<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 3, 1999
REGISTRATION NO. 333-38057
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 5
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>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 3, 1999
PROSPECTUS
3,500,000 SHARES
[LOGO]
COMMON STOCK
------------------------------------------------------------
CVC is offering 3,000,000 shares of common stock in its initial public offering.
Two of its stockholders are selling an aggregate of 500,000 shares in this
offering. CVC will not receive any of the proceeds from the sale of shares by
the selling stockholders.
CVC has applied to list the shares on the Nasdaq National Market under the
symbol "CVCI."
Anticipated Price Range $11.00 to $13.00 a share.
INVESTING IN THE SHARES INVOLVES RISKS. RISK FACTORS BEGIN ON PAGE 4.
<TABLE>
<CAPTION>
Per Share Total
--------- -----------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discount....................................... $ $
Proceeds to CVC............................................. $ $
Proceeds to Selling Stockholders............................ $ $
</TABLE>
The selling stockholders have granted the underwriters the right to purchase up
to 525,000 additional shares within 30 days to cover any over-allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Lehman Brothers expects to deliver these shares on , 1999.
- --------------------------------------------------------------------------------
LEHMAN BROTHERS
PRUDENTIAL SECURITIES
SG COWEN
WARBURG DILLON READ LLC
, 1999
<PAGE>
[DESCRIPTION OF ARTWORK]
[Back of front cover of prospectus] Across the top of the page is a caption:
"CVC makes the CONNEXION-Registered Trademark-." In the center of the page is a
graphic of a globe with the CVC logo in the center and images consisting of,
clockwise from the top left corner of the globe: a photograph of a
microprocessor with a caption "Integrated Circuits;" a caption: "MRAM;" a
photograph of a disk drive with a caption: "Disk Drives;" a caption: "RF
Communications Devices;" a photograph of several microchips with a caption:
"Digital Signal Processing;" a photograph of a cluster of fiber optics with a
caption: "Fiber Optic Communications;" and a caption: "Optical Coatings." At the
bottom of the page is a paragraph: "CVC is a worldwide supplier of process
equipment used to manufacture magnetic recording heads for disk drives and
advanced semiconductor devices for computers and communications systems."
[Inside of front cover foldout section, left panel] In the top right corner
is a paragraph: "CVC's CONNEXION-REGISTERED TRADEMARK- Cluster Tools offer thin
film processing technologies such as Physical Vapor Deposition, Ion Beam Etch
and Metal-Organic Chemical Vapor Deposition for the data storage and
semiconductor industries." In the top left corner is a photograph of silicon
wafers with the caption: "Patterned Silicon Wafers." In the center left side is
a photograph of the Connexion Metal-Organic Chemical Vapor Deposition process
module with a caption: "CONNEXION-REGISTERED TRADEMARK-Metal-Organic Chemical
Vapor Deposition process module for barrier and copper deposition layers." In
the bottom left is a photograph of an ion beam etch cluster tool with a caption:
"CONNEXION-Registered Trademark- Cluster Tool with attached ion beam etch
modules." In the bottom right is a photograph of a Connexion Metal-Organic
Chemical Vapor Deposition process module with a caption: "Open view of
CONNEXION-REGISTERED TRADEMARK- Metal-Organic Chemical Vapor Deposition process
module, containing copper coated wafer." In the center right is a photograph of
a Connexion module with a caption: "CONNEXION-REGISTERED TRADEMARK- wafer
handler with six process modules attached." In the center of the page is a
photograph of a circuit chip with a caption: "Silicon Integrated Circuit Chip."
[Inside of front cover foldout section, right panel] In the upper left
corner is a paragraph: "CVC's CONNEXION-Registered Trademark- Cluster Tool
Technology is used in manufacturing of magnetic recording heads for disk drives
and magnetic storage devices." In the upper left corner is a photograph of the
giant magnetoresistive cluster tool system with a caption:
"CONNEXION-Registered Trademark- Multi-target Physical Vapor Deposition Giant
Magnetoresistive Cluster Tool System." In the center right side is a photograph
of a Connexion giant magnetoresistive multistation process module with the
caption: "CONNEXION-Registered Trademark- giant Magnetoresistive multi-target
process module." In the bottom right is a photograph of a hard disk drive with
the caption: "Hard Disk Drive". In the bottom center is a photograph enlargement
of the hard disk drive with the caption: "Giant Magnetoresistive Recording Head
that reads and writes data onto a hard disk contained in a disk drive." In the
center is a graphic cutaway of the giant magnetoresistive head with the layers
labeled, from top to bottom: "Ta(80A), NiMn(200A), NiFe (25A), Co (15A), Cu
(25A), Co (15A), NiFe (50A), Te (35A)." Beside the cutaway is the caption: "An
example of deposited thin film materials on a typical recording head Giant
Magnetoresistive Sensor."
[Inside of back cover] In the upper left corner is a caption: "CVC Provides
Worldwide Service and Support." Under this caption is the paragraph: "CVC
operates advanced product development, systems engineering, applications
engineering, customer service and technical support centers in New York,
California, Virginia, Texas, Minnesota, Europe and Asia." In the upper right
corner is a photograph of a Connexion central wafer handler with a caption:
"CONNEXION-Registered Trademark- Central Wafer Handler showing wafer transport
robot." In the bottom left corner is a screen photograph from the Connexion
software application with a caption: "an example of CVC Open
CONNEXION-Registered Trademark- Plug and Play software application." In the
right corner is a photograph of a technician next to the Connexion Cluster Tool
with the caption: "CONNEXION-Registered Trademark- 800 Cluster Tool System." In
the center is a graphic depicting both hemispheres with icons labeling CVC's
Worldwide Manufacturing and R&D, Sales & Support Services, and
Distributors/Representatives.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 1
Risk Factors......................... 4
Use of Proceeds...................... 13
Dividend Policy...................... 13
Capitalization....................... 14
Dilution............................. 15
Selected Consolidated Financial
Data............................... 16
Unaudited Pro Forma Combined
Statements of Operations........... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 18
</TABLE>
<TABLE>
Business............................. 28
<CAPTION>
PAGE
----
<S> <C>
Management........................... 41
Certain Transactions................. 51
Principal and Selling Stockholders... 52
Description of Capital Stock......... 55
Shares Eligible for Future Sale...... 58
Underwriting......................... 60
Legal Matters........................ 62
Experts.............................. 62
Additional Information............... 62
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
ABOUT THIS PROSPECTUS
Investors should rely only on the information contained in this prospectus.
CVC and the underwriters have not authorized anyone to provide any different or
additional information. This prospectus is not an offer to sell or a
solicitation of an offer to buy common stock in any jurisdiction where it is
unlawful. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock. This preliminary prospectus is
subject to completion prior to this offering.
This prospectus makes forward-looking statements. Investors should consider
any statements that are not statements of historical fact to be forward-looking
statements. The words "believes," "anticipates," "plans," "expects," "seeks,"
"estimates" and similar expressions identify forward-looking statements. There
are a number of important factors that could cause the results of CVC to differ
materially from those indicated by the forward-looking statements contained
herein, including those discussed under the section of this prospectus entitled
"Risk Factors."
CONNEXION-Registered Trademark- and OPTILIN-Registered Trademark- are
registered trademarks of CVC. OPEN CONNEXION-TM-, Millenion-TM- and INFINITY-TM-
are trademarks of CVC.
All trademarks and trade names appearing in this prospectus are the property
of their respective holders.
Until , 1999, all dealers selling shares of the common stock,
whether or not participating in this offering, 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.
i
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES APPEARING ELSEWHERE IN THIS
PROSPECTUS. EXCEPT AS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS
(1) ASSUMES THAT THE OVER-ALLOTMENT OPTION GRANTED TO THE UNDERWRITERS IS NOT
EXERCISED; (2) ASSUMES CONVERSION AND REDEMPTION OF ALL SHARES OF OUTSTANDING
PREFERRED STOCK AND (3) GIVES RETROACTIVE EFFECT TO A TWO-FOR-THREE REVERSE
STOCK SPLIT TO BECOME EFFECTIVE UPON THE CLOSING OF THIS OFFERING.
OUR BUSINESS
CVC is a worldwide supplier of process equipment used in the manufacture of
magnetic recording heads for disk drives and advanced semiconductor devices for
computers and communications systems. Our equipment either deposits or removes
thin film layers as steps in the process of manufacturing magnetic recording
heads and semiconductor devices. Our customers include most of the leading
manufacturers of magnetic recording heads for the data storage industry such as
Alps, Fujitsu, Headway Technologies, Hitachi Metals, IBM, Read-Rite, Samsung,
Seagate Technology, Sony, TDK and Yamaha, as well as manufacturers of
semiconductor devices, such as Anadigics, Analog Devices, Honeywell, Kodak,
M/A-COM, Viking Tech and Xerox.
The manufacture of magnetic recording heads, which read and write
information onto disk drives, and semiconductor devices requires from tens to
hundreds of processing steps. Both magnetic recording heads and semiconductor
devices are formed by depositing or removing extremely thin, uniform layers of
conducting or insulating films onto surfaces called "substrates" or "wafers."
The need to increase the storage density of disk drives has led to the
development of smaller, more advanced magnetic recording heads with multiple
layers of different materials and surface structures. In order to increase the
performance of semiconductor devices, semiconductor manufacturers are shrinking
the geometries and line widths of integrated circuits, while at the same time
adding multiple layers of insulating or conducting materials. The process of
manufacturing magnetic recording heads and semiconductor devices is constantly
evolving to address the demand for smaller devices with higher performance and
requires advanced process equipment.
Our principal product, the CONNEXION Cluster Tool system, is designed for
the highly uniform, repetitive steps required for the manufacturing of devices
involving multiple thin film layers and a wide range of materials. The CONNEXION
Cluster Tool system allows our customers to attach up to six process modules to
a central substrate handling platform. This architecture provides a controlled
vacuum environment in which multiple steps are performed without exposing the
substrate to outside contamination. We believe that the CONNEXION Cluster Tool
system is well suited for next generation applications involving deposition of
advanced materials like copper. Since 1993, we have shipped more than 100
CONNEXION Cluster Tool systems, including more than 400 process modules.
CVC was incorporated in Delaware 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. Our executive offices are located at
525 Lee Road, Rochester, New York, 14606, and our telephone number is (716)
458-2550.
1
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by CVC.................. 3,000,000 shares
Common stock offered by the selling
stockholders............................... 500,000 shares
Common stock to be outstanding after the
offering................................... 11,492,707 shares
Use of proceeds.............................. Approximately $15.0 million for repayment of
debt, $10.0 million for the redemption of the
Series D Redeemable Preferred Stock,
$6.3 million for capital expenditures and the
balance for general corporate purposes. See
"Use of Proceeds." CVC will not receive any
of the proceeds from the sale of shares by
the selling stockholders.
Proposed Nasdaq National Market symbol....... CVCI
</TABLE>
Common stock to be outstanding after the offering excludes 2,234,040 shares
issuable upon exercise of stock options outstanding as of September 30, 1999 and
790,760 shares issuable upon the exercise of an outstanding warrant held by
Seagate Technology.
2
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following table summarizes the financial data of our business. The pro
forma results for fiscal 1999 assume the acquisition of Commonwealth Scientific
Corporation occurred on October 1, 1998 and give effect to the automatic
conversion of all the outstanding shares of Series A Convertible Preferred Stock
and Series B Convertible Preferred Stock into common stock, as well as the
conversion of Series C Convertible Preferred Stock into common stock and into
Series D Redeemable Preferred Stock, all of which will occur upon the closing of
this offering.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------
PRO FORMA
1995 1996 1997 1998 1999 1999
-------- -------- -------- -------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues.................................. $21,358 $48,378 $62,588 $68,173 $82,915 $101,841
Gross margin.............................. 5,728 14,623 21,302 26,154 32,413 33,989
Income from operations.................... 143 3,376 4,095 2,367 3,706 678
Net income................................ 130 3,179 2,045 264 1,571 62
Net income per share:
Basic................................... $ 0.18 $ 4.32 $ 2.67 $ 0.26 $ 1.01 $ 0.01
Diluted................................. 0.02 0.46 0.29 0.04 0.18 0.01
Weighted average shares outstanding:
Basic................................... 735 735 765 1,021 1,561 8,267
Diluted................................. 5,302 6,914 6,992 7,070 8,589 9,361
</TABLE>
Assuming only the conversion of the outstanding shares of Series A
Convertible Preferred Stock and Series B Convertible Preferred Stock into common
stock, as well as the conversion of the Series C Convertible Preferred Stock
into common stock and into Series D Redeemable Preferred Stock, pro forma basic
earnings per share for the year ended September 30, 1999 was $0.21. Diluted
earnings per share is unchanged from the historical diluted earnings per share
amount presented above.
The following table summarizes our balance sheet as of September 30, 1999.
The pro forma column reflects the automatic conversion of all the outstanding
shares of Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock into common stock and Series C Convertible Preferred Stock into
common stock and into Series D Redeemable Preferred Stock, all of which will
occur upon the closing of this offering. The pro forma as adjusted column gives
effect to the sale of 3,000,000 shares of common stock offered by CVC, at an
assumed initial public offering price of $12.00 per share, after deducting the
underwriting discount and estimated offering expenses, and the application of
the estimated net proceeds. See "Use of Proceeds."
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
----------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 434 $ 434 $ 8,014
Working capital........................................ 22,104 22,104 39,100
Total assets........................................... 75,917 75,917 83,497
Short-term borrowings and current portion of long-term
debt................................................. 13,217 13,217 3,801
Long-term debt, less current portion................... 8,493 8,493 2,909
Preferred stock...................................... 19,895 10,000 --
Common stockholders' equity.......................... 11,698 21,593 54,173
Total stockholders' equity............................. 31,593 31,593 54,173
</TABLE>
3
<PAGE>
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK IS RISKY. YOU SHOULD CAREFULLY CONSIDER
THE FOLLOWING RISKS, AS WELL AS THE OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS.
WE EXPERIENCE FLUCTUATIONS IN OUR OPERATING RESULTS WHICH MAY ADVERSELY IMPACT
OUR STOCK PRICE.
Our quarterly operating results have fluctuated significantly in the past,
and we expect this trend to continue. A principal reason is that we derive a
substantial portion of our revenue from the sale of a relatively small number of
systems which typically range in price from approximately $1.0 million to
$4.0 million. As a result, our revenues and results of operations for any one
quarter may be adversely affected by factors relating to the timing of orders
and shipments of these systems. Additional factors which affect our quarterly
operating results include:
- specific economic conditions in the data storage and semiconductor
industries
- modification or cancellation of customer orders
- the publication of opinions by industry analysts about us, our products or
our competitors
These factors may be beyond our control, and our operating results for any
particular quarter may differ materially from our expectations or those of the
market. In addition, our operating results may not be indicative of future
operating results, which may adversely impact the price of our common stock.
YEAR 2000 PROBLEMS OF OUR CUSTOMERS COULD CAUSE THEM TO DELAY PAYMENT FOR
PRODUCTS THAT WE HAVE SHIPPED TO THEM, WHICH COULD CAUSE OUR REVENUES TO
DECREASE.
Our customers or potential customers may be affected by Year 2000 issues
that may, in part (1) cause a delay in payments for products shipped, (2) cause
customers to expend significant resources on Year 2000 compliance matters,
rather than investing in our products or (3) cause customers to defer placing
orders for our systems in the first quarter of our fiscal 2000 or beyond. These
issues may impact our operating results in the first quarter of fiscal 2000, our
first quarter as a public company.
A SIGNIFICANT AMOUNT OF OUR REVENUES IS RECORDED LATE IN EACH QUARTER. WE MAY BE
UNABLE TO ADJUST SPENDING QUICKLY ENOUGH TO COMPENSATE FOR SHORTFALLS IN
QUARTERLY REVENUES, AND AS A RESULT OUR OPERATING RESULTS COULD BE ADVERSELY
AFFECTED.
We have historically recorded a significant amount of our revenues for each
quarter late in the quarter, while our expenses have been incurred more evenly
throughout the period. The concentration of product shipments late in the
quarter is primarily due to customer order patterns and the length of our
production cycle. This concentration increases the risk of shipment delays and,
consequently, the risk that quarterly revenue expectations will not be met. Our
revenues for a particular period could be materially reduced if an anticipated
order for even one system is not received in time to permit shipment during that
period. In addition, a significant portion of our expenses is relatively fixed.
We also have limited visibility on revenues for future quarterly periods and
face risks of revenue shortfalls due to our limited sales backlog in current
periods. If the number of systems we actually ship, and thus the amount of
revenues we are able to record, late in any particular quarter is below
expectations for any reason, the adverse effect may be magnified by our
inability to adjust spending quickly enough to compensate for the revenue
shortfall.
4
<PAGE>
THE SUCCESS OF OUR BUSINESS DEPENDS ON THE DEMAND FOR PRODUCTS FROM DATA STORAGE
AND SEMICONDUCTOR MANUFACTURERS, WHOSE INDUSTRIES ARE HIGHLY CYCLICAL.
Our business depends in large part upon the demand for products from data
storage and semiconductor manufacturers. The data storage and semiconductor
industries accounted for the following percentages of our net sales for the
periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Data Storage.......................................... 88% 77% 85%
Semiconductor......................................... 9% 21% 9%
</TABLE>
The data storage and semiconductor industries have been characterized by
cyclicality. These industries have experienced significant economic downturns at
various times in the last decade, characterized by slowing product demand,
inventory surpluses, accelerated erosion of average selling prices and
production overcapacity. In the recent past, these downturns have materially
reduced demand for the type of capital equipment and process technology that we
offer. In addition, because of (1) our continuing need to invest in research and
development, (2) our substantial capital equipment requirements and (3) our
extensive ongoing customer service and support requirements worldwide, our
ability to reduce expenses in response to any downturn or slowdown in the rate
of capital investment by manufacturers in these industries may be limited.
In the recent past, the data storage and semiconductor industries have
experienced inventory oversupply and poor operating results. Our business could
be harmed if slowdowns in the rate of capital investment or inventory surpluses
in the data storage and semiconductor industries occur in the future.
OUR REVENUES AND PROFITS MAY DECREASE IF WE LOSE ANY OF OUR MAJOR CUSTOMERS.
Our customer base is highly concentrated among a limited number of large
customers, primarily because the data storage industry is dominated by a small
number of large companies. In particular, purchases by Seagate Technology, also
our largest stockholder, have historically accounted for a significant portion
of our revenues. The loss of any of these customers, and the loss of Seagate
Technology in particular, could result in a material decrease in our revenues.
The following table sets forth the percentage of our total revenues derived from
sales to our five largest customers, as well as Seagate Technology on a
stand-alone basis, for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Five Largest Customers................................ 79% 71% 79%
Seagate Technology.................................... 47% 31% 34%
</TABLE>
We anticipate that our revenue will continue to depend on a limited number of
major customers, although the companies considered to be major customers and the
percentage of our revenue represented by each major customer may vary from
quarter to quarter.
We generally do not have long-term purchase agreements with our customers
and do not have any written agreements that require customers to purchase fixed
minimum quantities of our products. Our sales to specific customers tend to vary
significantly from year to year depending upon our customers' budgets for
capital expenditures and new product introductions. The loss of, or reduced
demand for products or related services from, any of our major customers could
harm our business. If any of these large manufacturers discontinues its
relationship with us or suffers economic downturns, our operating results could
suffer.
5
<PAGE>
IF WE DO NOT RESPOND EFFECTIVELY AND ON A TIMELY BASIS TO RAPID TECHNOLOGICAL
CHANGE, OUR ABILITY TO ATTRACT AND MAINTAIN CUSTOMERS COULD BE DIMINISHED.
The data storage and semiconductor manufacturing industries are subject to
rapid technological change and new product introductions and enhancements, as
well as evolving industry standards. Our ability to remain competitive will
depend in part upon our ability to develop new and enhanced systems at
competitive prices in a timely and cost-effective manner and to accurately
predict technology transitions. In addition, new product introductions or
enhancements by our competitors could cause a decline in sales or loss of market
acceptance of our existing products. Increased competitive pressure could also
lead to intensified price competition, resulting in lower margins, which could
adversely impact our business.
Because new product development commitments must be made well in advance of
sales, new product decisions must anticipate both the future demand for the
products under development and the equipment required to produce new products.
New product development, as well as the introduction of new products, may also
require us to increase our research and development and marketing expenditures.
We cannot be certain that we will be successful in developing, manufacturing and
marketing new products or in enhancing existing products.
WE OPERATE IN AN EXTREMELY COMPETITIVE MARKET, AND IF WE FAIL TO COMPETE
EFFECTIVELY, OUR BUSINESS MAY BE HARMED.
The data storage and semiconductor capital equipment industries are
intensely competitive. Established companies, both domestic and foreign, compete
with each of our product lines. Many of our competitors have greater financial,
engineering, manufacturing and marketing resources than we do. A substantial
investment is required by customers to evaluate, test, select and integrate
capital equipment into a production line. As a result, once a manufacturer has
selected a particular vendor's capital equipment, we believe that the
manufacturer generally relies upon that equipment for the specific production
line application and frequently will attempt to consolidate its other capital
equipment requirements with the same vendor. Accordingly, if a particular
customer selects a competitor's capital equipment, we expect to experience
difficulty in selling to that customer for a significant period of time. We
believe that our ability to compete successfully depends on a number of factors
both within and outside of our control, including:
- price
- product quality
- breadth of product line
- system performance
- cost of ownership
- global technical service and support
- success in developing or otherwise introducing new products
We cannot be certain that we will be able to compete successfully in the
future.
THE SUCCESS OF OUR BUSINESS DEPENDS ON CONTINUED MARKET ACCEPTANCE OF OUR
CONNEXION CLUSTER TOOL SYSTEM.
Our principal product is a line of capital equipment known as the CONNEXION
Cluster Tool system which, together with its associated process modules, is used
to manufacture magnetic recording heads and semiconductor devices. We believe
that continued future growth depends in large part upon our ability to gain
increased customer acceptance for our CONNEXION Cluster Tool system and
6
<PAGE>
related technology. The following table sets forth the percentage of our net
sales derived from sales of the CONNEXION Cluster Tool systems for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
CONNEXION Cluster Tool system......................... 85% 83% 71%
</TABLE>
Continued acceptance of the CONNEXION Cluster Tool system will depend on
factors, including:
- cost of ownership
- performance and reliability
- ability to manufacture on a successful and timely basis
- availability of customer support
If we fail to continually enhance the CONNEXION Cluster Tool system, the
future marketplace acceptance of that product could be diminished. We cannot
assure you that we will be successful in obtaining increased market acceptance
of the CONNEXION Cluster Tool system or any future enhanced version of the
system. If we fail to gain sufficient customer acceptance for this system, our
business could be harmed.
WE HAVE INVESTED SIGNIFICANT RESOURCES IN THE DEVELOPMENT OF ADVANCED COPPER
DEPOSITION TECHNOLOGY. IF WE FAIL TO SUCCESSFULLY DEVELOP ADVANCED COPPER
DEPOSITION PROCESSES THAT ARE ACCEPTED BY THE MARKETPLACE, OUR LONG-TERM GROWTH
COULD BE DIMINISHED.
To date, we have invested significantly, and expect to continue investing
significantly in the development of advanced copper deposition technology for
high performance integrated circuit fabrication for the semiconductor market.
Currently, we expect that in fiscal 2000, approximately 20% of our research and
development budget will be dedicated to the development of our copper deposition
technology. The development of this technology is emerging and highly complex
and the market for equipment incorporating this technology is not expected to
reach commercial viability until after 2000. Recently, several semiconductor
device manufacturers have announced that they have made advancements in
copper-based technology. These and other competitors with substantially greater
resources than ours are investing in research and development of similar
technologies and may achieve market acceptance of their products before us. We
cannot assure you that our efforts in this area will be technologically
successful or, even if technologically successful, will be commercially accepted
by the marketplace. If we fail to achieve commercial success in our pursuit of
copper-based technology for the semiconductor industry, our long-term growth
prospects could be diminished.
SALES TO INTERNATIONAL MARKETS CONSTITUTE A SIGNIFICANT AND GROWING PORTION OF
OUR TOTAL REVENUES. OUR OPERATING RESULTS COULD BE HARMED BY ECONOMIC DOWNTURNS
IN FOREIGN MARKETS AND OUR DEPENDENCE ON INTERNATIONAL SALES REPRESENTATIVES.
An increasing portion of our revenues in recent years has been derived from
sales in international markets. International sales are subject to various
risks. The following table sets forth for the periods indicated the percentage
of our total revenues derived from sales to customers located outside of the
United States:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Non-U.S. Customers.................................... 31% 38% 53%
</TABLE>
7
<PAGE>
We intend to continue to expand our operations outside the United States and
enter additional international markets, which will require significant
management attention and financial resources. International business presents
additional risks, including:
- periodic recessions in foreign economies as they impact our particular
sector
- the risk of government-financed competition
- changes in trade policies and tariff regulations
- worldwide political and economic instability
- difficulties in obtaining U.S. export licenses and managing businesses
abroad
Our international sales are denominated in U.S. dollars. As a result,
changes in the value of foreign currencies relative to the value of the U.S.
dollar can render our products comparatively more expensive. Although we have
not been significantly negatively impacted in the past by foreign currency
changes in Japan, Korea, Taiwan and Europe, these conditions could negatively
impact our international sales in future periods. Further, our international
sales are made primarily through several independent sales representatives and a
third-party distributor. We cannot be certain that they will continue to market
and distribute our products successfully, if at all. Our implementation of new
distribution and sales arrangements could result in delays and disruptions in
our international sales and customer support efforts, which could reduce our
sales, damage our reputation and adversely impact our business.
THE LOSS OF ANY OF OUR KEY PERSONNEL COULD ADVERSELY IMPACT OUR ABILITY TO MEET
CUSTOMER AND TECHNOLOGICAL DEMANDS.
Because of our small size and our need for employees with both executive and
advanced technical skills, we depend in significant part upon the continued
contributions of our officers and key personnel. Our key personnel are critical
to our success, and many of them would be difficult to replace. Many of our
employees are not bound by long-term employment or noncompetition agreements,
and competitors in the high technology industry in which we compete may attempt
to recruit them. The loss of our officers or other key personnel could cause our
business to suffer.
WE MAY HAVE DIFFICULTY ATTRACTING AND RETAINING QUALIFIED PERSONNEL, WHICH COULD
ADVERSELY IMPACT OUR ABILITY TO EXECUTE OUR BUSINESS STRATEGY.
The competition for personnel throughout our industry can be significant.
Because of this competition for qualified labor, we have occasionally
experienced delays in meeting our staffing requirements. Our future success will
depend on our ability to attract and retain qualified technical, marketing and
management personnel, particularly highly skilled design, process and test
engineers. The market for personnel with these skills has become intensely
competitive, particularly in California where there has been a significant
increase in the business activities of other companies in the data storage and
semiconductor manufacturing sectors.
Any protracted inability on our part to recruit, train and retain adequate
numbers of qualified personnel could adversely affect our ability to
manufacture, sell and support our products, which could harm our business.
WE MAY EXPERIENCE DIFFICULTY INTEGRATING OUR RECENT ACQUISITION.
We recently acquired Commonwealth Scientific Corporation. Realization of the
potential benefits from this acquisition may not occur unless the products,
technologies and personnel of Commonwealth are successfully integrated with our
operations in a timely and efficient manner. Any diversion of the attention of
management, and any difficulties encountered in the transition process, could
reduce the
8
<PAGE>
revenues of the combined enterprise, or cause the financial condition and
operating results of the combined enterprise to suffer. If we are not able to
successfully integrate Commonwealth and its services and products into our
operations, our business could be harmed.
WE MAY BE UNABLE TO CONSUMMATE POTENTIAL ACQUISITIONS OR SUCCESSFULLY INTEGRATE
THEM WITH OUR BUSINESS WHICH COULD SLOW OUR GROWTH.
As part of our continued strategy to expand the range of our product
offerings and technologies, we intend to make acquisitions of complementary
businesses, technologies, services or products if appropriate opportunities
arise. However, we may be unable to identify suitable acquisition or investment
candidates at reasonable prices or on reasonable terms. Additionally, regardless
of whether suitable candidates are available, we may be unable to consummate
future acquisitions or investments, which could harm our growth strategy. If we
do consummate acquisitions, we could have difficulty integrating the acquired
products, personnel or technologies. These difficulties could disrupt our
ongoing business, distract our management and employees and increase our
expenses.
WE HAVE A LENGTHY SALES CYCLE WHICH MAY INCREASE OUR EXPOSURE TO CUSTOMER
CANCELLATIONS OR DELAYS IN ORDERS.
Sales of our systems depend, in significant part, upon the decision of an
existing or prospective customer to add new manufacturing capacity or to expand
existing manufacturing capacity, both of which involve a significant capital
commitment. We may experience delays in finalizing system sales following
initial system qualification while the customer evaluates and receives approvals
for the initial purchase of our systems. In general, for new customers or
applications our sales cycle could take 12 to 18 months to complete. During this
time, we may expend substantial funds and management effort. Lengthy sales
cycles subject us to a number of significant risks, including inventory
obsolescence and fluctuations in operating results over which we have little or
no control.
PROTECTION OF OUR INTELLECTUAL PROPERTY RIGHTS MAY RESULT IN COSTLY LITIGATION.
There has been substantial litigation regarding patent and other
intellectual property rights in the data storage, semiconductor and related
industries. We have been, and may in the future be, notified of allegations that
we may be infringing intellectual property rights possessed by others. In the
future, protracted litigation and expense may be incurred if necessary to defend
ourselves against alleged infringement of third party rights. Any litigation of
this type, even if ultimately successful in our defense, could result in
substantial cost and diversion of time and effort by our management, which by
itself could have a negative impact on our business. Adverse determinations in
that litigation could:
- result in our loss of proprietary rights
- subject us to significant liabilities, including treble damages in some
instances
- require us to seek licenses from third parties, which licenses may not be
available on reasonable terms or at all
- prevent us from manufacturing or selling our products
Any of these outcomes could harm our business.
OUR SUCCESS DEPENDS, IN PART, ON INTELLECTUAL PROPERTY WHICH MAY BE DIFFICULT TO
PROTECT AND COULD AFFECT OUR ABILITY TO COMPETE EFFECTIVELY.
We believe that our success depends, in part, on our ability to obtain and
protect patents protecting our proprietary technology. As of September 30, 1999,
we had obtained 17 U.S. patents, had received notices of allowance on four U.S.
patent applications and had 37 U.S. patent applications
9
<PAGE>
pending. In addition, we had obtained two foreign patents from the United
Kingdom and had 18 foreign patent applications pending on our behalf as of that
date.
We cannot assure you that:
- pending patent applications or any future applications will be approved
- any patents will provide us with competitive advantages or will not be
challenged by third parties
- the patents of others will not have an adverse effect on our ability to do
business
We cannot assure you that others will not independently develop similar
products, duplicate our products or, if patents are issued to us, design around
these patents. In addition, we may be forced to expend time and resources on
protracted litigation to defend our intellectual property rights against third
parties. Further, because patents may afford less protection under foreign law
than is available under U.S. law, we cannot assure you that any foreign patents
issued to us will adequately protect our proprietary rights.
In addition to patent protection, we also rely upon trade secret protection,
employee and third-party nondisclosure agreements and other intellectual
property protection methods to protect our confidential and proprietary
information. Despite these efforts, we cannot be certain that:
- others will not independently develop substantially equivalent proprietary
information and techniques
- others will not otherwise gain access to our trade secrets
- others will not disclose our technology
- we can meaningfully protect our trade secrets
WE DEPEND ON A LIMITED NUMBER OF SUPPLIERS, AND IN SOME CASES SOLE SUPPLIERS.
ANY DISRUPTION OR TERMINATION OF THESE SUPPLY CHANNELS MAY HARM OUR BUSINESS.
We purchase components, subassemblies and services from a limited number of
suppliers and occasionally from a single source. Disruption or termination of
these sources could occur, and these disruptions could have at least a temporary
adverse effect on our operations. A prolonged inability on our part to obtain
components included in our systems could adversely impact our sales or our
ability to attract and maintain customers.
FAILURE BY US TO IDENTIFY AND REMEDIATE ALL MATERIAL YEAR 2000 RISKS COULD CAUSE
A SIGNIFICANT DISRUPTION TO OUR BUSINESS. WE COULD BE REQUIRED TO EXPEND
SIGNIFICANT INTERNAL RESOURCES ON YEAR 2000 REMEDIATION OR THE YEAR 2000
PROBLEMS OF OUR SUPPLIERS COULD CAUSE A DELAY IN SUPPLYING GOODS AND SERVICES TO
US.
We have identified the following risks you should be aware of:
- we cannot be certain that the entities on whom we rely for goods and
services that are important to our business will be successful in
addressing all of their software and systems problems in order to operate
without disruption in the Year 2000 and beyond
- although we have made efforts to notify our customers who have purchased
potential non-compliant products, we cannot be sure that customers who
purchased these products will not assert claims against us alleging that
these products should have been Year 2000 compliant at the time of
purchase, which could result in costly litigation and divert management's
attention
10
<PAGE>
We cannot, however, be certain that we have identified all of the potential
risks. Failure by us to identify and remediate all material Year 2000 risks
could cause a significant disruption of our business.
OUR STOCK PRICE MAY BE VOLATILE DUE TO THE LACK OF A PRIOR PUBLIC MARKET FOR OUR
STOCK AND THE FACT THAT WE OPERATE IN SEVERAL HIGH-TECHNOLOGY INDUSTRIES.
There has not been a public market for our common stock. We cannot predict
the extent to which investor interest in us will lead to the development of a
trading market or how liquid that market might become. Further, we cannot
guarantee that the price of our common stock will not decline below the initial
public offering price. Stock prices of companies in our industry have
experienced price fluctuations which have often been unrelated to the operating
performance of affected companies. The initial public offering price may not be
indicative of prices that will prevail in the trading market. Various factors
could cause the market price of our common stock to fluctuate substantially.
These factors may include:
- news announcements relating to us, our competitors, customers or other
entities regarding quarterly operating results, technology advances or
production overcapacity
- general trends in our industry
- changes in market conditions in the data storage and semiconductor
industries
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against these companies. This type of litigation, or similar
litigation, could harm our business.
A LIMITED NUMBER OF STOCKHOLDERS WILL HAVE THE ABILITY TO INFLUENCE OUR POLICIES
FOLLOWING THE OFFERING.
A substantial majority of our capital stock is held by a limited number of
stockholders. After completion of this offering, assuming no exercise of
currently exercisable stock options, our principal stockholders and executive
officers and directors will beneficially own approximately 61% of the shares of
common stock outstanding, 67% if Seagate Technology exercises in full its
warrant to purchase common stock. In particular, Seagate Technology is our
largest stockholder and two of its representatives are members of our board of
directors. Following completion of this offering, Seagate Technology will own
2,428,313 shares representing approximately 21% of our outstanding common stock.
In addition, if Seagate Technology exercises in full a warrant for the common
stock that it holds, it would own an aggregate of approximately 26% of our
outstanding common stock.
Accordingly, this limited number of stockholders, including Seagate
Technology, will likely for some time influence the election of our board of
directors, control major decisions of corporate policy and determine the outcome
of any major transaction or other matter submitted to our stockholders or board
of directors, including potential mergers or acquisitions and amendments to our
certificate of incorporation. Stockholders other than these principal
stockholders are therefore likely to have little or no influence on decisions
regarding matters of the kind described above.
THE PRICE OF OUR STOCK COULD DECREASE AS A RESULT OF SHARES BEING SOLD IN THE
MARKET AFTER THE OFFERING.
The market price of our common stock could drop as a result of sales of a
large number of shares of common stock in the market after the offering, or the
perception that these sales could occur. These factors also could make it more
difficult for us to raise funds through future offerings of common stock.
11
<PAGE>
There will be 11,492,707 shares of common stock outstanding immediately
after the offering. Of these shares, the shares sold in the offering will be
freely transferable without restriction or further registration under the
Securities Act, except for any shares purchased by our "affiliates" as defined
in Rule 144 under the Securities Act. The remaining 7,992,707 shares of common
stock outstanding will be "restricted securities" as defined in Rule 144. These
shares may be sold in the future without registration under the Securities Act
to the extent permitted by Rule 144 or an exemption under the Securities Act. In
addition, additional shares of common stock subject to outstanding vested stock
options could also be sold. The holders of 7,218,197 shares of common stock will
also have registration rights allowing them to cause us to register their shares
under the Securities Act.
12
<PAGE>
USE OF PROCEEDS
The estimated net proceeds to us from the sale of 3,000,000 shares of our
common stock in this offering are estimated to be approximately $32.6 million.
This is based on an assumed initial public offering price of $12.00 per share,
after deducting underwriting discounts and estimated offering expenses payable
by us. We will not receive any proceeds from the sale of our common stock by the
selling stockholders.
We intend to use approximately $15.0 million of the proceeds from the
offering to repay the outstanding balance under several loan agreements. These
loan agreements include: (1) a line of credit with an interest rate at prime
plus 1/4%; (2) a term loan which matures October 2001 with an interest rate at
prime plus 1/2%; (3) a note payable which matures October 2000 with an interest
rate at 8%; (4) a term loan which matures April 2005 with an interest rate of
8.39% and (5) three capital leases with maturity dates of March 2000,
August 2000, and January 2002, and interest rates of 13.9%, 16.5%, and 8.1%. In
addition, we intend to use approximately $10.0 million to redeem the Series D
Redeemable Preferred Stock, approximately $6.3 million for capital expenditures,
including demonstration tools and equipment and expansion and improvement of
existing facilities and the balance of the net proceeds will be used for general
corporate purposes. Pending such uses, our net proceeds from this offering will
be invested in short-term, interest-bearing, investment grade securities. The
Series D Redeemable Preferred Stock is held by Advent International Corporation.
Advent is one of our major stockholders and a representative of Advent is a
member of our Board of Directors.
DIVIDEND POLICY
We have never paid or declared cash dividends on our common stock. We
currently intend to retain all future earnings for our business and do not
anticipate paying cash dividends in the foreseeable future. We are currently
restricted under the terms of some of our 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: (1) our operating
results, (2) capital requirements and (3) restrictions in loan agreements.
13
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999.
Our capitalization is presented:
- on an actual basis;
- on a pro forma basis to give effect to the automatic conversion of all
outstanding shares of Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock into common stock, as well as the conversion
of Series C Convertible Preferred Stock into common stock and Series D
Redeemable Preferred Stock, all of which will occur upon the closing of
this offering; and
- on a pro forma as adjusted basis to reflect our receipt of the net
proceeds from the sale of 3,000,000 shares of common stock in this
offering at an assumed initial public offering price of $12.00 per share
after deducting the underwriting discount and estimated offering expenses,
the repayment of approximately $15.0 million of debt, of which
approximately $12.3 million relates to debt outstanding as of
September 30, 1999 and the redemption of all outstanding shares of
Series D Redeemable Preferred Stock for $10.0 million.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term borrowings and current portion of long-term
debt...................................................... $13,217 $13,217 $ 3,801
Long-term debt, less current portion........................ 8,493 8,493 2,909
Stockholders' equity:
Preferred stock, $0.01 par value, 502,500 shares
authorized; shares issued and outstanding:
Series C, $0.01 par value; 200,000 shares authorized and
100,000 shares issued and outstanding, actual; 0
shares issued and outstanding pro forma; and 0 shares
issued and outstanding pro forma as adjusted.......... 9,855 -- --
Series D, $0.01 par value; 200,000 shares authorized; 0
shares issued and outstanding, actual; 100,000 shares
issued and outstanding, pro forma; 0 shares issued and
outstanding, pro forma as adjusted.................... -- 10,000 --
Series B, $0.01 par value; 100,000 shares authorized;
60,492 shares issued and outstanding, actual; 0 shares
issued and outstanding, pro forma; 0 shares issued and
outstanding, pro forma as adjusted.................... 8,355 -- --
Series A, $0.01 par value; 2,500 shares authorized;
1,685 shares issued and outstanding, actual; 0 shares
issued and outstanding, pro forma; 0 shares issued and
outstanding, pro forma as adjusted.................... 1,685 -- --
Common stock, $0.01 par value per share; 50,000,000 shares
authorized; 2,360,767 shares issued and outstanding,
actual; 8,492,707 shares issued and outstanding, pro
forma; 11,492,707 shares issued and outstanding, pro
forma as adjusted....................................... 24 85 115
Additional paid-in capital................................ 9,305 19,139 51,689
Warrant................................................... 14 -- --
Unamortized deferred compensation......................... (135) (135) (135)
Retained earnings......................................... 2,784 2,798 2,798
Minimum pension liability................................. (294) (294) (294)
------- ------- -------
Total stockholders' equity.............................. 31,593 31,593 54,173
------- ------- -------
Total capitalization.................................... $53,303 $53,303 $60,883
======= ======= =======
</TABLE>
Common stock to be outstanding after the offering excludes 2,234,040 shares
issuable upon exercise of stock options outstanding as of September 30, 1999 and
790,760 shares issuable upon the exercise of an outstanding warrant held by
Seagate Technology.
See "Selected Consolidated Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and Notes thereto included in this prospectus.
14
<PAGE>
DILUTION
The pro forma net tangible book value of the common stock as of
September 30, 1999 was $30,445,000, or $3.59 per share, after giving effect to
the automatic conversion of all outstanding shares of Series A Convertible
Preferred Stock, Series B Convertible Preferred Stock and Series C Convertible
Preferred Stock into an aggregate of 6,131,940 shares of common stock which will
occur upon the consummation of this offering. After giving effect to the sale of
the common stock pursuant to this offering at an assumed initial public offering
price of $12.00 per share, and after deducting the underwriting discount and
estimated expenses of the offering, the adjusted pro forma net tangible book
value at September 30, 1999 would have been $63,025,000, or $5.48 per share.
Pro forma net tangible book value per share before the offering has been
determined by dividing pro forma net tangible book value (total tangible assets
less total liabilities) by the pro forma number of shares of common stock
outstanding at September 30, 1999. The offering will result in an increase in
pro forma net tangible book value per share of $1.89 to existing stockholders
and an immediate and substantial dilution of $6.52 to new investors who purchase
shares in the offering. Dilution is determined by subtracting pro forma net
tangible book value per share from the assumed initial public offering price of
$12.00 per share. The following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $ 12.00
Pro forma net tangible book value per share at September
30, 1999................................................ $ 3.59
Increase attributable to sale of common stock in the
offering (1)............................................ 1.89
--------
Pro forma net tangible book value per share after the
offering.................................................. 5.48
--------
Dilution to persons who purchase shares in the offering..... $ 6.52
========
</TABLE>
- ------------------------
(1) After deduction of the underwriting discount and estimated offering expenses
totaling $3,420,000.
The following table summarizes, on a pro forma basis as of September 30,
1999, the differences between the total consideration paid and the average price
per share paid by the existing shareholders and the new investors with respect
to the number of shares of common stock purchased from us based on an assumed
initial public offering price of $12.00 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)................ 8,492,707 73.9% $ 8,557,634 19.2% $ 1.01
New investors............................ 3,000,000 26.1 36,000,000 80.8% 12.00
---------- ----- ----------- ===== ------
Total.................................. 11,492,707 100.0% $44,557,634 100.0%
</TABLE>
- ------------------------
(1) The sale by the selling stockholders in the offering will reduce the number
of shares held by existing stockholders to 7,992,707 shares, or 70% 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
3,500,000 shares, or 30% of the total number of shares of common stock to be
outstanding after the offering. See "Principal and Selling Stockholders."
These tables do not assume exercise of stock options or warrants outstanding
as of September 30, 1999. At September 30, 1999, an aggregate of 2,234,040
shares of common stock were issuable upon the exercise of outstanding options at
a weighted average exercise price of $3.62 per share. Upon consummation of this
offering, a warrant will become convertible into 790,760 shares of common stock
at $5.58 per share. To the extent that outstanding options and this warrant are
exercised in the future, there will be further dilution to new investors.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data of CVC set forth below as of
September 30, 1998 and 1999 and for each of the years ended September 30, 1997,
1998 and 1999 are derived from CVC's audited consolidated financial statements,
which appear elsewhere in this prospectus. The selected consolidated financial
data as of September 30, 1995, 1996, and 1997 and for each of the years ended
September 30, 1995 and 1996 have been derived from audited consolidated
financial statements of CVC not included in this prospectus. The pro forma
September 30, 1999 balance sheet data reflects the automatic conversion of all
the outstanding shares of Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock into common stock, as well as the conversion of
Series C Convertible Preferred Stock into common stock and into Series D
Redeemable Preferred Stock. The data should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto and with Management's
Discussion and Analysis of Financial Condition and Results of Operations
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues.................................................... $21,358 $48,378 $62,588 $68,173 $82,915
Cost of goods sold.......................................... 15,630 33,755 41,286 42,019 50,502
------- ------- ------- ------- -------
Gross margin................................................ 5,728 14,623 21,302 26,154 32,413
Operating expenses:
Research and development.................................. 1,214 4,346 9,055 12,615 12,630
Sales and marketing....................................... 2,924 4,777 5,613 7,696 10,081
General and administrative................................ 1,447 2,124 2,539 3,476 4,822
In-process R&D write-off.................................. -- -- -- -- 1,174
------- ------- ------- ------- -------
Total..................................................... 5,585 11,247 17,207 23,787 28,707
Income from operations...................................... 143 3,376 4,095 2,367 3,706
Interest and other, net..................................... (559) (197) (593) (1,154) (198)
Write-off of deferred charges............................... -- -- -- (675) --
------- ------- ------- ------- -------
Income (loss) before income taxes........................... (416) 3,179 3,502 538 3,508
Income taxes (benefit)...................................... (546) -- 1,457 274 1,937
------- ------- ------- ------- -------
Net income.................................................. $ 130 $ 3,179 $ 2,045 $ 264 $ 1,571
======= ======= ======= ======= =======
Net income per share:
Basic..................................................... $ 0.18 $ 4.32 $ 2.67 $ 0.26 $ 1.01
Diluted................................................... 0.02 0.46 0.29 0.04 0.18
Weighted average shares outstanding:
Basic..................................................... 735 735 765 1,021 1,561
Diluted................................................... 5,302 6,914 6,992 7,070 8,589
</TABLE>
Assuming the conversion of the outstanding shares of Series A Convertible
Preferred Stock and Series B Convertible Preferred Stock into common stock and
the conversion of Series C Convertible Preferred Stock into common stock and
into Series D Redeemable Preferred Stock, basic pro forma earnings per share for
the year ended September 30, 1999 was $0.21. Diluted earnings per share is
unchanged from the historical diluted earnings per share amount.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
-----------------------------------------------------------------
PRO FORMA
1995 1996 1997 1998 1999 1999
-------- -------- -------- -------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 3,157 $ 730 $ 2,161 $ 106 $ 434 $ 434
Working capital............................................. 5,429 8,816 9,259 10,904 22,104 22,104
Total assets................................................ 23,554 31,837 43,833 42,764 75,917 75,917
Short term borrowings and current portion of long-term
debt...................................................... 188 894 2,295 5,689 13,217 13,217
Long-term debt, less current portion........................ 3,528 5,635 5,309 11,379 8,493 8,493
Preferred stock........................................... 10,040 10,040 10,040 10,040 19,895 10,000
Common stockholders' equity (deficit)..................... (3,857) (721) 1,388 1,940 11,698 21,593
Total stockholders' equity.................................. 6,183 9,319 11,428 11,980 31,593 31,593
</TABLE>
16
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
The following unaudited pro forma statements of operations for the year
ended September 30, 1999 give effect to the May 10, 1999 acquisition of
Commonwealth Scientific Corporation. The unaudited pro forma statements of
operations are based on the statements of operations for CVC, appearing
elsewhere in this prospectus, and the statements of operations of Commonwealth
as if the acquisition occurred on October 1, 1998. The Commonwealth statements
of operations have been modified to conform to CVC's fiscal year end by
combining the quarterly operating results for the quarters ended December 31,
1998 and March 31, 1999 with the interim results for the period April 1 to
May 9, 1999. These unaudited pro forma statements of operations should be read
in conjunction with the historical financial statements and notes thereto of CVC
and Commonwealth included elsewhere in this prospectus.
The unaudited pro forma combined statements of operations give effect to the
following pro forma adjustments necessary to reflect the acquisition of
Commonwealth:
- Reduction in operating expenses related to the restructuring activities
undertaken, solely comprised of Commonwealth employees terminated as of or
shortly after the acquisition;
- Elimination of the write-off of the portion of the purchase price
allocated in-process research and development, due to its one-time nature;
- Amortization of goodwill and other intangibles over periods ranging from
five to seven years; and
- Decrease in income taxes related to adjustments.
Amounts are in thousands, except for per share data.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1999
----------------------------------------------------
CVC COMMONWEALTH ADJUSTMENTS COMBINED
-------- ------------ ----------- --------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS:
Revenues...................................... $82,915 $ 18,926 $ -- $101,841
Cost of goods sold............................ 50,502 17,350 -- 67,852
------- -------- --------- --------
Gross margin.................................. 32,413 1,576 -- 33,989
Operating expenses............................ 27,482 6,538 (840) 33,180
In-process R&D write-off...................... 1,174 -- (1,174) --
Goodwill and intangibles amortization......... 51 -- 80 131
------- -------- --------- --------
Total operating expenses.................... 28,707 6,538 (1,934) 33,311
------- -------- --------- --------
Income (loss) from operations................. 3,706 (4,962) 1,934 678
Interest and other, net....................... (198) (305) -- (503)
------- -------- --------- --------
Income (loss) before income taxes............. 3,508 (5,267) 1,934 175
Income taxes (benefit)........................ 1,937 (1,488) (336) 113
------- -------- --------- --------
Net income (loss)............................. $ 1,571 $ (3,779) $ 2,270 $ 62
======= ======== ========= ========
Net income per share:
Basic....................................... $ 1.01 $ 0.03
Diluted..................................... 0.18 0.01
Weighted average shares outstanding:
Basic....................................... 1,561 772 2,333
Diluted..................................... 8,589 772 9,361
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. CVC'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF FACTORS INCLUDING
THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THE PROSPECTUS. THE
FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH "SELECTED
CONSOLIDATED FINANCIAL DATA" AND THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
CVC is a worldwide supplier of process equipment used in the manufacture of
magnetic recording heads for disk drives and advanced semiconductor devices for
computers and communications equipment. CVC's principal product is the CONNEXION
Cluster Tool system, which provides integrated deposition and etch equipment
based on a central substrate handling platform and a series of interchangeable
thin film deposition and etch processing modules. CVC also derives revenue from
the sale of sources, spare parts, enhancements, and field service contracts.
System revenues represented 71% in fiscal 1999, 83% in fiscal 1998 and 85% in
fiscal 1997 of CVC's total revenue. In order to expand its technology and
broaden its offering of process modules, CVC acquired Commonwealth Scientific
Corporation in May 1999. Commonwealth's primary products are ion beam etch, ion
beam deposition and diamond-like carbon process modules for the data storage
industry and ion beam sources principally used by suppliers of optical
equipment.
CVC's growth in the past four years has been primarily due to the expansion
of the disk drive industry and transition of the industry to magnetoresistive,
or MR, heads and giant magnetoresistive, or GMR, heads. During fiscal 1999,
fiscal 1998 and fiscal 1997, 85%, 77% and 88% of CVC's revenue was derived from
sales made to manufacturers of magnetic recording heads and 9%, 21%, and 9% was
derived from sales to manufacturers of semiconductor devices, with the remainder
of the revenue derived from ancillary products and services. CVC's top four
customers for fiscal 1999, were Seagate, IBM, TDK and Alps, all of whom
manufacture magnetic recording heads. CVC expects that these customers will
continue to account for a significant portion of CVC's fiscal 2000 revenues and
that significant customer concentration will continue for the foreseeable
future.
CVC recognizes revenue from system sales, enhancements and spare parts at
the time of shipment. Provisions for estimated installation and warranty costs
are recorded at the time revenue is recognized. Revenue on field service
contracts is deferred and recognized on a straight-line basis over the period of
the contract.
Revenue derived from system sales is dependent upon the timing of orders,
customer requirements for additional manufacturing capacity and CVC's ability to
respond on a timely basis to rapid technological developments. CVC's customers
typically place large orders, which could cause revenues to fluctuate
significantly from period to period. Orders for system sales range in price from
approximately $1.0 million to $4.0 million, depending on the configuration of
the system. For example, in the second half of fiscal 1998 and the first quarter
of fiscal 1999, CVC's revenues were adversely affected by reduced orders from
magnetic head manufacturers, who experienced reduced demands, inventory
surpluses and poor operating results and as a result, deferred capital
expenditures of fabrication equipment. In recent quarters, magnetic head
manufacturers have increased capital spending to acquire new process
technologies that enable them to produce GMR heads. Because the data storage and
semiconductor industries are highly cyclical, and orders in CVC's backlog are
subject to cancellation or rescheduling, CVC's visibility on revenues for future
periods is limited, and its operating results could fluctuate significantly from
period to period.
International sales accounted for 53%, 38% and 31% of our total revenues in
fiscal 1999, fiscal 1998 and fiscal 1997. CVC expects that international sales
will continue to account for a significant
18
<PAGE>
portion of our revenue in the foreseeable future. CVC's international sales are
denominated in U.S. dollars. As a result, changes in the value of foreign
currencies relative to the value of the U.S. dollar can render our products
comparatively more expensive. Although CVC has not been significantly negatively
impacted in the past by foreign currency changes in Japan, Korea, Taiwan and
Europe, currency changes could negatively impact its international sales in
future periods.
