereunder will be in
writing and will be delivered personally or sent by air courier or first class
certified or registered mail, return receipt requested and postage prepaid,
addressed as follows:
11
<PAGE>
if to the Employee: as specified in Annex A
and if to the Company: CVC, Inc.
525 Lee Road
Rochester, New York 14606
Attention: Secretary
with a copy to: Frederick W. Kanner, Esq.
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement will be deemed to have been given on the
date of delivery, if personally delivered; on the business day after the date
when sent, if sent by air courier; and on the third business day after the date
when sent, if sent by mail, in each case addressed to such party as provided in
this Section 16 or in accordance with the latest unrevoked direction from such
party.
17. BINDING AGREEMENT; BENEFIT. The provisions of this Agreement
will be binding upon, and will inure to the benefit of, the respective heirs,
legal representatives and successors of the parties hereto.
18. GOVERNING LAW. This Agreement will be governed by, and construed
and enforced in accordance with, the laws of the State of New York, without
reference to conflict of law principles.
19. WAIVER OF BREACH. The waiver by either party of a breach of any
provision of this Agreement by the other party must be in writing and will not
operate or be construed as a waiver of any subsequent breach by such other
party.
12
<PAGE>
20. ENTIRE AGREEMENT; AMENDMENTS. This Agreement (including Annex A)
contains the entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior agreements or understandings among the
parties with respect thereof. This Agreement may be amended only by an
agreement in writing signed by the parties hereto.
21. HEADINGS. The section headings contained in this Agreement are
for reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement.
22. SEVERABILITY. Any provision of this Agreement that is prohibited
or unenforceable in any jurisdiction will, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction will not invalidate or render unenforceable
such provision in any other jurisdiction.
23. ASSIGNMENT. This Agreement is personal in its nature and the
parties hereto shall not, without the consent of the other, assign or transfer
this Agreement or any rights or obligations hereunder; PROVIDED, that the
provisions hereof (including, without limitation, Sections 12 and 13) will inure
to the benefit of, and be binding upon, each successor of the Company, whether
by merger, consolidation, transfer of all or substantially all of its assets or
otherwise.
13
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date
first above written.
EMPLOYEE CVC, INC.
_________________________ _____________________________
By:
Title:
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<PAGE>
ANNEX A
to
Employment Agreement
Name of Employee: Merhdad M. Moslehi
1. Position: Vice President and Chief
Technology Officer
2. Board of Directors' Initial
Designee to whom Employee
Shall Report: Chief Executive Officer
3. Initial Base Salary: __________
4. Number of months used to
calculate lump sum severance
payment in the event of a
Change in Control: 12 months
5. Employee's address for notices: ____________________________
___________________________
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<PAGE>
ANNEX A
to
Employment Agreement
Name of Employee: Christopher Mann
1. Position: Vice President, Marketing
2. Board of Directors' Initial
Designee to whom Employee
Shall Report: Chief Executive Officer
3. Initial Base Salary: __________
4. Number of months used to
calculate lump sum severance
payment in the event of a
Change in Control: 12 months
5. Employee's address for notices: ____________________________
____________________________
A-2
<PAGE>
ANNEX A
to
Employment Agreement
Name of Employee: Richard J. Chicotka
1. Position: Vice President, Operations
2. Board of Directors' Initial
Designee to whom Employee
Shall Report: Chief Executive Officer
3. Initial Base Salary: __________
4. Number of months used to
calculate lump sum severance
payment in the event of a
Change in Control: 12 months
5. Employee's address for notices: ____________________________
____________________________
A-3
<PAGE>
ANNEX A
to
Employment Agreement
Name of Employee: Emilio O. DiCataldo
1. Position: Senior Vice President and
Chief Financial Officer
2. Board of Directors' Initial
Designee to whom Employee
Shall Report: Chief Executive Officer
3. Initial Base Salary: __________
4. Number of months used to
calculate lump sum severance
payment in the event of a
Change in Control: 18 months
5. Employee's address for notices: ____________________________
____________________________
A-4
<PAGE>
ANNEX A
to
Employment Agreement
Name of Employee: Christine B. Whitman
1. Position: Chairman of the Board, President and
Chief Executive Officer
2. Board of Directors' Initial
Designee to whom Employee
Shall Report: None; report to full Board
3. Initial Base Salary: __________
4. Number of months used to
calculate lump sum severance
payment in the event of a
Change in Control: 24 months
5. Employee's address for notices: ____________________________
____________________________
A-5
<PAGE>
Exhibit 10.27
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, dated as of December 15, 1997, is by and
between Christine B. Whitman (the "Employee") and CVC, Inc., a Delaware
corporation (the "Company").
The Company and the Employee hereby agree as follows:
1. Employment. The Company hereby employs the Employee, and the
Employee hereby accepts employment by the Company, upon the terms and conditions
hereinafter set forth.
2. Term. Subject to the provisions for earlier termination as
herein provided, the employment of the Employee hereunder will be for the period
commencing on the date hereof and ending on the third anniversary of such date.
Effective on the first anniversary of the date hereof and on each successive
anniversary date thereafter, the term shall automatically be extended by an
additional one year unless, no later than 90 days prior to any such anniversary
date, either the Company or the Employee gives written notice to the other that
the term will not be extended, in which case the Employee's employment hereunder
shall terminate upon the expiration of the then-current-term. The period of the
Employee's employment under this Agreement, as it may be terminated or extended
from time to time as provided herein, is referred to hereafter as the
"Employment Period."
<PAGE>
3. Duties and Responsibilities. The Employee will be employed by
the Company in the position set forth on Annex A, a copy of which is attached
hereto and the terms of which are incorporated herein by reference. The
Employee will faithfully perform the duties and responsibilities of such office,
as they may be assigned from time to time by the Board of Directors of the
Company (the "Board") or the Board's designee, as specified on Annex A.
4. Time to be Devoted to Employment. Except for vacation in
accordance with the Company's policy in effect from time to time and absences
due to temporary illness, the Employee shall devote full time, attention and
energy during the Employment Period to the business of the Company. During the
Employment Period, the Employee will not be engaged in any other business
activity which, in the reasonable judgment of the Board or its designee,
conflicts with the duties of the Employee hereunder, whether or not such
activity is pursued for gain, profit or other pecuniary advantage.
5. Compensation; Reimbursement.
(a) Base Salary. The Company will pay to the Employee an annual base
salary of not less than the amount specified as the Initial Base Salary on Annex
A, payable in accordance with the Company's normal payroll policy. The
Employee's base salary shall be reviewed annually by the Compensation Committee
of the Board (the "Committee") and shall be subject to increase at the option
and sole discretion of the Committee.
(b) Bonus. The Employee shall be eligible to receive, at the sole
discretion of the Committee, an annual cash bonus based on pre-determined
performance standards of the Company, such as under the Company's Performance
Incentive Program as in effect on the date hereof.
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<PAGE>
(c) Benefits; Stock Options. In addition to the salary and cash
bonus referred to above, the Employee shall be entitled during the Employment
Period to participate in such employee benefit plans or programs of the Company,
and shall be entitled to such other fringe benefits, as are from time to time
made available by the Company generally to employees of the Employee's position,
tenure, salary, and other qualifications. Without limiting the generality of
the foregoing, the Employee shall be eligible for such awards, if any, under the
Company's stock option plan as shall be granted to the Employee by the Committee
or other appropriate designee of the Board acting in its sole discretion.
Except to the extent provided in the next paragraph, the Employee acknowledges
and agrees that the Company does not guarantee the adoption or continuance of
any particular employee benefit plan or program or other fringe benefit during
the Employment Period, and participation by the Employee in any such plan or
program shall be subject to the rules and regulations applicable thereto.
(d) Expenses. The Company will reimburse the Employee, in accordance
with the practices in effect from time to time for other officers or staff
personnel of the Company, for all reasonable and necessary traveling expenses
and other disbursements incurred by the Employee for or on behalf of the Company
in the performance of the Employee's duties hereunder, upon presentation by the
Employee to the Company of appropriate vouchers or documentation.
6. Death; Disability. If the Employee dies or is incapacitated or
disabled by accident, sickness or otherwise, so as to render the Employee
mentally or physically incapable of performing the services required to be
performed by the Employee under this Agreement for a period that would entitle
the Employee to qualify for long-term
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<PAGE>
disability benefits under the Company's then-current long-term disability
insurance program or, in the absence of such a program, for a period of 90
consecutive days or longer (such condition being herein referred to as a
"Disability"), then (i) in the case of the Employee's death, the Employee's
employment shall be deemed to terminate on the date of the Employee's death or
(ii) in the case of a Disability, the Company, at its option, may terminate the
employment of the Employee under this Agreement immediately upon giving the
Employee notice to that effect. Disability shall be determined by the Board or
the Board's designee. In the case of a Disability, until the Company shall have
terminated the Employee's employment hereunder in accordance with the foregoing,
the Employee shall be entitled to receive compensation provided for herein
notwithstanding any such physical or mental disability.
7. Termination For Cause. The Company may, with the approval of a
majority of the Board, terminate the employment of the Employee hereunder at any
time during the Employment Period for "cause" (such termination being
hereinafter called a "Termination for Cause") by giving the Employee notice of
such termination, upon the giving of which such termination will take effect
immediately. For purposes of this Agreement, "cause" means (i) the Employee's
willful and substantial misconduct, (ii) the Employee's repeated, after written
notice from the Company, neglect of duties or failure to act which can
reasonably be expected to affect materially and adversely the business or
affairs of the Company or any subsidiary or affiliate thereof, (iii) the
Employee's material breach of any of the agreements contained in Sections 12 or
13 hereof, (iv) the commission by the Employee of any material fraudulent act
with respect to the business and affairs of
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<PAGE>
the Company or any subsidiary or affiliate thereof or (v) the Employee's
conviction of (or plea of nolo contendere to) a crime constituting a felony.
8. Termination Without Cause. The Company may terminate the
employment of the Employee hereunder at any time without "cause" (such
termination being hereinafter called a "Termination Without Cause") by giving
the Employee notice of such termination, upon the giving of which such
termination will take effect on the date specified on such notice which shall
not be later than 30 days from the date such notice is given.
9. Voluntary Termination. Any termination of the employment of the
Employee hereunder, otherwise than as a result of death or Disability, a
Termination For Cause, a Termination Without Cause or a termination for Good
Reason (as defined below) following a Change in Control (as defined below), will
be deemed to be a "Voluntary Termination." A Voluntary Termination will be
deemed to be effective immediately upon such termination or, at the Company's
option, up to 30 days following a notice of voluntary termination given by the
Employee.
10. Effect of Termination of Employment.
(a) Rights upon Termination. Upon the termination of the Employee's
employment hereunder, neither the Employee nor the Employee's beneficiaries or
estate will have any further rights or claims against the Company under this
Agreement except the right to receive (i) the unpaid portion of the base salary
provided for in Section 5(a) hereof, computed on a pro rata basis to the date of
termination, (ii) payment of his previously accrued but unpaid rights that are
then payable in accordance with the terms of any incentive compensation, stock
option, retirement, employee welfare or other employee
5
<PAGE>
benefit plans or programs of the Company in which the Executive is then
participating in accordance with Sections 5(b) and 5(c) hereof and (iii)
reimbursement for any expenses for which the Employee shall not have theretofore
been reimbursed as provided in Section 5(d) hereof.
(b) Forfeiture of Rights. In the event that, subsequent to
termination of employment hereunder, the Employee (i) breaches any of the
provisions of Section 12 or 13 hereof or (ii) directly or indirectly makes or
facilitates the making of any adverse public statements or disclosures with
respect to the business or securities of the Company, all payments and benefits
to which the Employee may otherwise have been entitled pursuant to Section 10(a)
hereof shall immediately terminate and be forfeited, and any portion of such
amounts as may have been paid to the Employee shall forthwith be returned to the
Company.
11. Change in Control Provisions.
(a) Effect of Change in Control. In the event of a Change in Control
during the Employment Period, all options held by the Employee to purchase
shares of the Company's stock that are not then vested and exercisable in
accordance with the terms of such options or the terms of any Company stock
option plan shall become immediately and fully vested and exercisable as of the
effective date of the Change in Control; provided, however, that no such vesting
shall occur if provision has been made in writing in connection with such
transaction for (a) the continuation of such plan and/or the assumption of such
options by a successor corporation (or a parent or subsidiary thereof) or (b)
the substitution for such options of new options covering the stock of a
successor corporation (or a parent or subsidiary thereof), with appropriate
adjustments as to the number and kinds
6
<PAGE>
of shares and exercise prices. In the event of any such continuation,
assumption or substitution, such plan and/or such options shall continue in the
manner and under the terms so provided.
(b) Effect of Termination Following Change in Control. In the event
of a Change in Control and a subsequent termination of the Employee's employment
during the Employment Period, either by the Company as a Termination Without
Cause or by the Employee for Good Reason (as defined below), (i) the Employee
shall be entitled to receive the same payments and other rights as provided for
in Sections 10(a) hereof, (ii) the Employee shall be entitled to receive a
severance payment in the form a cash lump sum, paid within 15 days of the date
of termination, with the amount of such payment to be the aggregate amount of
the Employee's base salary as in effect immediately prior to such termination
payable over the period of months specified in Annex A, but discounted to
present value from the dates such payments would otherwise be made to the
Employee, based on the 100% short-term Applicable Federal Rate (compounded
annually) under Section 1274(d) of the Internal Revenue Code as in effect at the
time of payment, (iii) if such termination occurred within 12 months following
the effective date of a Change in Control, any options held by the Employee as
of such effective date to purchase shares of the Company's stock that were not
vested and exercisable as of such date of termination shall become immediately
and fully vested and exercisable as of such date of termination and (iv) the
Employee shall retain the right to exercise any options to purchase shares of
the Company's stock until the earlier of (a) 12 months following the date of
such termination or (b) the expiration of the original full term of each such
option.