CVC's gross margin is influenced by a number of factors related to the mix
of revenues within a particular period. For example, systems for new process
applications tend to have lower margins initially than those for existing
processes. As a result, sales to semiconductor manufacturers, whose process
requirements tend to be unique, generally have a lower gross margin than sales
to magnetic recording head manufacturers, who typically purchase systems for
which we have significantly more processing experience. Sales to international
customers typically have a lower gross margin than sales to domestic customers.
In addition, revenues from ion beam sources, enhancements, spare parts and field
service contracts typically have a higher gross margin than system margins. As a
result of these factors, CVC expects its gross margin to fluctuate from period
to period.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
revenues for the following items in CVC's consolidated statement of operations
data.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Revenues.................................................... 100.0% 100.0% 100.0%
Cost of goods sold.......................................... 66.0 61.6 60.9
----- ----- -----
Gross margin................................................ 34.0 38.4 39.1
Operating expenses
Research and development.................................. 14.5 18.5 15.2
Sales and marketing....................................... 9.0 11.3 12.2
General and administrative................................ 4.0 5.1 5.8
In-process R&D write-off.................................. -- -- 1.4
----- ----- -----
Total..................................................... 27.5 34.9 34.6
Income from operations...................................... 6.5 3.5 4.5
Interest and other, net..................................... (0.9) (1.7) (0.3)
Write-off of deferred charges............................... -- (1.0) --
----- ----- -----
Income before income taxes.................................. 5.6 0.8 4.2
Income taxes................................................ 2.3 0.4 2.3
----- ----- -----
Net income.................................................. 3.3 0.4 1.9
===== ===== =====
</TABLE>
YEAR ENDED SEPTEMBER 30, 1999 COMPARED TO YEAR ENDED SEPTEMBER 30, 1998
REVENUES. Revenues increased 21.6% to $82.9 million for the year ended
September 30, 1999 from $68.2 million for the year ended September 30, 1998. The
increase is primarily attributable to additional sales resulting from the
Commonwealth acquisition of $13.3 million and increased sales to data storage
customers of $7.0 million, which offset lower sales of CVC's systems to
semiconductor customers of $7.0 million. CVC believes that the decrease in sales
to semiconductor customers reflected residual effects of the semiconductor
market downturn in 1998.
GROSS MARGIN. Gross margin increased to 39.1% of revenues for the year
ended September 30, 1999 from 38.4% for the year ended September 30, 1998. Gross
margin contribution in fiscal 1999 was affected by the lower margins of 30.9% on
sales of the product lines from the Commonwealth
19
<PAGE>
acquisition. Gross margins excluding the impact of the Commonwealth acquisition
product lines would have been 40.7%. The lower gross margins in fiscal 1998
reflect the higher percentage of new system sales to semiconductor customers,
which usually have lower margins.
RESEARCH AND DEVELOPMENT. Research and development expenses were unchanged
at $12.6 million for fiscal 1999 compared to fiscal 1998. As a percentage of
revenues, research and development expenses decreased to 15.2% for fiscal 1999
compared to 18.5% for fiscal 1998. The higher relative expenditure level in
fiscal 1998 is primarily attributable to material expenses of $0.9 million
associated with the completion of a government contract. Expenses in fiscal 1999
reflect additional research and development expenses of $1.3 million from the
acquisition of Commonwealth, higher depreciation expense of $1.1 million due to
additional capitalization of demonstration tools, partially offset by lower
personnel costs of $0.9 million and lower material costs of $0.2 million related
to internal development projects. Although fiscal 1999 expenditure levels were
unchanged compared to fiscal 1998, CVC believes that research and development
expenditures are essential to maintaining its competitive position in the data
storage and semiconductor markets and expects these expenditure levels to
increase in absolute dollars for the foreseeable future.
SALES AND MARKETING. Sales and marketing expenses increased by 31.0% to
$10.1 million for fiscal 1999 from $7.7 million for fiscal 1998. As a percentage
of revenues, sales and marketing expenses increased to 12.2% for fiscal 1999
from 11.3% for fiscal 1998. The increase is attributable to the addition of
personnel and their related expenses of $1.6 million as a result of the
Commonwealth acquisition, additional personnel and related expenses in field
service of $0.6 million to support CVC's expanded product offering and customer
base, and increased expenses of $0.4 million for product demonstrations.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
38.7% to $4.8 million for fiscal 1999 from $3.5 million for fiscal 1998. As a
percentage of revenues, administrative expenses were 5.8% for fiscal 1999, and
5.1% for fiscal 1998. The increase in general and administrative expenses
reflects additional administration expenses of $0.5 million due to the
Commonwealth acquisition, as well as additional accruals for doubtful accounts
of $0.3 million, and other accruals for post-employment and pension benefits of
$0.2 million.
IN-PROCESS R&D WRITE-OFF. During fiscal 1999, as part of the purchase of
Commonwealth, the value assigned to research expenditures on products in the
development stage which have not reached technological feasibility and for which
there is no alternative future use were written off in accordance with
applicable accounting rules. This write-off amounted to approximately
$1.2 million.
The in-process technology acquired from Commonwealth consists of four
technology groupings: ion source products, etch modules, deposition modules, and
dielectric deposition modules, which have assigned values of $0.2 million,
$0.5 million, $0.3 million and $0.2 million. Descriptions of these groupings are
as follows:
- Ion source products, including both ion sources and power supplies, are
being designed for use in applications that include etching, deposition,
surface modification, and ion assist.
- The etch modules are being designed to support the market requirements for
ion beam processing applications.
- The deposition modules are being designed to support very thin metallic
film through ion beam sputter deposition of target materials.
- The dielectric deposition modules are being designed to support very thin
dielectric film through ion beam sputter deposition of target materials.
20
<PAGE>
As of the date of acquisition, $4.5 million had been expended to develop
these R&D projects. The estimated cost to complete these projects is
approximately $2.9 million, to be incurred through fiscal 2000.
There is a risk associated with the completion of the R&D projects, and CVC
cannot assure that any of the projects will have technological and commercial
success without the successful completion of the remaining R&D efforts on the
acquired in-process technologies. Without the successful completion of the
remaining R&D efforts, CVC would not realize the future revenues and profits
attributed to the acquired R&D. CVC believes, however, that the failure of any
particular in-process R&D project would not materially impact CVC's financial
position or operating results.
At September 30, 1999, the estimated development completion dates and costs
of the in-process R&D projects acquired from Commonwealth are consistent with
the estimates made at the acquisition date.
INTEREST AND OTHER, NET. Interest and other, net decreased to $0.2 million
for fiscal 1999 from the $1.2 million for fiscal 1998. The decrease in interest
and other, net primarily reflects reduced interest expense of $0.1 million due
to the reduction of borrowings with the proceeds from the sale of preferred
stock in December 1998, a one-time gain of $0.4 million associated with the sale
of two non-core product lines and a one-time lawsuit settlement of $0.5 million
for patent infringement.
INCOME TAXES. Income tax expense for fiscal 1999 amounted to $1.9 million
compared to $0.3 million for fiscal 1998. The effective tax rate for fiscal 1999
was 55.2% compared to the effective rate of 50.9% for fiscal 1998. The increase
is the result of the non-deductible in-process R&D write-off.
YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO YEAR ENDED SEPTEMBER 30, 1997
REVENUES. Revenues increased 8.9% to $68.2 million in fiscal 1998 from
$62.6 million in fiscal 1997. The increase in revenues is primarily attributable
to increased systems sales of $7.4 million and spare sales of $0.9 million to
new semiconductor customers. The majority of this increased volume was to new
customers placing their initial system order. Partially offsetting these
increases was decreased system sales to data storage customers by $5.0 million
as demand decreased due to a general downturn in the industry.
GROSS MARGIN. Gross margin increased to 38.4% of revenues in fiscal 1998
from 34.0% in fiscal 1997. The margin improvement was attributable to lower
systems manufacturing costs as the result of efficiencies derived from repeat
orders and increased sales of higher margin spares at 57% and enhancements at
64%.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 39.3%
to $12.6 million in fiscal 1998 from $9.1 million in fiscal 1997. As a
percentage of revenues, research and development expenses increased to 18.5% in
fiscal 1998 from 14.5% in fiscal 1997. The increase is attributable to increased
expenditures for an expanded demonstration program of $0.3 million, increased
personnel costs due to the hiring of engineers in the fourth quarter 1997 to
support the expanded demonstration program and new development projects of $1.5
million, increased depreciation of $0.6 million as well as expenses related to
government contracts of $0.5 million.
SALES AND MARKETING. Sales and marketing expenses increased 37.1% to
$7.7 million in fiscal 1998 from $5.6 million in fiscal 1997. As a percentage of
revenues, sales and marketing expenses increased to 11.3% in fiscal 1998 from
9.0% in fiscal 1997. The increase is attributable to the addition of marketing
personnel to support the semiconductor market of $0.5 million, the addition of
field service personnel of $0.8 million, increased trade show and advertising
expense of $0.3 million, and higher commissions resulting from increased system
sales of $0.1 million.
21
<PAGE>
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
36.9% to $3.5 million in fiscal 1998 from $2.5 million in fiscal 1997. As a
percentage of revenues, general and administrative expenses increased to 5.1% in
fiscal 1998 compared to 4.0% in fiscal 1997. The increase is attributable to
the full year impact of additional employees hired in fiscal 1997 as well as
several new hires in
fiscal 1998 of $0.4 million, an increase of $0.2 million in consulting services
directly related to the implementation of a new computer system and an increase
of $0.1 million in depreciation for computer systems installed in fiscal 1998
and fiscal 1997.
INTEREST AND OTHER, NET. Interest and other, net increased to $1.2 million
in fiscal 1998 from $0.6 million in fiscal 1997, reflecting an increase in
borrowings on the credit line and interest expense on a new $8.0 million term
loan.
WRITE-OFF OF DEFERRED CHARGES. In fiscal 1997, costs were incurred relative
to preparing CVC for its initial public offering. During the fourth quarter of
fiscal 1998, the intent to complete the public offering was withdrawn due to
continued weakness in the data storage and semiconductor industries and the
equity market for initial public offerings and, accordingly, these costs were
charged against current period earnings.
INCOME TAXES. Income tax expense in fiscal 1998 was $0.3 million compared
to $1.5 million in fiscal 1997. The effective tax rate for fiscal 1998 was 50.9%
compared to the effective rate of 41.6% in fiscal 1997. The increase of 9.3% was
due to permanent non-tax deductible expenses and a low level of profitability,
partially offset by the utilization of a valuation allowance related to net
operating loss carryforwards.
22
<PAGE>
QUARTERLY OPERATING RESULTS
The following tables set forth CVC's operating results for each of the eight
quarters ended September 30, 1999. 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 CVC considers
necessary to present fairly this information when read in conjunction with CVC'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. CVC's operating results for any one quarter are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
DEC 31, MAR 31, JUNE 30, SEPT 30, DEC 31, MAR 31, JUNE 30, SEPT 30,
1997 1998 1998 1998 1998 1999 1999 1999
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS:
Revenues.................................. $19,346 $20,529 $14,400 $13,898 $14,655 $17,788 $23,352 $27,120
Cost of goods sold........................ 12,307 13,108 8,265 8,339 8,249 10,983 14,934 16,336
------- ------- ------- ------- ------- ------- ------- -------
Gross margin.............................. 7,039 7,421 6,135 5,559 6,406 6,805 8,418 10,784
Operating expenses
Research and development................ 2,867 4,009 2,968 2,771 2,439 2,546 3,504 4,141
Sales and marketing..................... 1,885 1,913 1,620 2,278 1,930 1,832 2,633 3,686
General and administrative.............. 1,028 865 1,006 577 812 902 1,238 1,870
In-process R&D write-off................ -- -- -- -- -- -- 1,174 --
------- ------- ------- ------- ------- ------- ------- -------
Total................................... 5,780 6,787 5,594 5,626 5,181 5,280 8,549 9,697
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from operations............. 1,259 634 541 (67) 1,225 1,525 (131) 1,087
Interest and other, net................... (211) (305) (414) (224) (326) 190 (220) 158
Write-off of deferred charges............. -- -- -- (675) -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes......... 1,048 329 127 (966) 899 1,715 (351) 1,245
Income taxes (benefit).................... 436 137 53 (352) 419 757 348 413
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)......................... $ 612 $ 192 $ 74 $ (614) $ 480 $ 958 $ (699) $ 832
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DEC 31, MAR 31, JUNE 30, SEPT 30, DEC 31, MAR 31, JUNE 30, SEPT 30,
1997 1998 1998 1998 1998 1999 1999 1999
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERCENTAGE OF REVENUE:
Revenues.................................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross margin.............................. 36.4 36.1 42.6 40.0 43.7 38.3 36.0 39.8
Operating expenses
Research and development................ 14.8 19.5 20.6 19.9 16.6 14.3 15.0 15.3
Sales and marketing..................... 9.8 9.3 11.2 16.4 13.2 10.3 11.3 13.6
General and administrative.............. 5.3 4.2 7.0 4.2 5.5 5.1 5.3 6.9
In-process R&D write-off................ -- -- -- -- -- -- 5.0 --
------ ------ ------ ------ ------ ------ ------ ------
Total................................... 29.9 33.0 38.8 40.5 35.3 29.7 36.6 35.8
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from operations............. 6.5 3.1 3.8 (0.5) 8.4 8.6 (0.6) 4.0
Interest and other, net................... (1.1) (1.5) (2.9) (1.6) (2.2) 1.1 (0.9) 0.6
Write-off of deferred charges............. -- -- -- (4.9) -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)......................... 3.2% 0.9% 0.5% (4.4%) 3.3% 5.4% (3.0%) 3.1%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
CVC's quarterly and annual operating results are affected by a wide variety
of factors that could materially and adversely affect revenues and profitability
from period to period, including:
- specific economic conditions in the data storage and semiconductor
industries
- the timing of significant orders
- cyclical patterns of capital spending by customers
- modification or cancellation of customer orders
- continued market acceptance of our systems and our customers' products
- shipment delays
- loss of a significant customer
- increased research and development or marketing costs associated with our
introduction of new products
- introduction of new products by our customers
23
<PAGE>
- our ability to successfully introduce new products on a timely basis
- changes in our pricing policies or those of our competitors
- production and quality problems
- the publication of opinions by industry analysts about us, our products or
our competitors
CVC's revenues have fluctuated over the past eight quarters primarily due to
the overall decline in the data storage and semiconductor markets in 1998, which
adversely affected CVC's sales for the last two quarters of fiscal 1998 and the
first quarter of fiscal 1999. CVC's quarterly gross margin is influenced by a
number of factors relating to the level and mix of revenues for products
carrying different gross margins, as well as the type of customer, whether data
storage or semiconductor manufacturers, and type of order, whether a repeat or
new application. Repeat orders generally have lower costs associated with the
order due to manufacturing efficiencies. Gross margin as a percentage of sales
increased during the last two quarters of fiscal 1998 and the first quarter of
fiscal 1999 due to: (1) a higher percentage of total revenues generated from
increased sales of spare parts and enhancements carrying relatively higher gross
margins and (2) a higher percentage of total system revenues generated from
repeat system sales to data storage customers carrying relatively higher gross
margins. Gross margin as a percentage of sales decreased during the third and
fourth quarters of fiscal 1999 in part due to the consolidation of
Commonwealth's operating results from May 10, 1999, the date of the acquisition.
Sales and marketing as a percentage of sales increased during the fourth
quarter of fiscal 1998 due to an increase in advertising, customer
demonstrations and exhibits expense. Sales and marketing as a percentage of
sales increased during the fourth quarter of fiscal 1999 due to an increase in
distribution commisions, employee relocation and customer service expenses
associated with the integration of Commonwealth. General and administrative
expenses as a percentage of sales increased during the fourth quarter of fiscal
1999 due to an increase in allowances for bad debt, accounting fees and business
system implementation all associated with the integration of Commonwealth.
Due to potential quarterly fluctuations in operating results, CVC 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 CVC's net sales or operating results were 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
In recent years, CVC has financed its capital and operating needs
principally through the sale of $10.0 million of its preferred securities,
advances from customers, and borrowings under various credit facilities. As of
September 30, 1999, CVC had working capital of $22.1 million, including cash and
cash equivalents of $0.4 million, compared to working capital of $10.9 million
and $9.3 million at September 30, 1998 and 1997. Operating activities in fiscal
1999 used cash flow of $4.8 million, as compared with fiscal 1998 in which
operating activities used cash of $6.9 million and fiscal 1997 in which
operating activities provided cash of $3.1 million. In fiscal 1999, increased
accounts receivable and reduced customer advances used cash of $12.0 million and
$2.4 million, respectively, and were partially offset by increased depreciation
of $4.2 million, increased net income of $1.6 million reduced inventories of
$1.4 million, in process R&D write-off of $1.2 million, increased accounts
payable of $0.7 million, and decreased other assets of $0.5 million. The
significant increase in the use of cash for accounts receivables from 1998 to
1999 is due to the increased fourth quarter revenue year over year from
$13.9 million to $27.1 million. The use of cash in operating activities in
fiscal 1998 was a direct result of a $7.5 million decrease in advances from
customers generally attributable to lower order rates from customers, and a
$2.8 million decrease in accounts payable. These decreased liabilities were
partially offset by $2.2 million in depreciation and reduced levels of
receivables and inventory, which provided cash of $1.3 million and
$1.7 million, respectively. These net changes reflect lower fourth quarter sales
in fiscal 1998 as compared to fiscal 1997 by approximately $5.1 million combined
with
24
<PAGE>
overall inventory level reductions. Of the cash provided from operating
activities in 1997, 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. Increases in accounts receivable and inventories
used $3.4 million and $5.8 million of operating cash flow in 1997.
In fiscal 1999, 1998 and 1997, CVC invested $4.0 million, $6.6 million and
$2.8 million, respectively, in capital expenditures. The capital expenditures
were primarily for facilities, machinery and equipment, computers and related
equipment, and demonstration system tools. CVC has invested heavily in
demonstration tools for use at its facilities in order to demonstrate new
product capabilities for its magnetic head and semiconductor device customers.
Although CVC currently has no significant capital commitments, it expects to
spend approximately $6.0 million on capital expenditures over the next
12 months.
As of September 30, 1999, CVC's principal source of liquidity consisted of a
$15.0 million line of credit under a demand line and term loan agreement, under
which there were $10.7 million in borrowings. As of the end of the third quarter
in fiscal 1999, CVC was not in compliance with one financial test relating to
minimum backlog levels to be met under the agreement and thus, CVC was in
technical default of the agreement. The lender has waived in writing its rights
regarding prior lack of compliance and, as of September 30, 1999, CVC was in
compliance with all covenants in this agreement. Borrowings associated with term
loans from a commercial bank as of September 30, 1999 amounted to $8.0 million.
One of these loans requires monthly payments of principal and interest at prime
plus 1/2% while the other term loan requires monthly payments of principal and
interest at 8.39%. CVC also has available an equipment line of credit at
September 30, 1999 which allows for maximum borrowings of $3.0 million.
Borrowings under the agreement are at an interest rate of prime. There are no
amounts outstanding under the equipment line of credit at September 30, 1999.
CVC has a mortgage credit facility which requires monthly payments of principal
and interest at 5.29% on the first $500,000 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, CVC may select the interest
rate on the remaining principal from fixed or variable interest rate
alternatives.
CVC's principal liquidity requirements are expected to be for working
capital, capital expenditures, demonstration equipment, and if appropriate,
acquisitions. CVC intends to use the proceeds of the offering for general
corporate purposes, including approximately $6.3 million for capital
expenditures relating to facility expansion and manufacturing and demonstration
equipment, $15.0 million for repayment of debt, $10.0 million to reduce the
Series D Redeemable Preferred Stock, and the balance for additional working
capital. See "Use of Proceeds." CVC believes that cash from operations, and bank
borrowings, together with the net proceeds of the sale of common stock by CVC in
the offering, will be adequate to fund operations for at least the next
12 months.
CVC's long-term capital requirements will be affected by many factors,
including the success of CVC's current product offerings, CVC'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. CVC plans to finance its long-term capital needs with
the net proceeds of this offering, together with borrowings and cash flow from
operations. To the extent that these funds are insufficient to finance CVC's
activities, CVC 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.
YEAR 2000
The Year 2000 issue is the result of computer programs using two digits
rather than four to define the applicable year. Any of CVC's computer programs
or hardware or other equipment that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather
25
<PAGE>
than the year 2000. This could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities.
In order to upgrade its overall business systems' hardware and software and
to enable those systems to properly use dates beyond December 31, 1999, CVC
installed a new business system in May 1999 which has been certified by the
vendor as Year 2000 compliant. In addition, CVC is in the process of completing
its inventory and assessment of its desktop systems and laptops. CVC currently
uses standard "off the shelf" vendor-supplied software on its desktop systems
and laptops. Many of these vendors are still implementing their Year 2000
compliance programs and CVC will implement the Year 2000 compliant versions as
required when those solutions are available. CVC has run internal tests on its
desktop systems and laptops and believes it has identified those systems and
laptops which require upgrade or replacement. CVC currently expects that these
remediation efforts will be complete by November 1999. CVC believes that with
these and other modifications or replacements of its business systems' existing
software and, in some cases, hardware, its computer programs should be able to
continue to operate effectively after December 31, 1999. However, if these
modifications and replacements are not made, or are not completed in a timely
manner, the Year 2000 issue could have a material adverse impact on CVC's
operations. With respect to its facilities and technical support systems such as
security, voice mail and phone systems, CVC has contacted its suppliers of those
systems and suppliers have informed CVC that the non-information technology
systems they provide to CVC are Year 2000 compliant.
CVC also relies directly and indirectly on the external systems of its
customers, suppliers, subcontractors, utilities providers and other third
parties. CVC has contacted these third parties about their Year 2000 readiness.
These third parties have either informed CVC that the systems they provide to
CVC are either Year 2000 compliant or are in the process of upgrading those
systems that are not Year 2000 compliant. For those systems that are not Year
2000 compliant, CVC and the particular supplier are in the process of upgrading
the affected systems, a process which CVC currently expects to be complete by
November 1999. To date, CVC is not aware of any third-party Year 2000 issues
that could materially impact its results of operations, liquidity or capital
resources. However, CVC has no means of ensuring that the third parties that it
deals with will be Year 2000 ready. If the systems of any third parties with
which CVC interacts experience Year 2000 problems, CVC's business, financial
condition or results of operations could be materially adversely affected. CVC
cannot be certain that the systems of third parties with which it interacts will
not suffer from Year 2000 problems.
CVC has warranted that all of its products shipped after June 1999 are Year
2000 ready. The Company believes that, based on internal testing, these products
are Year 2000 ready and therefore any remediation expense with respect to these
products will be minimal. Some of CVC's products shipped before June 1999 may
require upgrades to be Year 2000 ready. Although these products were not
warranted by CVC to be Year 2000 ready, CVC has offered to provide the necessary
upgrades to customers who use these products. A substantial majority of these
customers have accepted or requested the upgrades. Although in general CVC
charges a fee for upgrading products that it shipped prior to June 1999, it has
not charged all customers for these upgrades. The Company does not believe that
the costs it may incur in providing all upgrades requested by its customers will
be material. Notwithstanding these efforts, if any of CVC's products fails to
perform or causes a system malfunction due to the onset of Year 2000, customers
could bring claims against CVC, which could have a material adverse effect on
CVC's business, results of operations or financial condition. Moreover, CVC's
customers could choose to convert to other Year 2000 ready products in order to
avoid these kinds of malfunctions, which could have a material adverse effect on
CVC's business, results of operations or financial condition. CVC has worked
with its customers to plan for any impact the Year 2000 has on its customers'
businesses as it relates to CVC products used by its customers. In general,
however, CVC has not taken efforts to determine whether its customers'
businesses as a whole are Year 2000 ready. If
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<PAGE>
our customers' businesses are negatively impacted by their failure to be Year
2000 ready as a whole, our business may be harmed.
CVC has formulated a Year 2000 contingency plan. CVC's reasonably likely
worst case scenario with respect to the Year 2000 issue would be disruption of
its internal operating systems, particularly its accounting and billing systems.
A disruption of this type may adversely impact CVC's business by creating a
delay in payment by our customers and a corresponding increase in CVC's accounts
receivable. We may also be required to purchase alternative hardware and
software systems, incurring additional costs and suffering additional delays
associated with implementing new systems. While we are confident we would be
able to remediate these problems, the delays associated with remediation would
harm our business. CVC cannot be certain, however, that any measures it adopts
will prevent the occurrence of Year 2000 problems, which could have a material
adverse effect on its business, results of operations or financial condition.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Effective October 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income", which
establishes new rules for the reporting and display of comprehensive income and
its components; however, the adoption had no impact on the Company's net income
or stockholders' equity. SFAS No. 130 requires changes to the minimum pension
liability, to be included in other comprehensive income. Prior year financial
statements have been reclassified to conform to the requirements of SFAS No.
130.
In April 1998, the Accounting Standards Executive Committee issued Statement
of Position (SOP) 98-5, "Reporting on the Costs of Start-Up Activities."
Start-up activities are defined broadly as those one-time activities relating to
opening a new facility, introducing a new product or service, conducting
business in a new territory, conducting business with a new class of customer,
commencing some new operation or organizing a new entity. Under SOP 98-5, the
cost of start-up activities should be expensed as incurred. SOP 98-5 is
effective for CVC's fiscal year 2000 financial statements and CVC does not
expect its adoption to have a material effect on its financial condition or
results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The new standard
establishes accounting and reporting standards for derivative instruments,
including types of derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133 is effective for all quarters of fiscal years
beginning after June 15, 2000. CVC does not expect SFAS No. 133 to have a
material effect on its financial condition or results of operations.
27
<PAGE>
BUSINESS
INTRODUCTION
CVC is a worldwide supplier of process equipment used in the manufacture of
magnetic recording heads for disk drives and advanced semiconductor devices for
computers and communications equipment. Our equipment either deposits or removes
thin film layers as steps in the process of manufacturing magnetic recording
heads and semiconductor devices. Since 1993, we have shipped more than 100
CONNEXION Cluster Tool systems, including more than 400 process modules. Our
customers include many of the leading manufacturers of magnetic recording heads
for the data storage industry such as Alps, Fujitsu, IBM, Read-Rite, Seagate
Technology, TDK and Yamaha, as well as manufacturers of semiconductor devices
such as Anadigics, Analog Devices, Honeywell and M/A-COM.
INDUSTRY BACKGROUND
THE DATA STORAGE INDUSTRY
In order to satisfy market demand for devices with greater storage capacity,
the disk drive industry has developed new types of recording heads enabling
greater areal density. Areal density is the measure of stored bits per square
inch in the recording surface of a disk. According to data storage industry
sources, areal densities have been increasing approximately 60% per year since
1990. The growth in areal density, or storage capacity, has been facilitated by
the evolution of recording head manufacturing technology from IR, or inductive
recording heads, to MR, or magnetoresistive heads, to the more recent
introduction of giant magnetoresistive heads, or GMR heads.
According to TrendFocus, giant magnetoresistive head shipments are expected
to increase from 0.4 billion units in 1999 to 1.2 billion units in 2002, while
the shipment of magnetoresistive heads are expected to decrease from
0.5 billion units in 1999 to limited shipments by 2002. The disk drive
industry's expected growth and transition to technologically advanced recording
heads reflect a number of factors, including:
- the exchange of increasing volumes of data among users across the Internet
and intranets;
- the rapid accumulation of data resulting from growth of digital content,
including audio, video and data;
- continued improvements in computing price performance ratios, including
the emergence of the sub-$1,000 personal computer; and
- the introduction of new applications for storage devices such as digital
cameras, auto navigation, video on demand and personal digital assistants,
or PDAs.
Magnetic recording heads are manufactured using various thin film deposition
and etch processes, which provide magnetic, conductive and insulating
properties. More advanced heads typically require the deposition of
approximately 18 to 28 thin film layers of different materials. CVC believes
that the data storage industry's current transition to more advanced
technologies will require the data storage industry to make investments in
advanced processing equipment to support both the technology transition and
anticipated volume growth.
THE SEMICONDUCTOR INDUSTRY
The manufacture of semiconductors involves multiple thin film processing
steps. Semiconductor devices that utilize exotic substrates, such as Gallium
Arsenide, or GaAs, are more difficult to produce due to physical characteristics
such as lower maximum tolerable processing temperatures and less mechanical
strength of the substrates. However, these substrates enable the fabrication of
high-speed, high-performance devices with low power consumption that make them
ideally suited for advanced communications applications, such as portable
communication devices, including digital pagers and cellular phones. Due to the
characteristics of these exotic substrates, the fabrication of devices involving
these substrates requires advanced process equipment that can provide multiple,
highly uniform, precision thin film materials.
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In order to increase the performance and reduce the cost of semiconductor
devices, manufacturers have continued to shrink line widths, while at the same
time adding multiple layers of metal interconnect materials. Semiconductor
manufacturers currently use aluminum or aluminum alloys to interconnect the
various layers of a semiconductor device. As semiconductor line widths shrink
below 0.18 microns, or 0.18 millionths of a meter, copper is increasingly being
used as an alternative to aluminum interconnects. Copper provides less
resistance to electron flow at narrow line widths and makes it possible to build
high speed devices using fewer interconnect layers than would be necessary with
aluminum. The deposition of copper interconnect material requires two steps:
(1) the deposition of a barrier layer, to protect the insulating layers from
being contaminated by copper, and (2) the deposition of seed and copper fill
layers, which serve as the interconnect. The deposition of interconnect material
involves very specialized substrate processing equipment, including metal
deposition equipment. According to Dataquest, copper deposition equipment sales
are expected to grow from $200 million in 1999 to $700 million in 2003.
SUBSTRATE PROCESSING
The manufacture of magnetic recording heads and semiconductors requires from
tens to hundreds of fabrication processing steps. Many of these steps involve
the controlled application or removal of layers of materials to or from a base
material, or substrate, or on a previously deposited layer. The application of
materials to a wafer, known as deposition, involves the building up of extremely
thin films of electrically insulating or conducting materials. These layers can
range from over one-thousandth to less than one-millionth of a millimeter in
thickness. A wide range of materials and deposition processes are used to build
up thin film layers on substrates to achieve specific performance
characteristics. The removal of material from substrates, known as etching,
involves the precise removal of residue or excess material using dry plasma or
ion beams in order to build a specific pattern, for example, to form a
semiconductor device.
The process of manufacturing magnetic recording heads and semiconductors is
constantly evolving to address the demand for smaller devices with higher
performance. Devices with smaller features sizes and higher levels of
performance require new materials or more manufacturing steps involving multiple
layers of thin film materials. To successfully develop new manufacturing
processes, thin film recording head and semiconductor manufacturers require
sophisticated processing equipment that:
- incorporates highly specialized processing and systems knowledge;
- enables the precise, uniform deposition of a wide range of thin film
materials;
- supports a variety of deposition and etching processes on an integrated
platform; and
- provides the ability to transition to new materials and fabrication
processes efficiently.
THE CVC SOLUTION
CVC is a worldwide supplier of process equipment for the data storage and
semiconductor industries. CVC provides thin film deposition and etching
equipment based on a central substrate-handling platform to which a series of
interchangeable process modules can be connected. CVC's process equipment
incorporate its expertise in:
- the deposition and removal of multiple thin film materials in a vacuum
environment;
- advanced physics and material science;
- engineering of microelectronic and atomic components; and
- proprietary software that controls the deposition and etching processes.
CVC's products are designed for the highly uniform, repetitive steps
required for the manufacturing of devices involving multiple thin film layers
and a wide range of materials.
CVC's CONNEXION Cluster Tool system is a modular system with stations for
connecting up to six modules around a central substrate-handling platform. Each
module performs a different manufacturing process on the substrate. CVC's
CONNEXION Cluster Tool system enables the
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integration of modules supplied by either CVC or third-parties. CVC currently
offers a wide range of advanced process modules for deposition and etching of
thin film layers. The CONNEXION Cluster Tool, combined with a wide range of
process modules, helps to create highly uniform devices through the integration
of various processes in a vacuum controlled environment. CVC's integrated,
modular-based systems provide functional flexibility that enables data storage
and semiconductor manufacturers to quickly transition to new process
technologies, improve time-to-market of higher performance products and improve
manufacturing yields.
STRATEGY
CVC's objective is to enhance its position as a worldwide developer of thin
film processing technologies for the data storage and semiconductor industries.
Key elements of CVC's strategy include:
MAINTAIN TECHNOLOGICAL LEADERSHIP IN THE DATA STORAGE INDUSTRY. Since 1990,
CVC has focused on the development of integrated thin film process technologies
that are part of the manufacturing process of advanced magnetic heads used in
data storage applications. To date, CVC has shipped more than 100 of its cluster
tool systems, including more than 400 process modules. CVC intends to continue
to combine its expertise in the processing of thin films with the modular design
of its CONNEXION Cluster Tool system to develop increasingly efficient and
cost-effective integrated process solutions for the data storage industry.
EXPAND DATA STORAGE LEADERSHIP INTO THE SEMICONDUCTOR MARKET. CVC intends
to leverage its accumulated expertise in thin film head processing by targeting
selected semiconductor markets that require advanced thin film processes. CVC
believes that its CONNEXION Cluster Tool systems is well suited for the
fabrication of advanced semiconductors, advanced storage devices and optical
components. CVC plans to continue to identify and develop products that address
integrated process solutions where thin film process technologies play a
critical role.
CAPITALIZE ON CLOSE RELATIONSHIPS WITH INDUSTRY LEADERS. CVC has
established strategic relationships with a number of industry-leading data
storage and semiconductor manufacturers. By working closely with industry
leaders early in their research and development stage, CVC can identify and
develop customized integrated process solutions that better address customers'
existing and future processing requirements. Having met the specific needs of
market leaders with innovative integrated process solutions, CVC is able to
leverage the experience gained to create products that will meet the demands of
an expanded set of customers across a range of applications and process
technologies. CVC's ability to implement new process solutions also helps CVC
meet its customers' time-to-market demands and advances CVC's goal of having
products designed early into its customers' production and planning cycles.
TARGET ADVANCED INTERCONNECT OPPORTUNITIES IN THE SEMICONDUCTOR
INDUSTRY. Since 1993, CVC has committed significant resources to the
development of advanced interconnect technology for high-performance integrated
circuit fabrication. CVC has developed a module that enables deposition of both
barrier and copper layers in an integrated system. CVC has delivered a
developmental integrated copper and barrier deposition system to one of its
strategic customers and intends to continue to develop solutions to meet the
requirements of emerging advanced interconnect technologies.
CONTINUE TO PROVIDE SUPERIOR CUSTOMER SERVICE ON A WORLDWIDE BASIS. CVC is
focused on delivering a high level of customer satisfaction by providing
superior customer service through a dedicated customer service group consisting
of 53 full-time employees and a research development group consisting of 103
full-time employees, as well as through distributors and sales representatives
in the United States, Japan, East Asia and Europe. CVC believes that its focus
on customer service combined with CVC's process and systems expertise has
enhanced its reputation in the data storage and semiconductor industries. CVC's
CONNEXION Cluster Tool system is used by a majority of the
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leading magnetic recording head manufacturers in the data storage industry. CVC
believes this broad industry representation is due in part to its superior
worldwide customer service.
BROADEN PRODUCT OFFERINGS THROUGH INTERNAL DEVELOPMENT AND
ACQUISITIONS. CVC plans to continue to expand its product offerings through
both internal development and acquisitions of complementary businesses, products
and technologies. Since the market introduction of the CONNEXION Cluster Tool
system in 1993, CVC has continuously enhanced and expanded its product offerings
in response to the evolving needs of its customers through internal research and
development. In 1998, CVC developed and introduced capabilities that 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. In May 1999, CVC expanded its existing family of
process modules through the acquisition of Commonwealth, a provider of ion beam
deposition and etching modules.
PRODUCTS
CONNEXION CLUSTER TOOL SYSTEM
CVC's principal product is its CONNEXION Cluster Tool system. The CONNEXION
Cluster Tool system provides some of the processes required to manufacture
magnetic recording heads and semiconductor devices. The CONNEXION Cluster Tool
system is based on a central substrate-handling platform and a series of
interchangeable thin-film deposition and etching processing modules. CVC's
CONNEXION Cluster Tool system enables the integration of process modules
supplied by either CVC or third parties. Since 1993, CVC has shipped more than
100 of these systems, including more than 400 process modules. The diagrams
below illustrate two typical configurations of the CONNEXION Cluster Tool system
incorporating various process modules offered by CVC.
<TABLE>
<CAPTION>
DATA STORAGE SEMICONDUCTOR
GMR CONFIGURATION GAAS CONFIGURATION
<S> <C>
[LOGO] [LOGO]
A. SEVEN STATION CENTRAL WAFER HANDLER D. SINGLE-TARGET PVD MODULE
B. MULTI-TARGET ION BEAM DEPOSITION MODULE E. EIGHT STATION CENTRAL WAFER HANDLER
F. INDUCTIVELY-COUPLED-PLASMA SOFT CLEAN
C. MULTI-TARGET PVD MODULE MODULE
</TABLE>
Depending on the configuration, individual systems range from $1.0 million
to more than $4.0 million, and individual process modules range from
approximately $350,000 to $2.0 million.
CVC believes that the advantages provided by its CONNEXION Cluster Tool
system include the following:
ABILITY TO PROCESS A WIDE RANGE OF MATERIALS. The modular design of the
CONNEXION Cluster Tool system provides customers the ability to process a wide
range of materials. This ability allows CVC's customers to address their rapidly
evolving manufacturing and material requirements across multiple applications.
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The following table provides an overview of the materials and applications
addressed by CVC's CONNEXION Cluster Tool systems for the data storage and
semiconductor industries:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
DATA STORAGE
MATERIALS GROUPS SPECIFIC MATERIALS PRODUCT APPLICATIONS
Conductors Aluminum Tantalum
Chromium Titanium
Copper Titanium/Tungsten
Gold Tungsten
Molybdenum
Platinum
Magnetic Materials Aluminum Silicon Iron Iridium Manganese Inductive,
Cobalt Chromium Iron Manganese Magnetoresistive and
Platinum Iron Tantalum Nitride Giant
Cobalt Iron Nickel Iron Magnetoresistive
Cobalt Platinum Nickel Iron Rhodium Recording Heads
Cobalt Zirconium Nickel Manganese for Disk Drives
Tantalum Platinum Chromium Manganese
Cobalt Zirconium Platinum Manganese
Niobium
Insulating Materials Aluminum Nitride Silicon Nitride
Aluminum Oxide Silicon Oxide
Wear-Resistant Diamond-like-carbon, or DLC
Coatings
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SEMICONDUCTOR DEVICES
MATERIALS GROUPS SPECIFIC MATERIALS PRODUCT APPLICATIONS
Conductors Aluminum (alloys) Titanium Gallium Arsenide
Cobalt Titanium Silicide and Silicon
Copper Titanium Tungsten Nitride Semiconductors
Gold Tungsten
Nickel
Platinum
Barrier/Liner/Glue/ Tantalum Titanium
Layers Tantalum Nitride Titanium Nitride Logic and Memory
Integrated Circuits
High-k Dielectrics Barium Strontium Tantalum Pentoxide
Titanate Titanium Oxide Analog and Mixed
Signal Integrated
Other Specialty Blue Phosphor Silicon Chromium Carbon Circuits
Materials Chromium Silicon Nitride Tantalum Nitride
Nickel Chromium Zinc Oxide
Silicon Chromium
</TABLE>
FLEXIBILITY OF MODULAR DESIGN. The modular design of the CONNEXION Cluster
Tool system provides customers the flexibility to cost effectively transition
from the development stage to full production. In the development stage,
customers can use a process module as a fully-functional, stand-alone tool to
develop and test individual fabrication steps. Following the successful
development of individual process steps, a customer can combine multiple process
modules with CVC's CONNEXION Cluster Tool platform to form an integrated
production system. Furthermore, the modular design allows customers to
reconfigure systems that are in production to address the evolving manufacturing
processes required by magnetic recording head and semiconductor manufacturers.
The flexibility to exchange modules enables customers to quickly develop new
fabrication processes, improving time-to-market of higher performance products,
with a lower capital investment.
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BENEFITS OF INTEGRATED PLATFORM. The integrated platform of the CONNEXION
Cluster Tool system provides customers with the ability to combine various
deposition and etching modules on a single platform in a vacuum controlled
environment. The benefits of a vacuum controlled environment include high
uniformity and reduced incidences of cross contamination and damage from
external handling. CVC's integrated platform enables customers to achieve
improved manufacturing yields, enhanced tool uptime and device reliability and
performance.
HIGHLY SPECIALIZED PROCESS SOLUTIONS. CVC provides customers highly
specialized process solutions, including a variety of energy sources and
components. These solutions enable CVC's customers to achieve high uniformity
over a wide range of substrate materials and sizes, as well as control of the
composition materials, atomic microstructures and surface/interface properties.
CVC PROCESS MODULES
CVC offers process modules for different methods of depositing thin films on
a wafer, or substrate, such as physical vapor deposition, mainly a physical
technique, and chemical vapor deposition, mainly a chemical technique. CVC also
offers modules for different methods of removing, or etching, portions of thin
films from a wafer or a substrate. CVC obtained its ion beam deposition, etching
and its diamond like carbon processing modules through its acquisition of
Commonwealth Scientific Corporation in May 1999.
Below is a brief description of CVC's process modules:
PHYSICAL VAPOR DEPOSITION--PLASMA SPUTTERING MODULE
Physical vapor deposition, or PVD, by plasma sputtering is used to deposit a
wide range of magnetic, conductive and insulating materials on various
substrates with different topographies. PVD is performed in a high vacuum
chamber by applying a strong direct current or radio frequency electric field to
an inert gas, usually argon, to create a plasma. 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 both a single wafer PVD module and a multi-station PVD module for the
sequential deposition of various materials within a single vacuum chamber.
PHYSICAL VAPOR DEPOSITION--ION BEAM DEPOSITION MODULE
PVD by ion beam deposition is used to deposit a wide range of very thin
magnetic, conductive and insulating materials on various substrates with
different topographies. Ion beam deposition is performed in a high vacuum
chamber by focusing an ion beam generated by a radio frequency or direct current
ion beam source toward a target made of the desired material to be deposited.
The beam of energetic ions hits the target and ejects atoms of the desired
material toward the wafer or substrate, building up a thin film layer in a
slower, more directional manner than with sputtering. In addition, in some
processes, a second ion beam is directed toward the substrate to control the
microstructure of the thin film while depositing the desired material.
METAL-ORGANIC CHEMICAL VAPOR DEPOSITION MODULE
Metal-organic chemical vapor deposition, or MOCVD, is used to deposit
various materials such as aluminum, copper, tungsten, titanium, titanium
nitride, tantalum and tantalum nitride. The MOCVD process causes precursor
materials that contain atoms of the material to be deposited to react at the
heated wafer or substrate surface resulting in the formation of the thin film
layer of the material. MOCVD uses a metal organic compound distributed through a
liquid delivery system as the source of the material to be deposited.
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ION BEAM ETCH MODULE
Etching by ion beam is used to transfer a desired device pattern to the
substrates. An ion beam directed toward the substrate can also be used to remove
contaminants such as oxide layers or for substrate conditioning to improve
adhesion. Ion beam etching is performed in a high vacuum chamber by focusing an
ion beam generated by a radio frequency and direct current ion beam source
toward the wafer or substrate.
DIAMOND-LIKE-CARBON MODULE
Ion beam deposition of thin diamond-like-carbon, or DLC, is used to deposit
hard coating layers as wear and corrosion protection for thin-film heads and
magnetic media. The ion beam diamond-like-carbon module employs a
carbon-containing gas flow through an ion source mounted onto a vacuum process
chamber to deposit thin layers of diamond-like-carbon on wafers or other
substrates. CVC's ion beam diamond-like-carbon deposition system sources are
currently used in production by the thin-film head manufacturers. As hard disk
storage densities increase, the distance between the recording head and magnetic
media are decreasing to below 100 Angstroms. The next-generation advanced giant
magnetoresistive heads will require dense and defect-free diamond-like-carbon
films below 50 Angstroms. To address this requirement, CVC has developed a
filtered cathodic arc diamond-like-carbon deposition cluster module which
enables controlled deposition of high-quality ultrathin diamond-like-carbon
layers. This cluster module will enable CVC to effectively serve the
diamond-like-carbon application for several future generations of thin film
recording heads and magnetic media.
INDUCTIVELY-COUPLED-PLASMA SOFT CLEAN MODULE
CVC offers a multi-zone inductively-coupled-plasma, or ICP, soft clean
module for surface preparation prior to material depositions. CVC's ICP module
technology employs the design features of the ICP system licensed by CVC from
Texas Instruments and enhanced by CVC through internal developments. The license
from Texas Instruments covering the design features of the ICP system expires in
2014. The 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 PROCESSING/RAPID THERMAL CHEMICAL VAPOR DEPOSITION MODULE
CVC's rapid thermal processing, or RTP, module with multi-zone temperature
control optimizes temperature and process uniformity and repeatability control.
CVC's RTP and rapid thermal chemical vapor deposition, or RTCVD, module is
designed for various thermal processing applications including anneal, oxidation
and CVD processes.
600 SERIES PHYSICAL VAPOR DEPOSITION SYSTEMS
Introduced in 1988, the 610 and 611 products are PVD sputtering deposition
systems, handling up to 6-inch diameter substrates. The 611 system is equipped
with a loadlock and eight work stations 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.
ION BEAM SOURCES AND POWER SUPPLIES
With its acquisition of Commonwealth, CVC obtained a range of ion sources,
as well as the power supplies used to operate these sources. Ion beam processing
is used in a variety of advanced research
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<PAGE>
and development applications, as well as the production of thin film etch and
deposition applications where precise control and repeatability of multilayer
thin films are critical. CVC provides these products as components to companies
supplying equipment to the precision optics, opthalmics and optoelectronics
industries. In addition, CVC uses its ion beam sources and power supplies in its
IBD, IBE and DLC process modules.
CUSTOMERS
CVC's customers include many of the leading manufacturers of thin film
magnetic recording heads for the data storage industry, as well as manufacturers
of semiconductor devices. During fiscal year 1999, approximately 85% of CVC's
revenues were derived from sales made to thin film magnetic recording head
manufacturers and approximately 9% of CVC's revenues were from sales to
semiconductor device manufacturers. Customers of CVC who have purchased at least
one Connexion Cluster Tool system from it during fiscal 1998 and 1999 are:
<TABLE>
<CAPTION>
DATA STORAGE SEMICONDUCTOR
- ------------ -------------
<S> <C>
Alps Electronics Anadigics
Applied Magnetics Analog Devices
Fujitsu Honeywell
Headway Technologies Inc. Kodak
Hitachi Metals M/A-COM
IBM Viking Tech
Read-Rite Xerox
Samsung Electronics
Seagate Technology
Sony
TDK
Yamaha
</TABLE>
Of these customers, Seagate, IBM and TDK each accounted for 10% or more of
CVC's revenues in fiscal 1999 and Seagate, Headway and Alps each accounted for
10% or more of CVC's revenues in fiscal 1998.
RELATIONSHIP WITH SEAGATE TECHNOLOGY
Seagate Technology, which provides products for storing, managing and
accessing digital information on computers and data communications systems, is
CVC's largest customer, as well as its largest stockholder. Seagate Technology
accounted for 47% of CVC's total revenue in fiscal 1997, 31% of CVC's total
revenue in fiscal 1998 and 34% of CVC's total revenue in fiscal 1999. The
decline in fiscal 1998 in the percentage of CVC's total revenues attributable to
sales to Seagate Technology is due primarily to a decline in the absolute dollar
amount of CVC's sales to Seagate Technology in fiscal 1998. CVC believes that
decline, in turn, reflects competitive market conditions and weakness in demand
for disk drive products. The increase in fiscal 1998 in the percentage of CVC's
total revenues attributable to sales to Seagate Technology reflects an increase
in the absolute dollar amount of CVC's sales to Seagate Technology, partially
offset by increased sales to CVC's other customers due to expansion of its
customer base. In addition, Seagate Technology is CVC's largest stockholder. In
1995, Seagate Technology made an equity investment of approximately
$9.0 million in CVC. In connection with this investment, Seagate Technology
obtained the right to elect two members of CVC's Board of Directors. That right
will terminate upon consummation of this offering.
Following completion of this offering, Seagate Technology will own shares
representing approximately 21% of CVC's outstanding common stock. In addition,
pursuant to a warrant acquired by it in 1995, Seagate Technology has the right
to acquire an additional 790,760 shares of common
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<PAGE>
stock at an exercise price of $5.58 per share. Assuming full exercise of this
warrant, Seagate Technology would own an aggregate of approximately 26% of CVC's
outstanding common stock following completion of this offering.
BACKLOG
CVC's backlog consists generally of product orders for which a purchase
order has been received and which are scheduled for shipment within twelve
months. Because a large percentage of CVC's orders require products to be
shipped in the same quarter in which the orders are received, and due to
possible changes in delivery schedules, cancellations of orders and delays in
shipment, CVC does not believe that the level of backlog at any point in time is
an accurate indicator of its performance.
MARKETING AND SALES
CVC sells its products in the United States and Europe through its direct
sales force that is supported by its 29-person marketing and sales organization.
In Japan and Europe, CVC uses distributors to sell its products. CVC markets its
products in China, Korea, Taiwan, Malaysia, Singapore and Thailand through
independent sales representatives. International sales accounted for 31% of
CVC's total revenues for fiscal 1997, 38% for fiscal 1998 and 53% for fiscal
1999. CVC's sales and marketing organization uses 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 CVC's
process technologies, as well as complementary technologies offered by other
equipment providers. CVC 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.
The sales cycles for CVC'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 CVC'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.
CUSTOMER SERVICE AND SUPPORT
Prompt and effective field service and support is critical to CVC's sales
efforts, due to the substantial commitments made by customers that purchase
CVC's equipment. As of September 30, 1999, CVC had 53 full-time employees
dedicated to customer service and support. CVC's strategy of supporting its
installed base through both customer support and research and development groups
has served to encourage the use of CVC's equipment and process technologies in
customer production applications. CVC's 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 CVC's
Fremont, California, Rochester, New York and Alexandria, Virginia research and
demonstration facilities. CVC believes that its marketing efforts are enhanced
by the technical expertise of its engineers who also provide customer process
support and participate in industry forums, conferences and user groups.
CVC generally warrants its new systems for 15 months from the date of
shipment. CVC generally warrants to an original purchaser of its new systems
that the products and parts manufactured or assembled by CVC and the application
software supplied will be free from defects in materials and
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<PAGE>
workmanship under normal use. Installation is included in the price of the
system. CVC'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 CVC's systems. For a fee, CVC trains its
customers' service engineers to perform routine services, and, in addition, CVC
provides its customers with 24-hour a day, seven day a week, telephone
consultation services. CVC also has customer support centers located in New
York, California, Texas, Minnesota, Virginia, Northern Ireland and Japan.
RESEARCH AND DEVELOPMENT
The data storage and semiconductor manufacturing industries are
characterized by rapid technological change and requirements for new product
introductions and enhancements. CVC'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, CVC devotes a significant portion of its
personnel and financial resources to research and development programs and seeks
to maintain close relationships with its customers to remain responsive to their
equipment needs. CVC 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, CVC has recently developed and introduced
capabilities that 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. CVC has also developed a
magnetic orientation device to achieve more accurate and programmable
characteristics of magnetic thin films. In the area of advanced interconnect
technologies, CVC has been developing leading-edge metal-organic chemical vapor
deposition barrier and copper metallization processes for high-performance
semiconductor interconnect applications. CVC operates process development and
applications engineering facilities in New York, California, Virginia and Texas
with process and metrology capabilities for data storage thin film recording
head and semiconductor technologies.
As of September 30, 1999, CVC had 103 full-time employees dedicated to its
research and development programs. In fiscal 1997, 1998 and 1999, CVC expended
$9.1 million, $12.6 million and $12.6 million on these programs, constituting
15%, 19% and 15% of revenues during those periods, respectively. Research and
development expenditures consist primarily of salaries, project materials and
other costs associated with CVC's ongoing research and development efforts. CVC
expects in future years that research and development expenditures will continue
to represent a substantial percentage of revenues. CVC augments its internal
technology development efforts by licensing technology from others and
establishing strategic research and development relationships with universities
and various major customers.
Trade, industry standards and development consortia, such as SEMI, SEMATECH
and SEMI/ SEMATECH, help to define the methods, measurement parameters,
manufacturing requirements and specifications influencing commercial
transactions within the data storage and semiconductor industry. Christine
Whitman, the chief executive officer of CVC, serves on the Board of Directors of
SEMI/ SEMATECH. CVC believes that its involvement with these organizations has
helped to ensure that CVC's new products conform to industry standards and
emerging requirements.
MANUFACTURING
CVC's manufacturing activities consist primarily of assembling and testing
components and subassemblies which are acquired from third party suppliers and
then integrated by CVC into finished systems. The manufacturing operations are
conducted in CVC's 90,000 square foot facility in Rochester, New York and its
32,000 square foot facility in Alexandria, Virginia. As of September 30, 1999,
CVC had 168 full-time employees dedicated to its manufacturing efforts. CVC
manufactures its systems in
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<PAGE>
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 CVC'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. CVC's customers frequently participate
in systems testing during the final assembly and inspection process.
CVC's Rochester and Fremont facilities are ISO 9001 certified. CVC believes
that ISO 9001 certification, a quality assurance model for companies that
design, produce, install and inspect items as part of their businesses, offers
CVC a competitive advantage over competitors that are not ISO 9001 certified
and, in some cases, is a condition of doing business with its customers.
CVC procures components and subassemblies included in its products from a
limited group of suppliers and occasionally from a single source. CVC does not
maintain long-term supply contracts with its key suppliers but believes that
alternative suppliers could be found if necessary.
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. CVC 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 CVC's products, thereby adversely affecting CVC's operating
results.
In the data storage market, CVC's current competitors include Balzers
Process Systems, Nordiko and Veeco Instruments. In the semiconductor market,
CVC's competitors include Applied Materials, Balzers Process Systems and
Novellus. Some of CVC'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 CVC.
CVC 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 and technology 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
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- protection of CVC's products by intellectual property laws
CVC believes it competes favorably in the data storage and semiconductor
manufacturing markets based on its multiple processing capabilities, customer
support and the cost of ownership of its equipment.
CVC 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.
PATENTS AND OTHER INTELLECTUAL PROPERTY
CVC relies on a combination of patent, copyright, trademark and trade secret
laws and non-disclosure agreements to protect its proprietary process and
equipment technology. Although CVC believes that its patents and its other
intellectual property rights 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 or
similar rights.
As of September 30, 1999, CVC had obtained 17 issued U.S. patents, had
received notices of allowance on four U.S. patent applications and had 37 U.S.
patent applications pending. CVC has also obtained two foreign patents from the
United Kingdom and had 18 foreign patent applications pending on its behalf as
of that date. In addition, in connection with the acquisition of Commonwealth
Scientific Corporation, CVC has licensed and been assigned rights to several
jointly-owned patents but there can be no assurance that such licensed and
assigned rights are sufficiently broad for current or contemplated uses.
CVC holds patents which it believes to be material to its business covering
the components used for physical vapor deposition for the data storage
marketplace and rapid thermal processing. As of September 30, 1999, these
patents have durations of not less than eleven years. Through its acquisition of
Commonwealth, CVC also holds patents covering ion beam processing with durations
of not less than eleven years, as of September 30, 1999. In addition, as of
September 30, 1999, CVC holds exclusive licenses to ion source technology
obtained in the acquisition of Commonwealth, which extend to the term of the
underlying patents, varying in length from five to eleven years. In addition,
CVC has licensed the design features in its inductively-coupled-plasma
technology. This license will expire in 2014.
The data storage and semiconductor industries are characterized by frequent
litigation regarding patent and other intellectual property rights. Although CVC
is not aware of any pending or threatened patent litigation involving it, there
can be no assurance that third parties will not assert claims against CVC with
respect to existing or future products or technologies. In the event of
litigation to determine the validity of any third-party claims, that litigation,
whether or not determined in favor of CVC, could result in significant expense
to CVC and divert the efforts of CVC's technical and management personnel from
productive tasks. In the event of an adverse ruling in this type of litigation,
CVC might be required to discontinue the use of 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 CVC and CVC's failure to
develop or license a substitute technology at a reasonable cost, CVC's business
could be harmed.
CVC cannot give any assurance that its 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 negative impact on CVC's business. CVC cannot give any assurance that others
will not independently develop similar products, duplicate its products or, if
patents are issued to CVC, design around these patents. CVC also relies upon
trade secret protection and
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employee and third-party nondisclosure agreements to protect its confidential
and proprietary information. Despite these efforts, CVC cannot give any
assurance that others will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to its trade
secrets or disclose its technology or that CVC can meaningfully protect its
trade secrets.
EMPLOYEES
As of September 30, 1999, CVC had a total of 394 full-time employees at all
of its locations, consisting of 168 in manufacturing, 103 in research and
development, 29 in marketing and sales, 53 in customer service and support, 35
in administration and 6 in facilities maintenance.
As of September 30, 1999, 47 employees at CVC'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, 2001. CVC believes that its
relations with its employees, and the bargaining unit which represents the Local
342 members, are good.
FACILITIES
CVC's principal office is located in Rochester, New York, and consists of
90,000 square feet used for manufacturing, research and development and
administration. CVC entered into a financing agreement with the County of Monroe
Industrial Development Agency in 1974 under which this agency's bond proceeds
were used to purchase the land and construct the Rochester facility for lease to
CVC. On September 29, 1997, CVC entered into an amended lease agreement with the
County of Monroe Industrial Development Agency that extended the term of the
original lease from the year 2000 to December 31, 2007. Upon the expiration of
this amended lease, CVC is obligated to purchase the Rochester facility from
this agency for nominal consideration.
As part of its acquisition of Commonwealth Scientific Corporation in
May 1999, CVC obtained two operating facilities. These facilities are located in
Alexandria, Virginia. The principal administrative office is in an owned
building which is approximately 22,000 square feet. The manufacturing and
engineering functions are located in a separate leased facility of approximately
32,000 square feet. This facility is leased under two separate leases for
approximately 28,000 square feet and 4,250 square feet of contiguous space. The
leases on this facility are scheduled to expire on January 31, 2000 and
September 14, 2001.
In addition, CVC 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. CVC also leases space in Minneapolis, Minnesota,
Japan, Northern Ireland, Singapore and Taiwan for sales and customer support.
Although CVC 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, CVC 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 CVC.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of CVC are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Christine B. Whitman................... 48 President, Chief Executive Officer and Chairman
Giovanni Nocerino, Ph.D................ 47 Executive Vice President, Sales & Service
Emilio O. DiCataldo.................... 48 Senior Vice President and Chief Financial Officer
Mehrdad M. Moslehi, Ph.D............... 39 Senior Vice President and Chief Technology Officer
Christopher J. Mann.................... 41 Senior Vice President, Marketing
Richard J. Chicotka, Ph.D.............. 58 Vice President, Engineering
Richard A. Kellogg..................... 57 Vice President, Manufacturing
Judd C. Prozeller...................... 48 Vice President, Quality & Human Resources
Robert C. Fink......................... 64 Director
Maurice F. Holmes...................... 56 Director
Douglas A. Kingsley.................... 37 Director
Thomas C. McDermott.................... 63 Director
Seiya Miyanishi........................ 53 Director
George R. Thompson, Jr.*............... 69 Director
Donald L. Waite........................ 66 Director
</TABLE>
- ------------------------
* Mr. Thompson has advised CVC that upon consummation of this offering he will
retire as a director.
Ms. Whitman joined CVC Products in 1978 and has served as President, Chief
Executive Officer and Chairman of CVC 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 Frontier Telephone of Rochester and The M&T
Bank. 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 Al Sigl
Center Partners' Foundation Board of Governors and is a member of the Board of
Trustees of Rochester Institute of Technology.
Dr. Nocerino joined CVC in 1997 as Executive Vice President, Sales &
Service. 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, 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.
Mr. DiCataldo joined CVC 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 CVC in 1994 as Senior Vice President and Chief Technology
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
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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.
Mr. Christopher Mann joined CVC Products in 1979 and now serves as Senior
Vice President, Marketing after having served as Senior Vice President, Data
Storage from 1997 to June 1999. Mr. Mann has previously held the positions of
Field Service Manager, Engineering Services Manager and Vice President, Data
Storage at CVC. Prior to joining CVC in 1979, Mr. Mann worked for Sperry in the
United Kingdom.
Dr. Chicotka joined CVC in 1995 as Vice President, Operations, and since
1998 has served as Vice President, Engineering. 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. Kellogg joined CVC in 1999 and currently serves as Vice President,
Manufacturing. From 1998 to 1999, he consulted with CVC and other firms in the
materials management area. From 1997 to 1998, Mr. Kellogg held the position of
Vice President, Materials for Lam Research Corporation, a manufacturer of
semiconductor processing equipment. From 1994 to 1997, Mr. Kellogg was Vice
President of Operations for Varian Thin Film Systems, a manufacturer of plasma
vapor deposition systems and, after its acquisition, with Novellus Systems. He
spent the period from 1989 to 1994 with Libbey Owens Ford Glass as General
Manager of its Shelbyville operations. Mr. Kellogg holds a BA from Lake Forest
College.
Mr. Prozeller joined CVC in 1995 and currently serves as Vice President,
Quality and Human Resources. 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.
Mr. Fink has been a director of CVC since 1997. In 1993, Mr. Fink joined Lam
Research Corporation, a manufacturer of semiconductor processing equipment, and
formerly served as the Chief Operating Officer, following Lam'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 in Metallurgical Engineering from
Polytechnical Institute of New York.
Mr. Holmes has been a director of CVC since October 1999. Since
January 1999, Mr. Holmes has been a Professor of the Practice of Management and
Engineering Systems at the Massachusetts Institute of Technology, as well as
holding a dual professorship with both its Sloan School of Management and School
of Engineering. Prior to this, Mr. Holmes served as Corporate Vice President and
the Chief Engineer for Xerox Corporation beginning in 1994. Mr. Holmes received
a BS degree from the University of Pittsburgh and a MS in Mechanical and
Aerospace Science from the University
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of Rochester. He currently is a director of Frontier Telephone Company of
Rochester, Optical Dynamics Corporation and Storage Technology Corporaton. In
addition, Mr. Holmes serves on the Board of Trustees of Rochester Institute of
Technology and the Ford Design Institute.
Mr. Kingsley has been a director of CVC since 1998. Mr. Kingsley is a Senior
Vice President of Advent International Corporation, a venture capital firm,
where he has been employed since 1990. From 1985 through 1988 Mr. Kingsley was a
sales engineer for Teradyne, Inc., a manufacturer of automatic test equipment
for the electronics industry. Mr. Kingsley is a graduate of Dartmouth College
and Harvard Business School. He is a director of LeCroy Corporation and a member
of the Board of Overseers of the Boston Symphony Orchestra.
Mr. McDermott has been a director of CVC since October 1999. From 1994 to
1997, Mr. McDermott was Chairman of the Board, Chief Executive Officer and
President of Goulds Pumps, Inc. From 1986 to 1993, Mr. McDermott was the
President and Chief Operating Officer of Bausch & Lomb. Prior to this,
Mr. McDermott served in a variety of management positions at Bausch & Lomb, and
also was a member of its Board of Directors from 1983 until 1993. Mr. McDermott
received a BS degree and an Honorary Doctoral Degree from Providence College. He
currently is a director of Goulds Pumps, Inc., Canandaigua Brands, Inc. and
Thomas & Betts Corporation. In addition, Mr. McDermott serves on the Board of
Governors of Strong Memorial Hospital and as a Trustee of Rochester Institute of
Technology.
Mr. Miyanishi has been a director of CVC since 1990. Since 1987,
Mr. Miyanishi has served as President and Chief Executive Officer of Nikko
Tecno, a company based in Japan and involved 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. Thompson became a director of, as well as a consultant to, CVC upon
CVC's acquisition of Commonwealth Scientific Corporation in May 1999.
Mr. Thompson was a co-founder of Commonwealth Scientific and was President, CEO
and Chairman of the Board from 1970 to 1999. Prior to founding Commonwealth, he
served in various engineering and marketing positions with Systems Research
Laboratories, Barry Controls Inc., and Bromion, Inc. Mr. Thompson is Chairman of
the Board of Marshall National Bank and Trust Co. in Marshall, Virginia.
Mr. Thompson attended the University of Virginia and received a BS in General
Engineering from M.I.T.
Mr. Waite has been a director of CVC since 1995. Since 1983, Mr. Waite has
served in various positions for Seagate Technology, most recently as Senior
Administrative Officer, Senior 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.
All directors hold office until the next annual meeting of the stockholders
and until their successors have been elected and qualified. Executive officers
of CVC are elected by CVC's 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 CVC.
Mr. Thompson has advised CVC that upon consummation of this offering he will
resign his directorship.
DIRECTOR COMMITTEES AND COMPENSATION
DIRECTOR COMMITTEES
The Audit Committee of CVC's board of directors consists of
Messrs. Kingsley, McDermott, Thompson and Waite. The Audit Committee:
- reviews with CVC's independent accountants the scope and timing of their
audit services;
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- the accountants' report on CVC's consolidated financial statements
following completion of their audit; and
- CVC's policies and procedures with respect to internal accounting and
financial controls.
In addition, the Audit Committee makes annual recommendations to CVC's board of
directors for the appointment of independent accountants for the ensuing year.
The Compensation Committee of CVC's board of directors consists of
Messrs. Fink, Holmes and Kingsley. The Compensation Committee:
- reviews and evaluates the compensation and benefits of all officers of
CVC;
- reviews general policy matters relating to compensation and benefits of
employees of CVC;
- makes recommendations concerning these matters to CVC's board of
directors; and
- administers CVC's stock option plans. See "--Stock Plans."
DIRECTOR COMPENSATION
Directors who are employees of CVC will receive no additional compensation
for their services as members of CVC's board of directors or as members of Board
committees. Directors who are not employees of CVC 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 a director. In addition, chairmen of Board
committees are paid an additional amount of $1,000 in cash. CVC's directors are
reimbursed for their out-of-pocket and travel expenses incurred in connection
with their service as directors.
CVC's Nonemployee Directors' 1999 Stock Option Plan contains provisions
pursuant to which options for 7,500 shares of common stock are granted to each
nonemployee director upon commencement of service on the Board, and options for
2,000 shares of common stock are granted to each nonemployee director on
March 31 of each year of continued service on the Board. CVC has authorized and
reserved 200,000 shares of common stock for issuance under this plan.
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EXECUTIVE COMPENSATION
The following table sets forth the total compensation for fiscal 1997, 1998
and 1999, respectively, of the chief executive officer and each of the other
four most highly compensated executive officers of CVC whose total salary and
bonus for fiscal 1999 exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING
ANNUAL COMPENSATION OPTIONS/SARS
------------------------------------- LONG-TERM
OTHER ANNUAL COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) AWARDS COMPENSATION(2)
- --------------------------- -------- -------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Christine B. Whitman
President, Chief Executive
Officer and Chairman... 1999 $178,652 $28,000 -- 33,333 $2,936
1998 173,040 47,600 -- -- 2,647
1997 167,250 46,600 -- 51,000 2,325
Giovanni Nocerino
Executive Vice President,
Sales & Service........ 1999(6) 224,950 -- $75,654(3) -- 3,085
1998 183,333 -- 16,535 160,000 --
1997 -- -- -- -- --
Mehrdad M. Moslehi
Senior Vice President and
Chief Technical Officer.. 1999 158,489 10,000 -- 16,667 2,700
1998 147,054 31,100 -- -- 2,576
1997 140,078 29,100 -- 12,000 1,905
Christopher J. Mann
Senior Vice President,
Marketing.............. 1999 158,487 -- 41,127(4) 16,667 3,810
1998 147,290 27,100 77,731(4) -- 4,153
1997 122,406 28,500 31,962(4) 22,500 2,506
Emilio O. DiCataldo
Senior Vice President and
Chief Financial Officer.. 1999 152,148 25,000 --(5) 30,000 2,213
1998 146,692 31,800 -- -- 1,900
1997 142,551 34,400 46,930 48,000 1,330
</TABLE>
- ------------------------
(1) 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 executive officer for each fiscal
year.
(2) Represents matching contributions made by CVC on behalf of the executive
officer to its 401(k) Plan.
(3) Represents automobile allowance of $1,901 and sales commissions of $73,754.
(4) Represents automobile allowance of $10,488 and sales commissions of $30,639
in 1999, automobile allowance of $10,488 and sales commissions of $67,243 in
1998 and automobile allowance of $10,488 and sales commissions of $21,474 in
1997.
(5) Represents relocation expense of $17,500, relocation allowance of $26,670
and dues of $2,760.
(6) No information for fiscal 1997 is presented as Mr. Nocerino joined CVC in
fiscal 1998. Mr. Nocerino became one of our executive officers in the fall
of 1997.
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<PAGE>
The following table sets forth information regarding the option grants made
during fiscal 1999 to each of the executive officers. CVC issued no stock
appreciation rights in fiscal 1999.
OPTION GRANTS
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------
VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
TOTAL STOCK PRICE
NUMBER OF OPTIONS APPRECIATION FOR
SECURITIES GRANTED TO EXERCISE OR OPTION TERM
UNDERLYING EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME OPTIONS FISCAL 1999 ($/SHARE) DATE 5% 10%
- ---- ---------- ------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Christine B. Whitman.............. 33,333 10.70% $6.00 5/14/09 $ 255,254 $ 322,099
Giovanni Nocerino................. -- -- -- -- -- --
Mehrdad M. Moslehi................ 16,667 5.35 6.00 5/14/09 127,631 161,054
Christopher J. Mann............... 16,667 5.35 6.00 5/14/09 127,631 161,054
Emilio O. DiCataldo............... 30,000 9.63 6.00 5/14/09 229,731 289,892
</TABLE>
The following table sets forth information regarding exercise of options and
the number and value of options held at September 30, 1999, by each of the
officers listed below.
YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR END AT FISCAL YEAR END(1)
--------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Christine B. Whitman.......................... 353,600 53,733 $4,243,200 $ 644,796
Giovanni Nocerino............................. 53,333 106,667 639,996 1,280,004
Mehrdad M. Moslehi............................ 3,200 21,467 38,400 257,604
Christopher J. Mann........................... 206,000 25,667 2,472,000 308,004
Emilio O. DiCataldo........................... 142,800 49,200 1,713,600 590,400
</TABLE>
- ------------------------
(1) The value of the unexercised, in-the-money options on September 30, 1999 is
based on the difference between the assumed initial public offering price of
the common stock ($12.00 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, CVC 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 selected CVC employees and to further align their interests with
those of CVC. Under this program, the Compensation Committee and/or CVC's board
of directors:
- selected the participants;
- determined the number of shares of common stock offered to each
participant;
- determined the terms of the repurchase rights for each participant; and
- determined other terms of sale.
46
<PAGE>
Options granted under this informal plan generally vested over a period of
three-to-five 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 1,473,840 shares of common stock have been granted,
of which options to purchase 321,333 shares of common stock have been exercised
and options to purchase 120,000 shares of common stock have been cancelled.
1996 STOCK OPTION PLAN
CVC's 1996 Stock Option Plan was adopted by CVC's 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 this plan was to provide long-term incentives to selected
CVC employees and to further align their interests with those of CVC. Under the
plan, the Compensation Committee and/or CVC's board of directors:
- selected the participants;
- determined the form and number of shares of common stock offered to each
participant;
- determined the exercise period of each option;
- determined the terms of the repurchase rights for each participant; and
- determined other terms of sale.
Options granted to employees under this plan were generally at fair market
value as of the grant date based upon valuations obtained contemporaneously from
an independent appraiser. Options granted generally vested over a period of
three-to-five 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.
As of September 30, 1999, options to purchase 582,134 shares of common stock
have been granted under this plan, of which options to purchase 16,600 shares of
common stock have been exercised and options to purchase 184,833 shares have
been cancelled. This plan was terminated as of August 30, 1999.
1997 STOCK OPTION PLAN
CVC's 1997 Stock Option Plan was adopted by CVC's board of directors
effective October 16, 1997, under which stock options may be granted to
employees of CVC and its subsidiaries. This 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.
CVC has initially authorized and reserved 1,833,333 shares of common stock for
issuance under this plan, with the number of shares authorized and reserved
being increased annually in an amount equal to 5% of the total number of shares
of common stock issued by CVC in the preceding fiscal year, with a maximum
aggregate of shares issued under this plan not to exceed 3,333,333. As of
September 30, 1999, 736,002 options had been granted. Options to purchase
185,734 shares have been cancelled and 133 shares have been exercised as of
September 30, 1999. 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 that option will again be available for
grant under the plan.
The Compensation Committee administers the plan. Subject to the limitations
set forth therein, 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;
47
<PAGE>
- 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;
- the duration of the exercise period;
- provide for the acceleration of the exercise period of an option at any
time prior to its termination or upon the occurrence of a merger,
acquisition or similar transaction;
- 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
- 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 CVC and its subsidiaries are
eligible to receive grants of stock options under this plan, as selected by the
Compensation Committee. The maximum term of options granted under this 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 333,333. 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. However, in the event of a change of control upon a transaction such
as a merger, consolidation, sale of all or substantially all of the assets of
CVC or a change in the composition of a majority of CVC's Board, then each
option that was not then vested prior to these types of events will become fully
vested and immediately exercisable unless assumed or substituted by the
successor corporation.
All options granted under this plan are nontransferable by the optionee,
except for transfers approved by the Compensation Committee to 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 the case of any other termination of
employment, outstanding options that have previously become vested will remain
exercisable for a period of 90 days. However, all unexercised options will be
immediately forfeited by any employee who is terminated as a result of any of
the following:
- embezzlement or misappropriation of corporate funds;
- conviction for a felony;
- misconduct resulting in material injury to us;
- significant activities harmful to our reputation or the reputation of any
of our subsidiaries;
- a significant violation of our corporate policies;
- willful refusal to perform, or substantial disregard of, the duties
properly assigned to the option holder; or
- a significant violation of any contractual, statutory or common law duty
of loyalty to us or any of our subsidiaries.
In addition, 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. This plan has a term of
48
<PAGE>
ten years, subject to earlier termination or amendment by CVC's board of
directors, and all options granted under its plan prior to its termination
remain outstanding until they have been exercised or are terminated in
accordance with their terms. CVC's board of directors may amend this plan at any
time.
1999 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
CVC's board of directors has adopted the 1999 Nonemployee Director Stock
Option Plan. Under this plan, stock options are granted to each member of CVC's
board of directors who is not an employee of CVC. See "--Director Committees and
Compensation" and "--Director Compensation."
ASSUMPTION OF COMMONWEALTH STOCK OPTIONS
In connection with the closing of the acquisition of Commonwealth Scientific
Corporation, all outstanding options to purchase shares of Commonwealth as of
the closing were assumed by CVC. These non-qualified options are governed by
stand alone agreements with each respective optionee. As of September 30, 1999,
options to purchase an aggregate of 270,697 shares of common stock are held by
former optionees of Commonwealth.
PENSION PLAN
CVC 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 service with CVC, as well as benefits
employees may be entitled to receive under prior retirement plans of CVC. This
plan was frozen effective September 30, 1991 and no further benefits will be
accrued under it. Mr. Christopher Mann will receive $157.68 and Ms. Christine
Whitman will receive $394.28, each 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, Holmes
and Kingsley. None of these directors was at any time during the fiscal year
ended September 30, 1999, nor at any other time within the past five years, an
officer or employee of CVC. No executive officer of CVC serves as a member of a
board of directors or compensation committee of any entity which has one or more
executive officers serving as a member of CVC's board of directors or its
Compensation Committee.
AGREEMENTS WITH EMPLOYEES
CVC has entered into severance agreements with Ms. Whitman, Messrs.
DiCataldo, Mann, Kellogg, Prozeller and Sowers and Drs. Moslehi, Chicotka and
Nocerino. These agreements provide that these employees will serve CVC in their
offices for a term of three years, with automatic one-year renewals, subject to
earlier termination as provided for in the these agreements. These agreements
set forth the following minimum base salary during the term of the particular
agreement for the following employees: (1) Ms. Whitman - $168,000;
(2) Mr. Chicotka - $127,688; (3) Mr. DiCataldo - $140,369;
(4) Mr. Kellogg - $142,000; (5) Mr. Mann - $124,162;
(6) Mr. Moslehi - $142,771; (7) Mr. Nocerino - $220,000;
(8) Mr. Prozeller - $110,000; and (9) Mr. Sowers - $120,000. These amounts are
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 the
employee towards achievement of the annual business goals of CVC. Under these
agreements, the employees are entitled to participate in the employee benefit
plans of CVC and are eligible for the grant of stock options, in the sole
discretion of the Compensation Committee.
In addition, these agreements provide that the employee is entitled to a
lump-sum cash severance payment in the following circumstances:
49
<PAGE>
- upon a termination by CVC of the employee without cause; and
- upon a termination by the employee of his employment with CVC, within six
months immediately following an acquisition, merger, reorganization of CVC
or other similar transaction or event.
This lump-sum severance payment is equal to the employee's base salary as in
effect immediately prior to termination multiplied by a number of months
(24 months for Ms. Whitman, 18 months for Mr. DiCataldo, 12 months for Drs.
Moslehi, Chicotka, Nocerino and Messrs. Mann, Kellogg, Prozeller and Sowers) and
then discounted to present value from the dates payments would otherwise have
been made.
Upon an acquisition, merger, reorganization or other similar transaction or
event, 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,
unless provision has been made for (1) continuation of any CVC option plan
and/or the assumption of options by a successor corporation or (2) the
substitution for the options of new options covering the stock of a successor
corporation, with appropriate adjustments. An employee terminated after any of
these types of transactions or events will retain the right to exercise any
options to purchase shares of common stock for 12 months following the date of
his or her termination or, if earlier, the expiration of the original term of
the option.
These agreements include restrictive covenants for the benefit of CVC
relating to non-disclosure by the employee of CVC's confidential business
information and CVC's right to inventions and technical improvements of the
employee.
50
<PAGE>
CERTAIN TRANSACTIONS
Advent International Group is a principal stockholder of CVC. Mr. Kingsley,
a director of CVC, is a Managing Director of Advent.
Seagate Technology is a principal stockholder of CVC, as well as a major
customer. Mr. Waite, a director of CVC, is an officer of Seagate Technology.
Total revenues attributed to sales of CVC products to Seagate Technology were
$29.2 million in fiscal 1997, $21.3 million in fiscal 1998 and $28.4 million in
fiscal 1999.
In December 1998, CVC sold an aggregate of 100,000 shares of Series C
Convertible Preferred Stock for a price of $100.00 per share and a warrant to
purchase an aggregate of 200,000 shares of common stock to entities affiliated
with Advent International Corporation in a private placement. The Series C
Convertible Preferred Stock is automatically converted into 1,016,260 shares of
common stock, as well as 100,000 shares of Series D Redeemable Preferred Stock
upon consummation of this offering. The Series D Redeemable Preferred Stock
will, in turn, be redeemed by CVC upon the consummation of this offering for a
redemption price of $10.0 million. As a consequence of redemption of the
Series D Redeemable Preferred Stock, Advent will have received the return of its
entire $10.0 million investment made in December 1998 and will continue to own
1,016,260 shares of CVC common stock. The warrant will be terminated upon
consummation of this offering. See "Description of Capital Stock."
Also, in connection with that transaction, CVC entered into an Amended and
Restated Registration Rights Agreement with Advent, Seagate Technology, Nikko
Tecno and executive officers and stockholders of CVC who are parties to this
agreement. This agreement grants demand and piggy-back registration rights to
Seagate Technology and Advent with respect to shares of common stock issuable
upon conversion of all outstanding shares of the Series B and Series C Senior
Convertible Redeemable Preferred Stock, and also grants piggy-back registration
rights to the executive officers and stockholders of CVC who are parties to this
agreement. See "Description of Capital Stock--Registration Rights." In addition,
CVC entered into an Amended and Restated Stockholders' Agreement with Advent,
Seagate Technology, Nikko Tecno and the executive officers and stockholders of
CVC who are parties to this agreement providing for voting and pre-emptive
rights with respect to the acquisition and sale of shares by CVC, as well as
matters affecting corporate governance. These rights will terminate when the
Series A, Series B and Series C Senior Convertible Redeemable Preferred Stock
are converted into common stock upon the consummation of this offering.
As part of CVC's acquisition of Commonwealth in May 1999, CVC entered into a
consulting agreement with George R. Thompson, Jr., the former Chief Executive
Officer of Commonwealth and a current director of CVC. Under the terms of this
consulting agreement, CVC is obligated to pay Mr. Thompson an aggregate amount
of $525,000 over the three-year period following the acquisition, as
consideration for consulting services provided by him to CVC. In addition,
Mr. Thompson is entitled to benefits, such as an automobile allowance and health
insurance coverage. This consulting agreement may be terminated by Mr. Thompson
for any reason at any time and by the Company in the following circumstances:
- if Mr. Thompson (1) materially breaches his obligations under a
non-competition agreement; (2) is convicted of a felony or any offense
involving misappropriation of money; or (3) willfully fails or refuses to
perform his duties under this agreement or
- upon Mr. Thompson's death.
Nikko Tecno, a Japanese corporation, is a principal stockholder and a
distributor of CVC's products in Japan. Mr. Miyanishi, a director of CVC, is the
President and Chief Executive Officer of Nikko Tecno. CVC borrowed from Nikko
Tecno $1.5 million in November 1990 and $1.0 million in December 1991 under two
unsecured notes that required quarterly interest payments calculated at an
51
<PAGE>
annual rate of 9%. The principal of the $1.0 million note was paid in October
1997. The principal of the $1.5 million note was paid in January 1999. See Notes
to Consolidated Financial Statements.
Christine Whitman, CVC's Chairman, President and Chief Executive Officer
currently serves as a director of M&T Bank, with whom CVC has outstanding credit
agreements. Net proceeds borrowed from M&T Bank were $1.7 million in fiscal
1997, $9.5 million in fiscal 1998 and $3.9 million in fiscal 1999.
With respect to all of the transactions listed above, CVC believes that the
terms of these transactions were, at the time entered into, no less favorable
than CVC could have obtained with
non-affiliated parties. It is CVC's policy that when a transaction or matter
comes before its Board of Directors in which a director may have a conflict, the
nature and extent of the potential conflict is disclosed and/or reviewed with
the CVC Board of Directors, after which the conflicted director is prohibited
from participating in any discussions and subsequent Board voting relating to
the transaction or matter in which he or she may have a conflicting interest. In
addition, any transaction of this type must be approved by a majority of those
CVC directors who do not have a conflicting interest in any transaction or
matter of this type.
52
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of CVC's common stock as of October 15, 1999, by each person or entity
known to CVC to own beneficially more than 5% of the outstanding shares of
common stock, each of CVC's directors and the named executive officers, the
selling stockholders who are Anne G. Whitman and George R. Thompson, Jr. and all
directors and executive officers as a group. Unless otherwise indicated below,
to the knowledge of CVC, 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 OWNED
PRIOR TO THE AFTER THE
OFFERING(1)(2) SHARES TO BE OFFERING(1)(2)
-------------------- SOLD IN THE --------------------
BENEFICIAL OWNER NUMBER PERCENT OFFERING NUMBER PERCENT
- ---------------- --------- -------- ------------ --------- --------
<S> <C> <C> <C> <C> <C>
Seagate Technology(3)........................ 3,219,073 34.7 -- 3,219,073 26.2
920 Disc Drive
Scotts Valley, CA 95066-4544
Nikko Tecno(4)............................... 1,412,316 16.6 -- 1,412,316 12.3
P.O. Box 139
Central Tokyo, Japan
Advent International Group(5)................ 1,017,593 12.0 -- 1,017,593 8.9
75 State Street
Boston, MA 02109
Anne G. Whitman(6)........................... 1,108,800 13.1 300,000 808,800 7.0
370 Canfield Drive
Pittsford, NY 14534
Christine B. Whitman(7)...................... 726,400 8.2 -- 726,400 6.1
Giovanni Nocerino............................ 106,667 1.2 -- 106,667 *
Emilio O. DiCataldo.......................... 146,000 1.7 -- 146,000 1.3
Mehrdad M. Moslehi(7)........................ 307,200 3.6 -- 307,200 2.7
Christopher J. Mann.......................... 263,360 3.0 -- 263,360 2.3
Richard J. Chicotka.......................... 85,600 1.0 -- 85,600 *
Richard A. Kellogg........................... 8,267 * -- 8,267 *
Judd C. Prozeller............................ 28,133 * -- 28,133 *
Robert C. Fink............................... 4,888 * -- 4,888 *
Douglas A. Kingsley(7)(8).................... 1,017,593 12.0 -- 1,017,593 8.9
Seiya Miyanishi(7)(9)........................ 1,412,316 16.6 -- 1,412,316 12.3
George R. Thompson, Jr.(7)(10)............... 862,449 10.2 200,000 662,449 5.8
Donald L. Waite(7)(11)....................... 3,219,073 34.7 -- 3,219,073 26.2
Thomas C. McDermott.......................... -- -- -- -- --
Maurice F. Holmes............................ -- -- -- -- --
All directors and executive officers as a
group
(15 persons)(12)........................... 8,187,946 80.0% -- 7,987,946 60.4
</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, 1999. 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--358,400 shares; Giovanni Nocerino--106,667
shares; Emilio O. DiCataldo--146,000
53
<PAGE>
shares; Mehrdad M. Moslehi--3,200 shares; Christopher J. Mann--207,400
shares; Richard J. Chicotka--85,600 shares; Richard A. Kellogg--8,267
shares; Judd C. Prozeller--28,133 shares; and Robert C. Fink--2,222 shares.
(3) Includes 2,419,680 shares of common stock issuable upon conversion of
outstanding shares of Series B Convertible Preferred Stock and 790,760
additional shares of common stock issuable upon exercise of a warrant held
by Seagate Technology.
(4) Includes 1,392,000 shares of common stock issuable upon conversion of
Series A Convertible Preferred Stock.
(5) Includes ownership by the following venture capital funds managed by Advent
International Corporation: (1) 853,658 shares of common stock issuable to
Global Private Equity III Limited Partnership upon conversion of outstanding
shares of Series C Convertible Preferred Stock, (2) 130,793 shares of common
stock issuable to Advent PGGM Global Limited Partnership upon conversion of
outstanding shares of Series C Convertible Preferred Stock, (3) 12,907
shares of common stock issuable to Advent Partners GPE III Limited
Partnership upon conversion of outstanding shares of Series C Convertible
Preferred Stock, (4) 3,861 shares of common stock issuable to Advent
Partners (NA) GPE III Limited Partnership upon conversion of outstanding
shares of Series C Convertible Preferred Stock and (5) 15,041 shares of
common stock issuable to Advent Partners Limited Partnership upon conversion
of outstanding shares of Series C Convertible Preferred Stock. Advent is the
general partner for all of the above limited partnerships.
(6) Includes an aggregate of 38,400 shares of common stock held by
Ms. Whitman's three children pursuant to trust agreements with The Chase
Manhattan Bank. Ms. Whitman disclaims beneficial ownership of these shares.
Anne G. Whitman is not related to Christine B. Whitman and has at no time
held any position, office or other material relationship with CVC or any of
its predecessors or affiliates, except as a shareholder of CVC.
(7) The stockholders' address is: c/o CVC, Inc., 525 Lee Road, Rochester, New
York, 14606.
(8) Represents 1,017,593 shares owned by Advent. Mr. Kingsley is a Senior Vice
President of Advent International Corporation, the venture capital firm
which is the manager of the funds affiliated with the Advent International
Group. Mr. Kingsley disclaims beneficial ownership of the shares of common
stock owned by Advent except to the extent of his indirect pecuniary
interest therein as a partner in Advent.
(9) Represents 1,412,316 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.
(10) Includes 50,869 shares of common stock held by Mr. Thompson's daughter,
Eleanor Thompson, and 50,869 shares of common stock held by his son, G.
Richard Thompson. Mr. Thompson disclaims beneficial ownership of the shares
of common stock held by his children.
(11) Represents 3,219,073 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.
(12) Includes (1) 1,412,316 shares held of record by Nikko Tecno, the ownership
of which is attributed to a Mr. Miyanishi, (2) 1,017,593 shares held of
record by Advent, the ownership of which is attributed to Mr. Kingsley,
(3) 3,219,073 shares held of record by Seagate Technology, the
54
<PAGE>
ownership of which is attributed to a director of CVC and (4) 50,869 shares
of common stock held by Mr. Thompson's daughter, Eleanor Thompson, and
50,869 shares of common stock held by his son, G. Richard Thompson.
Anne G. Whitman and George R. Thompson, Jr. have granted to the underwriters
an option to purchase up to an aggregate of 525,000 shares of common stock to
cover over-allotments, if any. This option may be exercised at any time within
30 days from the date of this prospectus, in whole or in part. If the
underwriters option is exercised in full, Ms. Whitman would beneficially own
483,800 shares representing 4.2% of shares outstanding and Mr. Thompson would
beneficially own 462,449, shares representing 4.0% of shares outstanding. The
percentage beneficial ownership of the other stockholders listed above will not
change as a result of the exercise of the underwriter's over-allotment option.
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED STOCK
Upon the completion of this offering, the authorized capital stock of CVC
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.
COMMON STOCK
Assuming conversion of all outstanding Series A, Series B and Series C
Convertible Preferred Stock, at September 30, 1999 there were 8,492,707 shares
of common stock issued and outstanding held by approximately 66 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 any
dividends as may be declared by CVC's board of directors out of funds legally
available therefor. In the event of a liquidation, dissolution or winding up of
CVC, 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 CVC may designate and issue in the future.
PREFERRED STOCK
As of September 30, 1999, 1,685 shares of Series A Convertible Preferred
Stock, 60,492 shares of Series B Convertible Preferred Stock, 100,000 shares of
Series C Convertible Preferred Stock and no shares of Series D Redeemable
Preferred Stock were issued and outstanding. Simultaneously with the closing of
this offering, the outstanding shares of Series A Convertible Preferred Stock
will automatically be converted into an aggregate of 2,696,000 shares of common
stock and the Series B Convertible Preferred Stock will automatically be
converted into 2,419,680 shares of common stock. At the same time, the Series C
Convertible Preferred Stock will automatically be converted into 1,016,260
shares of common stock and 100,000 shares of Series D Redeemable Preferred
Stock. The Series D Redeemable Preferred Stock will, in turn, be redeemed by CVC
upon the consummation of this offering for a redemption price of $10.0 million.
Upon the closing of the offering, the conversion of the outstanding
Series A, Series B and Series C Convertible Preferred Stock, the redemption of
the Series D Redeemable Preferred Stock and the filing of an Amended and
Restated Certificate of Incorporation of CVC removing the designation of those
series, CVC's 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 Certificate of
Incorporation, CVC's board of directors is authorized, subject to any
limitations prescribed by law, without further stockholder approval, to issue
those shares of preferred stock in one or more series. Each such series of
preferred stock shall have those rights, preferences, privileges and
restrictions, including voting rights, dividend rights, conversion rights,
redemption privileges and liquidation preferences, as shall be determined by
CVC's board of directors.
The purpose of authorizing CVC's 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.
56
<PAGE>
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 CVC. CVC has no present plans to issue any shares of preferred stock.
REGISTRATION RIGHTS
Upon consummation of this offering, the holders of 7,218,197 shares of
common stock will be entitled to rights with respect to the registration of
these shares under the Securities Act. These registration rights have been
waived with respect to the offering. Under the terms of an agreement between CVC
and the holders of the shares eligible for registration, if CVC 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,
these holders are entitled to notice of registration and are entitled to include
their eligible shares in the offering, provided that the managing underwriters
have the right to limit the number of these shares included in the registration.
Holders of 3,435,940 shares of the shares eligible for registration may also
require CVC to file a registration statement under the Securities Act at its
expense with respect to these securities, and CVC is required to use its best
efforts to effect that registration, subject to, among other things, the right
of CVC not to effect any registration within six months following this offering.
Further, stockholders may require CVC to file additional registration statements
on Form S-3 when that form becomes available to CVC. All expenses incurred in
connection with registrations of this type must be borne by CVC, other than
underwriting discounts and commissions.
WARRANTS
CVC has issued a warrant to Seagate Technology 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 May 22, 1995, the date this warrant was issued. Upon the consummation of this
offering, this warrant will become exercisable for 790,760 shares of common
stock at an exercise price of $5.58 per share of common stock.
CVC has issued warrants to Advent to purchase an aggregate of 133,333 shares
of common stock at an exercise price of $15.00 per share during the four-year
period commencing on December 1, 2001. This warrant, however, will terminate
upon the consummation of this offering.
LIMITATIONS ON DIRECTOR LIABILITY
CVC's Certificate of Incorporation provides that, to the fullest extent
permitted by the Delaware General Corporation Law, none of its directors will be
personally liable to CVC or its stockholders for monetary damages.
Section 102(b)(7) of the Delaware General Corporation Law currently provides
that a director's liability for breach of fiduciary duty to a corporation may be
eliminated, except for liability:
- for any breach of the director's duty of loyalty to the corporation or its
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law, for unlawful
dividends or unlawful stock repurchases or redemptions; and
- for any transaction from which the director derives an improper personal
benefit.
Any amendment to these provisions of the Delaware General Corporation Law
will automatically be incorporated by reference into CVC's Certificate of
Incorporation without any vote on the part of its stockholders unless otherwise
required, including this provision in CVC's Amended and Restated
57
<PAGE>
Certificate. These provisions may, however, discourage or deter stockholders or
management from bringing a lawsuit against directors for a breach of their
fiduciary duties, even though such an action, if successful, might otherwise
benefit us and our stockholders.
CVC's By-laws provide that CVC will indemnify its directors and officers to
the fullest extent permitted by Delaware law. Generally, CVC is required to
indemnify our directors and officers for all:
- judgments;
- fines;
- settlements;
- legal fees; and
- other expenses incurred in connection with pending or threatened legal
proceedings because of the director's or officer's position with CVC.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
CVC is subject to the provisions of Section 203 of the Delaware General
Corporation Law. Under Section 203, 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 generally prohibited
for a three-year period following the date that such a stockholder became an
interested stockholder, unless:
- the corporation has elected in its original certificate of incorporation
not to be governed by Section 203. CVC did not make this election;
- 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;
- 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
- the business combination was approved by the board of directors of the
corporation and ratified by two-thirds of the voting stock not owned by
the interested stockholder.
The three-year prohibition also does not apply to some business combinations
proposed by an interested stockholder following the announcement or notification
of an extraordinary transaction 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 under Section 203 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 under Section 203
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 CVC and therefore could discourage attempts to acquire CVC.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock will be BankBoston,
N.A.
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, CVC will have 11,492,707 shares of common
stock outstanding. Of these shares, the 3,500,000 shares of common stock sold in
the offering will be freely tradable without restriction under the Securities
Act. However, any shares purchased by "affiliates" of CVC, as that term is
defined in Rule 144 under the Securities Act, generally may be sold only in
compliance with the limitations of Rule 144 described below. Affiliates include
directors, officers and holders of 10% or greater of the total outstanding
shares of common stock.
SALES OF RESTRICTED SECURITIES
The remaining shares of common stock outstanding upon completion of the
offering are deemed "restricted securities" under Rule 144. Of the restricted
securities, up to 1,168,737 shares will be eligible for sale in the public
market after the offering pursuant to Rule 144(k) under the Securities Act;
1,167,409 of these shares are subject to the 180-day lock-up agreements
described below, but will be eligible for sale in the public market immediately
upon the closing of the offering. Of the remaining restricted securities
outstanding, 4,702,873 shares will be eligible for resale under Rule 144
commencing 90 days after the date of this prospectus; all 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
securities who beneficially owns shares that were not acquired from CVC or an
affiliate of CVC within the previous year 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 114,773
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 of restricted securities under Rule 144 are subject
to manner of sale provisions, notice requirements and the availability of
current public information about CVC. A person who is not deemed an affiliate of
CVC at any time during the three months preceding a sale, and who beneficially
owns shares that were not acquired from CVC 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 CVC.
Any employee, officer or director of or consultant to CVC 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. Affiliates can sell
their Rule 701 shares without having to comply with Rule 144's one-year
holding-period restrictions, but must otherwise comply with its volume
limitations and manner of sale provisions.
OPTIONS
Upon completion of the offering, 1,901,379 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;
1,758,730 of these shares underlying these options are subject to the 180-day
lock-up agreements. An additional 1,283,065 shares of common stock are available
for future grants under CVC's stock option plans.
CVC 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 CVC's stock option plans
that do not qualify for an exemption under Rule 701 from the registration
requirements of the Securities Act. CVC has agreed with the Underwriters not to
file these
59
<PAGE>
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.
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 these sales could occur, could
adversely affect prevailing market prices for the common stock and could impair
CVC's future ability to raise capital through an offering of equity securities.
60
<PAGE>
UNDERWRITING
Each underwriter named below has agreed to purchase from CVC and the selling
stockholders the number of shares of common stock set forth opposite its name.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ -------------
<S> <C>
Lehman Brothers Inc.........................................
Prudential Securities Incorporated..........................
SG Cowen Securities Corporation.............................
Warburg Dillon Read LLC.....................................
---------
Total................................................... 3,500,000
=========
</TABLE>
The underwriters will purchase the shares pursuant to an underwriting
agreement with CVC and the selling stockholders. The underwriters will pay CVC
and the selling stockholders the public offering price less the underwriting
discount specified on the cover page of this prospectus. CVC estimates that its
expenses for this offering will be $ . There are conditions in the
underwriting agreement that must be satisfied before the underwriters are
required to purchase the shares, including the delivery of legal opinions by
legal counsel. The underwriters will purchase either all of the shares or none
of them.
The underwriters have advised CVC and the selling stockholders that they
will offer the shares directly to the public initially at the public offering
price and to selected dealers, who may include underwriters, at the public
offering price less a selling concession not to exceed $ per
share. The underwriters may allow, and these dealers may reallow, a concession
not to exceed $ per share to brokers and dealers. After the initial
offering of the shares the underwriters may change the public offering price and
other selling terms.
The following table shows the per share and total public offering price,
underwriting discount to be paid by CVC and the selling stockholders to the
underwriters and the proceeds before expenses to CVC and the selling
stockholders. This information is presented assuming either no exercise or full
exercise by the underwriters of their over-allotment option.
<TABLE>
<CAPTION>
PER
SHARE WITHOUT OPTION WITH OPTION
-------- -------------- -----------
<S> <C> <C> <C>
Public offering price....................................... $ $ $
Underwriting discount....................................... $ $ $
Proceeds, before expenses, to CVC........................... $ $ $
Proceeds to selling stockholders............................ $ $ $
</TABLE>
The underwriters will offer the shares subject to prior sale, withdrawal,
cancellation or modification of offer of the shares without notice, and to their
receipt and acceptance of the shares. The underwriters may reject any order to
purchase shares.
The selling stockholders have granted the underwriters an option,
exercisable not later than 30 days after the date of this prospectus, to
purchase up to 525,000 additional shares at the public offering price less the
underwriting discount specified on the cover page of this prospectus. To the
extent that the underwriters exercise this option, each of the underwriters will
have a firm commitment, subject to conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by it shown in
the above table bears to each underwriter's initial purchase commitment, and the
selling stockholders will be obligated to sell the shares to the underwriters.
The underwriters may exercise this option only to cover over-allotments.
Each of the officers and directors of CVC, and a substantial majority of the
stockholders of CVC, including the selling stockholders, have agreed not to
offer, sell, pledge or otherwise dispose of any
61
<PAGE>
shares of common stock, directly or indirectly, or engage in hedging
transactions with respect to the common stock, for a period of 180 days after
the date of this prospectus, without the prior written consent of Lehman
Brothers Inc. Stockholders who have agreed to this lock-up arrangement hold an
aggregate of shares of common stock and options to purchase an aggregate
of shares of common stock. CVC has agreed not to sell or otherwise dispose
of any shares of common stock for a period of 180 days, subject to exceptions.
Lehman Brothers Inc. may, in its sole discretion and at any time without notice,
release all or any portion of the shares subject to these lock-up agreements.
See "Shares Eligible for Future Sale."
Prior to this offering, there has been no public market for the shares of
common stock. The initial public offering price will be negotiated by the
representatives of the underwriters, CVC and representatives of the selling
stockholders. The underwriters will consider, among other things and in addition
to prevailing market conditions, CVC's historical performance and capital
structure, estimates of business potential and earning prospects, an overall
assessment of CVC's management and the consideration of the above factors in
relation to market valuation of companies in related businesses.
At CVC's request, the underwriters have reserved for sale, at the initial
public offering price, up to 200,000 of the shares of common stock offered in
this offering for CVC's directors, officers, employees and related persons. The
number of shares of common stock available for sale to the general public will
be reduced to the extent these individuals purchase the reserved shares. Any
reserved shares which are not so purchased will be offered by the underwriters
to the general public on the same basis as the other shares offered hereby.
Application has been made to have the common stock approved for quotation on
the Nasdaq National Market under the symbol "CVCI."
CVC and the selling stockholders have agreed to indemnify the underwriters
against liabilities including liabilities under the Securities Act, and to
contribute, under specified circumstances, to payments that the underwriters may
be required to make in respect thereof.
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
selling group members to bid for and purchase shares of common stock. As an
exception to these rules, the underwriters are permitted to engage in
transactions that stabilize the price of the common stock. Stabilizing
transactions may consist of bids or purchases for the purposes of pegging,
fixing or maintaining the price of the common stock.
If the underwriters create a short position in the common stock in
connection with this offering, i.e., they sell more shares than are set forth on
the cover page of this prospectus, the underwriters may reduce that short
position by purchasing common stock in the open market. The underwriters also
may elect to reduce any short position by exercising all or part of their
over-allotment option.
The underwriters also may impose a penalty bid on underwriters and selling
group members. This means that if the underwriters purchase shares of common
stock in the open market to reduce the underwriters' short position or to
stabilize the price of the common stock, they may reclaim the amount of the
selling concession from the underwriters and selling group members who sold
those shares as part of this offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of these types of purchases.
The imposition of a penalty bid might have an effect on the price of a security
to the extent that it was to discourage resales of the security by purchasers in
an offering.
Neither CVC nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
CVC nor any of the underwriters makes any representation that the
62
<PAGE>
underwriters will engage in transactions of this type or that transactions of
this type, once commenced, will not be discontinued without notice.
Any offers in Canada will be made only pursuant to an exemption from the
requirements to file a prospectus in the relevant province of Canada in which a
sale is made.
Purchasers of the shares of common stock offered by this prospectus may be
required to pay stamp taxes and other charges under the laws and practices of
the country of purchase, in addition to the public offering price.
The underwriters have informed CVC that they do not intend to confirm sales
of shares of common stock to any accounts over which they exercise discretionary
authority in excess of 5% of the shares offered by them.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for CVC by Dewey Ballantine LLP, New York, New York and for the
Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
EXPERTS
The consolidated financial statements of CVC as of September 30, 1999 and
1998 and for the three years in the period ended September 30, 1999 included in
this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of Commonwealth Scientific Corporation as of
March 31, 1999 and 1998, and for the three years in the period ended March 31,
1999, included in this prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein upon the authority of said firm as experts in
giving said reports.
ADDITIONAL INFORMATION
CVC has filed with the Securities and Exchange Commission, 450
Fifth Street, 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 the information set forth in this
registration statement and the exhibits and schedules thereto. For further
information with respect to CVC 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 the 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 SEC 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 SEC,
Washington, D.C. 20549 upon the payment of the fees prescribed by the SEC. The
SEC maintains a web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants, such as CVC,
that file electronically with the SEC. The SEC's free investor information
service can be reached at 1-800-SEC-0330.
63
<PAGE>
CVC, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CVC, INC.
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
ACQUIRED COMPANY (COMMONWEALTH SCIENTIFIC CORPORATION)
Report of Independent Public Accountants.................... F-24
Balance Sheets.............................................. F-25
Statements of Operations.................................... F-27
Statements of Stockholders' Equity.......................... F-28
Statements of Cash Flows.................................... F-29
Notes to Financial Statements............................... F-30
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To Board of Directors and
Stockholders of CVC, Inc.
The stock split described in Note 1 to the consolidated financial statements
has not been consummated at October 21, 1999. When it has been consummated, we
will be in a position to furnish the following report:
"In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity and cash
flows present fairly, in all material respects, the financial position of
CVC, Inc. (the "Company") and its subsidiaries at September 30, 1999 and
1998, and the results of their operations and their cash flows for each of
the three years in the period ended September 30, 1999 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."