7
<PAGE>
(c) Definition of Change in Control. For purposes of this Agreement,
a "Change in Control" shall be deemed to have occurred upon:
(i) an acquisition subsequent to the date hereof by any person,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person"), of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 30% or more of either (A) the then
outstanding shares of common stock of the Company ("Common Stock") or (B)
the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); excluding, however, the
following: (1) any acquisition directly from the Company, other than an
acquisition by virtue of the exercise of a conversion privilege unless the
security being so converted was itself acquired directly from the Company,
(2) any acquisition by the Company and (3) any acquisition by an employee
benefit plan (or related trust) sponsored or maintained by the Company;
(ii) a change in the composition of the Board such that during any
period of two consecutive years, individuals who at the beginning of such
period constitute the Board, and any new director (other than a director
designated by a person who has entered into an agreement with the Company
to effect a transaction described in clause (i), (iii) or (iv) of this
paragraph) whose election by the Board or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously
so
8
<PAGE>
approved, cease for any reason to constitute at least a majority of the
members thereof;
(iii) the approval by the stockholders of the Company of a merger,
consolidation, reorganization or similar corporate transaction, whether or
not the Company is the surviving corporation in such transaction, in which
outstanding shares of Common Stock are converted into (A) shares of stock
of another company, other than a conversion into shares of voting common
stock of the successor corporation (or a holding company thereof)
representing 80% of the voting power of all capital stock thereof
outstanding immediately after the merger or consolidation or (B) other
securities (of either the Company or another company) or cash or other
property;
(iv) the approval by the stockholders of the Company of (A) the sale
or other disposition of all or substantially all of the assets of the
Company or (B) a complete liquidation or dissolution of the Company; or
(v) the adoption by the Board of a resolution to the effect that any
person has acquired effective control of the business and affairs of the
Company.
(d) Good Reason Following Change in Control. For purposes of this
Agreement, termination for "Good Reason" shall mean termination by the
Employee of his employment with the Company, within six months immediately
following a Change in Control, based on:
(i) any diminution in the Employee's position, title,
responsibilities or authority from those in effect immediately prior to
such Change in Control; or
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<PAGE>
(ii) the breach by the Company of any of its material obligations
under this Agreement.
12. Nondisclosure of Information. The Employee will not, at any time
during or after the Employment Period, disclose to any person, firm, corporation
or other business entity, except as required by law, any non-public information
concerning the business, products, clients or affairs of the Company or any
subsidiary or affiliate thereof for any reason or purpose whatsoever, nor will
the Employee make use of any of such non-public information for personal
purposes or for the benefit of any person, firm, corporation or other business
entity except the Company or any subsidiary or affiliate thereof.
13. Company Right to Inventions. The Employee will promptly
disclose, grant and assign to the Company, for its sole use and benefit, any and
all inventions, improvements, technical information and suggestions relating in
any way to the business of the Company which the Employee may develop or acquire
during the Employment Period (whether or not during usual working hours),
together with all patent applications, letters patent, copyrights and reissues
thereof that may at any time be granted for or upon any such invention,
improvement or technical information. In connection therewith:
(i) the Employee shall, without charge, but at the expense of the
Company, promptly at all times hereafter execute and deliver such
applications, assignments, descriptions and other instruments as may be
necessary or proper in the opinion of the Company to vest title to any such
inventions, improvements, technical information, patent applications,
patents, copyrights or reissues thereof in
10
<PAGE>
the Company and to enable it to obtain and maintain the entire right and
title thereto throughout the world; and
(ii) the Employee shall render to the Company, at its expense
(including a reasonable payment for the time involved in case the Employee
is not then in its employ), all such assistance as it may require in the
prosecution of applications for said patents, copyrights or reissues
thereof, in the prosecution or defense of interferences which may be
declared involving any said applications, patents or copyrights and in any
litigation in which the Company may be involved relating to any such
patents, inventions, improvements or technical information.
14. Enforcement. It is the desire and intent of the parties hereto
that the provisions of this Agreement be enforceable to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, to the extent that a restriction
contained in this Agreement is more restrictive than permitted by the laws of
any jurisdiction where this Agreement may be subject to review and
interpretation, the terms of such restriction, for the purpose only of the
operation of such restriction in such jurisdiction, will be the maximum
restriction allowed by the laws of such jurisdiction and such restriction will
be deemed to have been revised accordingly herein.
15. Remedies; Survival. (a) The Employee acknowledges and
understands that the provisions of the covenants contained in Sections 12 and 13
hereof, the violation of which cannot be accurately compensated for in damages
by an action at law, are of crucial importance to the Company, and that the
breach or threatened breach of the provisions of this Agreement would cause the
Company irreparable harm. In the event of a
11
<PAGE>
breach or threatened breach by the Employee of the provisions of Section 12 or
13 hereof, the Company will be entitled to an injunction (without the posting of
any bond) restraining the Employee from such breach. Nothing herein contained
will be construed as prohibiting the Company from pursuing any other remedies
available for any breach or threatened breach of this Agreement.
(b) Notwithstanding anything contained in this Agreement to the
contrary, the provisions of Sections 12, 13, 14 and 15 hereof will survive the
expiration or other termination of this Agreement until, by their terms, such
provisions are no longer operative.
16. Notices. Notices and other communications hereunder will be in
writing and will be delivered personally or sent by air courier or first class
certified or registered mail, return receipt requested and postage prepaid,
addressed as follows:
if to the Employee: as specified in Annex A
and if to the Company: CVC, Inc.
525 Lee Road
Rochester, New York 14606
Attention: Secretary
with a copy to: Frederick W. Kanner, Esq.
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement will be deemed to have been given on the
date of delivery, if personally delivered; on the business day after the date
when sent, if sent by air courier; and
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<PAGE>
on the third business day after the date when sent, if sent by mail, in each
case addressed to such party as provided in this Section 16 or in accordance
with the latest unrevoked direction from such party.
17. Binding Agreement; Benefit. The provisions of this Agreement
will be binding upon, and will inure to the benefit of, the respective heirs,
legal representatives and successors of the parties hereto.
18. Governing Law. This Agreement will be governed by, and construed
and enforced in accordance with, the laws of the State of New York, without
reference to conflict of law principles.
19. Waiver of Breach. The waiver by either party of a breach of any
provision of this Agreement by the other party must be in writing and will not
operate or be construed as a waiver of any subsequent breach by such other
party.
20. Entire Agreement; Amendments. This Agreement (including Annex A)
contains the entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior agreements or understandings among the
parties with respect thereof. This Agreement may be amended only by an
agreement in writing signed by the parties hereto.
21. Headings. The section headings contained in this Agreement are
for reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement.
22. Severability. Any provision of this Agreement that is prohibited
or unenforceable in any jurisdiction will, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof,
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<PAGE>
and any such prohibition or unenforceability in any jurisdiction will not
invalidate or render unenforceable such provision in any other jurisdiction.
23. Assignment. This Agreement is personal in its nature and the
parties hereto shall not, without the consent of the other, assign or transfer
this Agreement or any rights or obligations hereunder; provided, that the
provisions hereof (including, without limitation, Sections 12 and 13) will inure
to the benefit of, and be binding upon, each successor of the Company, whether
by merger, consolidation, transfer of all or substantially all of its assets or
otherwise.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date
first above written.
EMPLOYEE CVC, INC.
_________________________ _____________________________
By:
Title:
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<PAGE>
ANNEX A
to
Employment Agreement
Name of Employee: Christine B. Whitman
1. Position: Chairman of the Board, President
and Chief Executive Officer
2. Board of Directors' Initial
Designee to whom Employee
Shall Report: None; reports to full Board
3. Initial Base Salary: $168,000
4. Number of months used to
calculate lump sum severance
payment in the event of a
Change in Control: 24 months
5. Employee's address for notices: 8 Summit Oaks
Pittsford, NY 14534
A-1
<PAGE>
Exhibit 10.28
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, dated as of December 15, 1997, is by and
between Giovanni Nocerino (the "Employee") and CVC, Inc., a Delaware corporation
(the "Company").
The Company and the Employee hereby agree as follows:
1. Employment. The Company hereby employs the Employee, and the
Employee hereby accepts employment by the Company, upon the terms and conditions
hereinafter set forth.
2. Term. Subject to the provisions for earlier termination as
herein provided, the employment of the Employee hereunder will be for the period
commencing on the date hereof and ending on the third anniversary of such date.
Effective on the first anniversary of the date hereof and on each successive
anniversary date thereafter, the term shall automatically be extended by an
additional one year unless, no later than 90 days prior to any such anniversary
date, either the Company or the Employee gives written notice to the other that
the term will not be extended, in which case the Employee's employment hereunder
shall terminate upon the expiration of the then-current-term. The period of the
Employee's employment under this Agreement, as it may be terminated or extended
from time to time as provided herein, is referred to hereafter as the
"Employment Period."
<PAGE>
3. Duties and Responsibilities. The Employee will be employed by
the Company in the position set forth on Annex A, a copy of which is attached
hereto and the terms of which are incorporated herein by reference. The
Employee will faithfully perform the duties and responsibilities of such office,
as they may be assigned from time to time by the Board of Directors of the
Company (the "Board") or the Board's designee, as specified on Annex A.
4. Time to be Devoted to Employment. Except for vacation in
accordance with the Company's policy in effect from time to time and absences
due to temporary illness, the Employee shall devote full time, attention and
energy during the Employment Period to the business of the Company. During the
Employment Period, the Employee will not be engaged in any other business
activity which, in the reasonable judgment of the Board or its designee,
conflicts with the duties of the Employee hereunder, whether or not such
activity is pursued for gain, profit or other pecuniary advantage.
5. Compensation; Reimbursement.
(a) Base Salary. The Company will pay to the Employee an annual base
salary of not less than the amount specified as the Initial Base Salary on Annex
A, payable in accordance with the Company's normal payroll policy. The
Employee's base salary shall be reviewed annually by the Compensation Committee
of the Board (the "Committee") and shall be subject to increase at the option
and sole discretion of the Committee.
(b) Bonus. The Employee shall be eligible to receive, at the sole
discretion of the Committee, an annual cash bonus based on pre-determined
performance standards of the Company, such as under the Company's Performance
Incentive Program as in effect on the date hereof.
2
<PAGE>
(c) Benefits; Stock Options. In addition to the salary and cash
bonus referred to above, the Employee shall be entitled during the Employment
Period to participate in such employee benefit plans or programs of the Company,
and shall be entitled to such other fringe benefits, as are from time to time
made available by the Company generally to employees of the Employee's position,
tenure, salary, and other qualifications. Without limiting the generality of
the foregoing, the Employee shall be eligible for such awards, if any, under the
Company's stock option plan as shall be granted to the Employee by the Committee
or other appropriate designee of the Board acting in its sole discretion.
Except to the extent provided in the next paragraph, the Employee acknowledges
and agrees that the Company does not guarantee the adoption or continuance of
any particular employee benefit plan or program or other fringe benefit during
the Employment Period, and participation by the Employee in any such plan or
program shall be subject to the rules and regulations applicable thereto.
(d) Expenses. The Company will reimburse the Employee, in accordance
with the practices in effect from time to time for other officers or staff
personnel of the Company, for all reasonable and necessary traveling expenses
and other disbursements incurred by the Employee for or on behalf of the Company
in the performance of the Employee's duties hereunder, upon presentation by the
Employee to the Company of appropriate vouchers or documentation.
6. Death; Disability. If the Employee dies or is incapacitated or
disabled by accident, sickness or otherwise, so as to render the Employee
mentally or physically incapable of performing the services required to be
performed by the Employee under this Agreement for a period that would entitle
the Employee to qualify for long-term
3
<PAGE>
disability benefits under the Company's then-current long-term disability
insurance program or, in the absence of such a program, for a period of 90
consecutive days or longer (such condition being herein referred to as a
"Disability"), then (i) in the case of the Employee's death, the Employee's
employment shall be deemed to terminate on the date of the Employee's death or
(ii) in the case of a Disability, the Company, at its option, may terminate the
employment of the Employee under this Agreement immediately upon giving the
Employee notice to that effect. Disability shall be determined by the Board or
the Board's designee. In the case of a Disability, until the Company shall have
terminated the Employee's employment hereunder in accordance with the foregoing,
the Employee shall be entitled to receive compensation provided for herein
notwithstanding any such physical or mental disability.
7. Termination For Cause. The Company may, with the approval of a
majority of the Board, terminate the employment of the Employee hereunder at any
time during the Employment Period for "cause" (such termination being
hereinafter called a "Termination for Cause") by giving the Employee notice of
such termination, upon the giving of which such termination will take effect
immediately. For purposes of this Agreement, "cause" means (i) the Employee's
willful and substantial misconduct, (ii) the Employee's repeated, after written
notice from the Company, neglect of duties or failure to act which can
reasonably be expected to affect materially and adversely the business or
affairs of the Company or any subsidiary or affiliate thereof, (iii) the
Employee's material breach of any of the agreements contained in Sections 12 or
13 hereof, (iv) the commission by the Employee of any material fraudulent act
with respect to the business and affairs of
4
<PAGE>
the Company or any subsidiary or affiliate thereof or (v) the Employee's
conviction of (or plea of nolo contendere to) a crime constituting a felony.
8. Termination Without Cause. The Company may terminate the
employment of the Employee hereunder at any time without "cause" (such
termination being hereinafter called a "Termination Without Cause") by giving
the Employee notice of such termination, upon the giving of which such
termination will take effect on the date specified on such notice which shall
not be later than 30 days from the date such notice is given.