PricewaterhouseCoopers LLP
October 18, 1999
F-2
<PAGE>
CVC, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
----------------------------------------
1999 PRO FORMA
1998 1999 (NOTE 1)
-------- ----------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 106 $ 434 $ 434
Accounts receivable--trade (includes related party
receivables of $1,397 and $4,105 at September 30, 1998
and 1999, respectively), less allowance for doubtful
accounts of $345 and $887 at September 30, 1998 and
1999, respectively...................................... 7,026 21,559 21,559
Inventories............................................... 18,811 29,187 29,187
Deferred income taxes..................................... 1,431 2,819 2,819
Other current assets...................................... 1,055 1,396 1,396
------- ------- -------
28,429 55,395 55,395
Property, plant and equipment, net.......................... 13,901 19,374 19,374
Goodwill and other intangible assets, net................... 434 1,148 1,148
------- ------- -------
Total assets........................................ $42,764 $75,917 $75,917
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current portion of long-term
debt.................................................... $ 5,689 $13,217 $13,217
Accounts payable.......................................... 7,221 11,279 11,279
Advances from customers (includes related party amounts of
$463 at September 30, 1998)............................. 1,167 1,483 1,483
Other current liabilities................................. 3,448 7,312 7,312
------- ------- -------
17,525 33,291 33,291
Long-term debt (includes related party note of $1,500 at
September 30, 1998)....................................... 11,379 8,493 8,493
Deferred income taxes....................................... 1,393 1,554 1,554
Other liabilities........................................... 487 986 986
------- ------- -------
Total liabilities................................... 30,784 44,324 44,324
Commitments (Note 14)
Stockholders' equity:
Preferred stock, $.01 par value per share; 502,500 shares
authorized; shares issued and outstanding:
Series C--100,000 shares at September 30, 1999
(liquidation preference of $10,000,000)................. -- 9,855 --
Series D--100,000 shares pro forma (liquidation preference
of $10,000,000)......................................... -- -- 10,000
Series B--60,492 shares at September 30, 1998 and 1999
(liquidation preference of $9,000,000).................. 8,355 8,355 --
Series A--1,685 shares at September 30, 1998 and 1999
(liquidation preference of $1,685,000).................. 1,685 1,685 --
Common Stock, $.01 par value per share; 50,000,000 shares
authorized; 1,057,929 shares issued and outstanding
at September 30, 1998, and 2,360,767 shares issued and
outstanding at September 30, 1999......................... 11 24 85
Additional paid-in capital.................................. 1,099 9,305 19,139
Warrant..................................................... -- 14 --
Unamortized deferred compensation........................... (252) (135) (135)
Retained earnings........................................... 1,213 2,784 2,798
Minimum pension liability................................... (131) (294) (294)
------- ------- -------
Total stockholders' equity.................................. 11,980 31,593 31,593
------- ------- -------
Total liabilities and stockholders' equity.................. $42,764 $75,917 $75,917
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
CVC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
---------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Revenues (includes sales to related party of $29,244,
$21,322, and $28,408, for the years ended September 30,
1997, 1998 and 1999, respectively)........................ $62,588 $68,173 $82,915
Cost of goods sold (includes cost of goods sold to related
party of $17,352, $11,115, and $15,167 for the years ended
September 30, 1997, 1998 and 1999, respectively).......... 41,286 42,019 50,502
------- ------- -------
Gross margin................................................ 21,302 26,154 32,413
Operating expenses
Research and development.................................. 9,055 12,615 12,630
In-process R&D write-off.................................. -- -- 1,174
Sales and marketing....................................... 5,613 7,696 10,081
General and administrative................................ 2,539 3,476 4,822
------- ------- -------
17,207 23,787 28,707
------- ------- -------
Income from operations...................................... 4,095 2,367 3,706
Other income/(expense)
Write-off of deferred charges............................. -- (675) --
Interest and other income................................. 11 171 1,037
Interest expense.......................................... (604) (1,325) (1,235)
------- ------- -------
(593) (1,829) (198)
------- ------- -------
Income before income taxes.................................. 3,502 538 3,508
Income taxes................................................ 1,457 274 1,937
------- ------- -------
Net income.................................................. $ 2,045 $ 264 $ 1,571
======= ======= =======
Net income per share:
Basic..................................................... $ 2.67 $ 0.26 $ 1.01
======= ======= =======
Diluted................................................... $ 0.29 $ 0.04 $ 0.18
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
CVC, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SERIES C SERIES B SERIES A
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
-------------------- -------------------- --------------------
NUMBER NUMBER NUMBER
OF SHARES AMOUNT OF SHARES AMOUNT OF SHARES AMOUNT
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1996.................... 60,492 $8,355 1,685 $1,685
Net income....................................
Minimum pension liability.....................
Tax impact on pension liability...............
Comprehensive earnings......................
Deferred compensation.........................
Amortization of deferred compensation.........
Issuance of common stock......................
------- ------ ------ ------ ------- ------
Balance at September 30, 1997................. 60,492 8,355 1,685 1,685
Net income....................................
Minimum pension liability.....................
Tax impact on pension liability...............
Comprehensive earnings......................
Deferred compensation.........................
Amortization of deferred compensation.........
Issuance of common stock......................
------- ------ ------ ------ ------- ------
Balance at September 30, 1998................. -- -- 60,492 8,355 1,685 1,685
Net income....................................
Minimum pension liability.....................
Tax impact on pension liability...............
Comprehensive earnings......................
Deferred compensation.........................
Amortization of deferred compensation.........
Issuance of preferred stock and warrant....... 100,000 $9,855
Issuance of common stock......................
------- ------ ------ ------ ------- ------
Balance at September 30, 1999................. 100,000 $9,855 60,492 $8,355 1,685 $1,685
======= ====== ====== ====== ======= ======
<CAPTION>
COMMON STOCK
------------------------------- UNAMORTIZED MINIMUM
NUMBER PAR PAID-IN DEFERRED RETAINED PENSION
OF SHARES VALUE CAPITAL WARRANT COMPENSATION EARNINGS LIABILITY
--------- -------- -------- -------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1996.................... 735,160 $ 7 $ 454 $(1,096) $ (86)
Net income.................................... 2,045
Minimum pension liability..................... (2)
Tax impact on pension liability............... 1
Comprehensive earnings......................
Deferred compensation......................... 261 $(261)
Amortization of deferred compensation......... 7
Issuance of common stock...................... 114,100 2 56
--------- --- ------ ---- ----- ------- -----
Balance at September 30, 1997................. 849,260 9 771 (254) 949 (87)
Net income.................................... 264
Minimum pension liability..................... (74)
Tax impact on pension liability............... 30
Comprehensive earnings......................
Deferred compensation......................... 109 (109)
Amortization of deferred compensation......... 111
Issuance of common stock...................... 208,669 2 219
--------- --- ------ ---- ----- ------- -----
Balance at September 30, 1998................. 1,057,929 11 1,099 -- (252) 1,213 (131)
Net income.................................... 1,571
Minimum pension liability..................... (271)
Tax impact on pension liability............... 108
Comprehensive earnings......................
Deferred compensation......................... (12) 12
Amortization of deferred compensation......... 105
Issuance of preferred stock and warrant....... $ 14
Issuance of common stock...................... 1,302,838 $13 8,218
--------- --- ------ ---- ----- ------- -----
Balance at September 30, 1999................. 2,360,767 $24 $9,305 $ 14 $(135) $ 2,784 $(294)
========= === ====== ==== ===== ======= =====
<CAPTION>
TOTAL
--------
<S> <C>
Balance at October 1, 1996.................... $ 9,319
Net income.................................... 2,045
Minimum pension liability..................... (2)
Tax impact on pension liability............... 1
-------
Comprehensive earnings...................... 2,044
Deferred compensation......................... --
Amortization of deferred compensation......... 7
Issuance of common stock...................... 58
-------
Balance at September 30, 1997................. 11,428
Net income.................................... 264
Minimum pension liability..................... (74)
Tax impact on pension liability............... 30
-------
Comprehensive earnings...................... 220
Deferred compensation......................... --
Amortization of deferred compensation......... 111
Issuance of common stock...................... 221
-------
Balance at September 30, 1998................. 11,980
Net income.................................... 1,571
Minimum pension liability..................... (271)
Tax impact on pension liability............... 108
-------
Comprehensive earnings...................... 1,408
Deferred compensation......................... --
Amortization of deferred compensation......... 105
Issuance of preferred stock and warrant....... 9,869
Issuance of common stock...................... 8,231
-------
Balance at September 30, 1999................. $31,593
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
CVC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
SEPTEMBER 30,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 2,045 $ 264 $ 1,571
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
In-process R&D write-off.................................. -- -- 1,174
Depreciation and amortization............................. 1,285 2,167 4,180
Provision for deferred taxes.............................. 461 (259) (166)
Changes in operating assets and liabilities --
Accounts receivable (including related party)........... (3,406) 1,262 (12,046)
Inventories............................................. (5,767) 1,721 1,449
Other assets............................................ (405) (931) 456
Accounts payable........................................ 4,556 (2,772) 746
Advances from customers (including related party)....... 3,035 (7,485) (2,402)
Other liabilities....................................... 1,299 (890) 200
------- ------- -------
Total adjustments..................................... 1,058 (7,187) (11,597)
------- ------- -------
Net cash provided (used) by operating activities...... 3,103 (6,923) (4,838)
------- ------- -------
Cash flows from investing activities:
Capital expenditures...................................... (2,805) (4,817) (1,755)
------- ------- -------
Net cash used by investing activities................. (2,805) (4,817) (1,755)
------- ------- -------
Cash flows from financing activities:
Net proceeds from line of credit.......................... 527 3,612 6,540
Payments on notes payable (including related party)....... -- (1,127) (1,500)
Proceeds from long-term debt.............................. 2,000 8,000 --
Payments on long-term debt and capital lease
obligations............................................. (1,452) (1,021) (8,111)
Net proceeds from issuance of preferred stock and
warrant................................................. -- -- 9,869
Net proceeds from issuance of common stock................ 58 221 123
------- ------- -------
Net cash provided by financing activities............. 1,133 9,685 6,921
------- ------- -------
Net increase (decrease) in cash and cash equivalents........ 1,431 (2,055) 328
Cash and cash equivalents, beginning of period.............. 730 2,161 106
------- ------- -------
Cash and cash equivalents, end of period.................... $ 2,161 $ 106 $ 434
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Non-cash investing transaction:
Equipment capitalized from inventory...................... $ -- $ 1,828 $ 2,258
Equipment transferred to inventory........................ -- $ -- $ 198
Net tangible assets acquired by issuing common stock
(Note 2)................................................ $ 6,298
Cash paid during the year for:
Interest.................................................. $ 542 $ 1,287 $ 1,237
Income taxes.............................................. $ 782 $ 1,430 $ 1,100
</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
PRINCIPLES OF CONSOLIDATION AND NATURE OF OPERATION
The consolidated financial statements of CVC, Inc. and subsidiaries (CVC or
the Company) include the consolidated accounts of CVC, Inc., CVC Products Inc.,
Commonwealth Scientific Corporation, since acquisition on May 10, 1999, and CVC
Process Solutions, Inc. CVC is a worldwide supplier of fabrication equipment
providing thin film process solutions for the manufacture of magnetic recording
heads and advanced semiconductor devices for computers and communications
systems. The Company maintains offices in Rochester, New York; Alexandria,
Virginia; Fremont, California; Garland, Texas; Minneapolis, Minnesota; Japan and
Northern Ireland.
All significant intercompany balances and transactions have been eliminated
in consolidation.
UNAUDITED PRO FORMA BALANCE SHEET
The Company's Series A and Series B Convertible Preferred Stock
automatically convert into common stock and the Company's Series C Convertible
Preferred Stock automatically converts into common stock and Series D Redeemable
Preferred Stock concurrent with the closing of an initial public offering
(Note 10). 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 for pro forma purposes is
assumed to occur as of September 30, 1999.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at 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, accounts receivable (including related party receivables--Note 12)
and accrued expenses. 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments, including cash
and cash equivalents, accounts receivable, accounts payable and accrued
expenses, approximates their fair value at September 30, 1998 and 1999, as the
maturities 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.
F-7
<PAGE>
CVC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
REVENUE RECOGNITION
Revenue from the sale of equipment is recognized upon shipment. Provisions
for estimated product warranty and installation costs are 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.
Amounts received from customers prior to product shipment are classified as
advances from customers.
CASH AND CASH EQUIVALENTS
Cash and 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 any gains or losses from sale recorded in the statement of
operations.
CAPITALIZED SOFTWARE COSTS
The Company capitalizes the costs associated with purchased software for
resale and subsequently amortizes such costs on a units-of-production basis over
their estimated remaining economic life, generally 3 years. These amounts, which
are included in other assets, are reported at the lower of the unamortized cost
or net realizable value and are immaterial.
ASSET IMPAIRMENT
The Company regularly assesses all of its long-lived assets for impairment
when events or circumstances indicate, in accordance with Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The assessment
is accomplished by comparing the estimated undiscounted future cash flows of the
asset grouping with the respective carrying amount as of the date of assessment.
Should aggregate future cash flows be less than the carrying value of the
assets, a write-down would be
F-8
<PAGE>
CVC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
required, measured by the difference between the carrying value of the assets
and the discounted future cash flows.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
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 financial
statement carrying amounts and the tax basis of such assets and liabilities.
The asset and liability 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.
NEW ACCOUNTING STANDARDS
Effective October 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income", which
establishes new rules for the reporting and display of comprehensive income and
its components; however, the adoption had no impact on the Company's net income
or stockholders' equity. SFAS 130 requires changes to the minimum pension
liability, to be included in other comprehensive income. Prior year financial
statements have been reclassified to conform to the requirements of SFAS 130.
In April 1998, the Accounting Standards Executive Committee issued Statement
of Position (SOP) 98-5, "Reporting on the Costs of Start-Up Activities."
Start-up activities are defined broadly as those one-time activities relating to
opening a new facility, introducing a new product or service, conducting
business in a new territory, conducting business with a new class of customer,
commencing some new operation or organizing a new entity. Under SOP 98-5, the
cost of start-up activities should be expensed as incurred. SOP 98-5 is
effective for the Company's fiscal year 2000 financial statements and the
Company does not expect its adoption to have a material effect on the Company's
financial condition or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The new standard
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133 is effective for all quarters of fiscal years
beginning after June 15, 2000. The Company does not expect SFAS No. 133 to have
a material effect on the Company's financial condition or results of operations.
F-9
<PAGE>
CVC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
STOCK SPLITS
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 stock split 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.
On August 30, 1999, the Company declared a 2-for-3 reverse stock split
effective for stockholders of record upon the closing of an initial public
offering. This reverse stock split decreased the number of common shares
outstanding by 1,172,688. All references in the consolidated financial
statements referring to share prices, conversion rates, per share amounts, stock
option plans and common shares issued and/or outstanding have been adjusted
retroactively for the 2-for-3 reverse stock split.
NOTE 2--ACQUISITION
On May 10, 1999, the Company acquired Commonwealth Scientific Corporation
(Commonwealth), a Virginia based company which offers ion beam modules and
systems which provide ion beam etching, deposition and diamond-line carbon (DLC)
processes and ion beam sources for research and development (R&D) and original
equipment manufacturer customers. The purchase price of $8,498,000 was comprised
of the issuance of 1,268,799 shares of the Company's common stock, exchanged and
assumed options in Commonwealth for options to purchase 286,228 shares of the
Company's common stock, and related acquisition costs. The issuance of the
Company's stock was recorded at fair market value, and the assumed options were
recorded at fair market value using the Black-Scholes option pricing model. The
acquisition was accounted for using the purchase method of accounting. The
purchase price was allocated as follows (in thousands):
<TABLE>
<S> <C>
Net tangible assets of Commonwealth......................... $6,298
Purchased in-process R&D.................................... 1,174
Intangible assets:
Workforce in place........................................ 704
Current technology........................................ 265
Goodwill.................................................. 57
------
Total purchase price........................................ $8,498
======
</TABLE>
The net tangible assets includes a write-up of Commonwealth's property to
fair market value by $600,000 and the recognition of a restructuring liability
approximating $550,000. Approximately $140,000 of the restructuring liability
relates to severance costs associated with the reduction of Commonwealth's
workforce by approximately 20%, or 29 employees. The reduction of the workforce
and the payment of termination benefits was completed by September 30, 1999.
Approximately $410,000 of the restructuring liability relates to existing lease
obligations or cancellation penalties associated with facilities which will be
exited. Lease payments will be made through fiscal 2000. At September 30, 1999,
approximately $200,000 has been charged against the restructuring liability. The
Company believes that the amounts remaining under the restructuring liability
are adequate to cover the remaining lease obligations.
F-10
<PAGE>
CVC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--ACQUISITION (CONTINUED)
The purchased in-process R&D includes the value of products in the
development stage, which have not reached technological feasibility and for
which there is no alternative future use. In accordance with applicable
accounting rules, purchased in-process R&D is required to be expensed.
Accordingly, the amount of $1,174,000 was expensed in the third quarter of
fiscal 1999.
The company used independent professional appraisal consultants to assess
and allocate value to the acquired in-process R&D. The allocated value was
determined using the income approach, which involves estimating the discounted
after-tax cash flows attributable to projects based on the projects' stage of
completion.
A discount rate of 35% was applied to the projects' cash flows and there
were no material changes from historical pricing, margins, and expense levels.
Management believes that the assumptions used in the forecasts were reasonable
at the time of the business combination. No assurance can be given, however,
that the underlying assumptions used to estimate expected project sales,
development costs, or profitability will be realized as estimated. For these
reasons, actual results may vary from the projected results.
Estimated net cash inflows from the acquired in-process technology are
projected to commence in fiscal 2001.
The amortization periods of intangible assets related to workforce in place,
current technology and goodwill are seven years, five years and seven years,
respectively.
The operating results of Commonwealth have been included in the Company's
consolidated statement of operations from the date of acquisition. The unaudited
pro forma results below assume the acquisition occurred on October 1, 1997 (in
thousands):
<TABLE>
<CAPTION>
PRO FORMA
---------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
Net sales........................................... $112,060 $101,841
Operating income.................................... 4,782 678
Net income.......................................... 1,524 62
Net income per share:
--Basic........................................... $ 0.67 $ 0.03
--Diluted......................................... $ 0.18 $ 0.01
</TABLE>
The pro forma results include amortization of the intangibles presented
above and cost reductions related to the restructuring charges, and excludes the
write-off of the in-process R&D in each period. The pro forma results are not
necessarily indicative of what actually would have occurred if the acquisition
had been completed as of the beginning of each of the fiscal periods presented,
nor are they necessarily indicative of future consolidated results.
F-11
<PAGE>
CVC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--INVENTORIES
Inventories consisted of the following at September 30, 1998 and 1999 (in
thousands):
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Component parts........................................... $ 8,976 $15,421
Work-in-process........................................... 5,615 11,674
Finished goods............................................ 4,917 4,117
------- -------
19,508 31,212
Less--reserve for obsolescence........................ (697) (2,025)
------- -------
$18,811 $29,187
======= =======
</TABLE>
NOTE 4--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at September 30,
1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
1998 1999
-------- ---------
<S> <C> <C>
Land.................................................... $ 625 $ 2,225
Buildings and improvements.............................. 5,954 7,548
Machinery and equipment................................. 10,358 22,048
------- ---------
16,937 31,821
Less--Accumulated depreciation........................ (4,721) (12,447)
------- ---------
12,216 19,374
Construction-in-process................................. 1,685 --
------- ---------
$13,901 $ 19,374
======= =========
</TABLE>
Construction-in-process was mainly comprised of machinery and equipment
which was placed in service subsequent to September 30, 1998.
Included in property, plant and equipment is $2,220,000 and $2,494,000 for a
building and certain equipment held under capital lease agreements at
September 30, 1998 and 1999, respectively. Related accumulated amortization at
September 30, 1998 and 1999 was $403,000 and $558,000, respectively.
Total depreciation and amortization expense on plant and equipment was
$1,215,000, $1,874,000 and $3,697,000 in 1997, 1998 and 1999, respectively.
Total depreciation expense on assets under capital leases was $56,000 in 1997
and 1998 and $102,000 in 1999.
F-12
<PAGE>
CVC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following at September 30, 1998
and 1999 (in thousands):
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Accrued payroll and benefits................................ $ 874 $1,981
Other current liabilities................................... 2,574 5,331
------ ------
$3,448 $7,312
====== ======
</TABLE>
NOTE 6--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 required monthly payments of principal
and interest at 8% (approximately $19,000 in total). In September 1997, the
Company refinanced 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. 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 likely 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 $2,386,000 at September 30, 1999.
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 were
evidenced by notes, which were unsecured and required quarterly interest
payments at 9%. The $1,000,000 note was paid in full in November 1997 and the
$1,500,000 note was paid in full in January 1999. Interest expense on these
notes totaled $225,000, $138,000 and $34,000 in 1997, 1998 and 1999,
respectively.
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.
In April 1998, the Company borrowed $8,000,000 from a commercial bank. The
seven year term loan requires monthly payments of principal and interest at
8.39% until April 2005. The obligation is secured by certain personal property
and other intangibles of the Company including patents, patent applications and
trademarks.
In connection with the acquisition of Commonwealth, the Company assumed a
$1,214,000 unsecured note payable to a third party. The 18-month note requires
payments of principal and interest at 8% until October 2000.
F-13
<PAGE>
CVC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
The Company also has a $15,000,000 bank line of credit at September 30, 1999
which allows for maximum borrowings based on certain financial criteria.
Allowable borrowings based on this criteria at September 30, 1999 were
$13,819,000. Borrowings under the agreements are at an interest rate of prime.
There was approximately $10,679,000 outstanding under the line of credit at
September 30, 1999.
The Company also has available an equipment line of credit at September 30,
1999 which allows for maximum borrowings of $3,000,000 based on certain
financial criteria. Borrowings under the agreement are at an interest rate of
prime. There were no amounts outstanding under the line of credit at
September 30, 1999.
The debt agreements contain 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 was in
compliance with all covenants at September 30, 1998 and 1999.
A summary of the notes payable and long-term debt outstanding at
September 30, 1998 and 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Term loan, 5 year........................................ $ 1,850 $ 1,250
Term loan, 7 year........................................ 7,624 6,723
Notes payable due related party.......................... 1,500 --
Mortgage credit facility................................. 1,955 1,906
Note payable to third party.............................. -- 891
Future minimum payments under capital leases payable
through January 2002................................... -- 261
Borrowings on line of credit............................. 4,139 10,679
------- --------
17,068 21,710
Less--Current portion................................ (5,689) (13,217)
------- --------
$11,379 $ 8,493
======= ========
</TABLE>
The aggregate maturities for debt over the next five years and thereafter
are as follows (in thousands): 2000--$13,217, 2001--$1,900, 2002--$1,296,
2003--$1,313, and 2004--$1,433.
F-14
<PAGE>
CVC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--INCOME TAXES
The components of income taxes (benefit) for the years ended September 30,
1997, 1998 and 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal.......................................... $ 604 $ 417 $1,806
State............................................ 392 116 297
------ ------- ------
996 533 2,103
Deferred:
Federal.......................................... 475 (211) (143)
State............................................ (14) (48) (23)
------ ------- ------
461 (259) (166)
------ ------- ------
$1,457 $ 274 $1,937
====== ======= ======
</TABLE>
The significant components of deferred tax assets and liabilities at
September 30, 1998 and 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................ $ 175 $ 344
Inventories............................................. 455 1,076
State and federal tax credits........................... 122 209
Allowance for doubtful accounts......................... 138 373
Accrued compensation and benefits....................... 240 398
Other accruals.......................................... 577 1,053
------- -------
1,707 3,453
------- -------
Deferred tax liabilities:
Unamortized inventory accounting change................. (605) (424)
Property, plant and equipment........................... (962) (1,343)
------- -------
(1,567) (1,767)
------- -------
Deferred tax asset valuation allowance.................... (102) (421)
------- -------
Net deferred tax asset.................................... $ 38 $ 1,265
======= =======
</TABLE>
F-15
<PAGE>
CVC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--INCOME TAXES (CONTINUED)
The differences between income taxes (benefit) at the U.S. statutory rate
and the effective rate for the years ended September 30, 1997, 1998 and 1999 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Provision at federal statutory rate.................. $1,191 $183 $ 1,193
State taxes, net of federal benefit.................. 213 45 226
Permanent items...................................... 53 101 546
Release of valuation allowance....................... -- (53) (130)
Other................................................ -- (2) 102
------ ---- -------
Income tax expense................................... $1,457 $274 $ 1,937
====== ==== =======
</TABLE>
During 1998 and 1999, the valuation allowance, which relates to net
operating loss carryforwards and state investment credits, was reduced by
$53,000 and $130,000, respectively, due to the increased likelihood the benefits
will be recognized. As a result of the acquisition of Commonwealth, in 1999, a
number of permanent items were recorded by the Company and the valuation
allowance increased by the assumed amount of $449,000.
The net operating tax loss carryforwards of approximately $820,000 expire at
various times through 2019.
F-16
<PAGE>
CVC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--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 $92,000, $222,000 and $278,000 in fiscal years 1997, 1998 and
1999, 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. Approximately $122,000 and $381,000 is included in other
liabilities at September 30, 1998 and 1999, respectively, for accrued pension
costs. Further, 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.
NOTE 9--POSTRETIREMENT HEALTH CARE BENEFITS
The Company provides health care and life insurance benefits to certain
retired hourly employees as well as health care benefits to salaried retirees
employed prior to December 31, 1996. As permitted under SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," 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 for the years ended September 30,
1997, 1998 and 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Service cost............................................ $ 68 $ 90 $150
Interest cost on benefit obligation..................... 82 78 90
Amortization............................................ 56 56 60
---- ---- ----
Retiree health care cost................................ $206 $224 $300
==== ==== ====
</TABLE>
An analysis of amounts shown in the consolidated balance sheet at
September 30, 1998 and 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................. $ 810 $ 607
Active participants...................................... 465 787
------- ------
1,275 1,394
Unrecognized prior service cost............................ (39) (65)
Unrecognized net gain...................................... 73 163
Unrecognized transition obligation......................... (944) (889)
------- ------
Retirement benefit liability............................... $ 365 $ 603
======= ======
</TABLE>
F-17
<PAGE>
CVC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--POSTRETIREMENT HEALTH CARE BENEFITS (CONTINUED)
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 rate of
9.5% in 1999 and grades down uniformly to 4.5% in 2010 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, 1999 accumulated postretirement benefit obligation by $190,000,
and the 1999 service cost plus interest by $55,000. Decreasing the health care
inflation rate by 1% would decrease the September 30, 1999 accumulated
postretirement benefit obligation by $155,000, and the 1999 service cost plus
interest by $42,000. The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 7.50%.
NOTE 10--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 1,600 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 converted to
2,696,000 shares of common stock upon the closing of an initial public offering
with a price per share in excess of $12.50 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 40 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 2,419,680 shares of common stock upon the closing
of an initial public offering with a price per share in excess of $12.50 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 790,760 shares of the Company's Common
Stock at an exercise price of $5.58 per share in lieu of Series B Preferred
Stock.
In December 1998, the Company issued 100,000 shares of Series C
Non-Cumulative Convertible Preferred Stock (Series C Preferred Stock). The
Series C Preferred Stock is convertible at any time at the option of the holder
into common stock at the rate of 10.1626 shares of common stock for each share
of Series C Preferred Stock. Preferred voting rights are one vote for each share
of common stock into which the preferred shares may be converted. The Series C
Preferred Stock will be automatically converted to 1,016,260 shares of common
stock as well as 100,000 shares of Series D Redeemable
F-18
<PAGE>
CVC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--STOCKHOLDERS' EQUITY (CONTINUED)
Preferred Stock upon the closing of an initial public offering with a price per
share in excess of $12.50 and aggregate gross proceeds of $10,000,000.
In connection with the issuance of Series C Preferred Stock, the holder was
granted a seven-year warrant to purchase an aggregate of 133,333 shares of
common stock at $15 per share. The warrant cannot be exercised until
December 10, 2001. Additionally, the warrant will no longer be exercisable upon
an initial public offering. A fair value of $14,000 was assigned to this warrant
at the time of purchase.
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, and total authorized preferred stock to
502,500 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. Options generally vest over a 3 to 5 year period and expire after
10 years from the date of grant.
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.
In 1999, the Board of Directors amended the plan, which increased the amount of
shares authorized under the plan by 1,000,000 shares. Additionally, the Board of
Directors has authorized the Company to increase the number of shares available
for issuance under the plan by an amount equal to five percent of the total
number of shares of common stock issued by the Company during the preceding
fiscal year. As of September 30, 1998 and 1999, the Company has authorized and
reserved 833,333 and 1,833,333 shares, respectively, of common stock for
issuance under the Plan; and, options available for grant under the Plan were
523,333 and 1,283,065 shares, respectively.
During fiscal 1997 and 1998, approximately 203,333 and 160,000 options,
respectively, 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 is being amortized over the vesting
period and unamortized compensation expense has been recorded as a reduction in
stockholders' equity. During fiscal 1997, 1998 and 1999, compensation expense
recognized in the statements of operations approximated $7,000, $111,000 and
$105,000, respectively.
Under the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company has elected to continue to account for its employee
stock plans in accordance with the provisions of APB Opinion No. 25 which
requires compensation costs to be recognized based on the intrinsic value of
options at the grant date. Had compensation cost for the Company's stock option
plan been determined based on the fair value at the grant date for awards in
fiscal years 1997, 1998 and 1999
F-19
<PAGE>
CVC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--STOCKHOLDERS' EQUITY (CONTINUED)
consistent with the provisions of SFAS No. 123, the Company's net earnings and
earnings per share would have been the following (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) As reported................................ $2,045 $ 264 $1,571
Pro forma.................................. $1,954 $ (12) $1,276
Basic earnings per share As reported................................ $ 2.67 $ 0.26 $ 1.01
Pro forma.................................. $ 2.55 $(0.01) $ 0.82
Diluted earnings per share As reported................................ $ 0.29 $ 0.04 $ 0.18
Pro forma.................................. $ 0.28 $ 0.00 $ 0.15
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model (minimum value method) with the weighted
average assumptions of risk free interest rates (based on anticipated length of
time until exercise) ranging from 4.24% to 5.65% and expected lives of 3 to 5
years.
A summary of the status of the Company's stock option plan for the three
years ended September 30, 1999 is as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at October 1, 1996..................... 1,585,040 $1.32
Granted........................................ 406,600 $4.76
Canceled....................................... (118,000) $1.86
Exercised...................................... (120,200) $0.74
---------
Outstanding at September 30, 1997.................. 1,753,440 $2.12
Granted........................................ 427,667 $7.80
Canceled....................................... (205,995) $9.08
Exercised...................................... (199,338) $0.84
---------
Outstanding at September 30, 1998.................. 1,775,774 $2.82
Assumed in acquisition......................... 286,228 $6.00
Granted........................................ 311,669 $7.12
Cancelled...................................... (116,257) $6.28
Exercised...................................... (23,374) $3.15
--------- -----
Outstanding at September 30, 1999.................. 2,234,040 $3.62
</TABLE>
The weighted average fair value of options granted during fiscal 1997 and
1998 was $1.94. The weighted-average fair value of options granted during fiscal
1999 was $1.58.
The weighted-average exercise price of options granted to employees during
1997 and 1998 at an amount which was less than fair market value was $5.30 and
$5.73, respectively. The weighted-average fair value of such options granted in
1997 and 1998 was $2.67 and $2.37, respectively.
During 1999, 57,333 options were issued at a weighted average exercise price
of $6.00 which was higher than fair market value at the date of grant.
F-20
<PAGE>
CVC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--STOCKHOLDERS' EQUITY (CONTINUED)
A summary of the options outstanding and exercisable as of September 30,
1999 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- --------------------------------------------------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER OF REMAINING EXERCISE NUMBER OF EXERCISE
RANGE OF EXERCISE OPTIONS CONTRACTUAL PRICE PER OPTIONS PRICE PER
PRICES PER SHARE OUTSTANDING LIFE IN YEARS SHARE OUTSTANDING SHARE
- --------------------- ----------- ------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
0$.63-$ 1.25......... 840,507 2.3 $0.66 840,507 $0.66
3$.00-$ 4.17......... 488,624 5.8 $3.59 387,291 $3.57
4$.85-$12.00......... 904,909 7.5 $6.39 255,671 $6.05
--------- --- ----- --------- -----
0$.63- 12.00......... 2,234,040 5.2 $3.62 1,483,469 $2.35
</TABLE>
NOTE 11--EARNINGS PER SHARE
Basic earnings per share (EPS) is computed by dividing income available to
common shareholders by the weighted average number of common shares actually
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the Company.
The following table illustrates the calculation of both basic and diluted
EPS for the years ended September 30, 1997, 1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net income available to common shareholders................. $2,045 $ 264 $1,571
Weighted average number of common shares.................... 765 1,021 1,561
------ ------ ------
Basic earnings per share.................................... $ 2.67 $ 0.26 $ 1.01
====== ====== ======
DILUTED EARNINGS PER SHARE
Net income available to common shareholders................. $2,045 $ 264 $1,571
====== ====== ======
Weighted average number of common shares.................... 765 1,021 1,561
Common equivalent shares related to stock options and
convertible preferred stock............................... 6,227 6,049 7,028
------ ------ ------
Weighted average common and common equivalent shares........ 6,992 7,070 8,589
====== ====== ======
Diluted earnings per share.................................. $ 0.29 $ 0.04 $ 0.18
====== ====== ======
</TABLE>
Certain antidilutive outstanding options and warrants were excluded from the
computation of diluted EPS since their exercise prices exceed the average market
price of the common shares during the period. The antidilutive stock options and
warrants so excluded at the end of September 30, 1997, 1998 and 1999 and their
associated exercise prices are summarized below. The options and warrants expire
at various times between 2002 and 2008.
<TABLE>
<CAPTION>
1997 1998 1999
------------------ ------------------- -------------------
<S> <C> <C> <C>
Number of options and warrants...... 815,333 836,000 396,070
Exercise price...................... $ 5.58-$5.73 $ 5.58-$12.00 $ 6.45-$18.00
</TABLE>
F-21
<PAGE>
CVC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12--TRANSACTIONS WITH RELATED PARTIES
At September 30, 1998, the Company had borrowings of $1,500,000 from a
company whose president is a director and shareholder of the Company (Note 6).
Seagate Technology (Seagate), which provides products for storage,
retrieval, and management of data on computer and data communications systems,
is the Company's largest customer and a significant stockholder. Revenues, cost
of goods sold, accounts receivable and unearned revenue associated with
transactions between the Company and Seagate are reported as related party in
the consolidated 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.
During 1999, the Company's President and Chief Executive Officer, who is
also a shareholder, was elected to the Board of Directors of the Company's
Financial Institution, M&T Bank.
NOTE 13--SEGMENT DATA, SIGNIFICANT CUSTOMERS AND GEOGRAPHIC INFORMATION
The Company adopted the provisions of SFAS No. 131, "Disclosures About
Segments and Related Information," effective October 1, 1998. In connection with
the adoption of SFAS 131, the Company determined that it operates in one
business segment.
For the year ended September 30, 1997, sales to the Company's two largest
customers comprised 47% and 11% of revenues, respectively. For the year ended
September 30, 1998, sales to the Company's three largest customers comprised
31%, 16% and 11% of revenues, respectively. For the year ended September 30,
1999, sales to the Company's three largest customers comprised 34%, 18% and 14%
of revenues, respectively.
Export sales to customers (including related party sales) outside the United
States represents 31%, 38% and 53% of the Company's revenues for the fiscal
years ended September 30, 1997, 1998 and 1999, respectively. Total sales were
made to the following geographic regions:
<TABLE>
<CAPTION>
NORTHERN
USA IRELAND JAPAN OTHER TOTAL
----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
1997................. $43,126,000 5,409,000 9,767,000 4,286,000 $62,588,000
1998................. 42,284,000 13,194,000 9,075,000 3,620,000 $68,173,000
1999................. 39,130,000 11,672,000 20,505,000 11,608,000 $82,915,000
</TABLE>
NOTE 14--COMMITMENTS
The Company leases various equipment and facilities under operating lease
agreements. Rental expense under operating lease agreements was approximately
$289,000, $774,000 and $1,318,000 in fiscal years 1997, 1998 and 1999,
respectively. The future minimum lease payments under non-cancelable lease
agreements are $1,430,000 in 2000, $1,028,000 in 2001, $201,000 in 2002 and
$25,000 in 2003 and $4,000 in 2004.
NOTE 15--WRITE-OFF OF DEFERRED CHARGES
During fiscal 1998, the Company incurred costs related to a potential
initial public offering. These costs were accounted for as a deferred asset with
the intent of deducting such amounts from contributed equity upon receipt of the
proceeds from the initial public offering. During the fourth quarter of fiscal
1998, the Company withdrew its intent to complete the public offering and,
accordingly, these costs were charged against current period earnings.
F-22
<PAGE>
CVC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16--SUBSEQUENT EVENT
In October 1999, the Company's Series C Preferred Stock, Series B Preferred
Stock, Series A Preferred Stock, and Common Stock shareholders approved an
amendment to the Amended and Restated Certificate of Incorporation which
provides for a 2-for-3 reverse stock split (Note 1) as well as the elimination
of the $12.50 price per share requirement for the automatic conversion of
Series C Preferred Stock, Series B Preferred Stock, and Series A Preferred Stock
into common stock upon the closing of an initial public offering.
F-23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and the Board of Directors of
Commonwealth Scientific Corporation:
We have audited the accompanying balance sheets of Commonwealth Scientific
Corporation (the "Company," a Virginia corporation), a wholly owned subsidiary
of CVC, Inc. (the "Parent," a Delaware corporation), as of March 31, 1998 and
1999, and the related statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended March 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Commonwealth Scientific
Corporation as of March 31, 1998 and 1999, and the results of its operations and
its cash flows for each of the three years in the period ended March 31, 1999,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Vienna, Virginia
May 17, 1999
F-24
<PAGE>
COMMONWEALTH SCIENTIFIC CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 378,920 $ 326,623
Accounts receivable, net of allowance for doubtful
accounts of $233,000 and $300,000 at March 31, 1998 and
1999, respectively...................................... 5,556,183 3,160,366
Inventories............................................... 15,601,983 13,837,715
Prepaid expenses and other current assets................. 206,630 134,410
Income taxes receivable................................... -- 732,905
Deferred income taxes..................................... 456,188 539,070
----------- -----------
Total current assets.................................. 22,199,904 18,731,089
----------- -----------
PROPERTY AND EQUIPMENT, at cost:
Land...................................................... 703,900 703,900
Building and improvements................................. 839,153 882,025
Leasehold improvements.................................... 476,489 623,896
Manufacturing and test equipment.......................... 5,191,647 6,332,468
Office furniture and fixtures............................. 480,691 496,417
----------- -----------
7,691,880 9,038,706
Less--Accumulated depreciation and amortization........... (3,503,079) (4,147,289)
----------- -----------
Net property and equipment............................ 4,188,801 4,891,417
----------- -----------
OTHER ASSETS................................................ 67,497 55,631
----------- -----------
Total assets.......................................... $26,456,202 $23,678,137
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-25
<PAGE>
COMMONWEALTH SCIENTIFIC CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 4,387,666 $ 4,197,963
Accrued expenses.......................................... 2,209,071 3,632,967
Lines of credit........................................... 2,584,574 3,393,173
Current portion of long-term obligations.................. 308,788 551,540
Deposits on sales contracts............................... 6,109,603 2,796,684
----------- -----------
Total current liabilities............................. 15,599,702 14,572,327
LONG-TERM OBLIGATIONS, net of current portion............... 1,677,718 2,067,830
DEFERRED INCOME TAX LIABILITY............................... 202,620 221,117
----------- -----------
Total liabilities..................................... 17,480,040 16,861,274
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; 10,000,000 shares authorized,
333,180 and 336,680 shares issued at March 31, 1998 and
1999, respectively...................................... 333,180 336,680
Additional paid-in capital................................ 751,320 782,820
Retained earnings......................................... 7,902,662 5,708,363
Treasury stock; 6,900 shares at cost...................... (11,000) (11,000)
----------- -----------
Total stockholders' equity............................ 8,976,162 6,816,863
----------- -----------
Total liabilities and stockholders' equity............ $26,456,202 $23,678,137
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-26
<PAGE>
COMMONWEALTH SCIENTIFIC CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES........................................... $ 35,366,323 $ 33,982,554 $ 43,597,852
COST OF SALES....................................... (23,445,963) (23,344,034) (34,473,248)
------------ ------------ ------------
Gross profit.................................. 11,920,360 10,638,520 9,124,604
------------ ------------ ------------
OPERATING EXPENSES:
Research and development.......................... 3,645,520 3,746,433 4,005,021
Selling and marketing............................. 2,376,572 3,013,517 3,408,480
General and administrative........................ 1,447,319 1,635,329 2,072,667
Commissions....................................... 1,558,193 1,509,848 1,992,786
------------ ------------ ------------
Total operating expenses...................... 9,027,604 9,905,127 11,478,954
------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS....................... 2,892,756 733,393 (2,354,350)
INTEREST EXPENSE, NET............................... (163,470) (239,036) (425,949)
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES................... 2,729,286 494,357 (2,780,299)
INCOME TAX (PROVISION) BENEFIT...................... (911,000) (151,000) 586,000
------------ ------------ ------------
NET INCOME (LOSS)................................... $ 1,818,286 $ 343,357 $ (2,194,299)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-27
<PAGE>
COMMONWEALTH SCIENTIFIC CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN RETAINED TREASURY
COMMON STOCK CAPITAL EARNINGS STOCK TOTAL
------------ ---------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, March 31, 1996............ $318,880 $614,900 $ 5,741,019 $(10,600) $ 6,664,199
Exercise of stock options........ 4,000 43,720 -- -- 47,720
Net income....................... -- -- 1,818,286 -- 1,818,286
-------- -------- ----------- -------- -----------
BALANCE, March 31, 1997............ 322,880 658,620 7,559,305 (10,600) 8,530,205
Exercise of stock options........ 10,300 92,700 -- -- 103,000
Purchase of treasury stock....... -- -- -- (400) (400)
Net income....................... -- -- 343,357 -- 343,357
-------- -------- ----------- -------- -----------
BALANCE, March 31, 1998............ 333,180 751,320 7,902,662 (11,000) 8,976,162
Exercise of stock options........ 3,500 31,500 -- -- 35,000
Net loss......................... -- -- (2,194,299) -- (2,194,299)
-------- -------- ----------- -------- -----------
BALANCE, March 31, 1999............ $336,680 $782,820 $ 5,708,363 $(11,000) $ 6,816,863
======== ======== =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-28
<PAGE>
COMMONWEALTH SCIENTIFIC CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------------------
1997 1998 1999
---------- ---------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income...................................... $1,818,286 $ 343,357 $(2,194,299)
Adjustments to reconcile net income to net cash (used
in) provided by operating activities-
Depreciation and amortization........................ 620,589 930,211 1,249,908
(Gain) loss on disposal of equipment................. 8,912 7,179 (148,229)
Changes in assets and liabilities:
Accounts receivable................................ (1,215,469) (672,405) 2,395,817
Inventories........................................ 538,938 (5,417,308) 1,764,268
Prepaid expenses and other current assets.......... 38,564 (83,214) 72,220
Income taxes receivable/payable.................... -- (217,443) (732,905)
Deferred income taxes.............................. (81,337) (30,506) (64,385)
Other assets....................................... -- -- 11,866
Accounts payable and accrued expenses.............. 761,920 870,127 1,234,193
Income tax payable................................. (225,416) -- --
Deposits on sales contracts........................ (450,043) 2,988,206 (3,312,919)
---------- ---------- -----------
Net cash provided by (used in) operating
activities..................................... 1,814,944 (1,281,796) 275,535
---------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.................... (2,004,735) (1,147,768) (1,952,524)
Proceeds from disposal of equipment.................... -- -- 148,229
---------- ---------- -----------
Net cash used in investing activities............ (2,004,735) (1,147,768) (1,804,295)
---------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on line of credit........................... 4,256,574 6,854,568 13,878,298
Payments on lines of credit............................ (4,080,865) (5,122,408) (13,069,699)
Borrowings on long-term obligations.................... 20,000 1,012,000 1,082,140
Payments on long-term obligations...................... (248,512) (290,237) (449,276)
Exercise of stock options.............................. 47,720 103,000 35,000
Purchase of treasury stock............................. -- (400) --
---------- ---------- -----------
Net cash (used in) provided by financing
activities..................................... (5,083) 2,556,523 1,476,463
---------- ---------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS..... (194,874) 126,959 (52,297)
CASH AND CASH EQUIVALENTS, beginning of year............. 446,835 251,961 378,920
---------- ---------- -----------
CASH AND CASH EQUIVALENTS, end of year................... $ 251,961 $ 378,920 $ 326,623
========== ========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for--
Interest............................................. $ 136,650 $ 186,245 $ 355,654
========== ========== ===========
Income taxes......................................... $1,217,747 $ 406,360 $ 205,875
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-29
<PAGE>
COMMONWEALTH SCIENTIFIC CORPORATION
NOTES TO FINANCIAL STATEMENTS AS OF MARCH 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS
Commonwealth Scientific Corporation (the "Company"), a wholly owned
subsidiary of CVC, Inc. (the "Parent"), is engaged in the development,
production, sale, service, and repair of precision equipment for the purpose of
etching or deposition at submicron levels by means of ion beam technology. The
Company was acquired by CVC, Inc., on May 10, 1999 (see Note 13). The Parent is
committed to the necessary support of the operations and capital requirements of
the Company.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant estimates made by management include the adequacy
of reserves for doubtful accounts, obsolete and excess inventories, and customer
warranty obligations. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue is recognized when all significant risks of ownership are
transferred and all significant related acts of performance are completed, which
is generally upon shipment of products.
SIGNIFICANT CUSTOMER
During fiscal year 1997, 28, 14, and 11 percent of net sales were derived
from three customers. In fiscal year 1999, the Company had one customer who
accounted for 32 percent of net sales. No other customer accounted for more than
10 percent of net sales.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are provided using the straight-line method
for financial reporting purposes over the following estimated useful lives:
<TABLE>
<S> <C>
Building and improvements................................... 5 to 31.5 years
Manufacturing and test equipment............................ 5 years
Office furniture and fixtures............................... 5 to 7 years
</TABLE>
Repair and maintenance costs are charged to expense when incurred. Renewals
and betterments that significantly increase the useful life of the related asset
are capitalized. Leasehold improvements are amortized over the expected useful
life or the lease term, whichever is shorter.
The Company implemented Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, "during 1996. As of March 31, 1999, management
determined there had been no impairment of long-lived assets as defined by SFAS
No. 121.
The Company's anticipated gross revenues, the remaining estimated lives of
tangible assets, or both could be reduced significantly in the near term due to
changes in technology, available financing, or
F-30
<PAGE>
COMMONWEALTH SCIENTIFIC CORPORATION
NOTES TO FINANCIAL STATEMENTS AS OF MARCH 31, 1999 (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
competitive pressures in any of the Company's individual markets. As a result,
the carrying amount of long-lived assets could be reduced materially in the near
term.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are recognized as expenses in the period
incurred.
WARRANTY SERVICES
The Company recognizes the estimated cost of warranty obligations at the
time the related products are sold. A one-year warranty on materials and
workmanship is offered on products sold.
DEPOSITS ON SALES CONTRACTS
The Company negotiates progress payments on projects that require
significant engineering development and/or several months to complete.
CASH AND CASH EQUIVALENTS
For financial reporting purposes, the Company considers demand deposits and
all highly liquid investments with a maturity of three months or less to be cash
and cash equivalents. As of March 31, 1998 and 1999, cash equivalents consisted
principally of investments in overnight reverse repurchase agreements and
commercial paper. The Company maintains bank accounts with federally insured
financial institutions. At times, balances may exceed insured limits.
2. INVENTORIES:
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market. Work in progress and finished goods include
provisions for direct labor and manufacturing overhead. Inventories were
composed of the following as of March 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Raw materials...................................... $ 7,006,170 $ 7,247,963
Work in progress................................... 8,062,980 6,666,877
Finished goods..................................... 1,035,053 852,875
----------- -----------
16,104,203 14,767,715
Less--Inventory reserve............................ (502,220) (930,000)
----------- -----------
$15,601,983 $13,837,715
=========== ===========
</TABLE>
The Company's products are subject to technological change and changes in
the Company's competitive market. Management has provided reserves for excess
and obsolete inventories. It is possible that new product launches could result
in unforeseen changes in inventory requirements for which no reserve has been
provided.
F-31
<PAGE>
COMMONWEALTH SCIENTIFIC CORPORATION
NOTES TO FINANCIAL STATEMENTS AS OF MARCH 31, 1999 (CONTINUED)
3. ACCRUED LIABILITIES:
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Commissions payable.................................. $ 540,162 $ 914,872
Vacation accrual..................................... 406,674 420,683
Installation and warranty accrual.................... 280,000 895,019
Accrued payroll...................................... 462,416 373,397
Other................................................ 519,819 1,028,996
---------- ----------
Total............................................ $2,209,071 $3,632,967
========== ==========
</TABLE>
4. LINES OF CREDIT:
The Company has a bank line of credit, subject to annual approval, which
provides for borrowings up to the lesser of $1,800,000 or an amount equal to
70 percent of eligible accounts receivable that have been outstanding not more
than 90 days. Amounts borrowed under the line are payable on demand. Interest
accrues at the bank's prime rate plus 0.5 percent (8.25 percent at March 31,
1999) and is payable monthly. The amount borrowed on the line of credit was
approximately $1,385,000 and $693,000 at March 31, 1998 and 1999, respectively.
The Company has two bank lines of credit for inventory that provide for
borrowings up to $3,500,000. Amounts borrowed under these lines of credit are
payable on due dates between June 2001 and January 2002. Interest accrues at the
bank's prime rate plus 1.0 percent (8.75 percent at March 31, 1999) and is
payable monthly. The amount borrowed on the line of credit was $1,200,000 and
$2,700,000 at March 31, 1998 and 1999, respectively.
All lines of credit discussed above are collateralized by the same assets as
the notes payable to a bank discussed in Note 5. One of the inventory lines of
credit is personally guaranteed by the president of the Company in an amount up
to $2,000,000. The remaining amounts outstanding under the lines of credit,
together with the long-term obligations described below, are guaranteed by the
president of the Company in an amount up to $1,000,000. As further described in
Note 13, all amounts outstanding under these lines of credit were paid in full
subsequent to March 31, 1999.
F-32
<PAGE>
COMMONWEALTH SCIENTIFIC CORPORATION
NOTES TO FINANCIAL STATEMENTS AS OF MARCH 31, 1999 (CONTINUED)
5. LONG-TERM OBLIGATIONS:
Long-term obligations as of March 31, 1998 and 1999, are summarized as
follows:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Equipment loan payable to a bank, bearing interest at the
bank's prime rate plus 0.5% (8.25% at March 31, 1999).
Principal payments of $24,764 plus interest are payable
monthly. The note matures in October 2004................. $1,956,369 $1,659,199
Equipment loan payable to a bank, bearing interest at the
bank's prime rate plus 0.5% (8.25% at March 31, 1999).
Principal payments of $11,917 plus interest are payable
monthly. The note matures in November 2003................ -- 638,333
Automobile loan payable to a bank, bearing interest at the
bank's prime rate plus 0.5% (8.25% at March 31, 1999).
Principal payments of $417 plus interest are payable
monthly. The note matures in December 2000................ 13,750 8,751
Future minimum payments under capital leases, payable
through March 2002........................................ 18,535 355,105
---------- ----------
1,988,654 2,661,388
Less--Interest included in capital lease payments........... (2,148) (42,018)
---------- ----------
Total................................................... 1,986,506 2,619,370
Less--Current portion....................................... (308,788) (551,540)
---------- ----------
$1,677,718 $2,067,830
========== ==========
</TABLE>
The bank notes and lines of credit are secured by all the Company's present
and future fixtures, equipment, supplies, inventory, work in progress, accounts
receivable and contract rights, and a first lien deed of trust on the Company's
real property and improvements. These borrowings are personally guaranteed by
the president of the Company in an amount up to $1,000,000 pursuant to the
guarantee on the lines of credit described in Note 4. According to the terms of
the loan agreements, the Company must satisfy various covenants, including a
debt to equity ratio of less than 2 to 1, a current ratio of greater than 1 to
1, a net worth of at least $7,500,000, and debt service coverage of greater than
1 to 1 among other restrictions. The Company was not in compliance with the
tangible net worth and debt service coverage ratios, consignments, sale and
transfer of assets, and capital expenditure and lease obligation covenants as of
March 31, 1999. The Company received a waiver from the bank for these covenant
violations in April 1999.
Future minimum principal payments under long-term obligations are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
MARCH 31,
-----------
<S> <C>
2000........................................................ $ 551,540
2001........................................................ 553,422
2002........................................................ 537,386
2003........................................................ 440,170
2004........................................................ 363,503
Thereafter.................................................. 173,349
----------
$2,619,370
==========
</TABLE>
F-33
<PAGE>
COMMONWEALTH SCIENTIFIC CORPORATION
NOTES TO FINANCIAL STATEMENTS AS OF MARCH 31, 1999 (CONTINUED)
5. LONG-TERM OBLIGATIONS: (CONTINUED)
As further described in Note 13, all amounts due under these bank loans were
paid in full subsequent to March 31, 1999.
6. STOCK AND STOCK OPTIONS:
During fiscal year 1985, the Company's stockholders approved a stock option
plan (the "Stock Option Plan") for key employees, officers, and directors of the
Company for 100,000 shares of stock, of which 76,150 shares were granted as of
March 31, 1999. The Company's stock option plan expired in fiscal year 1994. The
options outstanding under the Stock Option Plan are fully vested two years after
the grant date and are exercisable for three years.
Options issued after fiscal year 1994 but prior to March 1999 were issued
after the expiration of the Stock Option Plan and are classified as nonqualified
for tax purposes. The terms and conditions of these options are identical to
those options issued under the Stock Option Plan described above.
The options issued in March 1999 were also issued after the expiration of
the Stock Option Plan and are also classified as nonqualified for tax purposes.
These options vest immediately and are exercisable for five years.
The following table summarizes the Company's stock option activity for each
of the three years in the period ended March 31, 1999:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE
SHARES EXERCISE PRICE PRICE PER SHARE
--------- ---------------- --------------------
<S> <C> <C> <C>
OPTIONS OUTSTANDING AT MARCH 31, 1996............... 54,250 $12.13 $10.00--$15.00
Granted........................................... -- -- --
Canceled/expired/forfeited........................ (8,000) 10.85 10.85
Exercised......................................... (4,000) 11.93 11.93
------- ------ --------------------
OPTIONS OUTSTANDING AT MARCH 31, 1997............... 42,250 12.40 10.00-- 15.00
Granted........................................... -- -- --
Canceled/expired/forfeited........................ (9,700) 10.77 10.00-- 15.00
Exercised......................................... (10,300) 10.00 10.00
------- ------ --------------------
OPTIONS OUTSTANDING AT MARCH 31, 1998............... 22,250 14.21 10.00-- 15.00
Granted........................................... 59,254 27.28 26.00-- 28.00
Canceled/expired/forfeited........................ (7,050) 25.79 15.00-- 28.00
Exercised......................................... (3,500) 10.00 10.00
------- ------ --------------------
OPTIONS OUTSTANDING AT MARCH 31, 1999............... 70,954 $24.18 $10.00--$28.00
======= ====== ====================
</TABLE>
As of March 31, 1998 and 1999, 22,250 and 42,354 options, respectively, are
exercisable. The weighted-average remaining life for options outstanding at
March 31, 1999, was approximately four years.