9. Voluntary Termination. Any termination of the employment of the
Employee hereunder, otherwise than as a result of death or Disability, a
Termination For Cause, a Termination Without Cause or a termination for Good
Reason (as defined below) following a Change in Control (as defined below), will
be deemed to be a "Voluntary Termination." A Voluntary Termination will be
deemed to be effective immediately upon such termination or, at the Company's
option, up to 30 days following a notice of voluntary termination given by the
Employee.
10. Effect of Termination of Employment.
(a) Rights upon Termination. Upon the termination of the Employee's
employment hereunder, neither the Employee nor the Employee's beneficiaries or
estate will have any further rights or claims against the Company under this
Agreement except the right to receive (i) the unpaid portion of the base salary
provided for in Section 5(a) hereof, computed on a pro rata basis to the date of
termination, (ii) payment of his previously accrued but unpaid rights that are
then payable in accordance with the terms of any incentive compensation, stock
option, retirement, employee welfare or other employee
5
<PAGE>
benefit plans or programs of the Company in which the Executive is then
participating in accordance with Sections 5(b) and 5(c) hereof and (iii)
reimbursement for any expenses for which the Employee shall not have theretofore
been reimbursed as provided in Section 5(d) hereof.
(b) Forfeiture of Rights. In the event that, subsequent to
termination of employment hereunder, the Employee (i) breaches any of the
provisions of Section 12 or 13 hereof or (ii) directly or indirectly makes or
facilitates the making of any adverse public statements or disclosures with
respect to the business or securities of the Company, all payments and benefits
to which the Employee may otherwise have been entitled pursuant to Section 10(a)
hereof shall immediately terminate and be forfeited, and any portion of such
amounts as may have been paid to the Employee shall forthwith be returned to the
Company.
11. Change in Control Provisions.
(a) Effect of Change in Control. In the event of a Change in Control
during the Employment Period, all options held by the Employee to purchase
shares of the Company's stock that are not then vested and exercisable in
accordance with the terms of such options or the terms of any Company stock
option plan shall become immediately and fully vested and exercisable as of the
effective date of the Change in Control; provided, however, that no such vesting
shall occur if provision has been made in writing in connection with such
transaction for (a) the continuation of such plan and/or the assumption of such
options by a successor corporation (or a parent or subsidiary thereof) or (b)
the substitution for such options of new options covering the stock of a
successor corporation (or a parent or subsidiary thereof), with appropriate
adjustments as to the number and kinds
6
<PAGE>
of shares and exercise prices. In the event of any such continuation,
assumption or substitution, such plan and/or such options shall continue in the
manner and under the terms so provided.
(b) Effect of Termination Following Change in Control. In the event
of a Change in Control and a subsequent termination of the Employee's employment
during the Employment Period, either by the Company as a Termination Without
Cause or by the Employee for Good Reason (as defined below), (i) the Employee
shall be entitled to receive the same payments and other rights as provided for
in Sections 10(a) hereof, (ii) the Employee shall be entitled to receive a
severance payment in the form a cash lump sum, paid within 15 days of the date
of termination, with the amount of such payment to be the aggregate amount of
the Employee's base salary as in effect immediately prior to such termination
payable over the period of months specified in Annex A, but discounted to
present value from the dates such payments would otherwise be made to the
Employee, based on the 100% short-term Applicable Federal Rate (compounded
annually) under Section 1274(d) of the Internal Revenue Code as in effect at the
time of payment, (iii) if such termination occurred within 12 months following
the effective date of a Change in Control, any options held by the Employee as
of such effective date to purchase shares of the Company's stock that were not
vested and exercisable as of such date of termination shall become immediately
and fully vested and exercisable as of such date of termination and (iv) the
Employee shall retain the right to exercise any options to purchase shares of
the Company's stock until the earlier of (a) 12 months following the date of
such termination or (b) the expiration of the original full term of each such
option.
7
<PAGE>
(c) Definition of Change in Control. For purposes of this Agreement,
a "Change in Control" shall be deemed to have occurred upon:
(i) an acquisition subsequent to the date hereof by any person,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person"), of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 30% or more of either (A) the then
outstanding shares of common stock of the Company ("Common Stock") or (B)
the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); excluding, however, the
following: (1) any acquisition directly from the Company, other than an
acquisition by virtue of the exercise of a conversion privilege unless the
security being so converted was itself acquired directly from the Company,
(2) any acquisition by the Company and (3) any acquisition by an employee
benefit plan (or related trust) sponsored or maintained by the Company;
(ii) a change in the composition of the Board such that during any
period of two consecutive years, individuals who at the beginning of such
period constitute the Board, and any new director (other than a director
designated by a person who has entered into an agreement with the Company
to effect a transaction described in clause (i), (iii) or (iv) of this
paragraph) whose election by the Board or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously
so
8
<PAGE>
approved, cease for any reason to constitute at least a majority of the
members thereof;
(iii) the approval by the stockholders of the Company of a merger,
consolidation, reorganization or similar corporate transaction, whether or
not the Company is the surviving corporation in such transaction, in which
outstanding shares of Common Stock are converted into (A) shares of stock
of another company, other than a conversion into shares of voting common
stock of the successor corporation (or a holding company thereof)
representing 80% of the voting power of all capital stock thereof
outstanding immediately after the merger or consolidation or (B) other
securities (of either the Company or another company) or cash or other
property;
(iv) the approval by the stockholders of the Company of (A) the sale
or other disposition of all or substantially all of the assets of the
Company or (B) a complete liquidation or dissolution of the Company; or
(v) the adoption by the Board of a resolution to the effect that any
person has acquired effective control of the business and affairs of the
Company.
(d) Good Reason Following Change in Control. For purposes of this
Agreement, termination for "Good Reason" shall mean termination by the Employee
of his employment with the Company, within six months immediately following a
Change in Control, based on:
(i) any diminution in the Employee's position, title,
responsibilities or authority from those in effect immediately prior to
such Change in Control; or
9
<PAGE>
(ii) the breach by the Company of any of its material obligations
under this Agreement.
12. Nondisclosure of Information. The Employee will not, at any time
during or after the Employment Period, disclose to any person, firm, corporation
or other business entity, except as required by law, any non-public information
concerning the business, products, clients or affairs of the Company or any
subsidiary or affiliate thereof for any reason or purpose whatsoever, nor will
the Employee make use of any of such non-public information for personal
purposes or for the benefit of any person, firm, corporation or other business
entity except the Company or any subsidiary or affiliate thereof.
13. Company Right to Inventions. The Employee will promptly
disclose, grant and assign to the Company, for its sole use and benefit, any and
all inventions, improvements, technical information and suggestions relating in
any way to the business of the Company which the Employee may develop or acquire
during the Employment Period (whether or not during usual working hours),
together with all patent applications, letters patent, copyrights and reissues
thereof that may at any time be granted for or upon any such invention,
improvement or technical information. In connection therewith:
(i) the Employee shall, without charge, but at the expense of the
Company, promptly at all times hereafter execute and deliver such
applications, assignments, descriptions and other instruments as may be
necessary or proper in the opinion of the Company to vest title to any such
inventions, improvements, technical information, patent applications,
patents, copyrights or reissues thereof in
10
<PAGE>
the Company and to enable it to obtain and maintain the entire right and
title thereto throughout the world; and
(ii) the Employee shall render to the Company, at its expense
(including a reasonable payment for the time involved in case the Employee
is not then in its employ), all such assistance as it may require in the
prosecution of applications for said patents, copyrights or reissues
thereof, in the prosecution or defense of interferences which may be
declared involving any said applications, patents or copyrights and in any
litigation in which the Company may be involved relating to any such
patents, inventions, improvements or technical information.
14. Enforcement. It is the desire and intent of the parties hereto
that the provisions of this Agreement be enforceable to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, to the extent that a restriction
contained in this Agreement is more restrictive than permitted by the laws of
any jurisdiction where this Agreement may be subject to review and
interpretation, the terms of such restriction, for the purpose only of the
operation of such restriction in such jurisdiction, will be the maximum
restriction allowed by the laws of such jurisdiction and such restriction will
be deemed to have been revised accordingly herein.
15. Remedies; Survival. (a) The Employee acknowledges and
understands that the provisions of the covenants contained in Sections 12 and 13
hereof, the violation of which cannot be accurately compensated for in damages
by an action at law, are of crucial importance to the Company, and that the
breach or threatened breach of the provisions of this Agreement would cause the
Company irreparable harm. In the event of a
11
<PAGE>
breach or threatened breach by the Employee of the provisions of Section 12 or
13 hereof, the Company will be entitled to an injunction (without the posting of
any bond) restraining the Employee from such breach. Nothing herein contained
will be construed as prohibiting the Company from pursuing any other remedies
available for any breach or threatened breach of this Agreement.
(b) Notwithstanding anything contained in this Agreement to the
contrary, the provisions of Sections 12, 13, 14 and 15 hereof will survive the
expiration or other termination of this Agreement until, by their terms, such
provisions are no longer operative.
16. Notices. Notices and other communications hereunder will be in
writing and will be delivered personally or sent by air courier or first class
certified or registered mail, return receipt requested and postage prepaid,
addressed as follows:
if to the Employee: as specified in Annex A
and if to the Company: CVC, Inc.
525 Lee Road
Rochester, New York 14606
Attention: Secretary
with a copy to: Frederick W. Kanner, Esq.
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement will be deemed to have been given on the
date of delivery, if personally delivered; on the business day after the date
when sent, if sent by air courier; and
12
<PAGE>
on the third business day after the date when sent, if sent by mail, in each
case addressed to such party as provided in this Section 16 or in accordance
with the latest unrevoked direction from such party.
17. Binding Agreement; Benefit. The provisions of this Agreement
will be binding upon, and will inure to the benefit of, the respective heirs,
legal representatives and successors of the parties hereto.
18. Governing Law. This Agreement will be governed by, and construed
and enforced in accordance with, the laws of the State of New York, without
reference to conflict of law principles.
19. Waiver of Breach. The waiver by either party of a breach of any
provision of this Agreement by the other party must be in writing and will not
operate or be construed as a waiver of any subsequent breach by such other
party.
20. Entire Agreement; Amendments. This Agreement (including Annex A)
contains the entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior agreements or understandings among the
parties with respect thereof. This Agreement may be amended only by an
agreement in writing signed by the parties hereto.
21. Headings. The section headings contained in this Agreement are
for reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement.
22. Severability. Any provision of this Agreement that is prohibited
or unenforceable in any jurisdiction will, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof,
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<PAGE>
and any such prohibition or unenforceability in any jurisdiction will not
invalidate or render unenforceable such provision in any other jurisdiction.
23. Assignment. This Agreement is personal in its nature and the
parties hereto shall not, without the consent of the other, assign or transfer
this Agreement or any rights or obligations hereunder; provided, that the
provisions hereof (including, without limitation, Sections 12 and 13) will inure
to the benefit of, and be binding upon, each successor of the Company, whether
by merger, consolidation, transfer of all or substantially all of its assets or
otherwise.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date
first above written.
EMPLOYEE CVC, INC.
_________________________ _____________________________
Christine B. Whitman
Chairman, President and
Chief Executive Officer
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<PAGE>
ANNEX A
to
Employment Agreement
Name of Employee: Giovanni Nocerino
1. Position: Executive Vice President
2. Board of Directors' Initial
Designee to whom Employee
Shall Report: Chief Executive Officer
3. Initial Base Salary: $220,000
4. Number of months used to
calculate lump sum severance
payment in the event of a
Change in Control: 12 months
5. Employee's address for notices: 3760 Trenery Drive
Pleasanton, CA 90588
A-1
<PAGE>
Exhibit 10.29
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, dated as of December 15, 1997, is by and
between Emilio O. DiCataldo (the "Employee") and CVC, Inc., a Delaware
corporation (the "Company").
The Company and the Employee hereby agree as follows:
1. Employment. The Company hereby employs the Employee, and the
Employee hereby accepts employment by the Company, upon the terms and
conditions hereinafter set forth.
2. Term. Subject to the provisions for earlier termination as
herein provided, the employment of the Employee hereunder will be for the
period commencing on the date hereof and ending on the third anniversary of
such date. Effective on the first anniversary of the date hereof and on each
successive anniversary date thereafter, the term shall automatically be
extended by an additional one year unless, no later than 90 days prior to any
such anniversary date, either the Company or the Employee gives written
notice to the other that the term will not be extended, in which case the
Employee's employment hereunder shall terminate upon the expiration of the
then-current-term. The period of the Employee's employment under this
Agreement, as it may be terminated or extended from time to time as provided
herein, is referred to hereafter as the "Employment Period."
<PAGE>
3. Duties and Responsibilities. The Employee will be employed by
the Company in the position set forth on Annex A, a copy of which is attached
hereto and the terms of which are incorporated herein by reference. The
Employee will faithfully perform the duties and responsibilities of such
office, as they may be assigned from time to time by the Board of Directors
of the Company (the "Board") or the Board's designee, as specified on Annex A.
4. Time to be Devoted to Employment. Except for vacation in
accordance with the Company's policy in effect from time to time and absences
due to temporary illness, the Employee shall devote full time, attention and
energy during the Employment Period to the business of the Company. During
the Employment Period, the Employee will not be engaged in any other business
activity which, in the reasonable judgment of the Board or its designee,
conflicts with the duties of the Employee hereunder, whether or not such
activity is pursued for gain, profit or other pecuniary advantage.
5. Compensation; Reimbursement.
(a) Base Salary. The Company will pay to the Employee an annual base
salary of not less than the amount specified as the Initial Base Salary on
Annex A, payable in accordance with the Company's normal payroll policy. The
Employee's base salary shall be reviewed annually by the Compensation
Committee of the Board (the "Committee") and shall be subject to increase at
the option and sole discretion of the Committee.
(b) Bonus. The Employee shall be eligible to receive, at the sole
discretion of the Committee, an annual cash bonus based on pre-determined
performance standards of the Company, such as under the Company's Performance
Incentive Program as in effect on the date hereof.