The Financial Accounting Standards Board ("FASB") Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," defines a fair value based method of accounting for an employee
stock option or similar equity instrument. Under the fair value based method,
compensation cost is measured at the grant date based on the value of the award
and is recognized over the service period.
F-34
<PAGE>
COMMONWEALTH SCIENTIFIC CORPORATION
NOTES TO FINANCIAL STATEMENTS AS OF MARCH 31, 1999 (CONTINUED)
6. STOCK AND STOCK OPTIONS: (CONTINUED)
SFAS No. 123 allows an entity to continue to use the intrinsic value method
as defined by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and management has elected to do so. Under the
intrinsic value method, compensation cost is the excess, if any, of the quoted
market price of the stock at grant date or other measurement date over the
amount an employee must pay to acquire the stock. The Company has elected to
continue to apply APB Opinion No. 25 to its stock-based compensation awards to
employees. Entities electing to remain with the accounting in APB Opinion
No. 25 must make pro forma disclosures of net income and earnings per share as
if the fair value based method of accounting had been applied. Accordingly, net
(loss) income would be as follows for each of the three years in the period
ended March 31, 1999:
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
YEAR NET (LOSS) NET (LOSS)
ENDED INCOME INCOME
- ----- ----------- -----------
<S> <C> <C>
1997................................................... $ 1,818,286 1,811,114
1998................................................... 343,357 340,489
1999................................................... (2,194,299) $(2,439,258)
</TABLE>
The fair value of each option is estimated using the Black Scholes option
pricing model with the following assumption used for grants: no dividend yield,
no volatility, risk-free interest rate of 5.5 percent, and expected life of
5 years.
7. INCOME TAXES:
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." SFAS 109 requires the determination of deferred
tax liabilities and assets based on the differences between the financial
statement and income tax basis of assets and liabilities using enacted tax rates
in effect for the year in which the differences are expected to reverse. The
measurement of a deferred tax asset is adjusted by a valuation allowance, if
necessary, to recognize tax benefits only to the extent that based on available
evidence it is more likely than not that they will be realized.
The (benefit) provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1997 1998 1999
--------- -------- ---------
<S> <C> <C> <C>
CURRENT:
Federal.................................... $ 933,000 $190,000 $(500,000)
State...................................... 148,000 30,000 (57,000)
--------- -------- ---------
1,081,000 220,000 (557,000)
LESS--GENERAL BUSINESS INCOME TAX CREDITS.... (116,000) (58,000) --
--------- -------- ---------
965,000 162,000 (557,000)
--------- -------- ---------
DEFERRED:
Federal.................................... (46,000) (9,000) (26,000)
State...................................... (8,000) (2,000) (3,000)
--------- -------- ---------
(54,000) (11,000) (29,000)
--------- -------- ---------
(BENEFIT) PROVISION FOR INCOME TAXES......... $ 911,000 $151,000 $(586,000)
========= ======== =========
</TABLE>
F-35
<PAGE>
COMMONWEALTH SCIENTIFIC CORPORATION
NOTES TO FINANCIAL STATEMENTS AS OF MARCH 31, 1999 (CONTINUED)
7. INCOME TAXES: (CONTINUED)
The components of the net deferred tax assets are as follows:
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
DEFERRED TAX ASSETS:
Warranty reserves................................... $ 104,000 $ 305,000
Obsolescence reserves............................... 186,000 344,000
Bad-debt reserves................................... 86,000 111,000
Commission accrual.................................. -- 162,000
Vacation accrual.................................... 125,000 104,000
Other............................................... 55,000 31,000
Valuation allowance................................. (100,000) (518,000)
--------- ---------
GROSS DEFERRED TAX ASSETS............................. 456,000 539,000
DEFERRED TAX LIABILITIES:
Depreciation and amortization....................... 202,000 221,000
--------- ---------
NET DEFERRED TAX ASSETS............................... $ 254,000 $ 318,000
========= =========
</TABLE>
A reconciliation of the statutory income tax rate to the effective tax rate
included in the statements of operations is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1998 1999
---------- -------- -----------
<S> <C> <C> <C>
Income (Loss) before income tax........................... $2,729,286 $494,357 $(2,780,299)
Tax rate.................................................. 34% 34% 34%
---------- -------- -----------
Income tax expense (benefit) at statutory rate............ 927,957 168,081 (945,302)
Increases (decreases) in tax resulting from:
State income taxes, net of Federal income tax benefit... 97,514 19,920 (37,620)
Other................................................... (114,471) (37,001) (21,078)
Change in valuation allowance........................... -- -- 418,000
---------- -------- -----------
Actual tax expense (benefit).............................. $ 911,000 $151,000 $ (586,000)
========== ======== ===========
Effective tax rate........................................ 33.4% 30.5% 21.1%
========== ======== ===========
</TABLE>
8. COMMITMENTS AND CONTINGENCIES:
LEASES
In addition to the equipment under capital leases discussed in Note 5, the
Company has rental agreements for certain other real property and equipment
expiring at various dates through January 2002. The Company has the option to
purchase the equipment at termination of the lease for
F-36
<PAGE>
COMMONWEALTH SCIENTIFIC CORPORATION
NOTES TO FINANCIAL STATEMENTS AS OF MARCH 31, 1999 (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
$1. The Company incurred approximately $398,000 and $624,697 in rent expense in
fiscal years 1998 and 1999, respectively. Future minimum lease and rental
commitments are as follows:
<TABLE>
<S> <C>
2000........................................................ $537,310
2001........................................................ 242,154
2002........................................................ 153,762
--------
$933,226
========
</TABLE>
PURCHASE COMMITMENTS
At March 31, 1999, the Company had contractual commitments to purchase
approximately $780,000 of inventory to be delivered within six months of fiscal
year end.
9. GEOGRAPHIC INFORMATION:
The information below summarizes the Company's product sales, service, and
other income for each of the fiscal years in the period ended March 31, 1999:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Domestic.............................. $13,913,015 $15,624,769 $27,058,936
International......................... 21,453,308 18,357,785 16,538,916
----------- ----------- -----------
$35,366,323 $33,982,554 $43,597,852
=========== =========== ===========
</TABLE>
10. RELATED PARTY:
During 1998 and 1999, a company owned by a former officer of the Company
performed research and development activities on the Company's behalf. In
addition, the officer received royalties on sales of certain of the Company's
products. During fiscal years 1998 and 1999, the Company paid approximately
$656,000 and $894,000, respectively, under that arrangement.
11. EMPLOYEE BENEFIT PLAN:
The Company established an employee contribution plan (the "Benefit Plan"),
effective January 1, 1987, under Section 401(k) of the Internal Revenue Code.
Any employee who has attained age 21 and has completed one year of service with
the Company is eligible to participate. Each participant may contribute amounts
to the Benefit Plan, subject to limits by the Internal Revenue Service, in
pretax contributions ranging from 1 to 15 percent of base salary. The Company
will match 50 percent of each participant's contribution up to $500 per year. At
the end of each fiscal year, the Company may contribute a percentage of its
profits to the Benefit Plan. The Company made discretionary contributions of
$50,000 and $0 to the Benefit Plan for the years ended March 31, 1998 and 1999,
respectively.
F-37
<PAGE>
COMMONWEALTH SCIENTIFIC CORPORATION
NOTES TO FINANCIAL STATEMENTS AS OF MARCH 31, 1999 (CONTINUED)
12. THE YEAR 2000 ISSUE:
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. The effects of the Year 2000 Issue may be
experienced before, on, or after January 1, 2000, and if not addressed, the
impact on operations and financial reporting may range from minor errors to
significant systems failure, which could affect an entity's ability to conduct
normal business operations. It is not possible to be certain that all aspects of
the Year 2000 Issue affecting an entity, including those related to the efforts
of customers, suppliers, or other third parties, will be fully resolved.
13. SUBSEQUENT EVENTS:
On May 10, 1999, CVC, Inc., acquired all the outstanding common stock of the
Company. As consideration, CVC, Inc., gave to each holder of Company stock
6.03601 shares of its common stock for each share of Company common stock held,
subject to certain adjustments described below. The merger agreement between
CVC, Inc., CVC Acquisition Corp., Commonwealth Scientific Corporation, and
Certain Stockholders Thereof, dated April 1, 1999, provides for 975,000 shares
to be held in escrow pending determination of the final purchase price. As of
May 10, the Company adopted CVC, Inc.'s year-end of September 30, 1999. The
final purchase price is dependent upon a number of representations and
warranties, including minimum net worth requirements and tax and environmental
liability considerations.
In May 1999, CVC, Inc., repaid the entire balance (approximately $5,700,000
of principal and accrued interest) due under the Company's lines of credit, as
well as the long-term equipment and automobile loans payable to the Company's
bank. No further obligations exist under these debt instruments.
On April 1, 1999, the Company converted approximately $1.2 million in
accounts payable due to a creditor to an unsecured note payable, bearing
interest at 8 percent per annum. Beginning May 15, 1999, principal and interest
payments of $71,790 are payable monthly. Interest will accrue at a rate of
10 percent per annum in the event of the Company's failure to pay the amounts
due within ten days of the due date. Monthly installments shall continue until
the entire indebtedness is repaid; however, any remaining indebtedness, if not
sooner paid, shall be due and payable on October 15, 2000.
F-38
<PAGE>
3,500,000 SHARES
[LOGO]
COMMON STOCK
-------------
PROSPECTUS
, 1999
---------------------
LEHMAN BROTHERS
PRUDENTIAL SECURITIES
SG COWEN
WARBURG DILLON READ LLC
<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.............................. 265,000
Legal fees and expenses..................................... 300,000
Printing and engraving expenses............................. 150,000
Transfer agent and registrar fees........................... 18,000
Miscellaneous............................................... 87,973
----------
Total................................................... $ 900,000
==========
</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.
The following figures give effect to a 20-1 stock split in December 1995, a
3-1 stock split in October 1997 and a 2-3 reverse stock split in
September 1999.
During the fiscal year ended September 30, 1996, the Company granted options
to acquire an aggregate of 194,200 shares of common stock at an exercise price
of $4.04 to various directors, officers, employees and/or consultants.
On March 18, 1997, Mehrdad Moslehi, Senior Vice President and Chief
Technical Officer, purchased 20,000 shares of common stock for $12,500 pursuant
to the exercise of such individual's stock options.
On March 18, 1997, Patrick Borrelli purchased 200 shares of common stock for
$808 pursuant to the exercise of such individual's stock options.
On April 1, 1997, the Company issued 9,900 shares of common stock to various
non-employee directors as payment of their annual retainer.
On June 9, 1997, Mehrdad Moslehi, Senior Vice President and Chief Technical
Officer, purchased 60,000 shares of common stock for $37,500 pursuant to the
exercise of such individual's stock options.
On August 11, 1997, Yong Jin Lee purchased 20,000 shares of common stock for
$12,500 pursuant to the exercise of such individual's stock options.
On September 15, 1997, Cecil Davis purchased 20,000 shares of common stock
for $25,000 pursuant to the exercise of such individual's stock options.
During the fiscal year ended September 30, 1997, the Company granted options
to acquire an aggregate of 406,600 shares of common stock at exercise prices
ranging from $3.00 to $5.73 to various directors, officers, employees and/or
consultants.
II-2
<PAGE>
On October 21, 1997, Rhen Zhou purchased 1,334 shares of common stock for
$5,389 pursuant to the exercise of such individual's stock options.
On October 31, 1997, Carla Reif purchased 668 shares of common stock for
$2,699 pursuant to the exercise of such individual's stock options.
On November 5, 1997, Cecil Davis purchased 33,333 shares of common stock for
$41,666 pursuant to the exercise of such individual's stock options.
On November 18, 1997, Mehrdad Moslehi purchased 48,000 shares of common
stock for $30,240 pursuant to the exercise of such individual's stock options.
On December 2, 1997, Mehrdad Moslehi purchased 112,000 shares of common
stock for $70,360 pursuant to the exercise of such individual's stock options.
On December 8, 1997, Jeff Dobbs purchased 1,334 shares of common stock for
$5,383 pursuant to the exercise of such individual's stock options.
On December 8, 1997, George Heltz purchased 668 shares of common stock for
$2,699 pursuant to the exercise of such individual's stock options.
On March 24, 1998, Peter Schwartz purchased 667 shares of common stock for
$2,695 pursuant to the exercise of such individual's stock options.
On April 1, 1998, the Company issued 9,331 shares of common stock to various
non-employee directors as payment of their annual retainer.
On September 1, 1998, Jalil Kamali purchased 1,334 shares of common stock
for $5,389 pursuant to the exercise of such individual's stock options.
During the fiscal year ended September 30, 1998, the Company granted options
to acquire an aggregate of 427,667 shares of common stock at exercise prices
ranging from $5.73 to $12.00 to various directors, officers, employees and/or
consultants.
In December 1998, the Company issued and sold 100,000 shares of Series C
Convertible Preferred Stock to Advent International Corporation for a price of
$100.00 per share. Upon completion of the offering, these shares are convertible
into 1,016,260 shares of such common stock. The Company also sold to Advent
International Corporation warrants to purchase an aggregate of 133,333 shares of
common stock at an exercise price of $15.00 during the four-year period
commencing on December 1, 2001, which warrant terminates upon consummation of
this offering. See "Certain Transactions" and "Description of Capital Stock."
In May 1999, the Company issued 1,268,799 shares of common stock, to former
shareholders of Commonwealth Scientific Corporation as part of its acquisition
of Commonwealth.
On May 14, 1999 the Company issued 10,665 shares of common stock to various
non-employee directors as payment of their annual retainer.
On July 2, 1999 Robert Matthews purchased 8,000 shares of common stock for
$10,000 pursuant to the exercise of such individual's stock options.
On September 14, 1999, Kitaek Kang purchased 2,133 shares of common stock
for $9,670 pursuant to the exercise of such individual's stock options.
On September 23, 1999, David Kolczynski purchased 7,200 shares of common
stock for $29,052 pursuant to the exercise of such individual's stock options.
On September 30, 1999, Zeming Liu purchased 1,200 shares of common stock for
$6,870 pursuant to the exercise of such individual's stock options.
II-3
<PAGE>
On September 30, 1999, David Day purchased 4,841 shares of common stock for
$18,007 pursuant to the exercise of such individual's stock options.
During the fiscal year ended September 30, 1999, the Company granted options
to acquire an aggregate of 311,669 shares of common stock at exercise prices
ranging from $6.00 to $11.70 to various directors, officers, employees and/or
consultants. In addition, the company assumed 286,228 shares of common stock at
exercise prices ranging from $3.72 to $6.95 as part of its acquisition of
Commonwealth.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1 Underwriting Agreement.+
3.1 Amended and Restated Certificate of Incorporation of the
Registrant.**
3.1.1 Amendment to the Restated Certificate of Incorporation to be
effective on or about the time of pricing of this offering.+
3.1.2 Restated Certificate of Incorporation to be effective at the
closing of this offering.+
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 Amended and Restated 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 Amended and Restated Registration Rights Agreement, dated
May 10, 1999, 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 the County of Monroe Industrial Development
Agency.**
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
10.17 Amended and Restated Lease Agreement, dated September 29,
1997, between Registrant and the County of Monroe Industrial
Development Agency.**
10.18 Bill of Sale, dated September 29, 1997, executed by
Registrant.**
10.19 Lease Agreement, dated November 7, 1995, between Registrant
and SCI Limited Partnership.**
10.20 $3,000,000 Term Loan Agreement, dated September 30, 1996, by
Registrant and M&T Trust Company.**
10.21 Letter of Credit Reimbursement Agreement, dated November 21,
1995 between CVC Holdings Inc. and M&T Trust Company.**
10.22 Continuing Guaranty of CVC Holdings, dated February 2, 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 February
2, 1996, by Registrant.**
10.25 General Security Agreement of CVC Holdings, dated February
2, 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.**
10.33 Securities Purchase Agreement, dated December 10, 1998,
among the Registrant and entities affiliated with Advent
International Corporation.**
10.34 Common Stock Purchase Warrant, dated December 10, 1998,
between the Registrant and Global Private Equity III Limited
Partnership.**
10.35 Common Stock Purchase Warrant, dated December 10, 1998,
between the Registrant and Advent PGGM Global Limited
Partnership.**
10.36 Common Stock Purchase Warrant, dated December 10, 1998,
between the Registrant and Advent GPE III Limited
Partnership.**
10.37 Common Stock Purchase Warrant, dated December 10, 1998,
between the Registrant and Advent Partners (NA) GPE III.**
10.38 Common Stock Purchase Warrant, dated December 10, 1998,
between the Registrant and Advent Partners Limited
Partnership.**
10.39 Merger Agreement, dated as of April 1, 1999, among the
Registrant, CVC Acquisition Corp., Commonwealth Scientific
Corporation and the 5% Stockholders.**
10.40 Escrow Agreement, dated as of May 10, 1999, among the
Registrant, Commonwealth Scientific Corporation and M&T
Company.**
10.41 Consulting Agreement, dated as of April 1, 1999, between the
Registrant and George R. Thompson, Jr.**
</TABLE>
II-5
<PAGE>
<TABLE>
<C> <S>
10.42 Union Agreement, dated October 31, 1998, between the
Registrant and Local 342, International Union of Electronic,
Electrical, Salaried, Machine & Furniture Workers.+
10.43 Amended and Restated Stockholders Agreement, dated as of
May 10, 1999, among the Registrant and certain of its
stockholders.**
10.44 Loan Agreement, dated March 31, 1998, between CVC Products,
Inc. and M&T Trust Company.**
10.45 Letter Amendment, dated September 30, 1998 to Loan Agreement
dated March 31, 1998, between CVC Products, Inc. and M&T
Trust Company.+
10.46 Letter Amendment, dated February 19, 1999 to Loan Agreement
dated March 31, 1998, between CVC Products, Inc. and M&T
Trust Company.+
10.47 Amendment, dated September 22, 1999 to Loan Agreement, dated
March 31, 1998 between CVC Products, Inc. and M&T Trust
Company.**
10.48 Patent Collateral Assignment and Security Agreement, dated
September 22, 1999, between Commonwealth Scientific
Corporation and M&T Trust Company.**
10.49 Amended and Restated Patent Collateral Assignment and
Security Agreement, dated September 22, 1999, among, CVC
Products, Inc. and M&T Trust Company.**
10.50 Trademark Collateral Assignment and Security Agreement,
dated September 22, 1999, between Commonwealth Scientific
Corporation and M&T Trust Company.**
10.51 Acknowledgement and Agreement, dated September 22, 1999
among Registrant, CVC Products, Inc. and M&T Trust
Company.**
10.52 General Security Agreement, dated September 22, 1999 between
CVC Process Solutions, Inc. and M&T Trust Company.+
10.53 General Security Agreement, dated September 3, 1999 between
Commonwealth Scientific Corporation and M&T Trust Company.**
10.54 Continuing Guaranty, dated September 22, 1999 among
Registrant, Commonwealth Scientific Corporation and M&T
Trust Company.**
10.55 Continuing Guaranty, dated September 22, 1999 among
Registrant, CVC Process Solutions, Inc. and M&T Trust
Company.**
10.56 Master Equipment Lease No. 1, dated April 7, 1998 between
CVC Products, Inc. and M&T Financial Corporation.**
10.57 Lease Agreement, dated February 1, 1995, between North Point
Associates Limited Partnership and Commonwealth Scientific
Corporation.**
10.58 Lease Agreement, dated August 14, 1996 between North Point
Associates Limited Partnership and Commonwealth Scientific
Corporation.**
11.0 Computation of Earnings Per Share.**
21.1 List of Subsidiaries.**
23.1 Consent of PricewaterhouseCoopers LLP.**
23.2 Consent of Arthur Andersen 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>
- ------------------------
** Previously filed
+ Filed herewith
II-6
<PAGE>
(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 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-7
<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 November 3, 1999.
<TABLE>
<S> <C> <C>
CVC, INC.
BY: /S/ CHRISTINE B. WHITMAN
-----------------------------------------
Christine B. Whitman
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of the persons whose names
appear below appoint and constitute Christine B. Whitman and Emilio O.
DiCataldo, and each of them, his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to execute any and all amendments to
the within Registration Statement, and to sign any and all registration
statements relating to the same offering of the securities as this Registration
Statement that are filed pursuant to Rule 462(b) of the Securities Act of 1933,
as amended, and to file the same, together with all exhibits thereto, with the
Securities and Exchange Commission, the National Association of Securities
Dealers, Inc., and such other agencies, offices and persons as may be required
by applicable law, granting unto each said attorney-in-fact and agent, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that each said attorney-in-fact and agent may lawfully do or cause to be done by
virtue hereof.
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 November 3, 1999 in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Chairman of the Board, Chief
/s/ CHRISTINE B. WHITMAN Executive Officer and
--------------------------------------- President (principal November 3, 1999
Christine B. Whitman executive officer)
Senior Vice President and
/s/ EMILIO O. DICATALDO Chief Financial Officer
--------------------------------------- (principal accounting and November 3, 1999
Emilio O. DiCataldo financial officer)
/s/ ROBERT C. FINK Director
--------------------------------------- November 3, 1999
Robert C. Fink
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MAURICE F. HOLMES Director
--------------------------------------- November 3, 1999
Maurice F. Holmes
/s/ DOUGLAS A. KINGSLEY Director
--------------------------------------- November 3, 1999
Douglas A. Kingsley
/s/ THOMAS C. MCDERMOTT Director
--------------------------------------- November 3, 1999
Thomas C. McDermott
/s/ SEIYA MIYANISHI Director
--------------------------------------- November 3, 1999
Seiya Miyanishi
/s/ GEORGE R. THOMPSON, JR. Director
--------------------------------------- November 3, 1999
George R. Thompson, Jr.
/s/ DONALD L. WAITE Director
--------------------------------------- November 3, 1999
Donald L. Waite
</TABLE>
II-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1 Underwriting Agreement.+
3.1 Amended and Restated Certificate of Incorporation of the
Registrant.**
3.1.1 Amendment to the Restated Certificate of Incorporation to be
effective on or about the time of pricing of this offering.+
3.1.2 Restated Certificate of Incorporation to be effective at the
closing of this offering.+
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 Amended and Restated 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 Amended and Restated Registration Rights Agreement, dated
May 10, 1999, 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 the County of Monroe Industrial Development
Agency.**
10.17 Amended and Restated Lease Agreement, dated September 29,
1997, between Registrant and the County of Monroe Industrial
Development Agency.**
10.18 Bill of Sale, dated September 29, 1997, executed by
Registrant.**
10.19 Lease Agreement, dated November 7, 1995, between Registrant
and SCI Limited Partnership.**
10.20 $3,000,000 Term Loan Agreement, dated September 30, 1996, by
Registrant and M&T Trust Company.**
10.21 Letter of Credit Reimbursement Agreement, dated November 21,
1995 between CVC Holdings Inc. and M&T Trust Company.**
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.22 Continuing Guaranty of CVC Holdings, dated February 2, 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 February
2, 1996, by Registrant.**
10.25 General Security Agreement of CVC Holdings, dated February
2, 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.**
10.33 Securities Purchase Agreement, dated December 10, 1998,
among the Registrant and entities affiliated with Advent
International Corporation.**
10.34 Common Stock Purchase Warrant, dated December 10, 1998,
between the Registrant and Global Private Equity III Limited
Partnership.**
10.35 Common Stock Purchase Warrant, dated December 10, 1998,
between the Registrant and Advent PGGM Global Limited
Partnership.**
10.36 Common Stock Purchase Warrant, dated December 10, 1998,
between the Registrant and Advent GPE III Limited
Partnership.**
10.37 Common Stock Purchase Warrant, dated December 10, 1998,
between the Registrant and Advent Partners (NA) GPE III.**
10.38 Common Stock Purchase Warrant, dated December 10, 1998,
between the Registrant and Advent Partners Limited
Partnership.**
10.39 Merger Agreement, dated as of April 1, 1999, among the
Registrant, CVC Acquisition Corp., Commonwealth Scientific
Corporation and the 5% Stockholders.**
10.40 Escrow Agreement, dated as of May 10, 1999, among the
Registrant, Commonwealth Scientific Corporation and M&T
Company.**
10.41 Consulting Agreement, dated as of April 1, 1999, between the
Registrant and George R. Thompson, Jr.**
10.42 Union Agreement, dated October 31, 1998, between the
Registrant and Local 342, International Union of Electronic,
Electrical, Salaried, Machine & Furniture Workers.+
10.43 Amended and Restated Stockholders Agreement, dated as of
May 10, 1999, among the Registrant and certain of its
stockholders.**
10.44 Loan Agreement, dated March 31, 1998, between CVC Products,
Inc. and M&T Trust Company.**
10.45 Letter Amendment, dated September 30, 1998 to Loan Agreement
dated March 31, 1998, between CVC Products, Inc. and M&T
Trust Company.+
10.46 Letter Amendment, dated February 19, 1999 to Loan Agreement
dated March 31, 1998, between CVC Products, Inc. and M&T
Trust Company.+
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.47 Amendment, dated September 22, 1999 to Loan Agreement, dated
March 31, 1998 between CVC Products, Inc. and M&T Trust
Company.**
10.48 Patent Collateral Assignment and Security Agreement, dated
September 22, 1999, between Commonwealth Scientific
Corporation and M&T Trust Company.**
10.49 Amended and Restated Patent Collateral Assignment and
Security Agreement, dated September 22, 1999, among, CVC
Products, Inc. and M&T Trust Company.**
10.50 Trademark Collateral Assignment and Security Agreement,
dated September 22, 1999, between Commonwealth Scientific
Corporation and M&T Trust Company.**
10.51 Acknowledgement and Agreement, dated September 22, 1999
among Registrant, CVC Products, Inc. and M&T Trust
Company.**
10.52 General Security Agreement, dated September 22, 1999 between
CVC Process Solutions, Inc. and M&T Trust Company.+
10.53 General Security Agreement, dated September 3, 1999 between
Commonwealth Scientific Corporation and M&T Trust Company.**
10.54 Continuing Guaranty, dated September 22, 1999 among
Registrant, Commonwealth Scientific Corporation and M&T
Trust Company.**
10.55 Continuing Guaranty, dated September 22, 1999 among
Registrant, CVC Process Solutions, Inc. and M&T Trust
Company.**
10.56 Master Equipment Lease No. 1, dated April 7, 1998 between
CVC Products, Inc. and M&T Financial Corporation.**
10.57 Lease Agreement, dated February 1, 1995, between North Point
Associates Limited Partnership and Commonwealth Scientific
Corporation.**
10.58 Lease Agreement, dated August 14, 1996 between North Point
Associates Limited Partnership and Commonwealth Scientific
Corporation.**
11.0 Computation of Earnings Per Share.**
21.1 List of Subsidiaries.**
23.1 Consent of PricewaterhouseCoopers LLP.**
23.2 Consent of Arthur Andersen 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>
- ------------------------
** Previously filed
+ Filed herewith
<PAGE>
TH&T DRAFT 11/2/99
3,500,000 SHARES
CVC, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
, 1999
-----------
LEHMAN BROTHERS INC.
PRUDENTIAL SECURITIES INCORPORATED
SG COWEN SECURITIES CORPORATION
WARBURG DILLON READ LLC,
As Representatives of the several
Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Ladies and Gentlemen:
CVC, Inc., a Delaware corporation (the "COMPANY"), and certain
stockholders of the Company named in Schedule 2 hereto (the "Selling
Stockholders") propose to sell an aggregate of 3,500,000 shares (the "FIRM
Stock") of the Company's Common Stock, par value $.01 per share (the "COMMON
STOCK"). Of the 3,500,000 shares of the Firm Stock, 3,000,000 are being sold by
the Company and 500,000 by the Selling Stockholders. In addition, the Selling
Stockholders severally and not jointly propose to grant to the Underwriters
named in Schedule 1 hereto (the "UNDERWRITERS") an option to purchase an
aggregate of up to an additional 525,000 shares of the Common Stock on the terms
and for the purposes set forth in Section 2 (the "OPTION STOCK"). The Firm Stock
and the Option Stock, if purchased, are hereinafter collectively called the
"STOCK." This is to confirm the agreement concerning the purchase of the Stock
from the Company and the Selling Stockholders by the Underwriters named in
Schedule 1 hereto (the "UNDERWRITERS").
1. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY AND
THE OPERATING Subsidiary. The Company and CVC Products, Inc., a Delaware
corporation and wholly-owned subsidiary of the Company (the "Operating
Subsidiary"), jointly and severally, represent, warrant and agree that:
(a) A registration statement on Form S-1 and one or more
amendments thereto with respect to the Stock has (i) been prepared
by the Company in material conformity with the requirements of the
United States Securities Act of 1933, as amended (the "SECURITIES
ACT") and the rules and regulations (the "RULES AND REGULATIONS") of
the United States Securities and Exchange Commission (the
"COMMISSION") thereunder, (ii) been filed with the Commission under
the Securities Act and (iii) become effective under the Securities
<PAGE>
Act. Copies of such registration statement and the amendments
thereto have been delivered by the Company to you as the
representatives (the "REPRESENTATIVES") of the Underwriters. (If you
are the only Underwriters, all references herein to the
Representatives shall be deemed to be to the Underwriters.) As used
in this Agreement, "EFFECTIVE TIME" means the date and the time as
of which such registration statement, or the most recent
post-effective amendment thereto, if any, was declared effective by
the Commission; "EFFECTIVE DATE" means the date of the Effective
Time; "PRELIMINARY PROSPECTUS" means each prospectus included in
such registration statement, or amendments thereof, before it became
effective under the Securities Act and any prospectus filed with the
Commission by the Company pursuant to Rule 424(a) of the Rules and
Regulations; "REGISTRATION STATEMENT" means such registration
statement, as amended at the Effective Time, including all
information contained in the final prospectus filed with the
Commission pursuant to Rule 424(b) of the Rules and Regulations in
accordance with Section 5(a) hereof and deemed to be a part of the
registration statement as of the Effective Time pursuant to
paragraph (b) of Rule 430A of the Rules and Regulations; "RULE
462(B) REGISTRATION Statement" means any registration statement
filed pursuant to Rule 462(b) of the Rules and Regulations, and
after such filing, the term "REGISTRATION STATEMENT" shall include
the Rule 462(b) Registration Statement; and "PROSPECTUS" means such
final prospectus, as first filed with the Commission pursuant to
paragraph (1) or (4) of Rule 424(b) of the Rules and Regulations.
The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus.
(b) The Registration Statement conforms, and the Prospectus
and any further amendments or supplements to the Registration Statement
or the Prospectus and any Rule 462(b) Registration Statement will, when
they become effective or are filed with the Commission, as the case may
be, conform in all material respects to the requirements of the
Securities Act and the Rules and Regulations and do not and will not,
as of the applicable effective date (as to the Registration Statement
and any amendment thereto) and as of the applicable filing date (as to
the Prospectus and any amendment or supplement thereto) contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; PROVIDED that no representation or warranty is
made as to information contained in or omitted from the Registration
Statement or the Prospectus in reliance upon and in conformity with
written information furnished to the Company through the
Representatives by or on behalf of any Underwriter specifically for
inclusion therein. To the extent applicable, the copies of the
Registration Statement and each other document referred to in
subparagraph (a) above that have been or will be furnished to the
Underwriters have been and will be identical to the electronically
transmitted copies thereof filed with the Commission pursuant to the
Commission's so called EDGAR system, except to the extent permitted by
Regulation S-T.
(c) The Company and each of its subsidiaries (as defined in
Section 17) have been duly incorporated and are validly existing as
corporations in good standing under the laws of their respective
jurisdictions of incorporation, are duly qualified to do business and
are in good standing as foreign corporations in each jurisdiction in
which their respective ownership or lease of property or the conduct of
their respective businesses requires such qualification, except where
the failure to be so qualified or in good standing would not have a
material adverse effect on the business, financial condition,
shareholders' equity or results of operations of the Company and its
subsidiaries taken as a whole (a "MATERIAL ADVERSE
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EFFECT"), and have all power and authority necessary to own or hold
their respective properties and to conduct the businesses in which
they are engaged; and none of the subsidiaries of the Company, other
than the Operating Subsidiary, is a "SIGNIFICANT SUBSIDIARY", as such
term is defined in Rule 405 of the Rules and Regulations.
(d) The Company had an authorized and issued capitalization as
set forth in the Prospectus as of the date stated therein, and all of
the issued shares of capital stock of the Company have been duly and
validly authorized and issued, are fully paid and non-assessable and
conform in all material respects to the description thereof contained
in the Prospectus; and all of the issued shares of capital stock of
each subsidiary of the Company have been duly and validly authorized
and issued and are fully paid and non-assessable and are owned directly
or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims.
(e) The unissued shares of the Stock to be issued and sold by
the Company to the Underwriters hereunder have been duly and validly
authorized and, when issued and delivered against payment therefor as
provided herein, will be duly and validly issued, fully paid and
non-assessable; and the Stock will conform, in all material respects,
to the description thereof contained in the Prospectus. Except as
described in the Prospectus, there are no pre-emptive or other rights
to subscribe for or to purchase, nor any restrictions upon the voting
or transfer of any shares of Common Stock pursuant to the Company's
corporate charter or by-laws or any agreement or other instrument to
which the Company is a party.
(f) This Agreement has been duly authorized, executed and
delivered by the Company.
(g) The execution, delivery and performance of this Agreement
by the Company and the consummation of the transactions contemplated
hereby and the issuance and delivery of the Stock will not conflict
with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any (i) indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any of its subsidiaries is a party
or by which the Company or any of its subsidiaries is bound or to which
any of the property or assets of the Company or any of its subsidiaries
is subject, (ii) provisions of the charter or by-laws of the Company or
(iii) any of its subsidiaries or any statute or any order, rule or
regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of
their properties or assets; and except for the registration of the
Stock under the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be required
under the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT") and applicable state securities laws or by the National
Association of Securities Dealers, Inc. in connection with the purchase
and distribution of the Stock by the Underwriters, no consent,
approval, authorization or order of, or filing or registration or
qualification of or with, any such court or governmental agency or body
is required for the execution, delivery and performance of this
Agreement by the Company and the consummation of the transactions
contemplated hereby.
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(h) There are no contracts, agreements or understandings
between the Company and any person granting such person the right
(other than rights which have been waived or satisfied) to require the
Company to file a registration statement under the Securities Act with
respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement or in any
securities being registered pursuant to any other registration
statement filed by the Company under the Securities Act.
(i) Except as described in the Registration Statement, the
Company has not sold or issued any shares of Common Stock during the
six-month period preceding the date of the Prospectus, including any
sales pursuant to Rule 144A under, or Regulations D or S of, the
Securities Act, other than shares issued pursuant to employee benefit
plans, qualified stock options plans or other employee compensation
plans or pursuant to outstanding options, rights or warrants.
(j) Neither the Company nor any of its subsidiaries has
sustained, since the date of the latest audited financial statements
included in the Prospectus, any material loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus; and, since such date, there has not
been any change in the capital stock or long-term debt of the Company
or any of its subsidiaries or any material adverse change, or any
development involving a prospective material adverse change, in or
affecting the business, management, financial condition, stockholders'
equity or results of operations of the Company and its subsidiaries
taken as a whole (any of which, a "MATERIAL ADVERSE CHANGE"), otherwise
than as set forth in or contemplated by the Prospectus.
(k) The financial statements (including the related notes and
supporting schedules) filed as part of the Registration Statement or
included in the Prospectus present fairly the financial condition and
results of operations of the entities purported to be shown thereby, at
the dates and for the periods indicated, and have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved.
(l) PricewaterhouseCoopers LLP, which has certified certain
financial statements of the Company, whose report appears in the
Prospectus and who have delivered the initial letter referred to in
Section 9(g) hereof, are independent public accountants as required by
the Securities Act and the Rules and Regulations.
(m) The Company and its subsidiaries own, or have valid rights
to use, all items of real and personal property which are material to
the business of the Company and its subsidiaries taken as a whole, free
and clear of all security interests, liens, claims and encumbrances
that would materially affect the value thereof or interfere with the
use made or to be made thereof by them.
(n) The Company and each of its subsidiaries own or possess
adequate licenses or other rights to use all intellectual property
rights, including patents, trademarks, service
4
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marks, trade names, trademark registrations, service mark
registrations, copyrights and know-how necessary for the conduct of
their respective businesses and have no reason to believe that the
conduct of their respective businesses will conflict with, and have
not received any notice of any claim of conflict with, any
intellectual property rights of others.
(o) There are no legal or governmental proceedings pending to
which the Company or any of its subsidiaries is a party or of which any
property or assets of the Company or any of its subsidiaries is the
subject which, if determined adversely to the Company or any of its
subsidiaries, might have a Material Adverse Effect; and to the best of
the Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others.
(p) There are no contracts or other documents which are
required to be described in the Prospectus or filed as exhibits to the
Registration Statement by the Securities Act or by the Rules and
Regulations which have not been described in the Prospectus or filed as
exhibits to the Registration Statement.
(q) No relationship, direct or indirect, exists between or
among the Company on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company on the other hand,
which is required to be described in the Prospectus which is not so
described.
(r) Since the date as of which information is given in the
Prospectus through the date hereof, and except as may otherwise be
disclosed in the Prospectus, the Company has not (i) issued or granted
any securities, (ii) incurred any liability or obligation, direct or
contingent, other than liabilities and obligations which were incurred
in the ordinary course of business, (iii) entered into any transaction
not in the ordinary course of business or (iv) declared or paid any
dividend on its capital stock.
(s) Neither the Company nor any of its subsidiaries (i) is in
violation of its corporate charter or by-laws, (ii) is in default in
any material respect, and no event has occurred which, with notice or
lapse of time or both, would constitute such a default, in the due
performance or observance of any term, covenant or condition contained
in any material indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument to which it is a party or by which it is
bound or to which any of its properties or assets is subject or (iii)
is in violation in any material respect of any law, ordinance,
governmental rule, regulation or court decree to which it or its
property or assets may be subject or has failed to obtain any material
license, permit, certificate, franchise or other governmental
authorization or permit necessary to the ownership of its property or
to the conduct of its business.
(t) Neither the Company nor any subsidiary is an "investment
company" within the meaning of such term under the Investment Company
Act of 1940 and the rules and regulations of the Commission thereunder.
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<PAGE>
(u) No labor disturbance by the employees of the Company or
any of its subsidiaries exists or, to the knowledge of the Company, is
imminent which might be expected to have a Material Adverse Effect.
(v) The Company and each of its subsidiaries is in compliance
in all material respects with all presently applicable provisions of
the Employee Retirement Income Security Act of 1974, as amended,
including the regulations and published interpretations thereunder
("ERISA"); no "reportable event" (as defined in ERISA) has occurred
with respect to any "pension plan" (as defined in ERISA) for which the
Company would have any liability; the Company has not incurred and does
not expect to incur liability under (i) Title IV of ERISA with respect
to termination of, or withdrawal from, any "pension plan" or (ii)
Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the
"Code"); and each "pension plan" for which the Company would have any
liability that is intended to be qualified under Section 401(a) of the
Code is so qualified in all material respects and nothing has occurred,
whether by action or by failure to act, which would cause the loss of
such qualification.
(w) The Company and each of its subsidiaries has filed all
federal, state and local income and franchise tax returns required to
be filed through the date hereof and has paid all taxes due thereon,
and no tax deficiency has been determined adversely to the Company or
any of its subsidiaries which has had (nor does the Company have any
knowledge of any tax deficiency which, if determined adversely to the
Company or any of its subsidiaries, might have) a Material Adverse
Effect.
(x) The Company and each of its subsidiaries (i) makes and
keeps accurate books and records and (ii) maintains internal accounting
controls which provide reasonable assurance that (A) transactions are
executed in accordance with management's authorization, (B)
transactions are recorded as necessary to permit preparation of its
financial statements and to maintain accountability for its assets, (C)
access to its assets is permitted only in accordance with management's
authorization and (D) the reported accountability for its assets is
compared with existing assets at reasonable intervals.
(y) Except as disclosed in the Prospectus and except as would
not, individually or in the aggregate, result in a Material Adverse
Effect, neither the Company nor any of its subsidiaries (nor, to the
knowledge of the Company, any of their predecessors in interest) is (i)
in violation of any applicable law, statute, rule, regulation,
decision, judgment, permit or order of any governmental agency or body
or any court, domestic or foreign, relating to the use, storage,
generation, manufacture, disposal or release of hazardous or toxic
substances, medical wastes or hazardous wastes (collectively,
"Environmental Laws"), (ii) owns or operates any real property
contaminated with any substance that is subject to any Environmental
Laws, or (iii) is liable for any off-site disposal or contamination
pursuant to any Environmental Laws; and the Company is not aware of any
pending investigation which might lead to such a claim. The terms
"hazardous wastes", "toxic wastes", "hazardous substances", and
"medical wastes" shall have the meanings specified in any applicable
local, state, federal and foreign laws or regulations with respect to
environmental protection.
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(z) Any certificate signed by an officer of the Company and
delivered to the Underwriters or their counsel pursuant to this
Agreement shall be deemed a representation and warranty hereunder by
the Company to each Underwriter as to the matters covered thereby.
(aa) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such
losses and risks and in such amounts as are prudent and customary
in the businesses in which they are engaged; neither the Company
nor any such subsidiary has been refused any insurance coverage
sought or applied for; and neither the Company nor any such
subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as
may be necessary to continue its business at a cost that would
not result in a Material Adverse Effect, except as described in
or contemplated by the Prospectus.
(bb) The Company has not distributed and, prior to the later
of (i) the First Delivery Closing Date and (ii) the completion of
the distribution of the Stock, will not distribute any offering
material in connection with the offering and sale of the Stock
other than the Registration Statement or any amendment thereto,
any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or other materials, if any, permitted by the
Act.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE SELLING
STOCKHOLDERS. Each Selling Stockholder severally represents, warrants and agrees
that:
(a) The Selling Stockholder has, and immediately prior to the
First Delivery Date (as defined in Section 5 hereof) the Selling
Stockholder will have good and valid title to the shares of Stock to
be sold by the Selling Stockholder hereunder on such date, free and
clear of all liens, encumbrances, equities or claims; and upon
delivery of such shares and payment therefor pursuant hereto, good and
valid title to such shares, free and clear of all liens, encumbrances,
equities or claims, will pass to the several Underwriters.
(b) The Selling Stockholder has placed in custody under a
custody agreement (the "CUSTODY AGREEMENT" and, together with all other
similar agreements executed by the other Selling Stockholders, the
"CUSTODY AGREEMENTS") with the Company, as custodian (the "CUSTODIAN"),
for delivery under this Agreement, certificates in negotiable form
(with signature guaranteed by a commercial bank or trust company having
an office or correspondent in United States or a member firm of the New
York or American Stock Exchanges) representing the shares of Stock to
be sold by the Selling Stockholder hereunder.
(c) The Selling Stockholder has duly and irrevocably executed and
delivered a power of attorney (the "POWER OF ATTORNEY" and, together
with all other similar agreements executed by the other Selling
Stockholders, the "POWERS OF ATTORNEY") appointing the Custodian and
one or more other persons, as attorneys-in-fact, with full power of
substitution, and with full authority (exercisable by any one or more
of them) to execute and
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deliver this Agreement and to take such other action as may be
necessary or desirable to carry out the provisions hereof on behalf of
the Selling Stockholder.
(d) The Selling Stockholder has full right, power and authority
to enter into this Agreement, the Power of Attorney and the Custody
Agreement; the execution, delivery and performance of this Agreement,
the Power of Attorney and the Custody Agreement by the Selling
Stockholder and the consummation by the Selling Stockholder of the
transactions contemplated hereby and thereby will not conflict with or
result in a breach or violation of any of the terms or provisions of,
or constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Selling
Stockholder is a party or by which the Selling Stockholder is bound or
to which any of the property or assets of the Selling Stockholder is
subject, nor will such actions result in any violation of any statute
or any order, rule or regulation of any court or governmental agency
or body having jurisdiction over the Selling Stockholder or the
property or assets of the Selling Stockholder; and, except for the
registration of the Stock under the Securities Act and such consents,
approvals, authorizations, registrations or qualifications as may be
required under the Exchange Act and applicable state securities laws
in connection with the purchase and distribution of the Stock by the
Underwriters, no consent, approval, authorization or order of, or
filing or registration with, any such court or governmental agency or
body is required for the execution, delivery and performance of this
Agreement, the Power of Attorney or the Custody Agreement by the
Selling Stockholder and the consummation by the Selling Stockholder of
the transactions contemplated hereby and thereby.
(e) The Registration Statement and the Prospectus and any further
amendments or supplements to the Registration Statement or the
Prospectus will, when they become effective or are filed with the
Commission, as the case may be, do not and will not, as of the
applicable effective date (as to the Registration Statement and any
amendment thereto) and as of the applicable filing date (as to the
Prospectus and any amendment thereto) and as of the applicable filing
date (as to the Prospectus and any amendment or supplement thereto)
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; PROVIDED that no representation or
warranty is made as to information contained in or omitted from the
Registration Statement or the Prospectus in reliance upon and in
conformity with written information furnished to the Company through
the Representatives by or on behalf of any Underwriter specifically
for inclusion therein.
(f) The Selling Stockholder has no reason to believe that
the representations and warranties of the Company contained in Section
1 hereto are not materially true and correct, is familiar with the
Registration Statement and the Prospectus (as amended or supplemented)
and has no knowledge of any material fact, condition or information
not disclosed in the Registration Statement, as of the effective date,
or the Prospectus (or any amendment or supplement thereto), as of the
applicable filing date, which has adversely affected or may adversely
affect the business of the Company and is not prompted to sell shares
of Common Stock by any information concerning the Company which is not
set forth in the Registration Statement and the Prospectus.
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(g) The Selling Stockholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result in
the stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the shares of the Stock.
(h) The Selling Stockholder has not distributed and, prior to
the later of (i) the First Delivery Closing Date and (ii) the
completion of the distribution of the Stock, will not distribute any
offering material in connection with the offering and sale of the Stock
other than the Registration Statement or any amendment thereto, any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, or other materials, if any permitted by the Act.
3. PURCHASE OF THE STOCK BY THE UNDERWRITERS. On the basis of
the representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell 3,000,000 shares of
the Firm Stock and each Selling Stockholder hereby agrees to sell the number of
shares of the Firm Stock set forth opposite his or her name in Schedule 2
hereto, severally and not jointly, to the several Underwriters and each of the
Underwriters, severally and not jointly, agrees to purchase the number of shares
of the Firm Stock set forth opposite that Underwriter's name in Schedule 1
hereto. Each Underwriter shall be obligated to purchase from the Company, and
from each Selling Stockholder, that number of Shares of the Firm Stock which
represents the same proportion of the number of shares of the Firm Stock to be
sold by the Company, and by each Selling Stockholder, as the number of shares of
the Firm Stock set forth opposite the name of such Underwriter in Schedule 1
represents of the total number of shares of the Firm Stock to be purchased by
all of the Underwriters pursuant to this Agreement. The respective purchase
obligations of the Underwriters with respect to the Firm Stock shall be rounded
among the Underwriters to avoid fractional shares, as the Representatives may
determine.
In addition, the Selling Stockholders severally and not
jointly grant to the Underwriters an option to purchase up to an aggregate of
525,000 shares of Option Stock. Such option is granted for the purpose of
covering over-allotments in the sale of Firm Stock and is exercisable as
provided in Section 5 hereof. Shares of Option Stock shall be purchased
severally and not jointly from the Selling Stockholders in proportion to the
number of shares of Firm Stock set forth opposite the name of such Selling
Stockholder in Schedule 2 hereto for the account of the Underwriters in
proportion to the number of shares of Firm Stock set forth opposite the name of
such Underwriters in Schedule 1 hereto. The respective purchase obligations of
each Underwriter with respect to the Option Stock shall be adjusted by the
Representatives so that no Underwriter shall be obligated to purchase Option
Stock other than in 100 share amounts. The price of both the Firm Stock and any
Option Stock shall be $_____ per share.
The Company and the Selling Stockholders shall not be
obligated to deliver any of the Stock to be delivered on any Delivery Date (as
hereinafter defined), as the case may be, except upon payment for all the Stock
to be purchased on such Delivery Date as provided herein.
4. OFFERING OF STOCK BY THE UNDERWRITERS.
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Upon authorization by the Representatives of the release of
the Firm Stock, the several Underwriters propose to offer the Firm Stock for
sale upon the terms and conditions set forth in the Prospectus.
It is understood that [_________] shares of the Firm Stock
will initially be reserved by the several Underwriters for offer and sale upon
the terms and conditions set forth in the Prospectus and in accordance with the
rules and regulations of the National Association of Securities Dealers, Inc. to
employees and persons having business relationships with the Company and its
subsidiaries who have heretofore delivered to the Representatives offers to
purchase shares of Firm Stock in form satisfactory to the Representatives, and
that any allocation of such Firm Stock among such persons will be made in
accordance with timely directions received by the Representatives from the
Company; PROVIDED, that under no circumstances will the Representatives or any
Underwriter be liable to the Company or to any such person for any action taken
or omitted in good faith in connection with such offering to employees and
persons having business relationships with the Company and its subsidiaries. It
is further understood that any shares of such Firm Stock which are not purchased
by such persons will be offered by the Underwriters to the public upon the terms
and conditions set forth in the Prospectus.
5. DELIVERY OF AND PAYMENT FOR THE STOCK. Delivery of and
payment for the Firm Stock shall be made at the offices of Dewey Ballantine LLP,
New York, New York, at 10:00 A.M., Eastern time, on the fourth full business day
following the date of this Agreement or at such other date or place as shall be
determined by agreement between the Representatives and the Company. This date
and time are sometimes referred to as the "FIRST DELIVERY DATE." On the First
Delivery Date, the Company and the Selling Stockholders shall deliver or cause
to be delivered the Firm Stock to the Representatives for the account of each
Underwriter against payment to or upon the order of the Company and the Selling
Stockholders of the purchase price by wire transfer in immediately available
funds. The Company and the Selling Stockholders shall deliver the Firm Stock to
Lehman Brothers Inc. through the facilities of the Depository Trust Company
("DTC") for the respective accounts of the several Underwriters. Time shall be
of the essence, and delivery at the time specified pursuant to this Agreement is
a further condition of the obligation of each Underwriter hereunder. The Company
and the Selling Stockholders shall make the certificates representing the Firm
Stock available for inspection by the Representatives at such location as shall
reasonably be requested by the Representatives in New York, New York, not later
than 2:00 P.M., Eastern time, on the business day prior to the First Delivery
Date.
The option granted in Section 3 will expire 30 days after the
date of this Agreement and may be exercised in whole or in part from time to
time by written notice being given to the Selling Stockholders and the Custodian
by the Representatives. Such notice shall set forth the aggregate number of
shares of Option Stock as to which the option is being exercised and the date
and time, as determined by the Representatives, when the shares of Option Stock
are to be delivered; PROVIDED, HOWEVER, that this date and time shall not be
earlier than the First Delivery Date nor earlier than the second business day
after the date on which the option shall have been exercised nor later than the
fifth business day after the date on which the option shall have been exercised.
The date and time the shares of Option Stock are delivered are sometimes
referred to as a "SUBSEQUENT DELIVERY DATE" and the First Delivery Date and any
Subsequent Delivery Date are sometimes each referred to as a "DELIVERY DATE".
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Delivery of and payment for the Option Stock shall be made at
the place specified in the first sentence of the first paragraph of this Section
4 (or at such other place as shall be determined by agreement between the
Representatives and the Company) at 10:00 A.M., Eastern time, on such Subsequent
Delivery Date. On such Subsequent Delivery Date, each Custodian, on behalf of
the respective Selling Stockholder, shall deliver or cause to be delivered the
Option Stock being sold by such Selling Stockholder to the Representatives for
the account of each Underwriter against payment to or upon the order of each
Selling Stockholder of the purchase price by wire transfer in immediately
available funds. Each Custodian on behalf of each Selling Stockholder shall
deliver the Option Stock to Lehman Brothers Inc. through the facilities of DTC
for the respective accounts of the several Underwriters. Time shall be of the
essence, and delivery at the time specified pursuant to this Agreement is a
further condition of the obligation of each Underwriter hereunder. The Custodian
to each of the Selling Stockholders shall make the certificates representing the
Option Stock available for inspection by the Representatives in New York, New
York, not later than 2:00 P.M., Eastern time, on the business day prior to such
Subsequent Delivery Date.
6. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees:
(a) To prepare the Prospectus in a form approved by the
Representatives and to file such Prospectus pursuant to Rule 424(b)
under the Securities Act not later than the Commission's close of
business on the second business day following the execution and
delivery of this Agreement or, if applicable, such earlier time as may
be required by Rule 430A(a)(3) under the Securities Act; to make no
further amendment or any supplement to the Registration Statement or to
the Prospectus except as permitted herein; to advise the
Representatives, promptly after it receives notice thereof, of the time
when any amendment to the Registration Statement or any Rule 462(b)
Registration Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed
and to furnish the Representatives with copies thereof; to advise the
Representatives, promptly after it receives notice thereof, of the
issuance by the Commission of any stop order or of any order preventing
or suspending the use of any Preliminary Prospectus or the Prospectus,
of the suspension of the qualification of the Stock for offering or
sale in any jurisdiction, of the initiation or threatening of any
proceeding for any such purpose, or of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; and, in the event of the
issuance of any stop order or of any order preventing or suspending the
use of any Preliminary Prospectus or the Prospectus or suspending any
such qualification, to use promptly its best efforts to obtain its
withdrawal;
(b) To furnish promptly to each of the Representatives and to
counsel for the Underwriters a signed copy of the Registration
Statement, including any Rule 462(b) Registration Statement, as
originally filed with the Commission, and each amendment thereto filed
with the Commission, including all consents and exhibits filed
therewith;
(c) To deliver promptly to the Representatives such number of
the following documents as the Representatives shall reasonably
request: (i) conformed copies of the Registration Statement, including
any Rule 462(b) Registration Statement, as originally filed with the
Commission and each amendment thereto (in each case excluding exhibits
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other than this Agreement and any computation of per share earnings);
and (ii) each Preliminary Prospectus, the Prospectus and any amended or
supplemented Prospectus; and, if the delivery of a prospectus is
required at any time after the Effective Time in connection with the
offering or sale of the Stock or any other securities relating thereto
and if at such time any events shall have occurred as a result of which
the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made when such Prospectus is
delivered, not misleading, or, if for any other reason it shall be
necessary to amend or supplement the Prospectus in order to comply with
the Securities Act, to notify the Representatives and, upon their
request, to prepare and furnish without charge to each Underwriter and
to any dealer in securities as many copies as the Representatives may
from time to time reasonably request of an amended or supplemented
Prospectus which will correct such statement or omission or effect such
compliance.
(d) To file promptly with the Commission any amendment to the
Registration Statement, including any filing required under Rule
462(b), or the Prospectus or any supplement to the Prospectus that may,
in the judgment of the Company or the Representatives, be required by
the Securities Act or requested by the Commission;
(e) Prior to filing with the Commission any amendment to the
Registration Statement or supplement to the Prospectus or any
Prospectus pursuant to Rule 424 of the Rules and Regulations, to
furnish a copy thereof to the Representatives and counsel for the
Underwriters and obtain the consent of the Representatives to the
filing which consent shall not be unreasonably withheld;
(f) As soon as practicable after the Effective Date, to make
generally available to the Company's security holders and to deliver to
the Representatives an earnings statement of the Company and its
subsidiaries (which need not be audited) complying with Section 11(a)
of the Securities Act and the Rules and Regulations (including, at the
option of the Company, Rule 158);
(g) For a period of five years following the Effective Date,
to furnish to the Representatives and, upon request, each of the other
Underwriters, if any, copies of all materials furnished by the Company
to its shareholders generally and all public reports and all reports
and financial statements furnished by the Company to the principal
national securities exchange upon which the Common Stock may be listed
pursuant to requirements of or agreements with such exchange or to the
Commission pursuant to the Exchange Act or any rule or regulation of
the Commission thereunder;
(h) Promptly from time to time to take such action as the
Representatives may reasonably request to qualify the Stock for
offering and sale under the securities laws of such jurisdictions as
the Representatives may request and to comply with such laws so as to
permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the
distribution of the Stock; PROVIDED THAT in connection therewith the
Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any jurisdiction;
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(i) For a period of 180 days from the date of the Prospectus,
not to, directly or indirectly, (1) offer for sale, sell, pledge or
otherwise dispose of (or enter into any transaction or device which is
designed to, or could be expected to, result in the disposition by any
person at any time in the future of) any shares of Common Stock or
securities convertible into or exchangeable for Common Stock (other
than the Stock and shares of Common Stock issued pursuant to stock
option and purchase plans or other employee compensation plans existing
on the date hereof or pursuant to currently outstanding options,
warrants, convertible stock or rights that are described in the
Prospectus), or sell or grant options, rights or warrants with respect
to any shares of Common Stock or securities convertible into or
exchangeable for Common Stock (other than the grant of options pursuant
to stock option and purchase plans or other employee compensation plans
existing on the date hereof), or (2) enter into any swap or other
derivatives transaction that transfers to another, in whole or in part,
any of the economic benefits or risks of ownership of such shares of
Common Stock, whether any such transaction described in clause (1) or
(2) above is to be settled by delivery of Common Stock or other
securities, in cash or otherwise, in each case without the prior
written consent of Lehman Brothers Inc.; and to cause each officer and
director of the Company and each stockholder of the Company previously
specified to the Company by Lehman Brothers Inc. to furnish to the
Representatives, prior to the First Delivery Date, a letter or letters,
in form and substance satisfactory to counsel for the Underwriters,
pursuant to which each such person shall agree not to, directly or
indirectly, (1) offer for sale, sell, pledge or otherwise dispose of
(or enter into any transaction or device which is designed to, or could
be expected to, result in the disposition by any person at any time in
the future of) any shares of Common Stock or securities convertible
into or exchangeable for Common Stock or (2) enter into any swap or
other derivatives transaction that transfers to another, in whole or in
part, any of the economic benefits or risks of ownership of such shares
of Common Stock, whether any such transaction described in clause (1)
or (2) above is to be settled by delivery of Common Stock or other
securities, in cash or otherwise, in each case for a period of 180 days
from the date of the Prospectus, without the prior written consent of
Lehman Brothers Inc.;
(j) Prior to the Effective Date, to apply for the inclusion of
the Stock on the Nasdaq National Market System and to use its best
efforts to complete that listing, subject only to official notice of
issuance, prior to the First Delivery Date;
(k) To apply the net proceeds from the sale of the Stock
being sold by the Company as set forth in the Prospectus; and
(l) To take such steps as shall be necessary to ensure that
neither the Company nor any subsidiary shall become an "investment
company" within the meaning of such term under the Investment Company
Act of 1940 and the rules and regulations of the Commission thereunder.
7. FURTHER AGREEMENTS OF THE SELLING STOCKHOLDERS. Each Selling
Stockholder agrees:
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(a) For a period of 180 days from the date of the
Prospectus, not to, directly or indirectly, (1) offer for sale,
sell, pledge or otherwise dispose of (or enter into any transaction
or device which is designed to, or could be expected to, result in
the disposition by any person at any time in the future of any
shares of Common Stock or securities convertible into or
exchangeable for Common stock (other than the Stock) or (2) enter
into any swap or other derivatives transaction that transfers to
another, in whole or in part, any of the economic benefits or risks
of ownership of such shares of Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled
by delivery of Common Stock or other securities, in cash or
otherwise, in each case without the prior written consent of Lehman
Brothers Inc.
(b) That the Stock to be sold by the Selling Stockholder
hereunder, which is represented by the certificates held in custody
for the Selling Stockholder, is subject to the interest of the
Underwriters and the other Selling Stockholders thereunder, that
the arrangements made by the Selling Stockholder for such custody
are to that extent irrevocable, and that the obligations of the
Selling Stockholder hereunder shall not be terminated by any act of
the Selling Stockholder, by operation of law, by the death or
incapacity of any individual Selling Stockholder or, in the case of
a trust, by the death or incapacity of any executor or trustee or
the termination of such trust, or the occurrence of any other event.
(c) To deliver to the Representatives prior to the First
Delivery Date a properly completed and executed United States Treasury
Department Form W-8 (if the Selling Stockholder is a non-United States
person or Form W-9 (if the Selling Stockholder is a United States
person.)
(d) The Selling Stockholder will not take, directly or
indirectly, any action designed to cause or result in, or that has
constituted or might reasonably be expected to constitute, the
stabilization or manipulation of the price of any securities of the
Company.
8. EXPENSES. The Company agrees to pay (a) the costs incident
to the authorization, issuance, sale and delivery of the Stock and any taxes
payable in that connection; (b) the costs incident to the preparation, printing
and filing under the Securities Act of the Registration Statement and any
amendments and exhibits thereto; (c) the costs of distributing the Registration
Statement as originally filed and each amendment thereto and any post-effective
amendments thereof (including, in each case, exhibits), any Preliminary
Prospectus, the Prospectus and any amendment or supplement to the Prospectus,
all as provided in this Agreement; (d) the costs of producing and distributing
this Agreement and any other related documents in connection with the offering,
purchase, sale and delivery of the Stock; (e) the filing fees incident to
securing any required review by the National Association of Securities Dealers,
Inc. of the terms of sale of the Stock; (f) any applicable listing or other
fees; (g) the fees and expenses of qualifying the Stock under the securities
laws of the several jurisdictions as provided in Section 6(h) and of preparing,
printing and distributing a Blue Sky Memorandum (including related fees and
expenses of counsel to the Underwriters); (h) the costs of delivering and
distributing the Custody Agreements and Powers of Attorney; (i) all costs and
expenses of the Underwriters, including the fees and disbursements of counsel
for the underwriters, incident to the offer and sale of shares of the Stock by
the Underwriters to employees and persons having business relationships with the
Company and
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<PAGE>
its subsidiaries, as described in Section 4; and (j) all other costs
and expenses incident to the performance of the obligations of the Company and
the Selling Stockholders under this Agreement; PROVIDED THAT, except as provided
in this Section 8 and in Section 13 the Underwriters shall pay their own costs
and expenses, including the costs and expenses of their counsel, any transfer
taxes on the Stock which they may sell and the expenses of advertising any
offering of the Stock made by the Underwriters.
9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The respective
obligations of the Underwriters hereunder are subject to the accuracy, when made
and on each Delivery Date, of the representations and warranties of the Company
and the Selling Stockholders contained herein, to the performance by the Company
and the Selling Stockholders of their respective obligations hereunder, and to
each of the following additional terms and conditions:
(a) The Prospectus shall have been timely filed with the
Commission in accordance with Section 6(a); no stop order suspending
the effectiveness of the Registration Statement or any part thereof
shall have been issued and no proceeding for that purpose shall have
been initiated or threatened by the Commission; and any request of the
Commission for inclusion of additional information in the Registration
Statement or the Prospectus or otherwise shall have been complied with.
(b) No Underwriter shall have discovered and disclosed to the
Company on or prior to such Delivery Date that the Registration
Statement or the Prospectus or any amendment or supplement thereto
contains an untrue statement of a fact which, in the opinion of Testa,
Hurwitz & Thibeault, LLP, counsel for the Underwriters, is material or
omits to state a fact which, in the opinion of such counsel, is
material and is required to be stated therein or is necessary to make
the statements therein not misleading.
(c) All corporate proceedings and other legal matters incident
to the authorization, form and validity of this Agreement, the Custody
Agreements, the Powers of Attorney, the Stock, the Registration
Statement and the Prospectus, and all other legal matters relating to
this Agreement and the transactions contemplated hereby shall be
reasonably satisfactory in all material respects to counsel for the
Underwriters, and the Company and the Selling Stockholders shall have
furnished to such counsel all documents and information that they may
reasonably request to enable them to pass upon such matters.
(d) Dewey Ballantine LLP shall have furnished to the
Representatives its written opinion, as counsel to the Company,
addressed to the Underwriters and dated such Delivery Date, in form and
substance reasonably satisfactory to the Representatives, to the effect
that:
(i) The Company, the Operating Subsidiary and CVC Process
Solutions (the Operating Subsidiary and CVC Process
Solutions, together, the "Designated Subsidiaries") have
been duly incorporated and are validly existing as
corporations in good standing under the laws of their
respective jurisdictions of incorporation, are duly
qualified to do business and are in good standing as foreign
corporations in each jurisdiction in which their respective
ownership or lease of property or the conduct of their
respective
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<PAGE>
businesses requires such qualification except where the
failure to be so qualified or not in good standing would not
have a Material Adverse Effect and have all power and
authority necessary to own, lease or operate their
respective properties and conduct the businesses in which
they are engaged as described in the Prospectus and, to such
counsel's knowledge, the Designated Subsidiaries and
Commonwealth Scientific Corporation are the only
subsidiaries of the Company;
(ii) The Company has an authorized and issued capitalization
as set forth in the Prospectus as of the date stated
therein, and all of the issued shares of capital stock of
the Company (including the shares of Stock being delivered
by the Company on the Delivery Date) have been duly and
validly authorized and issued, are fully paid and
non-assessable, and conform, in all material respects, to
the description thereof contained in the Prospectus; all of
the issued shares of capital stock of each of the Designated
Subsidiaries of the Company have been duly and validly
authorized and issued and are fully paid, non-assessable and
to the knowledge of such counsel are owned directly or
indirectly by the Company, free and clear of all security
interests, liens, encumbrances, equities or claims;
(iii) Except as described in the Prospectus, there are no
preemptive or other rights to subscribe for or to purchase,
nor any restriction upon the voting or transfer of, any
shares of the Stock pursuant to the Company's corporate
charter or by-laws or any agreement or other instrument
required to be filed as an exhibit to the Registration
Statement;
(iv) Other than as set forth in the Prospectus, such counsel
does not know of any legal or governmental proceedings
pending or threatened, to which the Company or any of its
subsidiaries is a party or of which any property or assets
of the Company or any of its subsidiaries is the subject
that are required to be described in any Registration
Statement or the Prospectus and are not described therein;
(v) The Registration Statement was declared effective under
the Securities Act as of the date and time specified in such
opinion, the Prospectus was filed with the Commission
pursuant to the subparagraph of Rule 424(b) of the Rules and
Regulations specified in such opinion on the date specified
therein and to the knowledge of such counsel no stop order
suspending the effectiveness of the Registration Statement
has been issued and no proceeding for that purpose is
pending or threatened by the Commission;
(vi) The Registration Statement, including any Rule 462(b)
Registration Statement, and the Prospectus and any further
amendments or supplements thereto made by the Company prior
to such Delivery Date (other than the financial statements
and related schedules therein, as to which such counsel need
express no opinion) comply as to form in all material
respects with the requirements of the Securities Act and the
Rules and Regulations;
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<PAGE>
(vii) To the best of such counsel's knowledge, there are no
contracts or other documents which are required to be
described in the Prospectus or filed as exhibits to the
Registration Statement by the Securities Act or by the Rules
and Regulations which have not been described or filed as
exhibits to the Registration Statement;
(viii) This Agreement has been duly authorized, executed and
delivered by the Company;
(ix) The issue and sale of the shares of Stock being
delivered on such Delivery Date by the Company and the
compliance by the Company with all of the provisions of this
Agreement and the consummation of the transactions
contemplated hereby will not conflict with or result in a
breach or violation of any statute or any order, rule or
regulation known to such counsel of any court or
governmental agency or body having jurisdiction over the
Company or any of its Designated Subsidiaries or any of
their properties or assets (except that such counsel need
express no opposition as to state securities laws), any of
the terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument known to such counsel to which
the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries is bound or to
which any of the property or assets of the Company or any of
its subsidiaries is subject which is material to the
business of the Company and its subsidiaries, taken as a
whole, nor will such actions result in any violation of the
provisions of the charter or by-laws of the Company or any
of its subsidiaries; and, except for the registration of the
Stock under the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be
required under the Exchange Act and applicable state
securities laws or by the National Association of Securities
Dealers, Inc., no consent, approval, authorization or order
of, or filing or registration with, any such court or
governmental agency or body is required for the execution,
delivery and performance of this Agreement by the Company
and the consummation of the transactions contemplated
hereby;
(x) The information contained in the Prospectus under the
captions "Risk Factors Certain Factors May Delay or Prevent
a Change of Control Transaction," "Management Stock Option
Plans," "Management - Pension Plan," "Description of Capital
Stock" and "Shares Eligible for Future Sale" to the extent
that it constitutes matters of law, summaries of legal
matters, description of the Company's charter and by-laws or
legal proceedings, or legal conclusions are accurate and
complete in all material respects; and
(xi) To the best of such counsel's knowledge, there are no
contracts, agreements or understandings between the Company
and any person
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<PAGE>
granting such person the right (other than rights which hav
e been waived or satisfied) to require the Company to file a
registration statement under the Securities Act with respect
to any securities of the Company owned or to be owned by
such person or to require the Company to include such
securities in the securities registered pursuant to the
Registration Statement or in any securities being registered
pursuant to any other registration statement filed by the
Company under the Securities Act.
In rendering such opinion, such counsel may state that its opinion is limited
to matters governed by the Federal laws of the United States of America, the
laws of the State of New York and the General Corporation Law of the State of
Delaware and that such counsel is not admitted in the State of Delaware. Such
counsel shall also have furnished to the Representatives a written statement,
addressed to the Underwriters and dated such Delivery Date, in form and
substance satisfactory to the Representatives, to the effect that (x) such
counsel has acted as counsel to the Company in connection with certain recent
financings of the Company and the acquisition by the Company of the
Commonwealth Subsidiary (as defined below), and has acted as counsel to the
Company in connection with the preparation of the Registration Statement, and
(y) based on the foregoing, no facts have come to the attention of such
counsel which lead it to believe that the Registration Statement, as of the
Effective Date, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order
to make the statements therein not misleading, or that the Prospectus
contains any untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading when they were filed with the Commission. The foregoing
opinion and statement may be qualified by a statement to the effect that such
counsel does not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement or the
Prospectus, except as set forth in subparagraph (x) above.
(e) Hunton & Williams shall have furnished to the
Representatives its written opinion, as Virgina counsel to the
Company, addressed to the Underwriters and dated such Delivery Date,
in form and substance reasonably satisfactory to the
Representatives, to the effect that:
(i) Commonwealth Scientific Corporation (the
"Commonwealth Subsidiary") has been duly incorporated and
is validly existing as a corporation in good standing
under the laws of the State of Virginia, is duly
qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which its
ownership or lease of property or the conduct of its
business requires such qualification and has all power
and authority necessary to own, lease or operate its
properties and conduct the business in which it has
engaged;
(ii) _____________ all of the issued shares of capital
stock of he Commonwealth Subsidiary have been duly and
validly authorized nd issued, are
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<PAGE>
fully paid and non-assessable and are owned directly by
the Company, free and clear of all security interests,
liens, encumbrances, equities or claims;
(iii) To the best of such counsel's knowledge, there are
no legal or governmental proceedings pending to which the
Commonwealth Subsidiary is a party or of which any
property or assets of the Commonwealth Subsidiary is the
subject and, to the best of such counsel's knowledge, no
such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(iv) The issue and sale of the shares of Stock being
delivered on such Delivery Date by the Company and the
compliance by the Company with all of the provisions of
this Agreement and the consummation of the transactions
contemplated hereby will not conflict with or result in a
breach or violation of any of the terms or provisions of,
or constitute a default under, any indenture, mortgage,
deed of trust, loan agreement or other agreement or
instrument known to such counsel to which the
Commonwealth Subsidiary is a party or by which the
Commonwealth Subsidiary is bound or to which any of the
property or assets of the Commonwealth Subsidiary is
subject, nor will such actions result in any violation of
the provisions of the charter or by-laws of the
Commonwealth Subsidiary or any statute or any order, rule
or regulation known to such counsel of any court or
governmental agency or body having jurisdiction over the
Commonwealth Subsidiary or any of their properties or
assets;
(f) Gray Cary Ware Freidenrich LLP shall have furnished to the
Representatives its written opinion, as intellectual property counsel
to the Company, addressed to the Underwriters and dated such Delivery
Date, in form and substance reasonably satisfactory to the
Representatives, which shall include but not be limited to the
statement that such counsel is familiar with the technology used by the
Company in its business and the manner of its use thereof and has read
the Registration Statement and the Prospectus, including particularly
the portions of the Registration Statement and the Prospectus referring
to patents, trade secrets, trademarks, service marks or other
proprietary information or materials.
(g) The counsel for each of the Selling Stockholders shall
each have furnished to the Representatives its written opinion, as
counsel to the Selling Stockholder for whom it is acting as counsel,
addressed to the Underwriters and dated the First Delivery Date, in
form and substance reasonably satisfactory to the Representatives, to
the effect that:
(i) Such Selling Stockholder has full right, power and
authority to enter into this Agreement, the Power of
Attorney and the Custody Agreement; the execution,
delivery and performance of this Agreement by such
Selling Stockholder and the consummation by such Selling
Stockholder of the transactions contemplated hereby and
thereby will not conflict with or result in a breach or
violation of any of the terms or provisions of, or
constitute a default under, any statute, any indenture,
mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel to which
such Selling Stockholder is a party or by which such
Selling Stockholder is bound or to which any of the
property or assets of such Selling Stockholder is
subject, nor will such actions result in any violation of
any statute or
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<PAGE>
any order, rule or regulation known to such counsel of any
court or governmental agency or body having jurisdiction
over such Selling Stockholder or the property or assets
of such Selling Stockholder; and, except for the
registration of the Stock under the Securities Act and
such consents, approvals, authorizations, registrations
or qualifications as may be required under the Exchange
Act and applicable state securities laws in connection
with the purchase and distribution of the Stock by the
Underwriters, no consent, approval, authorization or
order of, or filing or registration with, any such court
or governmental agency or body is required for the
execution, delivery and performance of this Agreement,
the Power of Attorney or the Custody Agreement by such
Selling Stockholder and the consummation by such Selling
Stockholder of the transactions contemplated hereby and
thereby;
(ii) This Agreement has been duly executed and delivered
by or on behalf of such Selling Stockholder;
(iii) A Power-of-Attorney and a Custody Agreement have
been duly executed and delivered by such Selling
Stockholder and constitute valid and binding agreements
of such Selling Stockholder, enforceable in accordance
with their respective terms;
(iv) Immediately prior to the First Delivery Date, such
Selling Stockholder had good and valid title to the
shares of Stock to be sold by such Selling Stockholder
under this Agreement, free and clear of all liens,
encumbrances, equities or claims, and full right, power
and authority to sell, assign, transfer and deliver such
shares to be sold by such Selling Stockholder hereunder;
and
(v) Good and valid title to the shares of Stock to be
sold by such Selling Stockholder under this Agreement,
free and clear of all liens, encumbrances, equities or
claims, has been transferred to each of the several
Underwriters.
In rendering such opinion, such counsel may (i) state that its opinion
is limited to matters governed by the Federal laws of the United States
of America, the laws of the State of New York and the General
Corporation Law of the State of Delaware and that such counsel is not
admitted in the Sate of Delaware and (ii) rendering the opinion in
Section 9(g)(iv) above, rely upon a certificate of such Selling
Stockholder in respect of matters of fact as to ownership of and liens,
encumbrances, equities or claims on the shares of Stock sold by such
Selling Stockholder, PROVIDED that such counsel shall furnish copies
thereof to the Representatives and state that it believes that both the
Underwriters and it are justified in relying upon such certificate.
Such counsel shall also have furnished to the Representatives a written
statement, addressed to the Underwriters and dated the First Delivery
Date, in form and substance satisfactory to the Representatives, to the
effect that (x) such counsel has acted as counsel to such Selling
Stockholder in connection with the preparation of the Registration
Statement, and (y) based on the foregoing, no facts have come to the
attention of such counsel which lead it to believe that the
Registration Statement, as of the Effective Date, contained any untrue
statement of a material fact relating to such Selling Stockholder or
omitted to state such a material fact required to be stated therein or
necessary in order to make the statements therein not misleading, or
that the Prospectus contains any untrue
20
<PAGE>
statement of a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The
foregoing opinion and statement may be qualified by a statement to the
effect that such counsel does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus.
(f) The Representatives shall have received from Testa,
Hurwitz & Thibeault, LLP, counsel for the Underwriters, such opinion or
opinions, dated such Delivery Date, with respect to the issuance and
sale of the Stock, the Registration Statement, the Prospectus and other
related matters as the Representatives may reasonably require, and the
Company shall have furnished to such counsel such documents as they
reasonably request for the purpose of enabling them to pass upon such
matters.
(g) At the time of execution of this Agreement, the
Representatives shall have received from PricewaterhouseCoopers LLP a
letter, in form and substance satisfactory to the Representatives,
addressed to the Underwriters and dated the date hereof (i) confirming
that they are independent public accountants within the meaning of the
Securities Act and are in compliance with the applicable requirements
relating to the qualification of accountants under Rule 2-01 of
Regulation S-X of the Commission, (ii) stating, as of the date hereof
(or, with respect to matters involving changes or developments since
the respective dates as of which specified financial information is
given in the Prospectus, as of a date not more than five days prior to
the date hereof), the conclusions and findings of such firm with
respect to the financial information and other matters ordinarily
covered by accountants' "comfort letters" to underwriters in connection
with registered public offerings.
(h) With respect to the letter of PricewaterhouseCoopers LLP
referred to in the preceding paragraph and delivered to the
Representatives concurrently with the execution of this Agreement (the
"INITIAL LETTER"), the Company shall have furnished to the
Representatives a letter (the "BRING-DOWN LETTER") of such accountants,
addressed to the Underwriters and dated such Delivery Date (i)
confirming that they are independent public accountants within the
meaning of the Securities Act and are in compliance with the applicable
requirements relating to the qualification of accountants under Rule
2-01 of Regulation S-X of the Commission, (ii) stating, as of the date
of the bring-down letter (or, with respect to matters involving changes
or developments since the respective dates as of which specified
financial information is given in the Prospectus, as of a date not more
than five days prior to the date of the bring-down letter), the
conclusions and findings of such firm with respect to the financial
information and other matters covered by the initial letter and (iii)
confirming in all material respects the conclusions and findings set
forth in the initial letter.
(i) The Company shall have furnished to the Representatives a
certificate, dated such Delivery Date, of its Chairman of the Board,
its President or a Vice President and its chief financial officer
stating that:
(i) The representations, warranties and agreements of the
Company in Section 1 are true and correct as of such
Delivery Date; the Company has
21
<PAGE>
complied with all its agreements contained herein; and the
conditions set forth in Sections 9(a) and 9(k) have been
fulfilled; and
(ii) They have carefully examined the Registration Statement
and the Prospectus and, in their opinion (A) as of the
Effective Date, the Registration Statement and Prospectus
did not include any untrue statement of a material fact and
did not omit to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading, and (B) since the Effective Date no event has
occurred which should have been set forth in a supplement or
amendment to the Registration Statement or the Prospectus.
(j) Each Selling Stockholder (or the Custodian or one or more
attorneys-in-fact on behalf of the Selling Stockholders) shall have
furnished to the Representatives on the First Delivery Date a
certificate, dated the First Delivery Date, signed by, or on behalf of,
the Selling Stockholder (or the Custodian or one or more
attorneys-in-fact) stating that the representations, warranties and
agreements of the Selling Stockholder contained herein are true and
correct as of the First Delivery Date and that the Selling Stockholder
has complied with all agreements contained herein to be performed by
the Selling Stockholder at or prior to the First Delivery Date.
(k) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or contemplated in
the Prospectus or (ii) since such date there shall not have been any
change in the capital stock or long-term debt of the Company or any of
its subsidiaries or any Material Adverse Change, otherwise than as set
forth or contemplated in the Prospectus, the effect of which, in any
such case described in clause (i) or (ii), is, in the judgment of the
Representatives, so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Stock being delivered on such Delivery Date on the terms and in the
manner contemplated in the Prospectus.
(l) Subsequent to the execution and delivery of this Agreement
there shall not have occurred any of the following: (i) trading in
securities generally on the New York Stock Exchange or the American
Stock Exchange or in the over-the-counter market, or trading in any
securities of the Company on any exchange or in the over-the-counter
market, shall have been suspended or minimum prices shall have been
established on any such exchange or such market by the Commission, by
such exchange or by any other regulatory body or governmental authority
having jurisdiction, (ii) a banking moratorium shall have been declared
by Federal or state authorities, (iii) the United States shall have
become engaged in hostilities, there shall have been an escalation in
hostilities involving the United States or there shall have been a
declaration of a national emergency or war by the United States or (iv)
there shall have occurred such a material adverse change in general
economic, political or financial conditions (or the effect of
international conditions on the financial markets in the United States
shall be such) as to make it, in the judgment of a majority in interest
of the
22
<PAGE>
several Underwriters, impracticable or inadvisable to proceed with the
public offering or delivery of the Stock being delivered on such
Delivery Date on the terms and in the manner contemplated in the
Prospectus.
(m) The Nasdaq National Market System shall have approved the
Stock for inclusion, subject only to official notice of issuance.
All opinions, letters, evidence and certificates mentioned
above or elsewhere in this Agreement shall be deemed to be in
compliance with the provisions hereof only if they are in form and
substance reasonably satisfactory to counsel for the Underwriters.
10. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company and the Operating Subsidiary, jointly and
severally, shall indemnify and hold harmless each Underwriter, its
officers and employees and each person, if any, who controls any
Underwriter within the meaning of the Securities Act, from and against
any loss, claim, damage or liability, joint or several, or any action
in respect thereof (including, but not limited to, any loss, claim,
damage, liability or action relating to purchases and sales of Stock),
to which that Underwriter, officer, employee or controlling person may
become subject, under the Securities Act or otherwise, insofar as such
loss, claim, damage, liability or action arises out of, or is based
upon, (i) any untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus or in any amendment or supplement thereto,
(ii) the omission or alleged omission to state in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or in any
amendment or supplement thereto, any material fact required to be
stated therein or necessary to make the statements therein not
misleading or (iii) any act or failure to act or any alleged act or
failure to act by any Underwriter in connection with, or relating in
any manner to, the Stock or the offering contemplated hereby, and which
is included as part of or referred to in any loss, claim, damage,
liability or action arising out of or based upon matters covered by
clause (i) or (ii) above (PROVIDED THAT neither the Company nor the
Operating Subsidiary shall be liable under this clause (iii) to the
extent that it is determined in a final judgment by a court of
competent jurisdiction that such loss, claim, damage, liability or
action resulted from any such acts or failures to act undertaken or
omitted to be taken by such Underwriter through its gross negligence or
willful misconduct), and shall reimburse each Underwriter and each such
officer, employee or controlling person promptly upon demand for any
legal or other expenses reasonably incurred by that Underwriter,
officer, employee or controlling person in connection with
investigating or defending or preparing to defend against any such
loss, claim, damage, liability or action as such expenses are incurred;
PROVIDED, HOWEVER, that neither the Company nor the Operating
Subsidiary shall be liable in any such case to the extent that any such
loss, claim, damage, liability or action arises out of, or is based
upon, any untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or in any such amendment or supplement, in
reliance upon and in conformity with written information concerning
such Underwriter furnished to the Company through the Representatives
by or on behalf of any Underwriter specifically for inclusion therein,
which information consists solely of the information specified in
Section 10(f); and PROVIDED, FURTHER, that the neither
23
<PAGE>
the Company nor the Operating Subsidiary shall be liable to any
Underwriter under the indemnity agreement in this subsection with
respect to any Preliminary Prospectus to the extent that any such
loss, claim, damage, liability or any action in respect thereof of
such Underwriter results from the fact that such Underwriter sold
Stock to a person as to whom it shall be established that there was
not sent or given, at or prior to the written confirmation of such
sale, a copy of the Prospectus or of the Prospectus as then amended or
supplemented in any case where such delivery is required by the
Securities Act if the Company has previously furnished copies thereof
in sufficient quantity to such Underwriter and the loss, claim, damage
or liability of such Underwriter results from an untrue statement or
omission of a material fact contained in the Preliminary Prospectus
which was (i) identified to such Underwriter at or prior to the
earlier of the filing with the Commission or the furnishing to such
Underwriter of the Prospectus and (ii) corrected in the Prospectus or
in the Prospectus as then amended or supplemented. The foregoing
indemnity agreement is in addition to any liability which the Company
may otherwise have to any Underwriter or to any officer, employee or
controlling person of that Underwriter.
(b) The Selling Stockholders, severally in proportion to the
number of shares of stock to be sold by each of them hereunder, shall
indemnify and hold harmless each Underwriter, its officers and
employees, and each person, if any, who controls any Underwriter within
the meaning of the Securities Act, from and against any loss, claim,
damage or liability, joint or several, or any action in respect thereof
(including, but not limited to, any loss, claim, damage, liability or
action relating to purchases and sales of Stock), to which that
Underwriter, officer, employee or controlling person may become
subject, under the Securities Act or otherwise, insofar as such loss,
claim, damage, liability or action arises out of, or is based upon, (i)
any untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or
the Prospectus or in any amendment or supplement thereto or (ii) the
omission or alleged omission to state in any Preliminary Prospectus,
Registration Statement or the Prospectus, or in any amendment or
supplement thereto, any material fact required to be stated therein or
necessary to make the statements therein not misleading, and shall
reimburse each Underwriter, its officers and employees and each such
controlling person for any legal or other expenses reasonably incurred
by that Underwriter, its officers and employees or controlling person
in connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as such
expenses are incurred; PROVIDED, HOWEVER, that the Selling Stockholders
shall not be liable in any such case to the extent that any such loss,
claim, damage, liability or action arises out of, or is based upon, any
untrue statement or alleged untrue statement or omission or alleged
omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or in any such amendment or supplement in reliance
upon and in conformity with written information concerning such
Underwriter furnished to the Company through the Representatives by or
on behalf of any Underwriter specifically for inclusion therein which
information consists solely of the information specified in Section
10(f) and PROVIDED, FURTHER, that the obligations of each Selling
Stockholder hereunder shall be limited to an amount equal to the
proceeds to such Selling Stockholder of Stock sold as contemplated
herein. The foregoing indemnity agreement is in addition to any
liability which the Selling Stockholders may otherwise have to any
Underwriter or any officer, employee or controlling person of that
Underwriter.
24
<PAGE>
(c) Each Underwriter, severally and not jointly, shall
indemnify and hold harmless the Company, its officers and employees,
each of its directors (including any person who, with his or her
consent, is named in the Registration Statement as about to become a
director of the Company), the Operating Subsidiary and each person, if
any, who controls the Company or the Operating Subsidiary within the
meaning of the Securities Act, from and against any loss, claim, damage
or liability, joint or several, or any action in respect thereof, to
which the Company, the Operating Subsidiary or any such director,
officer or controlling person may become subject, under the Securities
Act or otherwise, insofar as such loss, claim, damage, liability or
action arises out of, or is based upon, (i) any untrue statement or
alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus or
in any amendment or supplement thereto, or (ii) the omission or alleged
omission to state in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or in any amendment or supplement thereto,
or in any Blue Sky Application any material fact required to be stated
therein or necessary to make the statements therein not misleading, but
in each case only to the extent that the untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information concerning such
Underwriter furnished to the Company through the Representatives by or
on behalf of that Underwriter specifically for inclusion therein, and
shall reimburse the Company, the Operating Subsidiary, and any such
director, officer or controlling person for any legal or other expenses
reasonably incurred by the Company, the Operating Subsidiary or any
such director, officer or controlling person in connection with
investigating or defending or preparing to defend against any such
loss, claim, damage, liability or action as such expenses are incurred.
The foregoing indemnity agreement is in addition to any liability which
any Underwriter may otherwise have to the Company or any such director,
officer, employee or controlling person.
(d) Promptly after receipt by an indemnified party under this
Section 10 of notice of any claim or the commencement of any action,
the indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party under this Section 10, notify the
indemnifying party in writing of the claim or the commencement of that
action; PROVIDED, HOWEVER, that the failure to notify the indemnifying
party shall not relieve it from any liability which it may have under
this Section 10 except to the extent it has been materially prejudiced
by such failure and, PROVIDED FURTHER, that the failure to notify the
indemnifying party shall not relieve it from any liability which it may
have to an indemnified party otherwise than under this Section 10. If
any such claim or action shall be brought against an indemnified party,
and it shall notify the indemnifying party thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that
it wishes, jointly with any other similarly notified indemnifying
party, to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume
the defense of such claim or action, the indemnifying party shall not
be liable to the indemnified party under this Section 10 for any legal
or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof other than reasonable costs of
investigation. PROVIDED, HOWEVER, that the Representatives shall have
the right to employ counsel to represent jointly the Representatives
and those other Underwriters and their respective
25
<PAGE>
officers, employees and controlling persons who may be subject to
liability arising out of any claim in respect of which indemnity may
be sought by the Underwriters against the Company, the Operating
Subsidiary or any Selling Stockholder under this Section 10 if, in the
reasonable judgment of the Representatives, it is advisable for the
Representatives and those Underwriters, officers, employees and
controlling persons to be jointly represented by separate counsel, and
in that event the fees and expenses of such separate counsel shall be
paid by the Company, the Operating Subsidiary or Selling Stockholders,
as the case may be. No indemnifying party shall (i) without the prior
written consent of the indemnified parties (which consent shall not be
unreasonably withheld), settle or compromise or consent to the entry
of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified
parties are actual or potential parties to such claim or action)
unless such settlement, compromise, consent or judgment (A) includes
an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding, and (B) does
not include a statement as to or an admission of fault, culpability or
failure to act by or on behalf of any indemnified party, or (ii) be
liable for any settlement of any such action effected without its
written consent (which consent shall not be unreasonably withheld),
but if settled with the consent of the indemnifying party or if there
be a final judgment for the plaintiff in any such action, the
indemnifying party agrees to indemnify and hold harmless any
indemnified party from and against any loss or liability by reason of
such settlement or judgment.
(e) If the indemnification provided for in this Section 10
shall for any reason be unavailable to or insufficient to hold harmless
an indemnified party under Section 10(a), 10(b) or 10(c) in respect of
any loss, claim, damage or liability, or any action in respect thereof,
referred to therein, then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or
payable by such indemnified party as a result of such loss, claim,
damage or liability, or action in respect thereof, (i) in such
proportion as shall be appropriate to reflect the relative benefits
received by the Company, the Operating Subsidiary and the Selling
Stockholders on the one hand and the Underwriters on the other hand
from the offering of the Stock or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion
as is appropriate to reflect not only the relative benefits referred to
in clause (i) above but also the relative fault of the Company, the
Operating Subsidiary and the Selling Stockholders on the one hand and
the Underwriters on the other hand with respect to the statements or
omissions which resulted in such loss, claim, damage or liability, or
action in respect thereof, as well as any other relevant equitable
considerations. The relative benefits received by the Company, the
Operating Subsidiary and the Selling Stockholders on the one hand and
the Underwriters on the other hand with respect to such offering shall
be deemed to be in the same proportion as the total net proceeds from
the offering of the Stock purchased under this Agreement (before
deducting expenses) received by the Company, the Operating Subsidiary
and the Selling Stockholders, on the one hand, and the total
underwriting discounts and commissions received by the Underwriters
with respect to the shares of the Stock purchased under this Agreement,
on the other hand, bear to the total gross proceeds from the offering
of the shares of the Stock under this Agreement, in each case as set
forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to whether the untrue or alleged
untrue statement of a material fact
26
<PAGE>
or omission or alleged omission to state a material fact relates to
information supplied by the Company, the Operating Subsidiary and the
Selling Stockholders on the one hand or the Underwriters on the other
hand, the intent of the parties and their relative knowledge, access
to information and opportunity to correct or prevent such statement or
omission. The Company, the Operating Subsidiary, the Selling
Stockholders and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 10 were to be
determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of
allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an
indemnified party as a result of the loss, claim, damage or liability,
or action in respect thereof, referred to above in this Section 10
shall be deemed to include, for purposes of this Section 10(d), any
legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or
claim. Notwithstanding the provisions of this Section 10(d), no
Underwriter shall be required to contribute any amount in excess of
the amount by which the total price at which the Stock underwritten by
it and distributed to the public was offered to the public exceeds the
amount of any damages which such Underwriter has otherwise paid or
become liable to pay by reason of any untrue or alleged untrue
statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute as provided in this Section
10(e) are several in proportion to their respective underwriting
obligations and not joint.
(f) The Underwriters severally confirm that the following
statements are correct and constitute the only information concerning
such Underwriters furnished in writing to the Company by or on behalf
of the Underwriters specifically for inclusion in the Registration
Statement and the Prospectus: (i) the statements with respect to the
public offering of the Stock by the Underwriters set forth on the cover
page of the Prospectus and (ii) the statements concerning concessions,
allowances and reallowances and stabilization and over-allotment set
forth under the caption "Underwriting" in the Prospectus.
11. DEFAULTING UNDERWRITERS.
If, on either Delivery Date, any Underwriter defaults in the
performance of its obligations under this Agreement, the remaining
non-defaulting Underwriters shall be obligated to purchase the Stock which the
defaulting Underwriter agreed but failed to purchase on such Delivery Date in
the respective proportions which the number of shares of the Firm Stock set
opposite the name of each remaining non-defaulting Underwriter in Schedule 1
hereto bears to the total number of shares of the Firm Stock set opposite the
names of all the remaining non-defaulting Underwriters in Schedule 1 hereto;
PROVIDED, HOWEVER, that the remaining non-defaulting Underwriters shall not be
obligated to purchase any of the Stock on such Delivery Date if the total number
of shares of the Stock which the defaulting Underwriter or Underwriters agreed
but failed to purchase on such date exceeds 9.09% of the total number of shares
of the Stock to be purchased on such Delivery Date, and any remaining
non-defaulting Underwriter shall not be obligated to purchase more than 110% of
the number of shares of the Stock which it agreed to purchase on such Delivery
Date pursuant to
27
<PAGE>
the terms of Section 2. If the foregoing maximums are exceeded, the remaining
non-defaulting Underwriters, or those other underwriters satisfactory to the
Representatives who so agree, shall have the right, but shall not be obligated,
to purchase, in such proportion as may be agreed upon among them, all the Stock
to be purchased on such Delivery Date. If the remaining Underwriters or other
underwriters satisfactory to the Representatives do not elect to purchase the
shares which the defaulting Underwriter or Underwriters agreed but failed to
purchase on such Delivery Date, this Agreement (or, with respect to the
Subsequent Delivery Date, the obligation of the Underwriters to purchase, and of
the Selling Stockholders to sell, the Option Stock) shall terminate without
liability on the part of any non-defaulting Underwriter or the Company or the
Selling Stockholders, except that the Company will continue to be liable for the
payment of expenses to the extent set forth in Sections 8 and 13. As used in
this Agreement, the term "UNDERWRITER" includes, for all purposes of this
Agreement unless the context requires otherwise, any party not listed in
Schedule 1 hereto who, pursuant to this Section 11, purchases Firm Stock which a
defaulting Underwriter agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting
Underwriter of any liability it may have to the Company and the Selling
Stockholders for damages caused by its default. If other underwriters are
obligated or agree to purchase the Stock of a defaulting or withdrawing
Underwriter, either the Representatives or the Company may postpone the Delivery
Date for up to seven full business days in order to effect any changes that in
the opinion of counsel for the Company or counsel for the Underwriters may be
necessary in the Registration Statement, the Prospectus or in any other document
or arrangement.
12. TERMINATION. The obligations of the Underwriters hereunder
may be terminated by the Representatives by notice given to and received by the
Company and the Selling Stockholders prior to delivery of and payment for the
Firm Stock if, prior to that time, any of the events described in Sections 9(k)
or 9(l) shall have occurred or if the Underwriters shall decline to purchase the
Stock for any reason permitted under this Agreement.
13. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If (a) the
Company or any Selling Stockholder shall fail to tender the Stock for delivery
to the Underwriters by reason of any failure, refusal or inability on the part
of the Company or the Selling Stockholders to perform any agreement on its part
to be performed, or because any other condition of the Underwriters' obligations
hereunder required to be fulfilled by the Company is not fulfilled, the Company
and the Selling Stockholders will reimburse the Underwriters for all reasonable
out-of-pocket expenses (including fees and disbursements of counsel) incurred by
the Underwriters in connection with this Agreement and the proposed purchase of
the Stock, and upon demand the Company and the Selling Stockholders shall pay
the full amount thereof to the Representatives. If this Agreement is terminated
pursuant to Section 12 by reason of the default of one or more Underwriters,
neither the Company nor any Selling Stockholder shall be obligated to reimburse
any defaulting Underwriter on account of those expenses.
14. NOTICES, ETC. All statements, requests, notices and
agreements hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by
mail, telex or fax to Lehman Brothers Inc., Three World
Financial Center, New York, New York 10285,
28
<PAGE>
Attention: Syndicate Department (Fax: 212-526-6588), with a
copy, in the case of any notice pursuant to Section 10(d),
to the Director of Litigation, Office of the General
Counsel, Lehman Brothers Inc., 3 World Financial Center,
10th Floor, New York, NY 10285; and
(b) if to the Company, shall be delivered or sent by mail,
telex or fax to the address of the Company set forth in the
Registration Statement, Attention: President (Fax:
716-458-0426);
(c) if to any Selling Stockholders, shall be delivered or sent
by mail, telex or facsimile transmission to such Selling
Stockholder at the address set forth on Schedule 2 hereto.
PROVIDED, HOWEVER, that any notice to an Underwriter pursuant to Section 11(d)
shall be delivered or sent by mail, telex or fax to such Underwriter at its
address set forth in its acceptance telex to the Representatives, which address
will be supplied to any other party hereto by the Representatives upon request.
Any such statements, requests, notices or agreements shall take effect at the
time of receipt thereof. The Company and the Selling Stockholders shall be
entitled to act and rely upon any request, consent, notice or agreement given or
made on behalf of the Underwriters by Lehman Brothers Inc. on behalf of the
Representatives and the Company and the Underwriters shall be entitled to act
and rely upon any request, consent, notice or agreement given or made on behalf
of the Selling Stockholders by the Custodian.
15. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement
shall inure to the benefit of and be binding upon the Underwriters, the Company,
the Selling Stockholders and their respective personal representatives and
successors. This Agreement and the terms and provisions hereof are for the sole
benefit of only those persons, except that (A) the representations, warranties,
indemnities and agreements of the Company and the Selling Stockholders contained
in this Agreement shall also be deemed to be for the benefit of the person or
persons, if any, who control any Underwriter within the meaning of Section 15 of
the Securities Act and (B) the indemnity agreement of the Underwriters contained
in Section 10(c) of this Agreement shall be deemed to be for the benefit of
directors of the Company, officers of the Company who have signed the
Registration Statement and any person controlling the Company within the meaning
of Section 15 of the Securities Act. Nothing in this Agreement is intended or
shall be construed to give any person, other than the persons referred to in
this Section 15, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
16. SURVIVAL. The respective indemnities, representations,
warranties and agreements of the Company, the Selling Stockholders and the
Underwriters contained in this Agreement or made by or on behalf on them,
respectively, pursuant to this Agreement, shall survive the delivery of and
payment for the Stock and shall remain in full force and effect, regardless of
any investigation made by or on behalf of any of them or any person controlling
any of them.
17. DEFINITION OF THE TERMS "BUSINESS DAY" AND "SUBSIDIARY".
For purposes of this Agreement, (a) "BUSINESS DAY" means each Monday, Tuesday,
Wednesday, Thursday or Friday which is not a day on which banking institutions
in New York are generally authorized or obligated
29
<PAGE>
by law or executive order to close and (b) "SUBSIDIARY" has the meaning set
forth in Rule 405 of the Rules and Regulations.
18. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF NEW YORK.
19. COUNTERPARTS. This Agreement may be executed in one or
more counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
20. HEADINGS. The headings herein are inserted for convenience
of reference only and are not intended to be part of, or to affect the meaning
or interpretation of, this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
30
<PAGE>
If the foregoing correctly sets forth the agreement between
the Company, the Selling Stockholders and the Underwriters, please indicate your
acceptance in the space provided for that purpose below.
Very truly yours,
CVC, INC.
By
----------------------------
[TITLE]
CVC PRODUCTS, INC.
By:
----------------------------
[TITLE}
The Selling Stockholders named in
Schedule 2 to this
By:
----------------------------
Attorney in Fact
Accepted:
LEHMAN BROTHERS INC.
PRUDENTIAL SECURITIES INCORPORATED
SG COWEN SECURITIES CORPORATION
WARBURG DILLON READ LLC
For themselves and as Representatives
of the several Underwriters named
in Schedule 1 hereto
By LEHMAN BROTHERS INC.
By
----------------------------
AUTHORIZED REPRESENTATIVE
31
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Number of Shares of Firm
Stock To Be
UNDERWRITER PURCHASED
- -------------------------------------- -----------------------------
<S> <C>
Lehman Brothers Inc.
Prudential Securities Incorporated
SG Cowen Securities Corporation
Warburg Dillon Read LLC
------------
Total 3,500,000
------------
------------
</TABLE>
32
<PAGE>
SCHEDULE 2
<TABLE>
<CAPTION>
Number of Shares
NAME AND ADDRESS OF SELLING STOCKHOLDER of Firm Stock
- ---------------------------------------- -----------------
<S> <C>
Anne C. Whitman 300,000
c/o CVC, Inc.
525 Lee Road
Rochester, NY 14606
George R. Thompson 200,000
c/o CVC, Inc.
525 Lee Road
Rochester, NY 14606
Total.............................................
--------------
</TABLE>
33
<PAGE>
<PAGE>
Exhibit 3.1.1
CERTIFICATE OF AMENDMENT TO
RESTATED CERTIFICATE OF INCORPORATION OF
CVC, INC.
CVC, Inc., a corporation organized and existing under the laws of the
State of Delaware (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is CVC, Inc.
2. The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of the State of Delaware on October 19, 1990.
Such certificate was amended and restated pursuant to a Restated Certificate of
Incorporation of the Corporation filed with the Secretary of State of the State
of Delaware on May 18, 1995, which such Restated Certificate of Incorporation
was subsequently amended pursuant to a Certificate of Amendment filed with the
Secretary of State of the State of Delaware on March 14, 1996, further amended
pursuant to a Certificate of Amendment filed with the Secretary of the State of
Delaware on October 15, 1997, further amended pursuant to a Certificate of
Amendment filed with the Secretary of the State of Delaware on December 10,
1998, and subsequently amended pursuant to a Certificate of Amendment filed with
the Secretary of the State of Delaware on April 20, 1999.
3. The Amended and Restated Certificate of Incorporation is hereby
further amended as follows:
A. Article IV shall be amended to include the following text
immediately preceding the first sentence of paragraph (a):
Effective immediately upon the filing of this Amendment to the
Certificate of Incorporation in the office of the Secretary of State of
the State of Delaware, the outstanding shares of Common Stock shall be
and hereby are combined and reclassified as follows: each three shares
of Common Stock shall be reclassified as and converted into two shares
of Common Stock; provided, however, that fractional shares of Common
Stock will not be issued in connection with such combination and
reclassification, and each holder of a fractional share of Common Stock
shall receive in lieu thereof, a cash payment in an amount equal to
such fractional interest multiplied by the fair market value of a share
of the Common Stock as of the date of effectiveness of this Amendment.
For purposes hereof, such fair market value shall be equal to the per
share initial public offering price of the Common Stock as set forth in
the Corporation's registration statement (File No. 333-38057) filed
with the U.S. Securities and Exchange Commission. Until surrendered for
new certificates representing the number of whole shares of Common
Stock after the
<PAGE>
reverse stock split, each current certificate representing shares of
Common Stock will be deemed for all corporate purposes to evidence
ownership of Common Stock in the appropriately reduced whole number of
shares.
B. The last sentence of paragraph (b) of Article IV, Section 3 shall be
amended to read as follows:
"Qualified Public Offering" is defined to mean the closing of an
underwritten public offering by the Company pursuant to a registration
statement filed and declared effective under the Act covering the offer
and sale of Common Stock for the account of the Company in which the
aggregate net proceeds to the Company equal at least $20,000,000.
C. The first sentence of paragraph (c) of Article IV, Section 4 shall
be amended to read as follows:
Each share of the Series A Preferred and Series B Preferred shall
automatically be converted into shares of Common Stock at the then
effective Series A Conversion Price and Series B Conversion Price, as
applicable, immediately prior to the closing of a Qualified Public
Offering with aggregate gross proceeds to the Corporation of not less
than Ten Million Dollars ($10,000,000), before deduction of
underwriting discounts and commissions and registration expenses.
<PAGE>
IN WITNESS WHEREOF, CVC, Inc. has caused this Certificate to be signed
by Christine B. Whitman, Chairman of the Board, President and Chief Executive
Officer, this __ day of _______, 1999.
CVC, INC.
--------------------------------------
Christine B. Whitman,
Chairman of the Board, President and
Chief Executive Officer
<PAGE>
State of Delaware PAGE 1
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "CVC, INC.", FILED IN THIS OFFICE ON THE TWENTIETH DAY OF APRIL, A.D. 1999,
AT 11 O'CLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
[SEAL]
AUTHENTICATION: 9697764
DATE: 04-21-99
<PAGE>
CERTIFICATE OF AMENDMENT TO
RESTATED CERTIFICATE OF INCORPORATION OF
CVC, INC.
CVC, Inc., a corporation organized and existing under the laws of the
State of Delaware (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is CVC, Inc.
2. The original Certificate of Incorporation of the Corporation was filed
with the Secretary of State of the State of Delaware on October 19, 1990. Such
certificate was amended pursuant to a Restated Certificate of Incorporation of
the Corporation filed with the Secretary of State of the State of Delaware on
May 18, 1995, which such Restated Certificate of Incorporation was subsequently
amended pursuant to a Certificate of Amendment filed with the Secretary of State
of the State of Delaware on March 14, 1996, further amended pursuant to a
Certificate of Amendment filed with the Secretary of the State of Delaware on
October 15, 1997 and subsequently amended pursuant to a Certificate of Amendment
filed with the Secretary of the State of Delaware on December 10, 1998.