2
<PAGE>
(c) Benefits; Stock Options. In addition to the salary and cash
bonus referred to above, the Employee shall be entitled during the Employment
Period to participate in such employee benefit plans or programs of the
Company, and shall be entitled to such other fringe benefits, as are from
time to time made available by the Company generally to employees of the
Employee's position, tenure, salary, and other qualifications. Without
limiting the generality of the foregoing, the Employee shall be eligible for
such awards, if any, under the Company's stock option plan as shall be
granted to the Employee by the Committee or other appropriate designee of the
Board acting in its sole discretion. Except to the extent provided in the
next paragraph, the Employee acknowledges and agrees that the Company does
not guarantee the adoption or continuance of any particular employee benefit
plan or program or other fringe benefit during the Employment Period, and
participation by the Employee in any such plan or program shall be subject to
the rules and regulations applicable thereto.
(d) Expenses. The Company will reimburse the Employee, in accordance
with the practices in effect from time to time for other officers or staff
personnel of the Company, for all reasonable and necessary traveling expenses
and other disbursements incurred by the Employee for or on behalf of the
Company in the performance of the Employee's duties hereunder, upon
presentation by the Employee to the Company of appropriate vouchers or
documentation.
6. Death; Disability. If the Employee dies or is incapacitated or
disabled by accident, sickness or otherwise, so as to render the Employee
mentally or physically incapable of performing the services required to be
performed by the Employee under this Agreement for a period that would
entitle the Employee to qualify for long-term
3
<PAGE>
disability benefits under the Company's then-current long-term disability
insurance program or, in the absence of such a program, for a period of 90
consecutive days or longer (such condition being herein referred to as a
"Disability"), then (i) in the case of the Employee's death, the Employee's
employment shall be deemed to terminate on the date of the Employee's death
or (ii) in the case of a Disability, the Company, at its option, may
terminate the employment of the Employee under this Agreement immediately
upon giving the Employee notice to that effect. Disability shall be
determined by the Board or the Board's designee. In the case of a
Disability, until the Company shall have terminated the Employee's employment
hereunder in accordance with the foregoing, the Employee shall be entitled to
receive compensation provided for herein notwithstanding any such physical or
mental disability.
7. Termination For Cause. The Company may, with the approval of a
majority of the Board, terminate the employment of the Employee hereunder at
any time during the Employment Period for "cause" (such termination being
hereinafter called a "Termination for Cause") by giving the Employee notice
of such termination, upon the giving of which such termination will take
effect immediately. For purposes of this Agreement, "cause" means (i) the
Employee's willful and substantial misconduct, (ii) the Employee's repeated,
after written notice from the Company, neglect of duties or failure to act
which can reasonably be expected to affect materially and adversely the
business or affairs of the Company or any subsidiary or affiliate thereof,
(iii) the Employee's material breach of any of the agreements contained in
Sections 12 or 13 hereof, (iv) the commission by the Employee of any material
fraudulent act with respect to the business and affairs of
4
<PAGE>
the Company or any subsidiary or affiliate thereof or (v) the Employee's
conviction of (or plea of nolo contendere to) a crime constituting a felony.
8. Termination Without Cause. The Company may terminate the
employment of the Employee hereunder at any time without "cause" (such
termination being hereinafter called a "Termination Without Cause") by giving
the Employee notice of such termination, upon the giving of which such
termination will take effect on the date specified on such notice which shall
not be later than 30 days from the date such notice is given.
9. Voluntary Termination. Any termination of the employment of the
Employee hereunder, otherwise than as a result of death or Disability, a
Termination For Cause, a Termination Without Cause or a termination for Good
Reason (as defined below) following a Change in Control (as defined below),
will be deemed to be a "Voluntary Termination." A Voluntary Termination will
be deemed to be effective immediately upon such termination or, at the
Company's option, up to 30 days following a notice of voluntary termination
given by the Employee.
10. Effect of Termination of Employment.
(a) Rights upon Termination. Upon the termination of the Employee's
employment hereunder, neither the Employee nor the Employee's beneficiaries
or estate will have any further rights or claims against the Company under
this Agreement except the right to receive (i) the unpaid portion of the base
salary provided for in Section 5(a) hereof, computed on a pro rata basis to
the date of termination, (ii) payment of his previously accrued but unpaid
rights that are then payable in accordance with the terms of any incentive
compensation, stock option, retirement, employee welfare or other employee
5
<PAGE>
benefit plans or programs of the Company in which the Executive is then
participating in accordance with Sections 5(b) and 5(c) hereof and (iii)
reimbursement for any expenses for which the Employee shall not have
theretofore been reimbursed as provided in Section 5(d) hereof.
(b) Forfeiture of Rights. In the event that, subsequent to
termination of employment hereunder, the Employee (i) breaches any of the
provisions of Section 12 or 13 hereof or (ii) directly or indirectly makes or
facilitates the making of any adverse public statements or disclosures with
respect to the business or securities of the Company, all payments and
benefits to which the Employee may otherwise have been entitled pursuant to
Section 10(a) hereof shall immediately terminate and be forfeited, and any
portion of such amounts as may have been paid to the Employee shall forthwith
be returned to the Company.
11. Change in Control Provisions.
(a) Effect of Change in Control. In the event of a Change in Control
during the Employment Period, all options held by the Employee to purchase
shares of the Company's stock that are not then vested and exercisable in
accordance with the terms of such options or the terms of any Company stock
option plan shall become immediately and fully vested and exercisable as of
the effective date of the Change in Control; provided, however, that no such
vesting shall occur if provision has been made in writing in connection with
such transaction for (a) the continuation of such plan and/or the assumption
of such options by a successor corporation (or a parent or subsidiary
thereof) or (b) the substitution for such options of new options covering the
stock of a successor corporation (or a parent or subsidiary thereof), with
appropriate adjustments as to the number and kinds
6
<PAGE>
of shares and exercise prices. In the event of any such continuation,
assumption or substitution, such plan and/or such options shall continue in
the manner and under the terms so provided.
(b) Effect of Termination Following Change in Control. In the event
of a Change in Control and a subsequent termination of the Employee's
employment during the Employment Period, either by the Company as a
Termination Without Cause or by the Employee for Good Reason (as defined
below), (i) the Employee shall be entitled to receive the same payments and
other rights as provided for in Sections 10(a) hereof, (ii) the Employee
shall be entitled to receive a severance payment in the form a cash lump sum,
paid within 15 days of the date of termination, with the amount of such
payment to be the aggregate amount of the Employee's base salary as in effect
immediately prior to such termination payable over the period of months
specified in Annex A, but discounted to present value from the dates such
payments would otherwise be made to the Employee, based on the 100%
short-term Applicable Federal Rate (compounded annually) under Section
1274(d) of the Internal Revenue Code as in effect at the time of payment,
(iii) if such termination occurred within 12 months following the effective
date of a Change in Control, any options held by the Employee as of such
effective date to purchase shares of the Company's stock that were not vested
and exercisable as of such date of termination shall become immediately and
fully vested and exercisable as of such date of termination and (iv) the
Employee shall retain the right to exercise any options to purchase shares of
the Company's stock until the earlier of (a) 12 months following the date of
such termination or (b) the expiration of the original full term of each such
option.
7
<PAGE>
(c) Definition of Change in Control. For purposes of this
Agreement, a "Change in Control" shall be deemed to have occurred upon:
(i) an acquisition subsequent to the date hereof by any person,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person"), of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 30% or more of either (A) the then
outstanding shares of common stock of the Company ("Common Stock") or (B)
the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); excluding, however, the following:
(1) any acquisition directly from the Company, other than an acquisition by
virtue of the exercise of a conversion privilege unless the security being
so converted was itself acquired directly from the Company, (2) any
acquisition by the Company and (3) any acquisition by an employee benefit
plan (or related trust) sponsored or maintained by the Company;
(ii) a change in the composition of the Board such that during
any period of two consecutive years, individuals who at the beginning of
such period constitute the Board, and any new director (other than a
director designated by a person who has entered into an agreement with the
Company to effect a transaction described in clause (i), (iii) or (iv) of
this paragraph) whose election by the Board or nomination for election by
the Company's stockholders was approved by a vote of at least two-thirds
of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so
8
<PAGE>
approved, cease for any reason to constitute at least a majority of the
members thereof;
(iii) the approval by the stockholders of the Company of a merger,
consolidation, reorganization or similar corporate transaction, whether or
not the Company is the surviving corporation in such transaction, in which
outstanding shares of Common Stock are converted into (A) shares of stock
of another company, other than a conversion into shares of voting common
stock of the successor corporation (or a holding company thereof)
representing 80% of the voting power of all capital stock thereof
outstanding immediately after the merger or consolidation or (B) other
securities (of either the Company or another company) or cash or other
property;
(iv) the approval by the stockholders of the Company of (A) the
sale or other disposition of all or substantially all of the assets of the
Company or (B) a complete liquidation or dissolution of the Company; or
(v) the adoption by the Board of a resolution to the effect that any
person has acquired effective control of the business and affairs of the
Company.
(d) Good Reason Following Change in Control. For purposes of
this Agreement, termination for "Good Reason" shall mean termination by the
Employee of his employment with the Company, within six months immediately
following a Change in Control, based on:
(i) any diminution in the Employee's position, title,
responsibilities or authority from those in effect immediately prior to
such Change in Control; or
9
<PAGE>
(ii) the breach by the Company of any of its material obligations
under this Agreement.
12. Nondisclosure of Information. The Employee will not, at any time
during or after the Employment Period, disclose to any person, firm,
corporation or other business entity, except as required by law, any
non-public information concerning the business, products, clients or affairs
of the Company or any subsidiary or affiliate thereof for any reason or
purpose whatsoever, nor will the Employee make use of any of such non-public
information for personal purposes or for the benefit of any person, firm,
corporation or other business entity except the Company or any subsidiary or
affiliate thereof.
13. Company Right to Inventions. The Employee will promptly
disclose, grant and assign to the Company, for its sole use and benefit, any
and all inventions, improvements, technical information and suggestions
relating in any way to the business of the Company which the Employee may
develop or acquire during the Employment Period (whether or not during usual
working hours), together with all patent applications, letters patent,
copyrights and reissues thereof that may at any time be granted for or upon
any such invention, improvement or technical information. In connection
therewith:
(i) the Employee shall, without charge, but at the expense of
the Company, promptly at all times hereafter execute and deliver such
applications, assignments, descriptions and other instruments as may be
necessary or proper in the opinion of the Company to vest title to any such
inventions, improvements, technical information, patent applications,
patents, copyrights or reissues thereof in
10
<PAGE>
the Company and to enable it to obtain and maintain the entire right and
title thereto throughout the world; and
(ii) the Employee shall render to the Company, at its expense
(including a reasonable payment for the time involved in case the Employee
is not then in its employ), all such assistance as it may require in the
prosecution of applications for said patents, copyrights or reissues
thereof, in the prosecution or defense of interferences which may be
declared involving any said applications, patents or copyrights and in any
litigation in which the Company may be involved relating to any such
patents, inventions, improvements or technical information.
14. Enforcement. It is the desire and intent of the parties hereto
that the provisions of this Agreement be enforceable to the fullest extent
permissible under the laws and public policies applied in each jurisdiction
in which enforcement is sought. Accordingly, to the extent that a restriction
contained in this Agreement is more restrictive than permitted by the laws of
any jurisdiction where this Agreement may be subject to review and
interpretation, the terms of such restriction, for the purpose only of the
operation of such restriction in such jurisdiction, will be the maximum
restriction allowed by the laws of such jurisdiction and such restriction
will be deemed to have been revised accordingly herein.
15. Remedies; Survival. (a) The Employee acknowledges and
understands that the provisions of the covenants contained in Sections 12 and
13 hereof, the violation of which cannot be accurately compensated for in
damages by an action at law, are of crucial importance to the Company, and
that the breach or threatened breach of the provisions of this Agreement
would cause the Company irreparable harm. In the event of a
11
<PAGE>
breach or threatened breach by the Employee of the provisions of Section 12
or 13 hereof, the Company will be entitled to an injunction (without the
posting of any bond) restraining the Employee from such breach. Nothing
herein contained will be construed as prohibiting the Company from pursuing
any other remedies available for any breach or threatened breach of this
Agreement.
(b) Notwithstanding anything contained in this Agreement to the
contrary, the provisions of Sections 12, 13, 14 and 15 hereof will survive
the expiration or other termination of this Agreement until, by their terms,
such provisions are no longer operative.
16. Notices. Notices and other communications hereunder will be in
writing and will be delivered personally or sent by air courier or first
class certified or registered mail, return receipt requested and postage
prepaid, addressed as follows: if to the Employee: as specified in Annex A
and if to the Company: CVC, Inc.
525 Lee Road
Rochester, New York 14606
Attention: Secretary
with a copy to: Frederick W. Kanner, Esq.
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement will be deemed to have been given on
the date of delivery, if personally delivered; on the business day after the
date when sent, if sent by air courier; and
12
<PAGE>
on the third business day after the date when sent, if sent by mail, in each
case addressed to such party as provided in this Section 16 or in accordance
with the latest unrevoked direction from such party.
17. Binding Agreement; Benefit. The provisions of this Agreement
will be binding upon, and will inure to the benefit of, the respective heirs,
legal representatives and successors of the parties hereto.
18. Governing Law. This Agreement will be governed by, and construed
and enforced in accordance with, the laws of the State of New York, without
reference to conflict of law principles.
19. Waiver of Breach. The waiver by either party of a breach of any
provision of this Agreement by the other party must be in writing and will
not operate or be construed as a waiver of any subsequent breach by such
other party.
20. Entire Agreement; Amendments. This Agreement (including Annex A)
contains the entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior agreements or understandings among the
parties with respect thereof. This Agreement may be amended only by an
agreement in writing signed by the parties hereto.
21. Headings. The section headings contained in this Agreement are
for reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement.
22. Severability. Any provision of this Agreement that is prohibited
or unenforceable in any jurisdiction will, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof,
13
<PAGE>
and any such prohibition or unenforceability in any jurisdiction will not
invalidate or render unenforceable such provision in any other jurisdiction.
23. Assignment. This Agreement is personal in its nature and the
parties hereto shall not, without the consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder; provided,
that the provisions hereof (including, without limitation, Sections 12 and
13) will inure to the benefit of, and be binding upon, each successor of the
Company, whether by merger, consolidation, transfer of all or substantially
all of its assets or otherwise.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
EMPLOYEE CVC, INC.
__________________ _____________________________
Christine B. Whitman
Chairman, President and
Chief Executive Officer
14
<PAGE>
ANNEX A
to
Employment Agreement
Name of Employee: Emilio O. DiCataldo
1. Position: Senior Vice President and
Chief Financial Officer
2. Board of Directors' Initial
Designee to whom Employee
Shall Report: Chief Executive Officer
3. Initial Base Salary: $140,369
4. Number of months used to
calculate lump sum severance
payment in the event of a
Change in Control: 18 months
5. Employee's address for notices: 11-A Ling Road
Rochester, NY 14612
<PAGE>
Exhibit 10.30
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, dated as of December 15, 1997, is by and
between Mehrdad M. Moslehi (the "Employee") and CVC, Inc., a Delaware
corporation (the "Company").
The Company and the Employee hereby agree as follows:
1. Employment. The Company hereby employs the Employee, and the
Employee hereby accepts employment by the Company, upon the terms and
conditions hereinafter set forth.
2. Term. Subject to the provisions for earlier termination as
herein provided, the employment of the Employee hereunder will be for the
period commencing on the date hereof and ending on the third anniversary of
such date. Effective on the first anniversary of the date hereof and on each
successive anniversary date thereafter, the term shall automatically be
extended by an additional one year unless, no later than 90 days prior to any
such anniversary date, either the Company or the Employee gives written
notice to the other that the term will not be extended, in which case the
Employee's employment hereunder shall terminate upon the expiration of the
then-current-term. The period of the Employee's employment under this
Agreement, as it may be terminated or extended from time to time as provided
herein, is referred to hereafter as the "Employment Period."
<PAGE>
3. Duties and Responsibilities. The Employee will be employed by
the Company in the position set forth on Annex A, a copy of which is attached
hereto and the terms of which are incorporated herein by reference. The
Employee will faithfully perform the duties and responsibilities of such
office, as they may be assigned from time to time by the Board of Directors
of the Company (the "Board") or the Board's designee, as specified on Annex A.
4. Time to be Devoted to Employment. Except for vacation in
accordance with the Company's policy in effect from time to time and absences
due to temporary illness, the Employee shall devote full time, attention and
energy during the Employment Period to the business of the Company. During
the Employment Period, the Employee will not be engaged in any other business
activity which, in the reasonable judgment of the Board or its designee,
conflicts with the duties of the Employee hereunder, whether or not such
activity is pursued for gain, profit or other pecuniary advantage.
5. Compensation; Reimbursement.
(a) Base Salary. The Company will pay to the Employee an annual
base salary of not less than the amount specified as the Initial Base Salary
on Annex A, payable in accordance with the Company's normal payroll policy.
The Employee's base salary shall be reviewed annually by the Compensation
Committee of the Board (the "Committee") and shall be subject to increase at
the option and sole discretion of the Committee.
(b) Bonus. The Employee shall be eligible to receive, at the sole
discretion of the Committee, an annual cash bonus based on pre-determined
performance standards of the Company, such as under the Company's Performance
Incentive Program as in effect on the date hereof.
2
<PAGE>
(c) Benefits; Stock Options. In addition to the salary and cash
bonus referred to above, the Employee shall be entitled during the Employment
Period to participate in such employee benefit plans or programs of the
Company, and shall be entitled to such other fringe benefits, as are from
time to time made available by the Company generally to employees of the
Employee's position, tenure, salary, and other qualifications. Without
limiting the generality of the foregoing, the Employee shall be eligible for
such awards, if any, under the Company's stock option plan as shall be
granted to the Employee by the Committee or other appropriate designee of the
Board acting in its sole discretion. Except to the extent provided in the
next paragraph, the Employee acknowledges and agrees that the Company does
not guarantee the adoption or continuance of any particular employee benefit
plan or program or other fringe benefit during the Employment Period, and
participation by the Employee in any such plan or program shall be subject to
the rules and regulations applicable thereto.
(d) Expenses. The Company will reimburse the Employee, in
accordance with the practices in effect from time to time for other officers
or staff personnel of the Company, for all reasonable and necessary traveling
expenses and other disbursements incurred by the Employee for or on behalf of
the Company in the performance of the Employee's duties hereunder, upon
presentation by the Employee to the Company of appropriate vouchers or
documentation.
6. Death; Disability. If the Employee dies or is incapacitated
or disabled by accident, sickness or otherwise, so as to render the Employee
mentally or physically incapable of performing the services required to be
performed by the Employee under this Agreement for a period that would
entitle the Employee to qualify for long-term
3
<PAGE>
disability benefits under the Company's then-current long-term disability
insurance program or, in the absence of such a program, for a period of 90
consecutive days or longer (such condition being herein referred to as a
"Disability"), then (i) in the case of the Employee's death, the Employee's
employment shall be deemed to terminate on the date of the Employee's death
or (ii) in the case of a Disability, the Company, at its option, may
terminate the employment of the Employee under this Agreement immediately
upon giving the Employee notice to that effect. Disability shall be
determined by the Board or the Board's designee. In the case of a
Disability, until the Company shall have terminated the Employee's employment
hereunder in accordance with the foregoing, the Employee shall be entitled to
receive compensation provided for herein notwithstanding any such physical or
mental disability.
7. Termination For Cause. The Company may, with the approval of
a majority of the Board, terminate the employment of the Employee hereunder
at any time during the Employment Period for "cause" (such termination being
hereinafter called a "Termination for Cause") by giving the Employee notice
of such termination, upon the giving of which such termination will take
effect immediately. For purposes of this Agreement, "cause" means (i) the
Employee's willful and substantial misconduct, (ii) the Employee's repeated,
after written notice from the Company, neglect of duties or failure to act
which can reasonably be expected to affect materially and adversely the
business or affairs of the Company or any subsidiary or affiliate thereof,
(iii) the Employee's material breach of any of the agreements contained in
Sections 12 or 13 hereof, (iv) the commission by the Employee of any material
fraudulent act with respect to the business and affairs of
4
<PAGE>
the Company or any subsidiary or affiliate thereof or (v) the Employee's
conviction of (or plea of nolo contendere to) a crime constituting a felony.
8. Termination Without Cause. The Company may terminate the
employment of the Employee hereunder at any time without "cause" (such
termination being hereinafter called a "Termination Without Cause") by giving
the Employee notice of such termination, upon the giving of which such
termination will take effect on the date specified on such notice which shall
not be later than 30 days from the date such notice is given.
9. Voluntary Termination. Any termination of the employment of
the Employee hereunder, otherwise than as a result of death or Disability, a
Termination For Cause, a Termination Without Cause or a termination for Good
Reason (as defined below) following a Change in Control (as defined below),
will be deemed to be a "Voluntary Termination." A Voluntary Termination will
be deemed to be effective immediately upon such termination or, at the
Company's option, up to 30 days following a notice of voluntary termination
given by the Employee.
10. Effect of Termination of Employment.
(a) Rights upon Termination. Upon the termination of the
Employee's employment hereunder, neither the Employee nor the Employee's
beneficiaries or estate will have any further rights or claims against the
Company under this Agreement except the right to receive (i) the unpaid
portion of the base salary provided for in Section 5(a) hereof, computed on a
pro rata basis to the date of termination, (ii) payment of his previously
accrued but unpaid rights that are then payable in accordance with the terms
of any incentive compensation, stock option, retirement, employee welfare or
other employee
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<PAGE>
benefit plans or programs of the Company in which the Executive is then
participating in accordance with Sections 5(b) and 5(c) hereof and (iii)
reimbursement for any expenses for which the Employee shall not have
theretofore been reimbursed as provided in Section 5(d) hereof.
(b) Forfeiture of Rights. In the event that, subsequent to
termination of employment hereunder, the Employee (i) breaches any of the
provisions of Section 12 or 13 hereof or (ii) directly or indirectly makes or
facilitates the making of any adverse public statements or disclosures with
respect to the business or securities of the Company, all payments and
benefits to which the Employee may otherwise have been entitled pursuant to
Section 10(a) hereof shall immediately terminate and be forfeited, and any
portion of such amounts as may have been paid to the Employee shall forthwith
be returned to the Company.
11. Change in Control Provisions.
(a) Effect of Change in Control. In the event of a Change in
Control during the Employment Period, all options held by the Employee to
purchase shares of the Company's stock that are not then vested and
exercisable in accordance with the terms of such options or the terms of any
Company stock option plan shall become immediately and fully vested and
exercisable as of the effective date of the Change in Control; provided,
however, that no such vesting shall occur if provision has been made in
writing in connection with such transaction for (a) the continuation of such
plan and/or the assumption of such options by a successor corporation (or a
parent or subsidiary thereof) or (b) the substitution for such options of new
options covering the stock of a successor corporation (or a parent or
subsidiary thereof), with appropriate adjustments as to the number and kinds
6
<PAGE>
of shares and exercise prices. In the event of any such continuation,
assumption or substitution, such plan and/or such options shall continue in
the manner and under the terms so provided.
(b) Effect of Termination Following Change in Control. In the
event of a Change in Control and a subsequent termination of the Employee's
employment during the Employment Period, either by the Company as a
Termination Without Cause or by the Employee for Good Reason (as defined
below), (i) the Employee shall be entitled to receive the same payments and
other rights as provided for in Sections 10(a) hereof, (ii) the Employee
shall be entitled to receive a severance payment in the form a cash lump sum,
paid within 15 days of the date of termination, with the amount of such
payment to be the aggregate amount of the Employee's base salary as in effect
immediately prior to such termination payable over the period of months
specified in Annex A, but discounted to present value from the dates such
payments would otherwise be made to the Employee, based on the 100%
short-term Applicable Federal Rate (compounded annually) under Section
1274(d) of the Internal Revenue Code as in effect at the time of payment,
(iii) if such termination occurred within 12 months following the effective
date of a Change in Control, any options held by the Employee as of such
effective date to purchase shares of the Company's stock that were not vested
and exercisable as of such date of termination shall become immediately and
fully vested and exercisable as of such date of termination and (iv) the
Employee shall retain the right to exercise any options to purchase shares of
the Company's stock until the earlier of (a) 12 months following the date of
such termination or (b) the expiration of the original full term of each such
option.
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<PAGE>
(c) Definition of Change in Control. For purposes of this
Agreement, a "Change in Control" shall be deemed to have occurred upon:
(i) an acquisition subsequent to the date hereof by any person,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person"), of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 30% or more of either (A) the then
outstanding shares of common stock of the Company ("Common Stock") or (B)
the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); excluding, however, the
following: (1) any acquisition directly from the Company, other than an
acquisition by virtue of the exercise of a conversion privilege unless the
security being so converted was itself acquired directly from the Company,
(2) any acquisition by the Company and (3) any acquisition by an employee
benefit plan (or related trust) sponsored or maintained by the Company;
(ii) a change in the composition of the Board such that during any
period of two consecutive years, individuals who at the beginning of such
period constitute the Board, and any new director (other than a director
designated by a person who has entered into an agreement with the Company
to effect a transaction described in clause (i), (iii) or (iv) of this
paragraph) whose election by the Board or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously
so
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<PAGE>
approved, cease for any reason to constitute at least a majority of the
members thereof;
(iii) the approval by the stockholders of the Company of a merger,
consolidation, reorganization or similar corporate transaction, whether or
not the Company is the surviving corporation in such transaction, in which
outstanding shares of Common Stock are converted into (A) shares of stock
of another company, other than a conversion into shares of voting common
stock of the successor corporation (or a holding company thereof)
representing 80% of the voting power of all capital stock thereof
outstanding immediately after the merger or consolidation or (B) other
securities (of either the Company or another company) or cash or other
property;
(iv) the approval by the stockholders of the Company of (A) the sale
or other disposition of all or substantially all of the assets of the
Company or (B) a complete liquidation or dissolution of the Company; or
(v) the adoption by the Board of a resolution to the effect that any
person has acquired effective control of the business and affairs of the
Company.
(d) Good Reason Following Change in Control. For purposes of this
Agreement, termination for "Good Reason" shall mean termination by the Employee
of his employment with the Company, within six months immediately following a
Change in Control, based on:
(i) any diminution in the Employee's position, title,
responsibilities or authority from those in effect immediately prior to
such Change in Control; or
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<PAGE>
(ii) the breach by the Company of any of its material obligations
under this Agreement.
12. Nondisclosure of Information. The Employee will not, at any
time during or after the Employment Period, disclose to any person, firm,
corporation or other business entity, except as required by law, any
non-public information concerning the business, products, clients or affairs
of the Company or any subsidiary or affiliate thereof for any reason or
purpose whatsoever, nor will the Employee make use of any of such non-public
information for personal purposes or for the benefit of any person, firm,
corporation or other business entity except the Company or any subsidiary or
affiliate thereof.