3. The Amended and Restated Certificate of Incorporation is hereby further
amended as follows:
A. Article IV shall be amended to include the following immediately after
Section 4 of Article IV:
Section 5. Voting Rights and Directors.
(a) Except as otherwise provided herein or required by law, the
holder of each share of Common Stock issued and outstanding shall have one vote
with respect to such share and the holder of each share of Preferred Stock shall
be entitled with respect to such share to a number of votes equal to the number
of shares of Common Stock into which such share of Preferred Stock could be
converted at the record date for determination of the stockholders entitled to
vote on such matters, or, if no such record date is established, at the date
such vote is taken or any written consent of stockholders is solicited, such
votes to be counted together with all other shares of stock of the Company
having general voting power and not separately as a class (except as required by
Section 5(b) below or the General Corporation Law of Delaware). Holders of
Common Stock and Preferred Stock shall be entitled to notice of any
stockholders' meeting in accordance with the Bylaws of the Corporation.
Fractional votes by the holders of Preferred Stock shall not, however, be
permitted and any fractional voting rights shall (after aggregating all shares
into which shares of Preferred Stock held by each holder could be converted) be
rounded to the nearest whole number.
Page 1 of 3
<PAGE>
(b) The Board of Directors of the Corporation shall consist of not
less than three (3) members, the exact number to be fixed from time to time
solely by resolution of the Board of Directors acting by not less than a
majority of the directors then in office. The holders of the Series B Preferred,
voting separately as a class, shall be entitled to elect two (2) members of the
Board of Directors. The holders of Common Stock and Series A Preferred, voting
together, shall be entitled to elect five members of the Board of Directors. At
any meeting held for the purpose of electing or removing directors, (i) the
presence in person or by proxy of the holders of the majority of the shares of
Series B Preferred then outstanding shall constitute a quorum of the Series B
Preferred for the purpose of electing or removing directors by holders of the
Series B Preferred and (ii) the presence in person or by proxy of the holders of
a majority of shares of Common Stock and Series A Preferred (on an as converted
into Common Stock basis) then outstanding shall constitute a quorum of Common
Stock and Series A Preferred for the purpose of electing or removing directors
by holders of Common Stock and Series A Preferred. A vacancy in any directorship
elected by the holders of the Series B Preferred shall be filled only by vote or
written consent in lieu of a meeting of the holders of the Series B Preferred. A
vacancy in any directorship elected by the holders of Common Stock and Series A
Preferred shall be filled only by vote or written consent in lieu of a meeting
of the holders of Common Stock and the Series A Preferred. Any member of the
Board of Directors elected by the holders of the Series B Preferred may only be
removed by the vote of the holders of not less than a majority of the shares of
Series B Preferred voting thereon. Any member of the Board of Directors elected
by the holders of Common Stock and Series A Preferred may only be removed by the
vote of the holders of not less than a majority of the shares of Common Stock
and Series A Preferred (on an as converted into Common Stock basis) voting
thereon.
(c) At all elections of members of the Board of Directors of the
Corporation, if any holder of stock of this Corporation entitled to vote at an
election shall have given the Corporation written notice of its intention to
cumulate his or her votes for the election of members of the Board of Directors
prior to commencement of the voting for such members, then each holder entitled
to vote for members of the Board of Directors shall be entitled to as many votes
as shall equal the number of votes which (except for this provision as to
cumulative voting) such holder would be entitled to cast for the election of
directors with respect to his or her shares of stock multiplied by the number of
directors to be elected by such holder either (i) by casting all such holder's
votes for a single director or (ii) by distributing such holder's votes among
the number of directors to be voted for, or for any two or more of them as such
holder may see fit.
Section 6. No Reissuance of Series B Preferred. No share or shares
of Series B Preferred acquired by the Corporation by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all such shares shall
be canceled, returned and eliminated from the shares which the Corporation shall
be authorized to issue.
Page 2 of 3
<PAGE>
IN WITNESS WHEREOF, CVC, INC. has caused this Certificate to be
signed by Christine B. Whitman, its President, this 20 day of April, 1999.
CVC, Inc.
/s/ Christine B. Whitman
-------------------------------------
Christine B. Whitman
President and Chief Executive Officer
Page 3 of 3
<PAGE>
State of Delaware
Office of the Secretary of State PAGE 1
-------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "CVC, INC.", FILED IN THIS OFFICE ON THE TENTH DAY OF DECEMBER, A.D. 1998, AT
11 O'CLOCK A.M.
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
[SEAL] AUTHENTICATION: 9673169
DATE: 04-07-99
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 11:00 AM 12/10/1998
981474583 -- 2244345
CERTIFICATE OF AMENDMENT TO
RESTATED CERTIFICATE OF INCORPORATION
CVC, INC.
(Pursuant to Section 242)
CVC, Inc., a corporation organized and existing under the laws of the
State of Delaware (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is CVC, Inc.
2. The original Certificate of Incorporation of the Corporation was filed
with the Secretary of State of the State of Delaware on October 19, 1990. Such
certificate was amended pursuant to a Restated Certificate of Incorporation of
the Corporation filed with the Secretary of State of the State of Delaware on
May 18, 1995, which was subsequently amended pursuant to a Certificate of
Amendment filed with the Secretary of State of the State of Delaware on October
15, 1997.
3. This Amended and Restated Certificate of Incorporation is hereby
further amended as follows:
A. Article IV shall be deleted and replaced in its entirety with the
following:
"Article IV
(a) The Corporation is authorized to issue two classes of stock,
designated "Common Stock" and "Preferred Stock." The total number of shares
which the Corporation is authorized to issue is 50,502,500 The total number of
shares of Common Stock which the Corporation is authorized to issue is
50,000,000, par value $.01 per share. The total number of shares of Preferred
Stock which the Corporation is authorized to issue is 502,500, par value $.01
per share, of which (i) 2,500 shares, $.01 par value per share, shall be
designated "8% Non-Cumulative Convertible Preferred Stock" (the "Series A
Preferred"), (ii) 100,000 shares, $.01 par value per share, shall be designated
"Series B Non-Cumulative Convertible Preferred Stock" (the "Series B
Preferred"), (iii) 200,000 shares, $.01 par value per share, shall be designated
"Series C Senior Convertible Redeemable Preferred Stock" (the "Series C
Preferred"), and (iv) 200,000 shares, $.01 par value par share, shall be
designated "Series D Redeemable Preferred Stock" (the "Series D Preferred"). The
Series A Preferred, the Series B Preferred, the Series C Preferred and the
Series D Preferred shall collectively be referred to as the "Preferred Stock."
The Corporation shall from time to time in accordance with the laws of the
State of Delaware increase the authorized amount of its Common Stock if at any
time the number of shares of Common Stock remaining unissued and available for
issuance shall not be sufficient to permit conversion of the Preferred Stock.
<PAGE>
The relative rights, preferences, privileges and restrictions granted to
or imposed upon the Preferred Stock and the Common Stock or the holders thereof
are as follows:
Section 1. Dividends. The holders of the Preferred Stock shall be entitled
to receive, when and as declared by the Board of Directors, dividends at the
rate of $80.00 per share for Series A Preferred, $11.90 per share for Series B
Preferred and $8.00 per share for Series C Preferred (in each case as adjusted
for any stock splits, stock dividends, recapitalization and the like with
respect to such shares) per annum as the Board of Directors may from time to
time determine out of funds legally available therefor. No dividends shall be
paid on the Series A Preferred during any fiscal year of the Corporation until
dividends in the total amount of $11.90 per share on the Series B Preferred
shall have been paid or declared and set apart during that fiscal year. No
dividends shall be paid on the Series A Preferred and Series B Preferred during
any fiscal year of the Corporation until dividends in the total amount of $8.00
per share on the Series C Preferred shall have been paid or declared and set
apart during that fiscal year. No dividends (other than those payable solely in
the Common Stock of the Corporation) shall be paid on any Common Stock of the
Corporation during any fiscal year of the Corporation until dividends in the
total amount of $80.00 per share of Series A Preferred, $11.90 per share of
Series B Preferred and $8.00 per share of Series C Preferred (in each case as
adjusted for any stock splits, stock dividends, recapitalization and the like
with respect to such shares) shall have been paid or declared and set apart
during that fiscal year. The right to such dividends on shares of Preferred
Stock shall not be cumulative, and no right shall accrue to holders of Preferred
Stock by reason of the fact that dividends on said shares are not declared in
any prior year.
After payment of such dividends to the holders of the Preferred Stock, any
additional dividends declared shall be distributed among all the holders of the
Common Stock.
Section 2. Liquidation Preference. In the event of a Liquidity Event (as
hereinafter defined), before any distribution or payment may be made with
respect to the Common Stock or any other series or class of capital stock
ranking on liquidation junior to the Preferred Stock, holders of each share of
Preferred Stock shall be entitled to be paid out of the assets of the
Corporation available for distribution to holders of the Corporation's capital
stock of all classes, whether such assets are capital, surplus, or capital
earnings, as follows:
(a) The holders of the Series C Preferred or Series D Preferred
shall be entitled to receive, prior and in preference to any distribution of any
of the assets or surplus funds of the Corporation to the holders of the Series A
Preferred, Series B Preferred and Common Stock, by reason of their ownership of
such stock, the amount equal to the sum of (i) $100.00 per share for each share
of Series C Preferred (as adjusted for stock splits, stock dividends,
recapitalizations and the like with respect to such stock) (the "Liquidation
Cash Payment"), (ii) an amount equal to all declared, but unpaid dividends or
distributions on the Series C Preferred and (iii) if the Series C Preferred has
not been converted in accordance with Section 4(b) or 4(d), the number of shares
of
<PAGE>
Common Stock issuable upon conversion of such shares of Series C Preferred had
such Series C Preferred been converted into shares of Series D Preferred and
Common Stock immediately prior to such Liquidity Event. If the assets and funds
thus distributed among the holders of the Series C Preferred or Series D
Preferred pursuant to this Section 2(a) shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amount, then the
entire assets and funds of the Corporation legally available for distribution
shall be distributed ratably among the holders of the Series C Preferred or
Series D Preferred in proportion to the preferential amount that each such
holder is otherwise entitled to receive.
(b) The holders of the Series B Preferred shall be entitled to
receive, prior and in preference to any distribution of any of the assets or
surplus funds of the Corporation to the holders of the Series A Preferred and
the Common Stock by reason of their ownership of such stock, the amount equal to
the sum of (i) $148.78 per share for each share of Series B Preferred (as
adjusted for stock splits, stock dividends, recapitalization and the like with
respect to such stock), and (ii) an amount equal to all declared but unpaid
dividends or distributions on the Series B Preferred. If the assets and funds
thus distributed among the holders of the Series B Preferred pursuant to this
Section 2(b) shall be insufficient to permit the payment to such holders of the
full aforesaid preferential amount, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of the Series B Preferred in proportion to the preferential
amount that each such holder is otherwise entitled to receive.
(c) After payment has been made to the holders of the Series C
Preferred and the Series B Preferred of the full amounts to which they shall be
entitled as set forth in the first sentence of Section 2(a) and Section 2(b),
respectively, then the holders of the Series A Preferred shall be entitled to
receive the amount equal to the sum of (i) $1,000 per share for each share of
Series A Preferred then held by them (as adjusted for stock splits, stock
dividends, recapitalization and the like with respect to such stock), and (ii)
an amount equal to declared but unpaid dividends or distributions on the Series
A Preferred. If the assets and funds thus distributed among the holders of the
Series A Preferred pursuant to this Section 2(c) shall be insufficient to permit
the payment to such holders of the full aforesaid preferential amount, then the
entire assets and funds of the Corporation legally available for distribution
pursuant to this Section 2(c) shall be distributed ratably among the holders of
the Series A Preferred in proportion to the preferential amount that each such
holder is otherwise entitled to receive.
(d) After payment has been made to the holders of the Preferred
Stock of the full amounts to which they shall be entitled as set forth in
Section 2(a) through Section 2(c) above, then the entire remaining assets and
funds of the Corporation legally available for distribution, if any, shall be
distributed on a pro rata basis on the outstanding Common Stock.
(e) For purposes of this Section 2, the term "Liquidity Event" shall
mean any one or more of the following: (i) a liquidation, dissolution or
winding-up of the
<PAGE>
Corporation, whether voluntary or involuntary; (ii) a sale, merger,
recapitalization, reorganization or consolidation involving the Corporation, as
the result of which those persons who hold at least 50% of the voting stock of
the Corporation immediately prior to such transaction do not hold more than 50%
of the voting stock of the Corporation (or the surviving or resulting entity)
after giving effect to such transaction; or (iii) the sale of all or
substantially all of the assets of the Corporation.
(f) Any securities to be delivered to the holders of the Preferred
Stock and Common Stock upon a merger, reorganization or sale of substantially
all the assets of the Corporation shall be valued as follows:
(1) if traded on a securities exchange or on the NASDAQ Stock
Market, the value shall be deemed to be the average of the closing prices of the
securities on such exchange over the ten business day period ending three (3)
business days prior to the closing of such merger, reorganization or sale;
(2) if actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid prices over the ten business day
period ending three (3) business days prior to the closing; and
(3) if there is no active public market, the value shall be
the fair market value thereof as mutually determined by the Corporation and the
holders of not less than a majority of the outstanding shares of Series B
Preferred and Series C Preferred voting as a single class, provided that if the
Corporation and the holders of a majority of the outstanding shares of Series B
Preferred and Series C Preferred are unable to reach agreement, then by
independent appraisal by an investment banker hired and paid by the Corporation,
but reasonably acceptable to the holders of a majority of the outstanding shares
of Series B Preferred and Series C Preferred voting as a single class.
(g) Notwithstanding the foregoing, in the event that on or before
December 10, 1999. the Corporation shall merge or consolidate with or into any
other corporation or sell, lease or convey all or substantially all of its
property or business (a "Year 1 Transaction") and the aggregate consideration
payable to the holders of the Series C Preferred under this Section 2 as a
result of the Year 1 Transaction would be equal to or greater than the product
of(x) $200 and (y) the number of shares of Series C Preferred issued and
outstanding immediately prior to the consummation of the Year 1 Transaction (the
"Series C Return"), then the Liquidation Cash Payment may, at the option of the
Corporation, be reduced by an amount of not more than 50% thereof; provided that
the Common Stock issuable upon the conversion of the Series C Preferred in
accordance with Section 4(b) or 4(d) (as the case may be) shall be increased, if
necessary, by that number of fully paid and nonassessable shares of Common Stock
(the "Additional Liquidation Shares") such that the aggregate consideration to
be received by the holders of the Series C Preferred as a result of the Year 1
Transaction shall be no less than an amount equal to the Series C Return;
provided further, however, that the foregoing shall in no way limit the
aggregate consideration payable to the Holders of the Series C Preferred as a
result of the Year 1 Transaction to the Series C Return. The
<PAGE>
Additional Liquidation Shares and any other shares of Common Stock distributable
to the holders of the Series C Preferred as a result of a Year 1 Transaction
shall be valued at the per share value of the Year 1 Transaction.
Section 3. Redemption.
(a) At the individual option of each holder of shares of Series B
Preferred and Series C Preferred, the Corporation shall redeem, on December
10, 2003 (the "Redemption Date"), the number of shares of Series B Preferred and
Series C Preferred, respectively, held by such holder that is specified in a
request (the "Redemption Request") for redemption delivered to the Corporation
by the holder on or prior to December 10, 2003, with respect to the shares of
Series B Preferred, by paying in cash therefor, $148.78 per share of Series B
Preferred (as adjusted for stock splits, stock dividends, recapitalization and
the like with respect to such shares) plus all declared but unpaid dividends on
such shares and, with respect to the shares of Series C Preferred, by paying to
the holders of the shares of Series C Preferred (i) $100.00 per share of Series
C Preferred (as adjusted for stock splits, stock dividends, recapitalization and
the like with respect to such shares) ("Redemption Cash Payment"), (ii) an
amount equal to all declared, but unpaid dividends or distributions on the
Series C Preferred and (iii) by distributing to the holders of the shares of
Series C Preferred the number of shares of Common Stock issuable upon conversion
of such shares of Series C Preferred had such Series C Preferred been converted
into shares of Series D Preferred and Common Stock immediately prior to such
Redemption.
(b) In the event of a Liquidity Event, the holders of the Series D
Preferred may, at their election, require the Corporation to redeem all (but not
less than all) of the shares of Series D Preferred held by such holders for an
aggregate amount (if all originally issued and outstanding Series C Preferred
was converted into Series D Preferred and all such shares of Series D Preferred
are then outstanding) equal to $100.00 per share (as adjusted for stock splits,
stock dividends, recapitalization and the like with respect to such shares).
Upon the occurrence of a Qualified Public Offering, the Corporation may either
(i) redeem the number of shares of Series D Preferred held by such holder (if
all originally issued and outstanding Series C Preferred was converted into
Series D Preferred and all such shares of Series D Preferred are then
outstanding) by paying in cash an aggregate amount (if all originally issued
Series C Preferred was converted into Series D Preferred and all such Series D
Preferred are then outstanding) equal to $100.00, (as adjusted for stock splits,
stock dividends, recapitalization and the like with respect to such shares), or
(ii) exchange each such share of Series D Preferred for such number of shares of
Common Stock such that at the per share offer price in connection with a
Qualified Public Offering the value of the aggregate number of shares so
delivered would (if all originally issued Class C Preferred Stock was converted
into Series D Preferred and all such shares of Series D Preferred are then
outstanding) equal to $100.00 per share of Series D Preferred (as adjusted for
stock splits, stock dividends, recapitalization and the like with respect to
such shares). "Qualified Public Offering" is defined to mean the closing of an
underwritten public offering by the Company pursuant to a registration statement
filed and declared effective under the Act covering the offer
<PAGE>
and sale of Common Stock for the account of the Company in which the aggregate
net proceeds to the Company equal at least $20,000,000 and in which the price
per share of Common Stock equals or exceeds $8.33.
(c) At least ten (l0) but no more than twenty (20) days prior to the
Redemption Date written notice shall be mailed, first class postage prepaid, to
each holder of the Series B Preferred, Series C Preferred or the Series D
Preferred (as the case may be) which has given the Corporation a Redemption
Request at the address set forth in the Redemption Request, notifying such
holder of the place at which payment may be obtained on the Redemption Date for
the shares of Series B Preferred, Series C Preferred or the Series D Preferred
(as the case may be) specified in the Redemption Request and calling upon such
holder to surrender to the Corporation, in the manner and at the place
designated, such holder's certificate or certificates representing the shares to
be redeemed (the "Redemption Notice"). On or after the Redemption Date, each
holder of Series B Preferred, Series C Preferred or the Series D Preferred (as
the case may be) to be redeemed shall surrender to this Corporation the
certificate or certificates representing such shares, in the manner and at the
place designated in the Redemption Notice, and thereupon the Redemption Price of
such shares shall be payable to the order of the person whose name appears on
such certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. In the event less than all the shares represented
by any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.
(d) From and after the Redemption Date, unless there shall have been
a default in payment of the Redemption Price, all rights of the holders of
shares of Series B Preferred, Series C Preferred or the Series D Preferred (as
the case may be) designated for redemption in the Redemption Request as holders
of Series B Preferred, Series C Preferred or the Series D Preferred (as the case
may be) (except the right to receive the Redemption Price without interest upon
surrender of their certificate or certificates) shall cease with respect to such
shares, and such shares shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose whatsoever. If the
funds of the Corporation legally available for redemption of shares of Series B
Preferred, Series C Preferred or the Series D Preferred (as the case may be) on
the Redemption Date are insufficient to redeem the total number of shares of
Series B Preferred, Series C Preferred or the Series D Preferred (as the case
may be) to be redeemed on such date, those funds which are legally available
will be used to redeem the maximum possible number of such shares ratably among
the holders of such shares to be redeemed based upon their holdings of Series B
Preferred, Series C Preferred or the Series D Preferred (as the case may be).
The shares of Series B Preferred, Series C Preferred or the Series D Preferred
(as the case may be) not redeemed shall remain outstanding and entitled to all
the rights and preferences provided herein. At any time thereafter when
additional funds of the Corporation are legally available for the redemption of
shares of Series B Preferred, Series C Preferred or the Series D Preferred (as
the case may be) such funds will immediately be used to redeem the balance of
the shares which the Corporation has become obliged to redeem on any Redemption
Date, but which it has not redeemed.
<PAGE>
(e) Notwithstanding the foregoing, in the event of a Year 1
Transaction on or before December 10, 1999, and the aggregate consideration
payable to the holders of the Series C Preferred under this Section 2 as a
result of the Year 1 Transaction would be equal to or greater than Series C
Return, then the Redemption Cash Payment may, at the option of the Corporation,
be reduced by an amount of not more than 50% thereof; provided that the Common
Stock issuable upon the conversion of the Series C Preferred in accordance with
Section 4(b) or 4(d) (as the case may be) shall be increased, if necessary, by
that number of fully paid and nonassessable shares of Common Stock (the
"Additional Redemption Shares") such that the aggregate consideration to be
received by the holders of the Series C Preferred as a result of the Year 1
Transaction shall be no less than an amount equal to the Series C Return;
provided further, however, that the foregoing shall in no way limit the
aggregate consideration payable to the Holders of the Series C Preferred as a
result of the Year 1 Transaction to the Series C Return. The Additional
Redemption Shares and any other shares of Common Stock distributable to the
holder of the Series C Preferred as a result of a Year 1 Transaction shall be
valued at the per share value of the Year 1 Transaction.
Section 4. Conversion. The holders of the Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert Series A Preferred and Series B Preferred. Each
share of Series A Preferred and Series B Preferred shall be convertible, at the
option of the holder thereof, at any time after the date of issuance of such
share, at the office of the Corporation or any transfer agent for such Preferred
Stock, into such number of fully paid and nonassessable shares of Common Stock,
(i) in the case of the Series A Preferred, as is determined by dividing $1,000
by the then applicable Series A Conversion Price and (ii) in the case of the
Series B Preferred, as is determined by dividing $148.78 by the then applicable
Series B Conversion Price. The price at which shares of Common Stock shall be
deliverable upon conversion of the Series A Preferred (the "Series A Conversion
Price") shall initially be $0.42 per share of Common Stock and the price at
which shares of Common Stock shall be deliverable upon conversion of the Series
B Preferred (the "Series B Conversion Price") shall initially be $2.48 per share
of Common Stock. Such initial Series A Conversion Price and Series B Conversion
Price shall be subject to adjustment as hereinafter provided.
(b) Conversion of Series C Preferred. Each share of Series C
Preferred shall be convertible, at the option of the holder thereof, at any time
commencing after the fifth anniversary of the date of issuance of such share, at
the office of the Corporation or any transfer agent for such preferred stock
into (i) one (1) fully paid and nonassessable share of Series D Preferred Stock
and (ii) such number of fully paid and nonassessable shares of Common Stock,
which is determined by dividing the product of the number of shares of Series C
Preferred outstanding and $100.00 per share (as adjusted for stock splits, stock
dividends, recapitalization and the like with respect to such shares) by then
applicable purchase price per share of $6.56 (as adjusted in accordance with
Section 4(h) below) (the "Series C Conversion Price"), and which
<PAGE>
number of shares of Common Stock shall initially be 1,524,390. The Series C
Conversion Price shall initially be $6.56 per share of Common Stock. Any holder
of Series C Preferred who wishes to exercise such right of conversion shall give
written notice thereof to the Corporation, setting forth the number of shares
of Series C Preferred to be converted, and shall exchange with the Corporation
its certificates evidencing shares of Series C Preferred for certificates
evidencing the shares of Series D Preferred and Common Stock issuable upon
conversion thereof. Once a holder of Series C Preferred has given notice of its
intent to convert, it shall be deemed to have effected such conversion and shall
be deemed to be the record holder of the Series D Preferred Stock and Common
Stock, issuable upon such conversion; provided, however, that if such holder has
elected to convert in connection with a proposed Liquidity Event, and such
Liquidity Event is not consummated, such election to convert may be rescinded.
(c) Automatic Conversion of Series A Preferred and Series B
Preferred. Each share of the Series A Preferred and Series B Preferred shall
automatically be converted into shares of Common Stock at the then effective
Series A Conversion Price and Series B Conversion Price as applicable,
immediately prior to the closing of a Qualified Public Offering at a price per
share (determined without regard to underwriter commissions and expenses) of not
less than Eight Dollars and Thirty-Three Cents $8.33 (as adjusted for stock
splits, stock dividends, recapitalization and the like) and aggregate gross
proceeds to the Corporation of not less than Ten Million Dollars ($10,000,000),
before deduction of underwriting discounts and commissions and registration
expenses. In the event of such an offering, the person(s) entitled to receive
the Common Stock issuable upon such conversion of such Preferred Stock shall not
be deemed to have converted such Preferred Stock until immediately prior to the
closing of such Qualified Public Offering.
(d) Automatic Conversion of Series C Preferred. Upon the occurrence
of (i) a Liquidity Event or (ii) the closing of a Qualified Public Offering,
which is based on an equity valuation of the Company of not less than
$100,000,000, each share of Series C Preferred shall be converted immediately
prior to the Liquidity Event or Qualified Public Offering (as the case may be)
into (i) one fully paid and nonassessable (1) share of Series D Preferred and
(ii) such number of fully paid and nonassessable shares of Common Stock as
determined by dividing the product of the number of shares of Series C Preferred
outstanding and $100.00 per share (as adjusted for stock splits, stock
dividends, recapitalization and the like with respect to such shares) by the
Series C Conversion Price, which aggregate number of shares of Common Stock if
100,000 shares of such Series C Preferred were to be converted shall initially
be 1,524,390. In the event of such an offering, the person(s) entitled to
receive Common Stock issuable upon conversion of Series C Preferred shall not be
deemed to have converted such shares of Series C Preferred until immediately
prior to the closing of such Qualified Public Offering.
(e) Conversion of Series D Preferred. Holders of shares of the
Series D Preferred shall have no right to convert such shares into shares of
Common Stock or any other series or capital stock of the Corporation.
<PAGE>
(f) Mechanics of Conversion. No fractional shares of Common Stock
shall be issued upon conversion of the Preferred Stock. In lieu of any
fractional share to which the holder would otherwise be entitled, the
Corporation shall (after aggregating all shares into which shares of Preferred
Stock held by each holder could be converted) pay cash equal to such fraction
multiplied by the Series A Conversion Price or Series B Conversion Price, as
applicable, then in effect. Before any holder of Preferred Stock shall be
entitled to convert the same into full shares of Common Stock and to receive
certificates therefor, the holder shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or of any
transfer agent, and shall give written notice to the Corporation at such office
that the holder elects to convert all or any number of shares of the Preferred
Stock represented by such certificate or certificates, provided, however, that
in the event of an automatic conversion pursuant to this Section 4, the
outstanding shares of Preferred Stock shall be converted automatically without
any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Corporation or its
transfer agent, and provided further, that the Corporation shall not be
obligated to issue certificates evidencing the shares of Common Stock issuable
upon such automatic conversion unless the certificates evidencing such shares of
Preferred Stock are either delivered to the Corporation or its transfer agent as
provided above, or the holder notifies the Corporation or its transfer agent
that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection with such certificates. The Corporation shall,
as soon as practicable after such delivery, or such agreement and
indemnification in the case of a lost certificate, issue and deliver at the
office of the Corporation or of any transfer agent, as the case may be, to such
holder of Preferred Stock, a certificate or certificates for the number of
shares of Common Stock to which the holder shall be entitled as aforesaid and a
check payable to the holder in the amount of any cash amounts payable as the
result of a conversion into a fractional share of Common Stock. Such conversion
shall not terminate the rights of the holders of the Preferred Stock or Common
Stock issuable upon conversion of the Preferred Stock to receive dividends which
have been declared with respect to the Preferred Stock prior to the date of
conversion. Except as provided above, such conversion shall be deemed to have
been made immediately prior to the close of business on the date of such
surrender of the shares of Preferred Stock to be converted, or in the case of
automatic conversion immediately prior to the close of business on the date of
closing of a Qualified Public Offering, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock at the close of business on such date. If the conversion is in
connection with a firm commitment Offering, the conversion may, at the option of
any holder tendering the Preferred Stock for conversion, be conditioned upon the
closing with the underwriter of the sale of securities pursuant to such
offering, in which event the person(s) entitled to receive the Common Stock
issuable upon such conversion of the Preferred Stock shall not be deemed to have
converted such Preferred Stock until immediately prior to the closing of such
sale of securities.
<PAGE>
(g) Series B Preferred and Series C Preferred Conversion Price
Adjustments. The Series B Conversion Price and the Series C Conversion Price
shall be subject to adjustment from time to time as follows:
(i) Special Definitions. For purposes of this Section 4(g),
the following definitions shall apply:
(1) "Options" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(2) "Original Issue Date" shall mean the date on which
the first share of Series B Preferred or Series C Preferred, as applicable, was
first issued.
(3) "Convertible Securities" shall mean any evidences of
indebtedness, shares (other than Common Stock and Preferred Stock) or other
securities convertible into or exchangeable for Common Stock.
(4) "Conversion Price" shall be the Conversion Price of
the Series B Preferred or the Series C Preferred, as applicable.
(5) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to Section 4(g)(iii) below, deemed
to be issued) by the Corporation after the Original Issue Date other than shares
of Common Stock issued or issuable:
(A) upon conversion of shares of the Preferred
Stock or the exercise or conversion of any Options outstanding on the Original
Issue Date;
(B) to officers, directors, employees and
consultants of the Corporation or any subsidiary thereof, pursuant to a stock
option plan, stock purchase plan or other employee stock incentive plan approved
by the Board of Directors or other stock arrangements which have been approved
by the Board of Directors;
(C) pursuant to any event for which adjustment has
already been made pursuant to this Section 4(g);
(D) as a dividend or distribution on the Preferred
Stock;
(E) as a dividend or distribution on the Common
Stock;
<PAGE>
(F) upon any subdivision or split up of Common
Stock; or
(G) upon any capital reorganization of the
Corporation.
(ii) No Adjustment of Conversion Price. No adjustment in the
Conversion Price shall be made in respect of the issuance of Additional Shares
of Common Stock unless the consideration per share for an Additional Share of
Common Stock issued or deemed to be issued by the Corporation is less than the
Conversion Price, in effect on the date of and immediately prior to such issue.
(iii) Deemed Issue of Additional Shares of Common Stock.
Except as provided in Section 4(g)(i)(5) above, in the event the Corporation at
any time or from time to time after the Original Issue Date shall issue any
Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to receive any such
Options or Convertible Securities, then the maximum number of shares (as set
forth in the instrument relating thereto without regard to any provisions
contained therein for a subsequent adjustment of such number) of Common Stock
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as of
the time of such issue or, in case such a record date shall have been fixed, as
of the close of business on such record date, provided that Additional Shares of
Common Stock shall not be deemed to have been issued unless the consideration
per share (determined pursuant to Section 4(g)(v) below) of such Additional
Shares of Common Stock would be less than the Conversion Price in effect on the
date of and immediately prior to such issue, or such record date, as the case
may be, and provided further that in any such case in which Additional Shares of
Common Stock are deemed to be issued:
(1) no further adjustment in the Conversion Price shall
be made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(2) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation, or increase or
decrease in the number of shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof, the Conversion Price computed upon the initial
Conversion Prices thereof set forth in Section 4(a) above (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities;
<PAGE>
(3) on the expiration or cancellation of any Options or
the termination of the right to convert or exchange any Convertible Securities
which shall have not been exercised, if the Conversion Price shall have been
adjusted upon the original issuance thereof or shall have been subsequently
adjusted pursuant to clause (2) above, the Conversion Price shall be recomputed
as if the only Additional Shares of Common Stock issued were shares of Common
Stock, if any, actually issued upon the exercise of such Options or the
conversion or exchange of such Convertible Securities and the consideration
received therefore was the consideration actually received by the Corporation
for the issue of all such Options, whether or not exercised, plus the
consideration actually received by the Corporation upon such exercise, or for
the issue of all such Convertible Securities which were actually converted or
exchanged plus the consideration actually received by the Corporation upon such
conversion or exchange, if any; and
(4) no readjustment pursuant to clause (2) or clause (3)
above shall have the effect of increasing the Conversion Price to an amount
which exceeds the lower of (i) the initial Conversion Price on the original
adjustment date (unless the Conversion Price is increased above the initial
Conversion Price pursuant to Section 4(h)(2) or (h)(4)), or (ii) the Conversion
Price that would have resulted from any issuances of Additional Shares of Common
Stock (other than those the subject of such adjustments) between the original
adjustment date and such readjustment date; and
(iv) Adjustment of Conversion Price Upon Isuance of Additional
Shares of Common Stock. In the event this Corporation shall issue Additional
Shares of Common Stock (including Additional Shares of Common Stock deemed to be
issued pursuant to Section 4(g)(iii), but excluding stock dividends,
subdivisions or split-ups that are the subject of adjustment pursuant to Section
4(h)) without consideration or for a consideration per share less than the
Conversion Price applicable on and immediately prior to such issue, then and in
such event, the Conversion Price shall be reduced concurrently with such issue,
to a price (calculated to the nearest cent) determined by multiplying the
Conversion Price in effect on the date of and immediately prior to such issue by
a fraction, the numerator of which shall be the sum of (i) the number of shares
of Common Stock outstanding immediately prior to such issue (on a fully diluted
as converted basis), including without limitation the number of shares of Common
Stock issuable upon conversion of the Preferred Stock outstanding immediately
prior to such issue and (ii) the number of shares of Common Stock which the
aggregate consideration received by the Corporation for the total number of
Additional Shares of Common Stock so issued would purchase at the Conversion
Price in effect on the date of and immediately prior to such issue; and the
denominator of which shall be the sum of (i) the number of shares of Common
Stock outstanding immediately prior to such issue (on a fully diluted as
converted basis), including without limitation the number of shares of Common
Stock issuable upon conversion of the Preferred Stock outstanding immediately
prior to such issue and (ii) the number of such Additional Shares of Common
Stock so issued.
<PAGE>
(v) Determination of Consideration. For purposes of this
Section 4(g), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property. Such consideration shall:
(A) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the Corporation;
(B) insofar as it consists of property other than cash,
be computed at the fair value thereof at the time of such issue, as determined
in good faith by the Board of Directors; and
(C) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board of Directors.
(2) Options and Convertible Securities. The consideration per
share received by the Corporation for Additional Shares of Common Stock deemed
to have been issued pursuant to Section 4(g)(ii) and 4(g)(iii), relating to
Options and Convertible Securities, shall be determined by dividing
(A) the total amount, if any, received or receivable by
the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the (ii) aggregate amount of additional consideration (as set
forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such options for Convertible Securities and the
conversion or exchange of such Convertible Securities by
(B) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
(h) Adjustment of Conversion Price of Series A Preferred, Series B
Preferred and Series C Preferred. The Series A Conversion Price, the Series B
Conversion Price and the Series C Conversion Price shall be subject to
adjustment from time to time as follows:
(1) Adjustments for Subdivisions of Common Stock. If the
number of shares of Common Stock outstanding at any time after filing this
Restated Certificate of Incorporation with the Secretary of State of the State
of Delaware is increased by a stock dividend payable in shares of Common Stock
or by a subdivision or
<PAGE>
split up of stock, then the Series A Conversion Price, the Series B Conversion
Price and the Series C Conversion Price then in effect shall, concurrently with
the effectiveness of such dividend, subdivision or split up, be proportionately
decreased so that the number of shares of Common Stock issuable on conversion of
each share of Preferred Stock shall be increased in proportion to such increase
of outstanding shares of Common Stock.
(2) Adjustments for Combinations of Common Stock. If the
number of shares of Common Stock outstanding at any time after filing this
Restated Certificate of Incorporation with the Secretary of State of the State
of Delaware is decreased by a combination of the outstanding shares of Common
Stock, then the Series A Conversion Price, the Series B Conversion Price and the
Series C Conversion Price then in effect shall, concurrently with the
effectiveness of such combination, be proportionately increased so that the
number of shares of Common Stock issuable upon conversion of each share of such
Preferred Stock shall be decreased in proportion to such decrease in outstanding
shares of Common Stock.
(3) Adjustments for Stock Dividends and Other Distributions.
In the event the Corporation at any time or from time to time makes or fixes a
record date for the determination of holders of Common Stock entitled to receive
any distribution (excluding any repurchases of securities by the Corporation not
made on a pro rata basis from all holders of any class of the Corporation's
securities) payable in property or in securities of the Corporation other than
shares of Common Stock, then and in each such event the holders of Preferred
Stock shall receive at the time of such distribution, the amount of property or
the number of securities of the Corporation that they would have received had
their Preferred Stock been converted into Common Stock on the date of such
event.
(4) Adjustments for Reclassification, Exchange and
Substitution. Except as provided in Section 2 upon a Liquidity Event, if the
Common Stock issuable upon conversion of the Preferred Stock shall be changed
into the same or a different number of shares of any other class or classes of
stock, whether by capital reorganization, reclassification or otherwise (other
than a subdivision or combination of shares provided for above), each share of
Preferred Stock shall thereafter be convertible into the number of shares of
stock or other securities or property to which a holder of the number of shares
of Common Stock of the Corporation deliverable upon such Liquidity Event.
(i) Amendments to Certificate of Incorporation. The Corporation
shall not amend its Certificate of Incorporation without the approval, by vote
or written consent, by the holders of at least a majority of the then
outstanding shares of Preferred Stock, voting together as a separate class, if
such amendment would amend any of the rights, preferences, privileges of or
limitations provided for herein for the benefit of any shares of Preferred
Stock. Without limiting the generality of the preceding sentence, the
Corporation will not amend its Certificate of Incorporation without the approval
by the holders of at least a majority of the then outstanding shares of
Preferred Stock, voting as a separate class, if such amendment would:
<PAGE>
(i) change the relative seniority rights of the holders of
Preferred Stock as to the payment of dividends in relation to the holders of any
other capital stock of the Corporation, or create any other class or series of
capital stock entitled to seniority as to the payment of dividends in relation
to the holders of Preferred Stock;
(ii) reduce the amount payable to the holders of Preferred
Stock upon the voluntary or involuntary liquidation, dissolution or winding up
of the Corporation, or change the relative seniority of the liquidation
preferences of the holders of Preferred Stock to the rights upon liquidation of
the holders of other capital stock of the Corporation, or change the dividend
rights of the holders of Preferred Stock;
(iii) cancel or modify the redemption rights of the holders of
the Preferred Stock provided for in Section 3 herein; or
(iv) cancel or modify the rights of the holders of the
Preferred Stock provided for in this Section 4.
(j) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Series A Conversion Price, Series B Conversion
Price and the Series C Conversion Price pursuant to this Section 4, the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Series A Conversion Price, the Series B Conversion Price and the Series C
Conversion Price, as applicable, at the time in effect, and (iii) the number of
shares of Common Stock and the amount, if any, of other property which at the
time would be received upon the conversion of Preferred Stock. Notwithstanding
the foregoing, no adjustment of the Series A Conversion Price, the Series B
Conversion Price and the Series C Conversion Price shall be made if the amount
of any such adjustment would be an amount less than $1.00, but any such amount
shall be carried forward and an adjustment with respect thereof shall be made at
the time of and together with any subsequent adjustment which, together with
such amount and any other amount(s) so carried forward, shall aggregate an
increase or decrease of $1.00 or more.
(k) Notices of Record Date. In the event that the Corporation shall
propose at any time:
(i) to declare any dividend or distribution upon its Common
Stock, whether in cash, property, stock or other securities, whether or not a
regular cash dividend and whether or not out of earnings or earned surplus;
<PAGE>
(ii) to offer for subscription pro rata to the holders of any
class or series of its stock any additional shares of stock of any class or
series or other rights;
(iii) to effect any reclassification or recapitalization of
its Common Stock outstanding involving a change in the Common Stock; or
(iv) to merge or consolidate with or into any other
corporation, or sell, lease or convey all or substantially all its property or
business, or to liquidate, dissolve or wind up;
then, in connection with each such event, the Corporation
shall send to the holders of the Preferred Stock:
(1) at least twenty (20) days' prior written notice of
the date on which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which the holders of Common
Stock shall be entitled thereto) or for determining rights to vote in respect
of the matters referred to in (iii) and (iv) above; and
(2) in the case of the matters referred to in (iii) and
(iv) above, at least twenty (20) days' prior written notice of the date when the
same shall take place (and specifying the date on which the holders of Common
Stock shall be entitled to exchange their Common Stock for securities or other
property deliverable upon the occurrence of such event).
Each such written notice shall be delivered personally or given by first
class mail, postage prepaid, addressed to the holders of Preferred Stock at the
address for each such holder as shown on the books of the Corporation.
(v) Reservation of Shares. The Corporation shall reserve at
all times so long as any shares of Preferred Stock remain outstanding, free from
preemptive rights, out of its treasure stock or its authorized but unissued
shares of Common Stock, or both, solely for the purposes of effecting the
conversion of the shares of Preferred Stock, sufficient shares of Common Stock
to provide for the conversion of all outstanding shares of Preferred Stock.
(vi) Valid Issuance. All shares of Common Stock which may be
issued upon conversion of the shares of Preferred Stock will upon issuance by
the Corporation be duly and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issuance thereof and
the Corporation shall take no action which will cause a contrary result."
<PAGE>
IN WITNESS WHEREOF, CVC, INC. has caused this Certificate to be signed by
Christine B. Whitman, its President, this 10th day of December, 1998.
CVC, Inc.
/s/ Christine B. Whitman
-------------------------------------
Christine B. Whitman
President and Chief Executive Officer
<PAGE>
State of Delaware
Office of the Secretary of State PAGE 1
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "CVC HOLDINGS, INC.", CHANGING ITS NAME FROM "CVC HOLDINGS, INC." TO "CVC,
INC.", FILED IN THIS OFFICE ON THE FIFTEENTH DAY OF OCTOBER, A.D. 1997, AT 12
O'CLOCK P.M.
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
[SEAL]
2244345 8100 AUTHENTICATION: 9673170
991134439 DATE: 04-07-99
<PAGE>
CERTIFICATE OF AMENDMENT TO
RESTATED CERTIFICATE OF
INCORPORATION OF
CVC HOLDINGS, INC.
CVC Holdings, Inc., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is CVC Holdings, Inc.
2. The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of the State of Delaware on October 19, 1990,
and was amended pursuant to a Restated Certificate of Incorporation of the
Corporation filed with the Secretary of State of the State of Delaware on May
18, 1995.
3. This Restated Certificate of Incorporation is hereby further
amended as follows:
A. Article I shall be deleted and replaced in its entirety with the
following:
Article I
The name of the Corporation is CVC, Inc.
B. The second and third sentences of Article IV(a) shall be deleted
and replaced in their entirety by the following:
The total number of shares which the Corporation is authorized to
issue is 50,102,500. The total number of shares of Common Stock which the
Corporation is authorized to issue is 50,000,000, par value $.01 per share.
C. The first sentence of Section 5(b) of Article IV shall be deleted
and replaced in its entirety by the following:
The Board of Directors of the Corporation shall consist of not less
than three (3) members, the exact number to be fixed from time to time solely by
resolution of the Board of Directors acting by not less than a majority of the
directors then in office.
4. The amendments to the Restated Certificate of Incorporation as
hereinabove set forth have been duly adopted in accordance with Section 242 of
the General Corporation Law of the State of Delaware.
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 12:00 PM 10/15/1997
971347839 -- 2244345
<PAGE>
IN WITNESS WHEREOF, CVC Holdings, Inc. has caused this Certificate to be
signed by Christine B. Whitman, its President, this 15th day of October, 1997.
CVC HOLDINGS, INC.
/s/ Christine B. Whitman
-------------------------------------
Christine B. Whitman
President
NY--95063.2
2
<PAGE>
State of Delaware
Office of the Secretary of State PAGE 1
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "CVC HOLDINGS, INC.", FILED IN THIS OFFICE ON THE FOURTEENTH DAY OF MARCH,
A.D. 1996, AT 9 O'CLOCK A.M.
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
[SEAL]
AUTHENTICATION: 9673171
DATE: 04-07-99
2244345 8100
991134439
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 03/14/1996
960075034 -- 2244345
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CVC HOLDINGS, INC.
THE UNDERSIGNED, being the President and Secretary of CVC Holdings,
Inc., a corporation organized and existing under the laws of the State of
Delaware (the "Corporation"), do hereby certify as follows:
1. The name of the Corporation is CVC Holdings, Inc.
2. The Certificate of Incorporation of the Corporation is hereby
amended to effect a 20:1 stock split and in connection therewith every share of
Common Stock, par value $.01 per share, of the Corporation issued on the date
this Certificate of Amendment is filed with the Secretary of State of Delaware
shall be converted into and shall become twenty (20) new shares of the Common
Stock, par value $.01 per share, of the Corporation.
3. Article IV of the Certificate of Incorporation of the Corporation
is hereby amended to increase the number of shares of Common Stock which the
Corporation shall have authority to issue from 1,500,000 to 7,500,000 shares of
Common Stock by deleting the initial paragraph thereof and replacing it with the
following:
The Corporation is authorized to issue two classes of stock,
designated "Common Stock" and "Preferred Stock." The total number of
shares which the Corporation is authorized to issue is 7,602,500.
The total number of shares of Common Stock which the Corporation is
authorized to issue is 7,500,000, par value $.01 per share. The
total number of shares of Preferred Stock which the Corporation is
authorized to issue is 102,500, par value $.01 per share, of which
2,500 shares shall be designated 8% Non-Cumulative Convertible
Preferred Stock (the "Series A Preferred") and 100,000 shares shall
be designated Series B Non-Cumulative Convertible Preferred Stock
(the "Series B Preferred"). The Series A Preferred and the Series B
Preferred shall collectively be referred to as the "Preferred
Stock."
4. This amendment to the Certificate of Incorporation of the
Corporation herein certified has been approved and adopted pursuant to Section
242 of the General Corporation law of the State of Delaware (the "DGCL"). This
amendment was approved by written consent in lieu of a meeting of the
stockholders pursuant to Section 228 of the DGCL and written notice of such
approval has been provided as required by such section.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this certificate as of
the 13th day of March, 1996.
/s/ Christine Whitman
----------------------------------------
Christine Whitman, President
ATTEST:
/s/ Christopher Mann
- ------------------------
Christopher Mann
Secretary
<PAGE>
State of Delaware
Office of the Secretary of State PAGE 1
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF
"CVC HOLDINGS, INC.", FILED IN THIS OFFICE ON THE EIGHTEENTH DAY OF MAY, A.D.
1995, AT 4:15 O'CLOCK P.M.
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
[SEAL]
AUTHENTICATION: 9673172
DATE: 04-07-99
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 04:15 PM 05/18/1995
950110716 -- 2244345
RESTATED CERTIFICATE OF INCORPORATION
OF
CVC HOLDINGS, INC.
(Pursuant to Sections 242 & 245)
CVC Ho1dings, Inc., a corporation (the "Corporation") organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "GCL"), hereby certifies as follows:
FIRST: The name of the Corporation is CVC Holdings, Inc.
SECOND: The date on which the initial Certificate of Incorporation
of the Corporation was filed with the Secretary of State of the State of
Delaware is October 19, 1990, under the name CVC Holdings, Inc.
THIRD: The Board of Directors of the Corporation, pursuant to the
GCL, adopted resolutions amending, integrating and restating the
Certificate of Incorporation to read in full as set forth in the Restated
Certificate of Incorporation attached hereto as Exhibit A.
FOURTH: Pursuant to resolutions of the Board of Directors, the
Restated Certificate of Incorporation was thereafter submitted to the
stockholders of the Corporation for their approval, which approval was
given by written consent of the stockholders pursuant to Section 228 and
in accordance with Section 245 of the GCL.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed and attested by its duly authorized officers, this 18th day of May, 1995.
CVC HOLDINGS, INC.
/s/ Christine B. Whitman
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Christine B. Whitman
President
ATTEST:
By: /s/ Andrew C. Peskoe
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Name: Andrew C. Peskoe
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[ILLEGIBLE] Secretary
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RESTATED CERTIFICATE OF
INCORPORATION OF
CVC HOLDINGS, INC.
Article I
The name of the Corporation is CVC Holdings, Inc.
Article II
The address of the Corporation's registered office in the State of
Delaware is 32 Loockerman Square, Suite L-100, in the City of Dover, County of
Kent. The name of its registercd agent at such address is The Prentice-Hall
Corporation System, Inc.
Article III
The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
Article IV
(a) The Corporation is authorized to issue two classes of stock,
designated "Common Stock" and "Preferred Stock." The total number of shares
which the Corporation is authorized to issue is 1,602,500. The total number of
shares of Common Stock which the Corporation is authorized to issue is
1,500,000, par value $.01 per share. The total number of shares of Preferred
Stock which the Corporation is authorized to issue is 102,500, par value $.01
per share, of which 2,500 shares shall be designated 8% Non-Cumulative
Convertible Preferred Stock (the "Series A Preferred") and 100,000 shares shall
be designated Series B Non-Cumulative Convertible Preferred Stock (the "Series B
Preferred"). The Series A Preferred and the Series B Preferred shall
collectively be referred to as the "Preferred Stock."
The Corporation shall from time to time in accordance with the laws of the
State of Delaware increase the authorized amount of its Common Stock if at any
time the number of shares of Common Stock remaining unissued and available for
issuance shall not be sufficient to permit conversion of the Preferred Stock.
The relative rights, preferences, privileges and restrictions granted to
or imposed upon the Preferred Stock and the Common Stock or the holders thereof
are as follows:
Section 1. Dividends. The holders of the Series A Preferred and Series B
Preferred shall be entitled to receive, when and as declared by the Board of
Directors, dividends at the rate of $80.00 per share for Series A Preferred and
$11.90 per share for Series B Preferred (in each case as adjusted for any stock
splits, stock dividends, recapitalizations and the like with respect to such
shares) per annum as the Board of Directors may from time to time determine out
of funds legally available therefor. No dividends shall be paid on the Series A
Preferred during any fiscal year of the Corporation until dividends in the total
amount of $11.90 per share on the Series B Preferred shall have been paid or
declared and set apart during that fiscal year. No dividends (other than those
payable solely in the Common Stock of the Corporation) shall be paid on any
Common Stock of the Corporation during any fiscal year of the Corporation until
dividends in the total amount of $80.00 per share of Series A Preferred and
$11.90 per
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share of the Series B Preferred (in each case as adjusted for any stock splits,
stock dividends, recapitalizations and the like with respect to such shares)
shall have been paid or declared and set apart during that fiscal year. The
right to such dividends on shares of Preferred Stock shall not be cumulative,
and no right shall accrue to holders of Preferred Stock by reason of the fact
that dividends on said shares are not declared in any prior year.
After payment of such dividends to the holders of the Preferred Stock, any
additional dividends declared shall be distributed among all the holders of the
Common Stock.
Section 2. Liquidation Preference. In the event of any liquidation,
dissolution, or winding up of the Corporation, either voluntary or involuntary,
distributions to the stockholders of the Corporation shall be made in the
following manner:
(a) The holders of the Series B Preferred shall be entitled to
receive, prior and in preference to any distribution of any of the assets or
surplus funds of the Corporation to the holders of the Series A Preferred and
the Common Stock by reason of their ownership of such stock, the amount equal to
the sum of (i) $148.78 per share for each share of Series B Preferred then held
by them (as adjusted for stock splits, stock dividends, recapitalizations and
the like with respect to such stock), and (ii) an amount equal to all declared
but unpaid dividends or distributions on the Series B Preferred. If the assets
and funds thus distributed among the holders of the Series B Preferred pursuant
to this Section 2(a) shall be insufficient to permit the payment to such holders
of the full aforesaid preferential amount, then the entire assets and funds of
the Corporation legally available for distribution shall be distributed ratably
among the holders of the Series B Preferred in proportion to the preferential
amount that each such holder is otherwise entitled to receive.
(b) After payment has been made to the holders of the Series B
Preferred Stock of the full amounts to which they shall be entitled as set forth
in the first sentence of Section 2(a), then the holders of the Series A
Preferred shall be entitled to receive the amount equal to the sum of(i) $1,000
per share for each share of Series A Preferred then held by them (as adjusted
for stock splits, stock dividends, recapitalizations and the like with respect
to such stock), and (ii) an amount equal to declared but unpaid dividends or
distributions on the Series A Preferred. If the assets and funds thus
distributed among the holders of the Series A Preferred pursuant to this Section
2(b) shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amount, then the entire assets and funds of the
Corporation legally available for distribution pursuant to this Section 2(b)
shall be distributed ratably among the holders of the Series A Preferred in
proportion to the preferential amount that each such holder is otherwise
entitled to receive.
(c) After payment has been made to the holders of the Preferred
Stock of the full amounts to which they shall be entitled as set forth in
Section 2(a) and in Section 2(b) above, then the entire remaining assets and
funds of the Corporation legally available for distribution, if any, shall be
distributed on a pro rata basis on the outstanding Common Stock.
(d) For purposes of this Section 2, a merger or consolidation of the
Corporation with or into any other corporation or corporations, or the merger of
any other corporation or corporations into the Corporation (other than any
merger or consolidation in which stockholders of the Corporation immediately
prior to such merger or consolidation beneficially own a majority of the voting
shares of the surviving corporation immediately following such merger or
consolidation), or a sale of all or
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substantially all of the assets of the Corporation, shall be treated as a
liquidation, dissolution or winding up of the Corporation.