13. Company Right to Inventions. The Employee will promptly
disclose, grant and assign to the Company, for its sole use and benefit, any
and all inventions, improvements, technical information and suggestions
relating in any way to the business of the Company which the Employee may
develop or acquire during the Employment Period (whether or not during usual
working hours), together with all patent applications, letters patent,
copyrights and reissues thereof that may at any time be granted for or upon
any such invention, improvement or technical information. In connection
therewith:
(i) the Employee shall, without charge, but at the expense of the
Company, promptly at all times hereafter execute and deliver such
applications, assignments, descriptions and other instruments as may be
necessary or proper in the opinion of the Company to vest title to any such
inventions, improvements, technical information, patent applications,
patents, copyrights or reissues thereof in
10
<PAGE>
the Company and to enable it to obtain and maintain the entire right and
title thereto throughout the world; and
(ii) the Employee shall render to the Company, at its expense
(including a reasonable payment for the time involved in case the Employee
is not then in its employ), all such assistance as it may require in the
prosecution of applications for said patents, copyrights or reissues
thereof, in the prosecution or defense of interferences which may be
declared involving any said applications, patents or copyrights and in any
litigation in which the Company may be involved relating to any such
patents, inventions, improvements or technical information.
14. Enforcement. It is the desire and intent of the parties
hereto that the provisions of this Agreement be enforceable to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, to the extent that
a restriction contained in this Agreement is more restrictive than permitted
by the laws of any jurisdiction where this Agreement may be subject to review
and interpretation, the terms of such restriction, for the purpose only of
the operation of such restriction in such jurisdiction, will be the maximum
restriction allowed by the laws of such jurisdiction and such restriction
will be deemed to have been revised accordingly herein.
15. Remedies; Survival. (a) The Employee acknowledges and
understands that the provisions of the covenants contained in Sections 12 and
13 hereof, the violation of which cannot be accurately compensated for in
damages by an action at law, are of crucial importance to the Company, and
that the breach or threatened breach of the provisions of this Agreement
would cause the Company irreparable harm. In the event of a
11
<PAGE>
breach or threatened breach by the Employee of the provisions of Section 12
or 13 hereof, the Company will be entitled to an injunction (without the
posting of any bond) restraining the Employee from such breach. Nothing
herein contained will be construed as prohibiting the Company from pursuing
any other remedies available for any breach or threatened breach of this
Agreement.
(b) Notwithstanding anything contained in this Agreement to the
contrary, the provisions of Sections 12, 13, 14 and 15 hereof will survive
the expiration or other termination of this Agreement until, by their terms,
such provisions are no longer operative.
16. Notices. Notices and other communications hereunder will be in
writing and will be delivered personally or sent by air courier or first class
certified or registered mail, return receipt requested and postage prepaid,
addressed as follows:
if to the Employee: as specified in Annex A
and if to the Company: CVC, Inc.
525 Lee Road
Rochester, New York 14606
Attention: Secretary
with a copy to: Frederick W. Kanner, Esq.
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement will be deemed to have been given on
the date of delivery, if personally delivered; on the business day after the
date when sent, if sent by air courier; and
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<PAGE>
on the third business day after the date when sent, if sent by mail, in each
case addressed to such party as provided in this Section 16 or in accordance
with the latest unrevoked direction from such party.
17. Binding Agreement; Benefit. The provisions of this Agreement
will be binding upon, and will inure to the benefit of, the respective heirs,
legal representatives and successors of the parties hereto.
18. Governing Law. This Agreement will be governed by, and
construed and enforced in accordance with, the laws of the State of New York,
without reference to conflict of law principles.
19. Waiver of Breach. The waiver by either party of a breach of
any provision of this Agreement by the other party must be in writing and
will not operate or be construed as a waiver of any subsequent breach by such
other party.
20. Entire Agreement; Amendments. This Agreement (including Annex
A) contains the entire agreement between the parties with respect to the
subject matter hereof and supersedes all prior agreements or understandings
among the parties with respect thereof. This Agreement may be amended only
by an agreement in writing signed by the parties hereto.
21. Headings. The section headings contained in this Agreement
are for reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement.
22. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction will, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof,
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<PAGE>
and any such prohibition or unenforceability in any jurisdiction will not
invalidate or render unenforceable such provision in any other jurisdiction.
23. Assignment. This Agreement is personal in its nature and the
parties hereto shall not, without the consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder; provided,
that the provisions hereof (including, without limitation, Sections 12 and
13) will inure to the benefit of, and be binding upon, each successor of the
Company, whether by merger, consolidation, transfer of all or substantially
all of its assets or otherwise.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
EMPLOYEE CVC, INC.
- ------------------------- --------------------------------
Christine B. Whitman
Chairman, President and
Chief Executive Officer
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ANNEX A
to
Employment Agreement
Name of Employee: Merhdad M. Moslehi
1. Position: Senior Vice President and
Chief Technology Officer
2. Board of Directors' Initial
Designee to whom Employee
Shall Report: Chief Executive Officer
3. Initial Base Salary: $142,771
4. Number of months used to
calculate lump sum severance
payment in the event of a
Change in Control: 12 months
5. Employee's address for notices: 956 Stanley Avenue
Los Altos, CA 94024
A-1
<PAGE>
Exhibit 10.31
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, dated as of December 15, 1997, is by and
between Christopher J. Mann (the "Employee") and CVC, Inc., a Delaware
corporation (the "Company").
The Company and the Employee hereby agree as follows:
1. Employment. The Company hereby employs the Employee, and the
Employee hereby accepts employment by the Company, upon the terms and
conditions hereinafter set forth.
2. Term. Subject to the provisions for earlier termination as
herein provided, the employment of the Employee hereunder will be for the
period commencing on the date hereof and ending on the third anniversary of
such date. Effective on the first anniversary of the date hereof and on each
successive anniversary date thereafter, the term shall automatically be
extended by an additional one year unless, no later than 90 days prior to any
such anniversary date, either the Company or the Employee gives written
notice to the other that the term will not be extended, in which case the
Employee's employment hereunder shall terminate upon the expiration of the
then-current-term. The period of the Employee's employment under this
Agreement, as it may be terminated or extended from time to time as provided
herein, is referred to hereafter as the "Employment Period."
<PAGE>
3. Duties and Responsibilities. The Employee will be employed by
the Company in the position set forth on Annex A, a copy of which is attached
hereto and the terms of which are incorporated herein by reference. The
Employee will faithfully perform the duties and responsibilities of such
office, as they may be assigned from time to time by the Board of Directors
of the Company (the "Board") or the Board's designee, as specified on Annex A.
4. Time to be Devoted to Employment. Except for vacation in
accordance with the Company's policy in effect from time to time and absences
due to temporary illness, the Employee shall devote full time, attention and
energy during the Employment Period to the business of the Company. During
the Employment Period, the Employee will not be engaged in any other business
activity which, in the reasonable judgment of the Board or its designee,
conflicts with the duties of the Employee hereunder, whether or not such
activity is pursued for gain, profit or other pecuniary advantage.
5. Compensation; Reimbursement.
(a) Base Salary. The Company will pay to the Employee an annual
base salary of not less than the amount specified as the Initial Base Salary
on Annex A, payable in accordance with the Company's normal payroll policy.
The Employee's base salary shall be reviewed annually by the Compensation
Committee of the Board (the "Committee") and shall be subject to increase at
the option and sole discretion of the Committee.
(b) Bonus. The Employee shall be eligible to receive, at the sole
discretion of the Committee, an annual cash bonus based on pre-determined
performance standards of the Company, such as under the Company's Performance
Incentive Program as in effect on the date hereof.
2
<PAGE>
(c) Benefits; Stock Options. In addition to the salary and cash
bonus referred to above, the Employee shall be entitled during the Employment
Period to participate in such employee benefit plans or programs of the
Company, and shall be entitled to such other fringe benefits, as are from
time to time made available by the Company generally to employees of the
Employee's position, tenure, salary, and other qualifications. Without
limiting the generality of the foregoing, the Employee shall be eligible for
such awards, if any, under the Company's stock option plan as shall be
granted to the Employee by the Committee or other appropriate designee of the
Board acting in its sole discretion. Except to the extent provided in the
next paragraph, the Employee acknowledges and agrees that the Company does
not guarantee the adoption or continuance of any particular employee benefit
plan or program or other fringe benefit during the Employment Period, and
participation by the Employee in any such plan or program shall be subject to
the rules and regulations applicable thereto.
(d) Expenses. The Company will reimburse the Employee, in
accordance with the practices in effect from time to time for other officers
or staff personnel of the Company, for all reasonable and necessary traveling
expenses and other disbursements incurred by the Employee for or on behalf of
the Company in the performance of the Employee's duties hereunder, upon
presentation by the Employee to the Company of appropriate vouchers or
documentation.
6. Death; Disability. If the Employee dies or is incapacitated
or disabled by accident, sickness or otherwise, so as to render the Employee
mentally or physically incapable of performing the services required to be
performed by the Employee under this Agreement for a period that would
entitle the Employee to qualify for long-term
3
<PAGE>
disability benefits under the Company's then-current long-term disability
insurance program or, in the absence of such a program, for a period of 90
consecutive days or longer (such condition being herein referred to as a
"Disability"), then (i) in the case of the Employee's death, the Employee's
employment shall be deemed to terminate on the date of the Employee's death
or (ii) in the case of a Disability, the Company, at its option, may
terminate the employment of the Employee under this Agreement immediately
upon giving the Employee notice to that effect. Disability shall be
determined by the Board or the Board's designee. In the case of a
Disability, until the Company shall have terminated the Employee's employment
hereunder in accordance with the foregoing, the Employee shall be entitled to
receive compensation provided for herein notwithstanding any such physical or
mental disability.
7. Termination For Cause. The Company may, with the approval of
a majority of the Board, terminate the employment of the Employee hereunder
at any time during the Employment Period for "cause" (such termination being
hereinafter called a "Termination for Cause") by giving the Employee notice
of such termination, upon the giving of which such termination will take
effect immediately. For purposes of this Agreement, "cause" means (i) the
Employee's willful and substantial misconduct, (ii) the Employee's repeated,
after written notice from the Company, neglect of duties or failure to act
which can reasonably be expected to affect materially and adversely the
business or affairs of the Company or any subsidiary or affiliate thereof,
(iii) the Employee's material breach of any of the agreements contained in
Sections 12 or 13 hereof, (iv) the commission by the Employee of any material
fraudulent act with respect to the business and affairs of
4
<PAGE>
the Company or any subsidiary or affiliate thereof or (v) the Employee's
conviction of (or plea of nolo contendere to) a crime constituting a felony.
8. Termination Without Cause. The Company may terminate the
employment of the Employee hereunder at any time without "cause" (such
termination being hereinafter called a "Termination Without Cause") by giving
the Employee notice of such termination, upon the giving of which such
termination will take effect on the date specified on such notice which shall
not be later than 30 days from the date such notice is given.
9. Voluntary Termination. Any termination of the employment of
the Employee hereunder, otherwise than as a result of death or Disability, a
Termination For Cause, a Termination Without Cause or a termination for Good
Reason (as defined below) following a Change in Control (as defined below),
will be deemed to be a "Voluntary Termination." A Voluntary Termination will
be deemed to be effective immediately upon such termination or, at the
Company's option, up to 30 days following a notice of voluntary termination
given by the Employee.
10. Effect of Termination of Employment.
(a) Rights upon Termination. Upon the termination of the
Employee's employment hereunder, neither the Employee nor the Employee's
beneficiaries or estate will have any further rights or claims against the
Company under this Agreement except the right to receive (i) the unpaid
portion of the base salary provided for in Section 5(a) hereof, computed on a
pro rata basis to the date of termination, (ii) payment of his previously
accrued but unpaid rights that are then payable in accordance with the terms
of any incentive compensation, stock option, retirement, employee welfare or
other
5
<PAGE>
employee benefit plans or programs of the Company in which the Executive is
then participating in accordance with Sections 5(b) and 5(c) hereof and (iii)
reimbursement for any expenses for which the Employee shall not have
theretofore been reimbursed as provided in Section 5(d) hereof.
(b) Forfeiture of Rights. In the event that, subsequent to
termination of employment hereunder, the Employee (i) breaches any of the
provisions of Section 12 or 13 hereof or (ii) directly or indirectly makes or
facilitates the making of any adverse public statements or disclosures with
respect to the business or securities of the Company, all payments and
benefits to which the Employee may otherwise have been entitled pursuant to
Section 10(a) hereof shall immediately terminate and be forfeited, and any
portion of such amounts as may have been paid to the Employee shall forthwith
be returned to the Company.
11. Change in Control Provisions.
(a) Effect of Change in Control. In the event of a Change in
Control during the Employment Period, all options held by the Employee to
purchase shares of the Company's stock that are not then vested and
exercisable in accordance with the terms of such options or the terms of any
Company stock option plan shall become immediately and fully vested and
exercisable as of the effective date of the Change in Control; provided,
however, that no such vesting shall occur if provision has been made in
writing in connection with such transaction for (a) the continuation of such
plan and/or the assumption of such options by a successor corporation (or a
parent or subsidiary thereof) or (b) the substitution for such options of new
options covering the stock of a successor corporation (or a parent or
subsidiary thereof), with appropriate adjustments as to the number and kinds
6
<PAGE>
of shares and exercise prices. In the event of any such continuation,
assumption or substitution, such plan and/or such options shall continue in
the manner and under the terms so provided.
(b) Effect of Termination Following Change in Control. In the
event of a Change in Control and a subsequent termination of the Employee's
employment during the Employment Period, either by the Company as a
Termination Without Cause or by the Employee for Good Reason (as defined
below), (i) the Employee shall be entitled to receive the same payments and
other rights as provided for in Sections 10(a) hereof, (ii) the Employee
shall be entitled to receive a severance payment in the form a cash lump sum,
paid within 15 days of the date of termination, with the amount of such
payment to be the aggregate amount of the Employee's base salary as in effect
immediately prior to such termination payable over the period of months
specified in Annex A, but discounted to present value from the dates such
payments would otherwise be made to the Employee, based on the 100%
short-term Applicable Federal Rate (compounded annually) under Section
1274(d) of the Internal Revenue Code as in effect at the time of payment,
(iii) if such termination occurred within 12 months following the effective
date of a Change in Control, any options held by the Employee as of such
effective date to purchase shares of the Company's stock that were not vested
and exercisable as of such date of termination shall become immediately and
fully vested and exercisable as of such date of termination and (iv) the
Employee shall retain the right to exercise any options to purchase shares of
the Company's stock until the earlier of (a) 12 months following the date of
such termination or (b) the expiration of the original full term of each such
option.
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<PAGE>
(c) Definition of Change in Control. For purposes of this
Agreement, a "Change in Control" shall be deemed to have occurred upon:
(i) an acquisition subsequent to the date hereof by any person,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
(a "Person"), of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 30% or more of either (A) the then
outstanding shares of common stock of the Company ("Common Stock") or (B)
the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); excluding, however, the
following: (1) any acquisition directly from the Company, other than an
acquisition by virtue of the exercise of a conversion privilege unless the
security being so converted was itself acquired directly from the Company,
(2) any acquisition by the Company and (3) any acquisition by an employee
benefit plan (or related trust) sponsored or maintained by the Company;
(ii) a change in the composition of the Board such that during any
period of two consecutive years, individuals who at the beginning of such
period constitute the Board, and any new director (other than a director
designated by a person who has entered into an agreement with the Company
to effect a transaction described in clause (i), (iii) or (iv) of this
paragraph) whose election by the Board or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously
so
8
<PAGE>
approved, cease for any reason to constitute at least a majority of the
members thereof;
(iii) the approval by the stockholders of the Company of a merger,
consolidation, reorganization or similar corporate transaction, whether
or not the Company is the surviving corporation in such transaction, in
which outstanding shares of Common Stock are converted into (A) shares of
stock of another company, other than a conversion into shares of voting
common stock of the successor corporation (or a holding company thereof)
representing 80% of the voting power of all capital stock thereof
outstanding immediately after the merger or consolidation or (B) other
securities (of either the Company or another company) or cash or other
property;
(iv) the approval by the stockholders of the Company of (A) the sale
or other disposition of all or substantially all of the assets of the
Company or (B) a complete liquidation or dissolution of the Company; or
(v) the adoption by the Board of a resolution to the effect that any
person has acquired effective control of the business and affairs of the
Company.
(d) Good Reason Following Change in Control. For purposes of this
Agreement, termination for "Good Reason" shall mean termination by the
Employee of his employment with the Company, within six months immediately
following a Change in Control, based on:
(i) any diminution in the Employee's position, title,
responsibilities or authority from those in effect immediately prior to
such Change in Control; or
9
<PAGE>
(ii) the breach by the Company of any of its material obligations
under this Agreement.
12. Nondisclosure of Information. The Employee will not, at any
time during or after the Employment Period, disclose to any person, firm,
corporation or other business entity, except as required by law, any
non-public information concerning the business, products, clients or affairs
of the Company or any subsidiary or affiliate thereof for any reason or
purpose whatsoever, nor will the Employee make use of any of such non-public
information for personal purposes or for the benefit of any person, firm,
corporation or other business entity except the Company or any subsidiary or
affiliate thereof.
13. Company Right to Inventions. The Employee will promptly
disclose, grant and assign to the Company, for its sole use and benefit, any
and all inventions, improvements, technical information and suggestions
relating in any way to the business of the Company which the Employee may
develop or acquire during the Employment Period (whether or not during usual
working hours), together with all patent applications, letters patent,
copyrights and reissues thereof that may at any time be granted for or upon
any such invention, improvement or technical information. In connection
therewith:
(i) the Employee shall, without charge, but at the expense of the
Company, promptly at all times hereafter execute and deliver such
applications, assignments, descriptions and other instruments as may be
necessary or proper in the opinion of the Company to vest title to any such
inventions, improvements, technical information, patent applications,
patents, copyrights or reissues thereof in
10
<PAGE>
the Company and to enable it to obtain and maintain the entire right and
title thereto throughout the world; and
(ii) the Employee shall render to the Company, at its expense
(including a reasonable payment for the time involved in case the Employee
is not then in its employ), all such assistance as it may require in the
prosecution of applications for said patents, copyrights or reissues
thereof, in the prosecution or defense of interferences which may be
declared involving any said applications, patents or copyrights and in
any litigation in which the Company may be involved relating to any such
patents, inventions, improvements or technical information.
14. Enforcement. It is the desire and intent of the parties
hereto that the provisions of this Agreement be enforceable to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, to the extent that
a restriction contained in this Agreement is more restrictive than permitted
by the laws of any jurisdiction where this Agreement may be subject to review
and interpretation, the terms of such restriction, for the purpose only of
the operation of such restriction in such jurisdiction, will be the maximum
restriction allowed by the laws of such jurisdiction and such restriction
will be deemed to have been revised accordingly herein.
15. Remedies; Survival. (a) The Employee acknowledges and
understands that the provisions of the covenants contained in Sections 12 and
13 hereof, the violation of which cannot be accurately compensated for in
damages by an action at law, are of crucial importance to the Company, and
that the breach or threatened breach of the provisions of this Agreement
would cause the Company irreparable harm. In the event of a
11
<PAGE>
breach or threatened breach by the Employee of the provisions of Section 12
or 13 hereof, the Company will be entitled to an injunction (without the
posting of any bond) restraining the Employee from such breach. Nothing
herein contained will be construed as prohibiting the Company from pursuing
any other remedies available for any breach or threatened breach of this
Agreement.
(b) Notwithstanding anything contained in this Agreement to the
contrary, the provisions of Sections 12, 13, 14 and 15 hereof will survive
the expiration or other termination of this Agreement until, by their terms,
such provisions are no longer operative.
16. Notices. Notices and other communications hereunder will be
in writing and will be delivered personally or sent by air courier or first
class certified or registered mail, return receipt requested and postage
prepaid, addressed as follows:
if to the Employee: as specified in Annex A
and if to the Company: CVC, Inc.
525 Lee Road
Rochester, New York 14606
Attention: Secretary
with a copy to: Frederick W. Kanner, Esq.
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement will be deemed to have been given on
the date of delivery, if personally delivered; on the business day after the
date when sent, if sent by air courier; and
12
<PAGE>
on the third business day after the date when sent, if sent by mail, in each
case addressed to such party as provided in this Section 16 or in accordance
with the latest unrevoked direction from such party.
17. Binding Agreement; Benefit. The provisions of this Agreement
will be binding upon, and will inure to the benefit of, the respective heirs,
legal representatives and successors of the parties hereto.
18. Governing Law. This Agreement will be governed by, and
construed and enforced in accordance with, the laws of the State of New York,
without reference to conflict of law principles.
19. Waiver of Breach. The waiver by either party of a breach of
any provision of this Agreement by the other party must be in writing and
will not operate or be construed as a waiver of any subsequent breach by such
other party.
20. Entire Agreement; Amendments. This Agreement (including Annex
A) contains the entire agreement between the parties with respect to the
subject matter hereof and supersedes all prior agreements or understandings
among the parties with respect thereof. This Agreement may be amended only
by an agreement in writing signed by the parties hereto.
21. Headings. The section headings contained in this Agreement
are for reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement.
22. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction will, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof,
13
<PAGE>
and any such prohibition or unenforceability in any jurisdiction will not
invalidate or render unenforceable such provision in any other jurisdiction.
23. Assignment. This Agreement is personal in its nature and the
parties hereto shall not, without the consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder; provided,
that the provisions hereof (including, without limitation, Sections 12 and
13) will inure to the benefit of, and be binding upon, each successor of the
Company, whether by merger, consolidation, transfer of all or substantially
all of its assets or otherwise.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
EMPLOYEE CVC, INC.
_________________________ _____________________________
Christine B. Whitman
Chairman, President and
Chief Executive Officer
14
<PAGE>
ANNEX A
to
Employment Agreement
Name of Employee: Christopher J. Mann
<TABLE>
<S> <C>
1. Position: Senior Vice President Data Storage Products
2. Board of Directors' Initial
Designee to whom Employee
Shall Report: Chief Executive Officer
3. Initial Base Salary: $124,162
4. Number of months used to
calculate lump sum severance
payment in the event of a
Change in Control: 12 months
5. Employee's address for notices 45 Sunset Court
Danville, CA 94506
</TABLE>
A-1
<PAGE>
<PAGE>
Exhibit 10.32
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, dated as of December 15, 1997, is by and
between Richard J. Chicotka (the "Employee") and CVC, Inc., a Delaware
corporation (the "Company").
The Company and the Employee hereby agree as follows:
1. Employment. The Company hereby employs the Employee, and the
Employee hereby accepts employment by the Company, upon the terms and
conditions hereinafter set forth.
2. Term. Subject to the provisions for earlier termination as
herein provided, the employment of the Employee hereunder will be for the
period commencing on the date hereof and ending on the third anniversary of
such date. Effective on the first anniversary of the date hereof and on each
successive anniversary date thereafter, the term shall automatically be
extended by an additional one year unless, no later than 90 days prior to any
such anniversary date, either the Company or the Employee gives written
notice to the other that the term will not be extended, in which case the
Employee's employment hereunder shall terminate upon the expiration of the
then-current-term. The period of the Employee's employment under this
Agreement, as it may be terminated or extended from time to time as provided
herein, is referred to hereafter as the "Employment Period."
<PAGE>
3. Duties and Responsibilities. The Employee will be employed by
the Company in the position set forth on Annex A, a copy of which is attached
hereto and the terms of which are incorporated herein by reference. The
Employee will faithfully perform the duties and responsibilities of such
office, as they may be assigned from time to time by the Board of Directors
of the Company (the "Board") or the Board's designee, as specified on Annex A.
4. Time to be Devoted to Employment. Except for vacation in
accordance with the Company's policy in effect from time to time and absences
due to temporary illness, the Employee shall devote full time, attention and
energy during the Employment Period to the business of the Company. During
the Employment Period, the Employee will not be engaged in any other business
activity which, in the reasonable judgment of the Board or its designee,
conflicts with the duties of the Employee hereunder, whether or not such
activity is pursued for gain, profit or other pecuniary advantage.
5. Compensation; Reimbursement.
(a) Base Salary. The Company will pay to the Employee an annual base
salary of not less than the amount specified as the Initial Base Salary on
Annex A, payable in accordance with the Company's normal payroll policy. The
Employee's base salary shall be reviewed annually by the Compensation
Committee of the Board (the "Committee") and shall be subject to increase at
the option and sole discretion of the Committee.
(b) Bonus. The Employee shall be eligible to receive, at the sole
discretion of the Committee, an annual cash bonus based on pre-determined
performance standards of the Company, such as under the Company's Performance
Incentive Program as in effect on the date hereof.
2
<PAGE>
(c) Benefits; Stock Options. In addition to the salary and cash
bonus referred to above, the Employee shall be entitled during the Employment
Period to participate in such employee benefit plans or programs of the
Company, and shall be entitled to such other fringe benefits, as are from
time to time made available by the Company generally to employees of the
Employee's position, tenure, salary, and other qualifications. Without
limiting the generality of the foregoing, the Employee shall be eligible for
such awards, if any, under the Company's stock option plan as shall be
granted to the Employee by the Committee or other appropriate designee of the
Board acting in its sole discretion. Except to the extent provided in the
next paragraph, the Employee acknowledges and agrees that the Company does
not guarantee the adoption or continuance of any particular employee benefit
plan or program or other fringe benefit during the Employment Period, and
participation by the Employee in any such plan or program shall be subject to
the rules and regulations applicable thereto.
(d) Expenses. The Company will reimburse the Employee, in accordance
with the practices in effect from time to time for other officers or staff
personnel of the Company, for all reasonable and necessary traveling expenses
and other disbursements incurred by the Employee for or on behalf of the
Company in the performance of the Employee's duties hereunder, upon
presentation by the Employee to the Company of appropriate vouchers or
documentation.
6. Death; Disability. If the Employee dies or is incapacitated or
disabled by accident, sickness or otherwise, so as to render the Employee
mentally or physically incapable of performing the services required to be
performed by the Employee under this Agreement for a period that would
entitle the Employee to qualify for long-term
3
<PAGE>
disability benefits under the Company's then-current long-term disability
insurance program or, in the absence of such a program, for a period of 90
consecutive days or longer (such condition being herein referred to as a
"Disability"), then (i) in the case of the Employee's death, the Employee's
employment shall be deemed to terminate on the date of the Employee's death
or (ii) in the case of a Disability, the Company, at its option, may
terminate the employment of the Employee under this Agreement immediately
upon giving the Employee notice to that effect. Disability shall be
determined by the Board or the Board's designee. In the case of a
Disability, until the Company shall have terminated the Employee's employment
hereunder in accordance with the foregoing, the Employee shall be entitled to
receive compensation provided for herein notwithstanding any such physical or
mental disability.
7. Termination For Cause. The Company may, with the approval of a
majority of the Board, terminate the employment of the Employee hereunder at
any time during the Employment Period for "cause" (such termination being
hereinafter called a "Termination for Cause") by giving the Employee notice
of such termination, upon the giving of which such termination will take
effect immediately. For purposes of this Agreement, "cause" means (i) the
Employee's willful and substantial misconduct, (ii) the Employee's repeated,
after written notice from the Company, neglect of duties or failure to act
which can reasonably be expected to affect materially and adversely the
business or affairs of the Company or any subsidiary or affiliate thereof,
(iii) the Employee's material breach of any of the agreements contained in
Sections 12 or 13 hereof, (iv) the commission by the Employee of any material
fraudulent act with respect to the business and affairs of
4
<PAGE>
the Company or any subsidiary or affiliate thereof or (v) the Employee's
conviction of (or plea of nolo contendere to) a crime constituting a felony.
8. Termination Without Cause. The Company may terminate the
employment of the Employee hereunder at any time without "cause" (such
termination being hereinafter called a "Termination Without Cause") by giving
the Employee notice of such termination, upon the giving of which such
termination will take effect on the date specified on such notice which shall
not be later than 30 days from the date such notice is given.
9. Voluntary Termination. Any termination of the employment of the
Employee hereunder, otherwise than as a result of death or Disability, a
Termination For Cause, a Termination Without Cause or a termination for Good
Reason (as defined below) following a Change in Control (as defined below),
will be deemed to be a "Voluntary Termination." A Voluntary Termination will
be deemed to be effective immediately upon such termination or, at the
Company's option, up to 30 days following a notice of voluntary termination
given by the Employee.
10. Effect of Termination of Employment.
(a) Rights upon Termination. Upon the termination of the Employee's
employment hereunder, neither the Employee nor the Employee's beneficiaries
or estate will have any further rights or claims against the Company under
this Agreement except the right to receive (i) the unpaid portion of the base
salary provided for in Section 5(a) hereof, computed on a pro rata basis to
the date of termination, (ii) payment of his previously accrued but unpaid
rights that are then payable in accordance with the terms of any incentive
compensation, stock option, retirement, employee welfare or other employee
5
<PAGE>
benefit plans or programs of the Company in which the Executive is then
participating in accordance with Sections 5(b) and 5(c) hereof and (iii)
reimbursement for any expenses for which the Employee shall not have
theretofore been reimbursed as provided in Section 5(d) hereof.
(b) Forfeiture of Rights. In the event that, subsequent to
termination of employment hereunder, the Employee (i) breaches any of the
provisions of Section 12 or 13 hereof or (ii) directly or indirectly makes or
facilitates the making of any adverse public statements or disclosures with
respect to the business or securities of the Company, all payments and
benefits to which the Employee may otherwise have been entitled pursuant to
Section 10(a) hereof shall immediately terminate and be forfeited, and any
portion of such amounts as may have been paid to the Employee shall forthwith
be returned to the Company.
11. Change in Control Provisions.
(a) Effect of Change in Control. In the event of a Change in Control
during the Employment Period, all options held by the Employee to purchase
shares of the Company's stock that are not then vested and exercisable in
accordance with the terms of such options or the terms of any Company stock
option plan shall become immediately and fully vested and exercisable as of
the effective date of the Change in Control; provided, however, that no such
vesting shall occur if provision has been made in writing in connection with
such transaction for (a) the continuation of such plan and/or the assumption
of such options by a successor corporation (or a parent or subsidiary
thereof) or (b) the substitution for such options of new options covering the
stock of a successor corporation (or a parent or subsidiary thereof), with
appropriate adjustments as to the number and kinds
6
<PAGE>
of shares and exercise prices. In the event of any such continuation,
assumption or substitution, such plan and/or such options shall continue in
the manner and under the terms so provided.
(b) Effect of Termination Following Change in Control. In the event
of a Change in Control and a subsequent termination of the Employee's
employment during the Employment Period, either by the Company as a
Termination Without Cause or by the Employee for Good Reason (as defined
below), (i) the Employee shall be entitled to receive the same payments and
other rights as provided for in Sections 10(a) hereof, (ii) the Employee
shall be entitled to receive a severance payment in the form a cash lump sum,
paid within 15 days of the date of termination, with the amount of such
payment to be the aggregate amount of the Employee's base salary as in effect
immediately prior to such termination payable over the period of months
specified in Annex A, but discounted to present value from the dates such
payments would otherwise be made to the Employee, based on the 100%
short-term Applicable Federal Rate (compounded annually) under Section
1274(d) of the Internal Revenue Code as in effect at the time of payment,
(iii) if such termination occurred within 12 months following the effective
date of a Change in Control, any options held by the Employee as of such
effective date to purchase shares of the Company's stock that were not vested
and exercisable as of such date of termination shall become immediately and
fully vested and exercisable as of such date of termination and (iv) the
Employee shall retain the right to exercise any options to purchase shares of
the Company's stock until the earlier of (a) 12 months following the date of
such termination or (b) the expiration of the original full term of each such
option.
7
<PAGE>
(c) Definition of Change in Control. For purposes of this Agreement,
a "Change in Control" shall be deemed to have occurred upon:
(i) an acquisition subsequent to the date hereof by any person,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person"), of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 30% or more of either (A) the then
outstanding shares of common stock of the Company ("Common Stock") or (B)
the combined voting power of the then outstanding voting securities of
the Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); excluding, however, the
following: (1) any acquisition directly from the Company, other than an
acquisition by virtue of the exercise of a conversion privilege unless
the security being so converted was itself acquired directly from the
Company, (2) any acquisition by the Company and (3) any acquisition by an
employee benefit plan (or related trust) sponsored or maintained by the
Company;
(ii) a change in the composition of the Board such that during
any period of two consecutive years, individuals who at the beginning of
such period constitute the Board, and any new director (other than a
director designated by a person who has entered into an agreement with
the Company to effect a transaction described in clause (i), (iii) or
(iv) of this paragraph) whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination
for election was previously so
8
<PAGE>
approved, cease for any reason to constitute at least a majority of the
members thereof;
(iii) the approval by the stockholders of the Company of a merger,
consolidation, reorganization or similar corporate transaction, whether
or not the Company is the surviving corporation in such transaction, in
which outstanding shares of Common Stock are converted into (A) shares of
stock of another company, other than a conversion into shares of voting
common stock of the successor corporation (or a holding company thereof)
representing 80% of the voting power of all capital stock thereof
outstanding immediately after the merger or consolidation or (B) other
securities (of either the Company or another company) or cash or other
property;
(iv) the approval by the stockholders of the Company of (A) the
sale or other disposition of all or substantially all of the assets of
the Company or (B) a complete liquidation or dissolution of the Company;
or
(v) the adoption by the Board of a resolution to the effect that any
person has acquired effective control of the business and affairs of the
Company.
(d) Good Reason Following Change in Control. For purposes of
this Agreement, termination for "Good Reason" shall mean termination by the
Employee of his employment with the Company, within six months immediately
following a Change in Control, based on:
(i) any diminution in the Employee's position, title,
responsibilities or authority from those in effect immediately prior to
such Change in Control; or
9
<PAGE>
(ii) the breach by the Company of any of its material obligations
under this Agreement.
12. Nondisclosure of Information. The Employee will not, at any time
during or after the Employment Period, disclose to any person, firm,
corporation or other business entity, except as required by law, any
non-public information concerning the business, products, clients or affairs
of the Company or any subsidiary or affiliate thereof for any reason or
purpose whatsoever, nor will the Employee make use of any of such non-public
information for personal purposes or for the benefit of any person, firm,
corporation or other business entity except the Company or any subsidiary or
affiliate thereof.
13. Company Right to Inventions. The Employee will promptly
disclose, grant and assign to the Company, for its sole use and benefit, any
and all inventions, improvements, technical information and suggestions
relating in any way to the business of the Company which the Employee may
develop or acquire during the Employment Period (whether or not during usual
working hours), together with all patent applications, letters patent,
copyrights and reissues thereof that may at any time be granted for or upon
any such invention, improvement or technical information. In connection
therewith:
(i) the Employee shall, without charge, but at the expense of
the Company, promptly at all times hereafter execute and deliver such
applications, assignments, descriptions and other instruments as may be
necessary or proper in the opinion of the Company to vest title to any
such inventions, improvements, technical information, patent
applications, patents, copyrights or reissues thereof in
10
<PAGE>
the Company and to enable it to obtain and maintain the entire right and
title thereto throughout the world; and
(ii) the Employee shall render to the Company, at its expense
(including a reasonable payment for the time involved in case the
Employee is not then in its employ), all such assistance as it may
require in the prosecution of applications for said patents, copyrights
or reissues thereof, in the prosecution or defense of interferences which
may be declared involving any said applications, patents or copyrights
and in any litigation in which the Company may be involved relating to
any such patents, inventions, improvements or technical information.
14. Enforcement. It is the desire and intent of the parties hereto
that the provisions of this Agreement be enforceable to the fullest extent
permissible under the laws and public policies applied in each jurisdiction
in which enforcement is sought. Accordingly, to the extent that a restriction
contained in this Agreement is more restrictive than permitted by the laws of
any jurisdiction where this Agreement may be subject to review and
interpretation, the terms of such restriction, for the purpose only of the
operation of such restriction in such jurisdiction, will be the maximum
restriction allowed by the laws of such jurisdiction and such restriction
will be deemed to have been revised accordingly herein.
15. Remedies; Survival. (a) The Employee acknowledges and
understands that the provisions of the covenants contained in Sections 12 and
13 hereof, the violation of which cannot be accurately compensated for in
damages by an action at law, are of crucial importance to the Company, and
that the breach or threatened breach of the provisions of this Agreement
would cause the Company irreparable harm. In the event of a
11
<PAGE>
breach or threatened breach by the Employee of the provisions of Section 12
or 13 hereof, the Company will be entitled to an injunction (without the
posting of any bond) restraining the Employee from such breach. Nothing
herein contained will be construed as prohibiting the Company from pursuing
any other remedies available for any breach or threatened breach of this
Agreement.
(b) Notwithstanding anything contained in this Agreement to the
contrary, the provisions of Sections 12, 13, 14 and 15 hereof will survive
the expiration or other termination of this Agreement until, by their terms,
such provisions are no longer operative.
16. Notices. Notices and other communications hereunder will be in
writing and will be delivered personally or sent by air courier or first
class certified or registered mail, return receipt requested and postage
prepaid, addressed as follows:
if to the Employee: as specified in Annex A
and if to the Company: CVC, Inc.
525 Lee Road
Rochester, New York 14606
Attention: Secretary
with a copy to: Frederick W. Kanner, Esq.
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement will be deemed to have been given on
the date of delivery, if personally delivered; on the business day after the
date when sent, if sent by air courier; and
12
<PAGE>
on the third business day after the date when sent, if sent by mail, in each
case addressed to such party as provided in this Section 16 or in accordance
with the latest unrevoked direction from such party.
17. Binding Agreement; Benefit. The provisions of this Agreement
will be binding upon, and will inure to the benefit of, the respective heirs,
legal representatives and successors of the parties hereto.
18. Governing Law. This Agreement will be governed by, and construed
and enforced in accordance with, the laws of the State of New York, without
reference to conflict of law principles.
19. Waiver of Breach. The waiver by either party of a breach of any
provision of this Agreement by the other party must be in writing and will
not operate or be construed as a waiver of any subsequent breach by such
other party.
20. Entire Agreement; Amendments. This Agreement (including Annex A)
contains the entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior agreements or understandings among the
parties with respect thereof. This Agreement may be amended only by an
agreement in writing signed by the parties hereto.
21. Headings. The section headings contained in this Agreement are
for reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement.
22. Severability. Any provision of this Agreement that is prohibited
or unenforceable in any jurisdiction will, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof,
13
<PAGE>
and any such prohibition or unenforceability in any jurisdiction will not
invalidate or render unenforceable such provision in any other jurisdiction.
23. Assignment. This Agreement is personal in its nature and the
parties hereto shall not, without the consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder; provided,
that the provisions hereof (including, without limitation, Sections 12 and
13) will inure to the benefit of, and be binding upon, each successor of the
Company, whether by merger, consolidation, transfer of all or substantially
all of its assets or otherwise.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
EMPLOYEE CVC, INC.
_________________________ _____________________________
Christine B. Whitman
Chairman, President and
Chief Executive Officer
14
<PAGE>
ANNEX A
to
Employment Agreement
Name of Employee: Richard J. Chicotka
1. Position: Vice President, Operations
2. Board of Directors' Initial
Designee to whom Employee
Shall Report: Chief Executive Officer
3. Initial Base Salary: $127,688
4. Number of months used to
calculate lump sum severance
payment in the event of a
Change in Control: 12 months
5. Employee's address for notices: 18 Chelsea Park
Pittsford, NY 14534
A-1
<PAGE>
Exhibit 11
COMPUTATION OF
EARNINGS PER SHARE
<TABLE>
Nine months ended
Year ended September 30, June 30,
--------------------------------------- ------------------------------
1994(1) 1995 1996 1996 1997
---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net income -- $ 130,269 $ 3,179,507 $ 1,957,129 $ 990,054
Add: Interest expense, net of tax -- 29,488 72,810 31,159 47,620
---------- ---------- ----------- ----------- -----------
Net income, as adjusted -- 159,757 3,252,317 1,988,288 1,037,674
Weighted average common and
common equivalent shares(2) -- 8,501,522 11,216,861 11,165,438 11,361,890
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
Pro forma net income per share (unaudited)(2) $ -- $ 0.02 $ 0.29 $ 0.18 $ 0.09
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
</TABLE>
- -------------------------
(1) Pro forma historical earnings per share has been omitted for the fiscal
year ended September 30, 1994 since a net loss existed in that year and,
therefore, pro forma earnings per share data is not considered meaningful
in light of the non-cumulative preferred stock (see Notes to Consolidated
Financial Statements) being a common share equivalent which would have a
material anti-dilutive effect on pro forma earnings per share in 1994.
(2) See Notes to Consolidated Financial Statements for information concerning
weighted average common and common share equivalents and pro forma net
income per share (unaudited).
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 (Amendment No. 2) of our report dated
October 24, 1997, relating to the consolidated financial statements of CVC,
Inc., which apppears in such Prospectus. We also consolidated financial
statements of CVC, Inc., which appears in such Prospectus. We also consent to
the reference to us under the heading "Experts" in such Prospectus.
/s Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
Rochester, New York
January 16, 1998