(e) Any securities to be delivered to the holders of the Preferred
Stock and Common Stock upon a merger, reorganization or sale of substantially
all the assets of the Corporation shall be valued as follows:
(1) if traded on a securities exchange or on the NASDAQ Stock
Market, the value shall be deemed to be the average of the closing prices of the
securities on such exchange over the ten business day period ending three (3)
business days prior to the closing of such merger, reorganization or sale;
(2) if actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid prices over the ten business day
period ending three (3) business days prior to the closing; and
(3) if there is no active public market, the value shall be
the fair market value thereof as mutually determined by the Corporation and the
holders of not less than a majority of the outstanding shares of Series B
Preferred voting as a single class, provided that if the Corporation and the
holders of a majority of the outstanding shares of Series B Preferred are unable
to reach agreement, then by independent appraisal by an investment banker hired
and paid by the Corporation, but reasonably acceptable to the holders of a
majority of the outstanding shares of Series B Preferred voting as a single
class.
Section 3. Redemption of Series B Preferred.
(a) At the individual option of each holder of shares of Series B
Preferred, the Corporation shall redeem, on March 31, 2002 (the "Redemption
Date"), the number of shares of Series B Preferred held by such holder that is
specified in a request (the "Redemption Request") for redemption delivered to
the Corporation by the holder on or prior to March 1, 2002, by paying in cash
therefor, $148.78 per share of Series B Preferred (as adjusted for stock splits,
stock dividends, recapitalizations and the like with respect to such shares)
plus all declared but unpaid dividends on such shares (the "Redemption Price").
(b) At least 10 but no more than 20 days prior to the Redemption
Date written notice shall be mailed, first class postage prepaid, to each holder
of the Series B Preferred which has given the Corporation a Redemption Request
at the address set forth in the Redemption Request, notifying such holder of the
place at which payment may be obtained on the Redemption Date for the shares of
Series B Preferred specified in the Redemption Request and calling upon such
holder to surrender to the Corporation, in the manner and at the place
designated, such holder's certificate or certificates representing the shares to
be redeemed (the "Redemption Notice"). On or after the Redemption Date, each
holder of Series B Preferred to be redeemed shall surrender to this Corporation
the certificate or certificates representing such shares, in the manner and at
the place designated in the Redemption Notice, and thereupon the Redemption
Price of such shares shall be payable to the order of the person whose name
appears on such certificate or certificates as the owner thereof and each
surrendered certificate shall be canceled. In the event less than all the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
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(c) From and after the Redemption Date, unless there shall have been
a default in payment of the Redemption Price, all rights of the holders of
shares of Series B Preferred designated for redemption in the Redemption Request
as holders of Series B Preferred (except the right to receive the Redemption
Price without interest upon surrender of their certificate or certificates)
shall cease with respect to such shares, and such shares shall not thereafter be
transferred on the books of the Corporation or be deemed to be outstanding for
any purpose whatsoever. If the funds of the Corporation legally available for
redemption of shares of Series B Preferred on the Redemption Date are
insufficient to redeem the total number of shares of Series B Preferred to be
redeemed on such date, those funds which are legally available will be used to
redeem the maximum possible number of such shares ratably among the holders of
such shares to be redeemed based upon their holdings of Series B Preferred. The
shares of Series B Preferred not redeemed shall remain outstanding and entitled
to all the rights and preferences provided herein. At any time thereafter when
additional funds of the Corporation are legally available for the redemption of
shares of Series B Preferred such funds will immediately be used to redeem the
balance of the shares which the Corporation has become obliged to redeem on any
Redemption Date, but which it has not redeemed.
Section 4. Conversion. The holders of the Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of the Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the Corporation or any transfer agent
for the Preferred Stock, into such number of fully paid and nonassessable shares
of Common Stock, in the case of the Series A Preferred, as is determined by
dividing $1,000 by the then applicable Series A Conversion Price, and in the
case of the Series B Preferred, as is determined by dividing $148.78 by the then
applicable Series B Conversion Price, determined as hereinafter provided, in
effect at the time of conversion. The price at which shares of Common Stock
shall be deliverable upon conversion of the Series A Preferred (the "Series A
Conversion Price") shall initially be $25 per share of Common Stock and the
price at which shares of Common Stock shall be deliverable upon conversion of
the Series B Preferred (the "Series B Conversion Price") shall initially be
$148.78 per share of Common Stock. Such initial Series A Conversion Price and
Series B Conversion Price shall be subject to adjustment as hereinafter
provided.
(b) Automatic Conversion. Each share of the Preferred Stock shall
automatically be converted into shares of Common Stock at the then effective
Series A Conversion Price or Series B Conversion Price, as applicable,
immediately prior to the closing of a firm commitment underwritten public
offering pursuant to an effective registration statement on Form S-I (or any
successor form) under the Securities Act of 1933, as amended, covering the offer
and sale of Common Stock for the account of the Corporation to the public at a
price per share (determined without regard to underwriter commissions and
expenses) of not less than Five Hundred Dollars $500.00 (as adjusted for stock
splits, stock dividends, recapitalizations and the like) and aggregate gross
proceeds to the Corporation of not less than Ten Million Dollars ($10,000,000),
before deduction of underwriting discounts and commissions and registration
expenses. In the event of such an offering, the person(s) entitled to receive
the Common Stock issuable upon such conversion of the Preferred Stock shall not
be deemed to have converted such Preferred Stock until immediately prior to the
closing of such underwritten public offering.
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(c) Mechanics of Conversion. No fractional shares of Common Stock
shall be issued upon conversion of the Preferred Stock. In lieu of any
fractional share to which the holder would otherwise be entitled, the
Corporation shall (after aggregating all shares into which shares of Preferred
Stock held by each holder could be converted) pay cash equal to such fraction
multiplied by the Series A Conversion Price or Series B Conversion Price, as
applicable, then in effect. Before any holder of Preferred Stock shall be
entitled to convert the same into full shares of Common Stock and to receive
certificates therefor, the holder shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or of any
transfer agent, and shall give written notice to the Corporation at such office
that the holder elects to convert all or any number of shares of the Preferred
Stock represented by such certificate or certificates; provided, however, that
in the event of an automatic conversion pursuant to Section 3(b), the
outstanding shares of Preferred Stock shall be converted automatically without
any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Corporation or its
transfer agent, and provided further, that the Corporation shall not be
obligated to issue certificates evidencing the shares of Common Stock issuable
upon such automatic conversion unless the certificates evidencing such shares of
Preferred Stock are either delivered to the Corporation or its transfer agent as
provided above, or the holder notifies the Corporation or its transfer agent
that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection with such certificates. The Corporation shall,
as soon as practicable after such delivery, or such agreement and
indemnification in the case of a lost certificate, issue and deliver at the
office of the Corporation or of any transfer agent, as the case may be, to such
holder of Preferred Stock, a certificate or certificates for the number of
shares of Common Stock to which the holder shall be entitled as aforesaid and a
check payable to the holder in the amount of any cash amounts payable as the
result of a conversion into a fractional share of Common Stock. Such conversion
shall not terminate the rights of the holders of the Preferred Stock or Common
Stock issuable upon conversion of the Preferred Stock to receive dividends which
have been declared with respect to the Preferred Stock prior to the date of
conversion. Except as provided in Section 4(b) above, such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Preferred Stock to be converted, or in the
case of automatic conversion immediately prior to the close of business on the
date of closing of the offering, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock at
the close of business on such date. If the conversion is in connection with a
firm commitment underwritten public offering of securities registered pursuant
to the Securities Act, the conversion may, at the option of any holder tendering
the Preferred Stock for conversion, be conditioned upon the closing with the
underwriter of the sale of securities pursuant to such offering, in which event
the person(s) entitled to receive the Common Stock issuable upon such conversion
of the Preferred Stock shall not be deemed to have converted such Preferred
Stock until immediately prior to the closing of such sale of securities.
(d) Series B Preferred Conversion Price Adjustments. The Series B
Conversion Price shall be subject to adjustment from time to time as follows:
(i) Special Definitions. For purposes of this Section 4(d),
the following definitions shall apply:
(1) "Options" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
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(2) "Series B Original Issue Date" shall mean the date
on which the first share of Series B Preferred was first issued.
(3) "Convertible Securities" shall mean any evidences of
indebtedness, shares (other than Common Stock and Preferred Stock) or other
securities convertible into or exchangeable for Common Stock.
(4) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to Section 4(d)(iii) below, deemed
to be issued) by the Corporation after the Series B Original Issue Date other
than shares of Common Stock issued or issuable:
(A) upon conversion of shares of the Preferred
Stock or the exercise or conversion of any Options outstanding on the Series B
Original Issue Date;
(B) to officers, directors, employees and
consultants of the Corporation or any subsidiary thereof, pursuant to a stock
option plan, stock purchase plan or other employee stock incentive plan approved
by the Board of Directors or other stock arrangements which have been approved
by the Board of Directors;
(C) pursuant to any event for which adjustment has
already been made pursuant to this Section 4(d);
(D) as a dividend or distribution on the Preferred
Stock;
(E) as a dividend or distribution on the Common
Stock;
(F) upon any subdivision or split up of Common
Stock; or
(G) upon any capital reorganization of the
Corporation.
(ii) No Adjustment of Conversion Price. No adjustment in the
Series B Conversion Price shall be made in respect of the issuance of Additional
Shares of Common Stock unless the consideration per share for an Additional
Share of Common Stock issued or deemed to be issued by the Corporation is less
than the Series B Conversion Price, in effect on the date of and immediately
prior to such issue.
(iii) Deemed Issue of Additional Shares of Common Stock.
Except as provided in Section 4(d)(i)(4) above, in the event the Corporation at
any time or from time to time after the Series B Original Issue Date shall issue
any Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to receive any such
Options or Convertible Securities, then the maximum number of shares (as set
forth in the instrument relating thereto without regard to any provisions
contained therein for a subsequent adjustment of such number) of Common Stock
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as of
the time of such issue or, in case such a record date shall have been fixed, as
of the close of business on such record date, provided that Additional Shares of
Common Stock shall not be deemed to have been issued unless the consideration
per share (determined
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pursuant to Section 4(d)(v) below) of such Additional Shares of Common Stock
would be less than the Series B Conversion Price in effect on the date of and
immediately prior to such issue, or such record date, as the case may be, and
provided further that in any such case in which Additional Shares of Common are
deemed to be issued:
(1) no further adjustment in the Series B Conversion
Price shall be made upon the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such Options or conversion or
exchange of such Convertible Securities;
(2) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation, or increase or
decrease in the number of shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof, the Series B Conversion Price computed upon the
initial conversion prices thereof set forth in Section 4(a) above (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities;
(3) on the expiration or cancellation of any Options or
the termination of the right to convert or exchange any Convertible Securities
which shall have not been exercised, if the Series B Conversion Price shall have
been adjusted upon the original issuance thereof or shall have been subsequently
adjusted pursuant to clause (2) above, the Series B Conversion Price shall be
recomputed as if the only Additional Shares of Common Stock issued were shares
of Common Stock, if any, actually issued upon the exercise of such Options or
the conversion or exchange of such Convertible Securities and the consideration
received therefore was the consideration actually received by the Corporation
for the issue of all such Options, whether or not exercised, plus the
consideration actually received by the Corporation upon such exercise, or for
the issue of all such Convertible Securities which were actually converted or
exchanged plus the consideration actually received by the Corporation upon such
conversion or exchange, if any; and
(4) no readjustment pursuant to clause (2) or clause (3)
above shall have the effect of increasing the Series B Conversion Price to an
amount which exceeds the lower of (i) the initial Series B Conversion Price on
the original adjustment date (unless the Series B Conversion Price is increased
above the initial Series B Conversion Price pursuant to Section 4(e)(2) or
(e)(4)), or (ii) the Series B Conversion Price that would have resulted from any
issuances of Additional Shares of Common Stock (other than those the subject of
such adjustments) between the original adjustment date and such readjustment
date; and
(iv) Adjustment of Series B Conversion Price Upon Issuance of
Additional Shares of Common Stock. In the event this Corporation shall issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Section 4(d)(iii), but excluding stock
dividends, subdivisions or split-ups that are the subject of adjustment pursuant
to Section 4(e)) without consideration or for a consideration per share less
than the Series B Conversion Price applicable on and immediately prior to such
issue, then and in such event, the Series B Conversion Price shall be reduced,
concurrently with such issue, to a price (calculated to the nearest cent)
determined by multiplying the Series B Conversion Price in effect on the date of
and immediately prior to such issue by a fraction, the numerator of which shall
be the sum of (i) the number of shares of Common Stock
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outstanding immediately prior to such issue (on a fully diluted as converted
basis), including without limitation the number of shares of Common Stock
issuable upon conversion of the Preferred Stock outstanding immediately prior to
such issue and (ii) the number of shares of Common Stock which the aggregate
consideration received by the Corporation for the total number of Additional
Shares of Common Stocks so issued would purchase at the Series B Conversion
Price in effect on the date of and immediately prior to such issue; and the
denominator of which shall be the sum of (i) the number of shares of Common
Stock outstanding immediately prior to such issue (on a fully diluted as
converted basis), including without limitation the number of shares of Common
Stock issuable upon conversion of the Preferred Stock outstanding immediately
prior to such issue and (ii) the number of such Additional Shares of Common
Stock so issued.
(v) Determination of Consideration. For purposes of this Section
4(d), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property. Such consideration shall:
(A) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the Corporation;
(B) insofar as it consists of property other than cash,
be computed at the fair value thereof at the time of such issue, as determined
in good faith by the Board of Directors; and
(C) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board of Directors.
(2) Options and Convertible Securities. The consideration per
share received by the Corporation for Additional Shares of Common Stock deemed
to have been issued pursuant to Section 4(d)(ii) and 4(d)(iii), relating to
Options and Convertible Securities, shall be determined by dividing
(A) the total amount, if any, received or receivable by
the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such options for Convertible Securities and the
conversion or exchange of such Convertible Securities by
(B) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
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(e) Adjustment of Conversion Price of Both Series A Preferred and
Series B Preferred. The Series A Conversion Price and the Series B Conversion
Price shall be subject to adjustment from time to time as follows:
(1) Adjustments for Subdivisions of Common Stock. If the
number of shares of Common Stock outstanding at any time after filing this
Restated Certificate of incorporation with the Secretary of State of the State
of Delaware is increased by a stock dividend payable in shares of Common Stock
or by a subdivision or split up of stock, then the Series A Conversion Price and
the Series B Conversion Price then in effect shall, concurrently with the
effectiveness of such dividend, subdivision or split up, be proportionately
decreased so that the number of shares of Common Stock issuable on conversion of
each share of Preferred Stock shall be increased in proportion to such increase
of outstanding shares of Common Stock.
(2) Adjustments for Combinations of Common Stock. If the
number of shares of Common stock outstanding at any time after filing this
Restated Certificate of incorporation with the Secretary of State of the State
of Delaware is decreased by a combination of the outstanding shares of Common
Stock, then the Series A Conversion Price and the Series B Conversion Price then
in effect shall, concurrently with the effectiveness of such combination, be
proportionately increased so that the number of shares of Common Stock issuable
upon conversion of each share of such Preferred Stock shall be decreased in
proportion to such decrease in outstanding shares of Common Stock.
(3) Adjustments for Stock Dividends and Other Distributions.
In the event the Corporation at any time or from time so time makes, or fixes a
record date for the determination of holders of Common Stock entitled to receive
any distribution (excluding any repurchases of securities by the Corporation not
made on a pro rata basis from all holders of any class of the Corporation's
securities) payable in property or in securities of the Corporation other than
shares of Common Stock, then and in each such event the holders of Preferred
Stock shall receive at the time of such distribution, the amount of property or
the number of securities of the Corporation that they would have received had
their Preferred Stock been converted into Common Stock on the date of such
event.
(4) Adjustments for Reclassification, Exchange and
Substitution. Except as provided in Section 2 upon any liquidation, dissolution
or winding up of the Corporation, if the Common Stock issuable upon conversion
of the Preferred Stock shall be changed into the same or a different number of
shares of any other class or classes of stock, whether by capital
reorganization, reclassification or otherwise (other than a subdivision or
combination of shares provided for above), each share of Preferred Stock shall
thereafter be convertible into the number of shares of stock or other securities
or property to which a holder of the number of shares of Common Stock of the
Corporation deliverable upon conversion of such share of Preferred Stock shall
have been entitled upon such reorganization or reclassification.
(f) No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or By-laws or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed hereunder by the Corporation but
will at all times in good faith assist in the carrying out of all the provisions
of this Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Preferred Stock against impairment
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(g) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Series A Conversion Price or Series B
Conversion Price pursuant to this Section 4, the Corporation at its expense
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and furnish to each bolder of Preferred Stock a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. The Corporation shall, upon the
written request at any time of any holder of Preferred Stock, furnish or cause
to be furnished to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the Series A Conversion Price or the Series
B Conversion Price, as applicable, at the time in effect, and (iii) the number
of shares of Common Stock and the amount, if any, of other property which at the
time would be received upon the conversion of Preferred Stock. Notwithstanding
the foregoing, no adjustment of the Series A Conversion Price or the Series B
Conversion Price shall be made if the amount of any such adjustment would be an
amount less than $1.00, but any such amount shall be carried forward and an
adjustment with respect thereof shall be made at the time of and together with
any subsequent adjustment which, together with such amount and any other
amount(s) so carried forward, shall aggregate an increase or decrease of $1.00
or more.
(h) Notices of Record Date. In the event that the Corporation shall
propose at any time:
(i) to declare any dividend or distribution upon its Common
Stock, whether in cash, property, stock or other securities, whether or not a
regular cash dividend and whether or not out of earnings or earned surplus;
(ii) to offer for subscription pro rata to the holders of any
class or series of its stock any additional shares of stock of any class or
series or other rights;
(iii) to effect any reclassification or recapitalization of
its Common Stock outstanding involving a change in the Common Stock; or
(iv) to merge or consolidate with or into any other
corporation, or sell, lease or convey all or substantially all its property or
business, or to liquidate, dissolve or wind up;
then, in connection with each such event, the
Corporation shall send to the holders of the Preferred Stock:
(1) at least 20 days' prior written notice of the date
on which a record shall be taken for such dividend, distribution or subscription
rights (and specifying the date on which the holders of Common Stock shall be
entitled thereto) or for determining rights to vote in respect of the matters
referred to in (iii) and (iv) above; and
(2) in the case of the matters referred to in (iii) and
(iv) above, at least 20 days' prior written notice of the date when the same
shall take place (and specifying the date on which the holders of Common Stock
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon the occurrence of such event).
-10-
<PAGE>
Each such written notice shall be delivered personally or given by first
class mail, postage prepaid, addressed to the holders of Preferred Stock at the
address for each such holder as shown on the books of the Corporation.
(v) Reservation of Shares. The Corporation shall reserve at
all times so long as any shares of Preferred Stock remain outstanding, free from
preemptive rights, out of its treasure stock or its authorized but unissued
shares of Common Stock, or both, solely for the purposes of effecting the
conversion of the shares of Preferred Stock, sufficient shares of Common Stock
to provide for the conversion of all outstanding shares of Preferred Stock.
(vi) Valid Issuance. All shares of Common Stock which may be
issued upon conversion of the shares of Preferred Stock will upon issuance by
the Corporation be duly and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issuance thereof and
the Corporation shall take no action which will cause a contrary result.
Section 5. Voting Rights and Directors.
(a) Except as otherwise provided herein or required by law, the
holder of each share of Common Stock issued and outstanding shall have one vote
with respect to such share and the holder of each share of Preferred Stock shall
be entitled with respect to such share to a number of votes equal to the number
of shares of Common Stock into which such share of Preferred Stock could be
converted at the record date for determination of the stockholders entitled to
vote on such matters, or, if no such record date is established, at the date
such vote is taken or any written consent of stockholders is solicited, such
votes to be counted together with all other shares of stock of the Company
having general voting power and not separately as a class (except as required by
Section 5(b) below, Section 6 or by the General Corporation Law of Delaware).
Holders of Common Stock and Preferred Stock shall be entitled to notice of any
stockholders' meeting in accordance with the Bylaws of the Corporation.
Fractional votes by the holders of Preferred Stock shall not, however, be
permitted and any fractional voting rights shall (after aggregating all shares
into which shares of Preferred Stock held by each holder could be convened) be
rounded to the nearest whole number.
(b) The Board of Directors shall consist of seven (7) members. The
holders of the Series B Preferred, voting separately as a class, shall be
entitled to elect two (2) members of the Board of Directors. The holders of
Common Stock and Series A Preferred, voting together, shall be entitled to elect
the remaining members of the Board of Directors. At any meeting held for the
purpose of electing or removing directors, (i) the presence in person or by
proxy of the holders of the majority of the shares of Series B Preferred then
outstanding shall constitute a quorum of the Series B Preferred for the purpose
of electing or removing directors by holders of the Series B Preferred and (ii)
the presence in person or by proxy of the holders of a majority of shares of
Common Stock and Series A Preferred (on an as converted into Common Stock basis)
then outstanding shall constitute a quorum of Common Stock and Series A
Preferred for the purpose of electing or removing directors by holders of Common
Stock and Series A Preferred. A vacancy in any directorship elected by the
holders of the Series B Preferred shall be filled only by vote or written
consent in lieu of a meeting of the holders of the Series B Preferred. A vacancy
in any directorship elected by the holders of Common Stock and Series A
Preferred shall be filled only by vote or written consent in lieu of a meeting
of the holders or Common Stock and the Series A Preferred. Any member of the
Board of Directors elected by the holders of the Series B
-11-
<PAGE>
Preferred may only be removed by the vote of the holders of not less than a
majority of the shares of Series B Preferred voting thereon. Any member of the
Board of Directors elected by the holders of Common Stock and Series A Preferred
may only be removed by the vote of the holders of not less than a majority of
the shares of Common Stock and Series A Preferred (on an as converted into
Common Stock basis) voting thereon.
(c) At all elections of members of the Board of Directors of the
Corporation, if any holder of stock of this Corporation entitled to vote at an
election shall have given the Corporation written notice of its intention to
cumulate his or her votes for the election of members of the Board of Directors
prior to the commencement of the voting for such members, then each holder
entitled to vote for members of the Board of Directors shall be entitled to as
many votes as shall equal the number of votes which (except for this provision
as to cumulative voting) such holder would be entitled to cast for the election
of directors with respect to his or her shares of stock multiplied by the number
of directors to be elected by such holder either (i) by casting all such
holder's votes for a single director or (ii) by distributing such holder's votes
among the number of directors to be voted for, or for any two or more of them as
such holder may see fit.
Section 6. Covenants. In addition to any other rights provided by law, so
long as any Series B Preferred shall be outstanding, the Corporation shall not,
without first obtaining the written consent of the holders of not less than a
majority of the then outstanding shares of Series B Preferred:
(a) amend or repeal any provision of, or add any provision to, this
Corporation's Restated Certificate of Incorporation if such action would change
adversely the preferences, rights, privileges or powers of, or the restrictions
provided for the benefit of, the Series B Preferred;
(b) amend or repeal any provision of the charter document of CVC
Products, Inc., or authorize or issue any securities of CVC Products, Inc.;
(c) authorize or issue any shares of any class or series of stock or
any bonds, debentures, notes or other obligations convertible into or
exchangeable for, or having option rights to purchase, any shares of stock of
this Corporation, which shares have any preference or priority senior to or on
parity with the Series B Preferred as to dividend rights, voting rights,
redemption rights or liquidation preferences;
(d) redeem or purchase any of the Series A Preferred or any of the
Common Stock, provided, however, that this restriction shall not apply to the
repurchase or shares of Common Stock from employees, officers, directors,
consultants or other persons performing services for the Corporation upon or
after termination of the employment, consulting or other relationship between
the Corporation and such persons; provided, further, that such repurchase is not
made at a price greater than the original purchase price of such shares pursuant
to vesting or similar provisions;
(e) authorize or issue options or warrants to purchase in excess of
4,000 shares of Common Stock (appropriately adjusted for stock splits, stock
dividends and recapitalizations) to officers, directors, employees and
consultants of the Corporation or CVC Products, Inc. and in excess of 20,000
shares of Common Stock (appropriately adjusted for stock splits, stock dividends
and recapitalizations) to officers, directors, employees and consultants of the
Corporation or CVC Products, Inc. pursuant to stock option plans, stock purchase
plans or other employee stock incentive plans;
-12-
<PAGE>
(f) adopt, amend or repeal the by-laws of the Corporation if such
action would change adversely the preferences or powers of, or restrictions
provided for the benefit of, the Series B Preferred;
(g) consummate a sale of all or substantially all of the
Corporation's assets, any merger or consolidation of the Corporation with or
into any other entity, or any other transaction or series of related
transactions which would result in the holders of the outstanding voting power
of the Corporation immediately prior to such transaction or transactions holding
less than a majority of the voting power of the surviving entity, immediately
following such transaction or transactions;
(h) provide for the voluntary liquidation, dissolution or winding up
of the Corporation;
(i) sell, distribute or otherwise transfer any securities of CVC
Products, Inc. held by the Corporation; or transfer a substantial amount of
assets from CVC Products, Inc. to any other subsidiary of the Corporation;
(j) authorize a merger, consolidation, recapitalization or
reorganization of CVC Products, Inc., or authorize the sale of all or
substantially all of the assess of CVC Products, Inc., or otherwise liquidate,
wind up or dissolve CVC Products, Inc.; or
(k) declare or pay any dividend or other distribution on the Common
Stock or any series of Preferred Stock other than the Series B Preferred.
Section 7. No Reissuance of Series B Preferred. No share or shares of
Series B Preferred acquired by the Corporation by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all such shares should
be canceled, returned and eliminated from the shares which the Corporation shall
be authorized to issue.
Article V
In furtherance and not in limitation of powers conferred upon the
stockholders by statute, the Board of Directors of the Corporation is expressly
authorized to make, alter or repeal the by-laws of the Corporation, subject to
the power of the stockholders to alter or repeal the by-laws made or altered by
the Board of Directors.
Article VI
Whenever a compromise or arrangement is proposed between the Corporation
and its creditors or any class of them and/or between the Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of the
Corporation or of any creditor or stockholder thereof, or on the application of
any receiver or receivers appointed for the Corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for the Corporation under
the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganiza-
-13-
<PAGE>
tion of the Corporation as consequence of such compromise or arrangement, the
said compromise or arrangement and the said reorganization shall, if sanctioned
by the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
Article VII
To the fullest extent permitted by the Delaware General Corporation Law as
the same exists or as may hereafter be amended, a director of the corporation
shall not be personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director.
The Corporation may indemnify to the fullest extent permitted by law any
person (including the representative of such person's estate and such person's
successors and assigns) made or threatened to be made a party to an action or
proceeding, whether criminal, civil, administrative or investigative, by reason
of the fact that he or she is or was a director, officer or employee of the
Corporation or served at any other enterprise as a director, officer or employee
at the request of the Corporation.
Neither any amendment nor repeal of this Article VII nor the adoption of
any provision of this Corporation's Restated Certificate of Incorporation
inconsistent with this Article VII shall eliminate or reduce the effect of this
Article VII in respect of any matter occurring, or any action or proceeding
accruing or arising or that, but for this Article VII, would accrue or arise,
prior to such amendment, repeal or adoption of an inconsistent provision.
Article VIII
Except as otherwise required in the by-laws of the Corporation, election
of directors need not be by written ballot.
Article IX
The Corporation is to have perpetual existence.
Article X
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Restated Certificate, in the manner now or hereafter
prescribed by statute, and all rights conferred upon stockholders herein are
granted subject to this reservation.
-14-
<PAGE>
Exhibit 3.1.2
RESTATED CERTIFICATE OF INCORPORATION
OF
CVC, INC.
(PURSUANT TO SECTIONS 242 AND 245 OF THE DELAWARE GENERAL CORPORATION LAW)
CVC, Inc., a corporation (the "Corporation") organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "DGCL") hereby certifies as follows:
FIRST: The name of the corporation is CVC, Inc.
SECOND: The date on which the initial Certificate of
Incorporation was filed with the Secretary of State of the State of Delaware was
October 19, 1990, under the name CVC Holdings, Inc.
THIRD: The Board of Directors of the Corporation, pursuant to
the DGCL, adopted resolutions amending, integrating and restating the
Certificate of Incorporation to read in full as set forth in the Restated
Certificate of Incorporation attached hereto.
FOURTH: Pursuant to resolutions of the Board of Directors of
the Corporation, the Restated Certificate of Incorporation was thereafter
submitted to the stockholders of the Corporation for their approval, which
approval was given by written consent of the stockholders pursuant to Section
228 and in accordance with Section 245 of the DGCL.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to
be signed by Christine B. Whitman, its Chairman of the Board, President and
Chief Executive Officer, this ____ day of _________, 1999.
CVC, INC.
------------------------------
Christine B. Whitman,
Chairman of the Board, President and
Chief Executive Officer
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF CVC, INC.
ARTICLE I
The name of the Corporation is CVC, Inc.
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is The Prentice-Hall
Corporation System, Inc.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
ARTICLE IV
Section 1. CAPITAL STOCK
(a) CLASSES OF STOCK. The Corporation is authorized to issue
two classes of stock, designated "Common Stock" and "Preferred Stock." The total
number of shares which the Corporation is authorized to issue is 55,000,000. The
total number of shares of Common Stock which the Corporation is authorized to
issue is 50,000,000, par value $0.01 per share. The total number of shares of
Preferred Stock which the Corporation is authorized to issue is 5,000,000, par
value $0.01 per share.
(b) ISSUANCE OF PREFERRED STOCK. The Preferred Stock may be
issued from time to time in one or more series. The Board of Directors is hereby
authorized, by filing one or more certificates pursuant to the General
Corporation Law of the State of Delaware (each, a "Preferred Stock
designation"), to fix or alter from time to time the designations, powers,
preferences and rights of each such series of Preferred Stock and the
qualifications, limitations or restrictions thereof, including, without
limitation, the dividend rights, dividend rate, conversion rights, voting
rights, rights and terms of redemption (including sinking fund provisions),
redemption price or prices and the liquidation preferences of any
wholly-unissued series of Preferred Stock, and to establish from time to time
the number of shares constituting any such series and the designation thereof,
or any of them; and to increase or decrease the number of shares of any series
subsequent to the issuance of shares of that series, but not below the number of
shares of such series then outstanding. In case the number of shares of any
series shall be decreased in accordance with the foregoing sentence, the shares
constituting such decrease shall resume the
<PAGE>
status that they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
(c) RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS OF
COMMON STOCK.
1. DIVIDEND RIGHTS. Subject to the prior or equal
rights of holders of all classes of stock at the time outstanding having prior
or equal rights as to dividends, the holders of the Common Stock shall be
entitled to receive, when and as declared by the Board of Directors, out of any
assets of the Corporation legally available therefor, such dividends as may be
declared from time to time by the Board of Directors.
2. REDEMPTION. The Common Stock is not redeemable
upon demand of any holder thereof or upon demand of the Corporation.
3. VOTING RIGHTS. The holder of each share of Common
Stock shall have the right to one vote, and shall be entitled to notice of any
stockholders' meeting in accordance with the By-Laws of the Corporation, and
shall be entitled to vote upon such matters and in such manner as may be
provided by law.
Section 2. BOARD OF DIRECTORS
The Board of Directors of the Corporation shall consist of not
less than three (3) members, the exact number to be fixed from time to time
solely by resolution of the Board of Directors acting by not less than a
majority of the directors then in office.
ARTICLE V
In furtherance and not in limitation of powers conferred upon the
stockholders by statute, the Board of Directors of the Corporation is expressly
authorized to make, alter or repeal the by-laws of the Corporation, subject to
the power of the stockholders to alter or repeal the by-laws made or altered by
the Board of Directors.
ARTICLE VI
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 291 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or the stockholders
or class of stockholders of the Corporation, as the case may be, to be summoned
in such manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation as a consequence of such compromise or arrangement, the said
<PAGE>
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
ARTICLE VII
To the fullest extent permitted by Delaware General Corporation Law as
the same exists or as hereafter be amended, a director of the Corporation shall
not be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director.
The Corporation may indemnify to the fullest extent permitted by law
any person (including the representative of such person's estate and such
person's successors and assigns) made or threatened to be made a party to an
action or proceeding, whether criminal, civil, administrative or investigative,
by reason of the fact that he or she is or was a director, officer or employee
of the Corporation or served at any other enterprise as a director, officer or
employee at the request of the Corporation.
Neither any amendment nor repeal of this Article VII nor the adoption
of any provision of this Certificate of Incorporation inconsistent with this
Article VII shall eliminate or reduce the effect of this Article VII in respect
of any matter occurring, or any action or proceeding accruing or arising or
that, but for this Article VII, would accrue or arise, prior to such amendment,
repeal or adoption of an inconsistent provision.
ARTICLE VIII
Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of such
holders and may not be effected by any consent in writing by such holders.
Except as otherwise required by law, special meetings of stockholders of the
Corporation may be called only by the Board of Directors pursuant to a
resolution approved by a majority of the entire Board of Directors, or by the
President of the Corporation.
ARTICLE IX
The Corporation is to have perpetual existence.
ARTICLE X
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in the Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
are herein granted subject to this reservation.
<PAGE>
1
Exhibit 4.1
- ------------------------------------------------------------------------------
Number Shares
- ----------- ------------
- ----------- ------------
[CVC, Inc. LOGO]
CVC, Inc.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK COMMON STOCK
---------------------------------------------------
This Certifies that CUSIP
SEE REVERSE
FOR CERTAIN
DEFINITIONS
is the owner of
----------------------------------------------------
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $.01 PER
SHARE, OF
CVC, INC. (the "Corporation") transferable upon the books of the Corporation
in person or by duly authorized attorney upon surrender of this Certificate
properly endorsed or assigned. This Certificate and the shares represented
hereby are issued and held subject to the laws of the State of Delaware and
to the provisions of the Certificate of Incorporation and By-Laws of the
Corporation, each as now or hereafter amended. This Certificate is not valid
unless countersigned and registered by the Transfer Agent and Registrar.
[CVC, INC. IN WITNESS WHEREOF, the Corporation has caused this
SEAL] Certificate to be executed by the facsimile signatures
of its duly authorized officers and sealed with the
facsimile seal of the Corporation.
Dated:
/s/ Emilio DiCataldo /s/ Christine B. Whitman
SENIOR VICE PRESIDENT AND CHIEF PRESIDENT, CHIEF EXECUTIVE
FINANCIAL OFFICER OFFICER AND CHAIRMAN
COUNTERSIGNED AND REGISTERED:
BANKBOSTON, N.A.
TRANSFER AGENT AND REGISTRAR
By
---------------------------
AUTHORIZED SIGNATURE
- -----------------------------------------------------------------------------
<PAGE>
2
CVC, Inc.
THE CORPORATION IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS AND SERIES OF
STOCK. THE CORPORATION WILL FURNISH TO THE HOLDER UPON WRITTEN REQUEST
WITHOUT CHARGE A STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF
STOCK OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS
OF SUCH PREFERENCES AND/OR RIGHTS.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -as tenants in
common UNIF GIFT MIN ACT- Custodian
TEN ENT -as tenants by --------- ----------
the entirety (Cust) (Minor)
JT TEN -as joint tenants
with right of under Uniform Gifts to Minors
survivorship and
not as tenants Act
in common -------------------------
COM PROP -as community (State)
property
Additional abbreviations may also be used though not in the above list.
For value received, ______________________hereby sell(s), assign(s) and
transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- -------------------------------------- -------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS,
INCLUDING POSTAL ZIP CODE, OF ASSIGNEE)
- -----------------------------------------------------------------------------
- ----------------------------------------------------------------------- shares
of the common stock represented by the within Certificate, and doe(es) hereby
irrevocably constitute and appoint
- -------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated, ------------------- ------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED: ----------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVING
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
Exhibit 5.1
[LETTERHEAD OF DEWEY BALLANTINE LLP]
November 3, 1999
CVC, Inc.
525 Lee Road
Rochester, New York 14606
Re: CVC, Inc. - Registration Statement
on Form S-1 (the "Registration Statement")
Dear Ladies and Gentlemen:
We are acting as counsel for CVC, Inc., a Delaware corporation
(the "Company"), in connection with the proposed issuance and sale pursuant
to the Registration Statement (File No. 333-38057) of shares of common stock,
par value $0.01 per share, of the Company (the "Shares").
We have examined such corporate records, certificates and
other documents as we have considered necessary for the purposes hereof. In
such examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the conformity to
the original documents of all documents submitted to us as copies and the
authenticity of the originals of such latter documents. As to any facts
material to our opinion, we have, when relevant facts were not independently
established, relied upon the aforesaid records, certificates and documents.
Based on the foregoing, we are of the opinion that, upon
issuance and delivery in accordance with the Underwriting Agreement filed as
Exhibit 1.1 to the Registration Statement, the Shares will be duly
authorized, validly issued, fully paid and nonassessable.
Our opinion set forth herein is limited in all cases to
matters arising under the General Corporation Law of the State of Delaware.
We consent to the use of this opinion as an Exhibit to the Registration
Statement and to the reference to our firm under the caption "Legal Matters"
in the prospectus that is a part of the Registration Statement. In giving such
consent, we do not thereby concede that we are within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the Commission thereunder.
Very truly yours,
/s/ Dewey Ballantine LLP
Dewey Ballantine LLP
<PAGE>
Exhibit 10.42
Agreement
Between
CVC Products
And
Local 342, IUE
EFFECTIVE 10/31/98 - 10/31/2001
<PAGE>
Table Of Contents
TOPIC PAGE
I. Agreement 1
Intent 1
Validity 1
II. Union Security 1
Recognition 1
Union Shop 1
Check-Off of Union Membership Dues 2
Authorization for Check-Off Dues 2
Assignment & Authorization 2
III. Mutual Rights and Responsibilities. 4
Management Responsibilities 4
Management Working 5
Union Responsibility 5
Strikes, Stoppage, Slowdowns, & Lockouts 5
IV. Wages 6
General Wage Increase 6
Wage Rate Schedule. 6
Facilities, Level I Personnel 7
Labor Grades 8
Tool Purchases 9
Cost of Living Allowance 9
V. Hours of Work, Overtime, Reporting & Call Back Pay 10
Hours Of Work And Overtime 10
Straight Time 10
Time and One Half 10
Double Time 11
Assignment of Overtime Work 11
Reporting Pay 14
Call Back Pay 14
VI. Grievance Procedure & Arbitration 14
Grievance Procedure 14
Steps One 14
Step Two 15
Step Three 15
Arbitration 16
i
<PAGE>
TOPIC PAGE
VII. Discipline and Discharge 18
VIII. Holidays, Vacations and Paid Absence 19
Holiday Pay 19
Vacations 20
Paid Absence Allowance Credit 21
IX. Probation And Seniority 23
Probationary Period 23
Seniority 23
Loss Of Seniority 23
Application of Seniority 24
Layoff 24
Inventory Assignment 25
Bump 25
Recall 26
Transfers Out of Bargaining Unit 27
Flexibility of Work Assignments 27
X. Shift Preference & Premium 28
Shift Preference 28
Shift Premium 28
XI. Absence and Leaves of Absence 28
Absence 28
Report of Absence 29
Leave Of Absence 29
XII. New Jobs, Promotions 31
New Job 31
Promotion 32
General Provision 32
Definitions 32
Filling Openings 32
Job Posting and Bidding 32
Job Promotion Applications 33
XIII. Bulletin Boards, Safety & Health, Anti-Discrimination 33
Bulletin Boards 33
Safety and Health 33
Anti -Discrimination 34
ii
<PAGE>
TOPIC PAGE
XIV. Bereavement Pay, Jury Duty, Rest Periods, Wash- Up Time 34
Bereavement Pay 34
Jury Duty Service 35
Rest Periods 35
Wash- Up And Clean-up Time 35
XV. Representation 35
XVI. Short -Term Military Pay 38
XVII. Duration of Agreement 38
XVIII. Company Benefits 39
Short Term Disability 39
Long Term Disability 40
Worker's Compensation 41
Health Insurance 41
Prescription Drugs 42
Dental Plan 42
Life Insurance 42
Pension Plan 42
401(k) Plan 42
Retirement Benefits 43
Severance Pay 43
Signatures of Agreement 45
Appendix A
Lay-off Procedure 46
Appendix B
Disciplinary Actions 47
Appendix C
Bargaining Unit Employee Leave of Absence 49
Appendix D
Family Medical Leave Absence Form 51
Appendix E
Employee PAA/Vacation Request Form 52
Appendix F
Union Time Request Form 53
iii
<PAGE>
TOPIC PAGE
Appendix G
Disciplinary Action Form 54
Appendix H
Promotion Application 55
Appendix I
Bump and Recall Form 56
Appendix J
CAR Policy 57
Appendix K
Safety Guidelines 58
Appendix L
Flex Time Schedule 64
Appendix M
Membership Dues Deduction Memo 65
Appendix N
Memo of Understanding - Learning Block 66
iv
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I. AGREEMENT:
1. This Agreement is entered into on October 31st, 1998 between CVC
Products,., located at 525 Lee Road, Rochester, New York, its successor
and/or assignees, hereinafter referred to as the Company and Local 342 of
the International Union of Electronic, Electrical, Salaried, Machine &
Furniture Workers, AFL- CIO, hereinafter referred to as the Union.
2. Intent: It is the intent of both the Union and the Company to conduct all
matters in accordance with the terms of this Agreement and to maintain a
harmonious relationship among all persons who have duties and
responsibilities in the administration of the Collective Bargaining
Agreement. It is the further intent that the provisions of the Agreement
be carried out with fairness on the part of both the Union and the
Company.
3. Validity: If any provisions of the Agreement is declared invalid by a
court of competent jurisdiction, the validity of the remainder of this
Agreement shall not be affected thereby.
4. This Agreement is subject to all applicable Federal and State laws and any
rules and regulations issued pursuant thereto.
II. UNION SECURITY
5. Recognition: The Company recognizes the International Union of Electronic,
Electrical, Salaried, Machine & Furniture Workers AFL-CIO and its
affiliate, Local 342, as the exclusive representative for all production,
maintenance, and facilities employees at its Rochester, New York operation
for the purposes of collective bargaining with respect to wages, hours and
other conditions of employment in accordance with the terms of this
Agreement.
6. Should the Company relocate all, or any part of bargaining unit work, to
within a (50) mile radius of its present location, it will recognize the
Union as exclusive bargaining agent for the production and maintenance
employees listed above. This provision shall not be applicable to the
acquisition of another company or division of the Company.
7. It is mutually agreed that, for the purposes of this Agreement, the term
"employee" shall not include office and factory clerical employees,
technicians, draftsmen, timekeepers, professional employees, guards and
supervisory or other employees with the authority to hire, promote,
discharge, discipline or otherwise effect changes in the status of
employees or effectively recommend such action.
8. Union Shop: Any employee of the Company who is a member of the Union on
the effective date of the Agreement shall continue to remain a member as a
continuing condition of employment, provided that nothing herein shall be
interpreted to cause a violation of the Labor Management Relations Act of
1947 or any other applicable law.
9. Any employee hired on or after the effective date of the Agreement and
covered by the terms of this Agreement shall either become a Member of the
Union within thirty- one
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(31) days after the effective date of the Agreement or his/her hire date,
whichever is later or, if the employee chooses not to become a member,
must agree to pay dues to the Union as a continuing condition of
employment provided that nothing herein shall be interpreted to cause a
violation of the Labor Management Relations Act of 1947 or any other
applicable law.
10. Check-off of Union Dues: Dues are not a deductible charitable contribution
for Federal income tax purposes but may qualify as a deductible business
expense subject to IRS restrictions.
a) The Company agrees to deduct Union membership dues levied by the
International Union or Local Union in accordance with the
Constitution and By-Laws of the Union from the pay of each employee
who is or who becomes a member of the Union within the scope of the
bargaining unit and covered by this Agreement and who in writing, in
accordance with the Authorization for Check-Off of Dues form set
forth below, has voluntarily authorized the Company to do so for the
period covered thereby.
b) The company will remit to the Local union weekly, to the
International and District Union monthly, their respective portions
of the dues that have been collected by the Company in accordance
with the Agreement. It shall be the responsibility of the Union to
advise the Company of the apportioning to be used and the names and
addresses of financial officers to whom the remittance is to be
made.
c) The Company shall remit each week to the designated Financial
Officer of the Local Union the amount of deductions made for the
particular week together with a list of employees for whom such
deductions have been made, as well as the amount of each employee's
deductions.
11. Thereafter, on the first day of each succeeding pay period, the Local
Union shall furnish management with any additional executed Authorization
of Check -Off of Dues forms under which Union membership dues are to be
deducted.
12. A properly executed Authorization For CHECK-OFF OF DUES form for each
employee for whom Union membership dues are to be deducted hereunder,
shall be delivered to the Company before any payroll thereafter, only when
such forms have been properly executed and are in effect. Any such forms
which are incomplete or in error will be returned to the Union by the
Company. (Appendix M)
13. This Assignment and Authorization is voluntarily made in consideration of
the costs of representation and collective bargaining and is not
contingent upon my membership in the Union. Pursuant to this assignment
and irrespective of my present or future membership status in the Union, I
authorize and direct you to deduct, while I am employed in the represented
bargaining unit of the Employer, such a sum equal to membership dues and,
if owing by me, an initiation fee, as certified to the Employer by
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the Local. Regardless of my membership status, this Assignment and
Authorization shall be irrevocable until a date one year from its
effective date, or until the date on which the current collective
bargaining agreement between the Employer and the Union is terminated,
whichever is earlier. I agree and direct that this Assignment and
Authorization shall be automatically renewed, and shall be irrevocable for
successive periods of one (1) year each from its effective date, or for
the period of each succeeding applicable collective bargaining agreement
between the Employer and the Union, whichever, period is shorter. This
Assignment and Authorization may only be revoked by written notice by
individual registered or certified mail, given by me to the Employer and
the Union, postmarked not more than twenty (20) days and not less than ten
(10) days prior to the expiration date of each one- year period, or the
termination date of each applicable collective bargaining agreement
between the Employer and the Union, whichever date is earlier. This
authorization and assignment supersedes all previous authorizations and
assignments.
14. The (employer) agrees to deduct and transmit to IUE COPE each pay period
such sums from the wages of employees as they voluntarily authorize on
forms provided for that purpose by IUE Local 342. These transmittals shall
be accompanied by a list of names of those employees for whom such
deductions have been made and the amount deducted for each such employee.
Employees who wish to cancel their authorization for payroll deductions
will sign a card supplied by the Union for that purpose.
15. In cases where a deduction is made which duplicates a payment already made
to the Union by an employee, or where a deduction is not in conformity
with the provisions of the Union Constitution and By- Laws, refunds to the
employee will be made by the local Union.
16. In the event any employee shall register a complaint with the Company
involving the matter of a properly revoked Authorization for Check- Off of
Dues form, the Company will make no further deductions of the employee's
dues. Such dispute shall then be reviewed with the employee by a
representative of the Union and a representative of the Company. Should
this review fail to result in a satisfactory settlement between the
Company and the Union of the matter, the dispute may be referred to the
arbitrator, in accordance with the arbitration provisions of the Agreement
and his decision shall be final and binding on the employee, the Union,
and the Company.
17. The Company shall not be liable to the International Union or the Local
union by reason of the requirements of this section of the Agreement, for
the remittance of payment of any sum other than that constituting actual
deductions made from employee wages earned.
18. The Union shall indemnify and hold harmless the Company against any and
all liability which may arise by reason of the Check- Off by the Company
of Union initiation fee and membership dues from employee wages in
accordance with this Agreement.
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19. The Union agrees that there shall be no collection of dues at any time on
Company property outside payroll deductions.
20. Consistent with applicable State or Federal laws, deductions shall be made
only in accordance with the provisions of said Authorization of Check -Off
Dues, together with the provisions of this section of the Agreement.
21. Any employee whose seniority is broken by death, resignation, discharge,
or layoffs, or who is transferred to a position outside of the scope of
the bargaining unit, shall cease to be subject to check- off deductions
beginning with the week immediately following that in which such death,
resignation, discharge, layoff, or transfer occurred.
22. If any employee is on short-term or long-term disability, no dues are
required.
III. MUTUAL RIGHTS AND RESPONSIBILITIES
23. MANAGEMENT RESPONSIBILITIES: The management of the Company and the
direction of the working forces including but not limited to the right to
hire, promote, transfer, establish rules of conduct, and to maintain
discipline and efficiency, and the right to relieve employees from duty
because of lack of work, or for other legitimate reasons are the sole and
exclusive rights and responsibilities of the Company, provided that this
will not be used for the purposes of discrimination against any member of
the Union, and is in accordance with the terms and provisions of this
Agreement.
a) The Company shall have the right to outsourceor subcontract work
after giving due consideration to the interests of regular
employees.. Due consideration to regular employees includes, but is
not limited to, recall of employees on layoff and overtime
availability. The Company will also inform the Union, during their
bi-weekly meetings (refer to paragraph 27), of its intention to
outsource or subcontract work. The Company will consider any input
made by the Union in furtherance of those discussions. This is not
intended to impose a duty to bargain by the company over outsourcing
or sub-contracting.
b) The Company will make every effort to encourage and allow cross
training of bargaining unit employees when requested by the
employee. Such cross-training will be documented (as to the type and
length of training) and placed in the appropriate employee file: a
copy will be given to the Area Steward. It is understood and agreed
that cross- training will be accomplished as production schedules
allow and will not circumvent the hiring of full-time employees.
24. In addition, the products to be manufactured, the locations of plants, the
schedules of production and hours and shifts, the opening and closing of
the plant, the methods, processes, and means of manufacture are solely and
exclusively the responsibility of the Company except as otherwise provided
in this Agreement.
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25. Management Working: Engineering personnel will not be assigned to the
assembly or disassembly of production units. Engineering may work closely
with the bargaining unit employees, especially in regard to prototypes and
engineering changes. Employees outside the bargaining unit shall not
perform the regular work of bargaining unit employees, except for the
purposes of instruction, participating in training programs, assisting
when requested by bargaining unit employees, test & integration, verifying
processes, performing experiments, material handling, checking inventory
status, and in emergencies when bargaining unit employees are not
available. Test & Integration activities are defined as beginning upon
completion of module docking and the initial hook-up of external pumps,
gases and utilities. Material handling activities are limited to those
actions not requiring the use of a fork lift truck. It is agreed that
material handling activities will not result in loss of employment for
bargaining unit employees and that flagrant abuse of this clause will be
addressed by management.
26. Annual goals and objectives will be mutually developed between department
managers and employee, with mutually agreed upon Union Representation.
Managers are responsible for implementing and properly controlling the
Performance Appraisal Plan. In addition to management's' responsibilities
to properly develop these goals and objectives, management also has the
responsibility to hire and retain qualified employees. An individual's
qualifications for a job opening will be the most important factor in
determining who is most qualified for that job.
27. Bi-weekly meetings shall be held between union and management. These
meetings shall be attended by the Union President, Chief Steward,
Manufacturing Manager and Human Resource Representative. These meetings
can only be canceled or postponed with the mutual agreement of union and
management.
28. Union Responsibility: The Union recognizes the responsibilities imposed
upon it as the exclusive bargaining agent of the employees covered by this
Agreement. The Union recognizes that in order to provide maximum
opportunities for continuing employment, good working conditions, and
fair, equitable wages, the Company must be in a strong competitive
position, must produce efficiently and at a competitive cost consistent
with fair labor standards. To that end, the Union agrees that it and its
members will wholeheartedly cooperate with the Company in the introduction
of new improvements and that it will do everything within its power to
cause the employees covered by this Agreement, individually and
collectively, to perform and render efficient work and service.
29. Strikes, Stoppages, Slowdowns: The Union agrees that there shall be no
strikes, stoppages, or slowdowns of operations during the life of this
Agreement.
30. Lockouts: The Company agrees that there shall be no lockouts during the
life of this Agreement.
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IV. WAGES
31. Employees will be paid on Thursday of each week. All hourly rated
employees coming under the scope of this Agreement will be granted general
wage increases beginning with the first full week following the schedule
below:
------------------------------
Effective Date Percentage of
increase
------------------------------
10/31/98 3%
------------------------------
10/31/99 3%
------------------------------
10/31/00 3%
------------------------------
32. Ware Rate Schedule: Effective per the schedule in paragraph 31. Please
note that the amounts below do not include the COLA distribution of a
maximum of $.12/year
--------------------------------------
Labor FY 1999 FY 2000 FY 2001
Grade 3% 3% 3%
--------------------------------------
4 $8.95 $9.34 $9.75
--------------------------------------
5 $9.56 $9.97 $10.39
--------------------------------------
6 $10.17 $10.59 $11.04
--------------------------------------
7 $10.79 $11.24 $11.70
--------------------------------------
8 $11.40 $11.87 $12.35
--------------------------------------
8.5 $12.43 $12.93 $13.44
--------------------------------------
9 $13.47 $14.00 $14.54
--------------------------------------
10 $14.51 $15.07 $15.65
--------------------------------------
11 $14.90 $15.47 $16.06
--------------------------------------
12 $16.02 $16.62 $17.24
--------------------------------------
13 $16.36 $16.97 $17.60
--------------------------------------
14 $16.63 $17.26 $17.90
--------------------------------------
15 $16.93 $17.56 $18.22
--------------------------------------
16 $17.17 $17.81 $18.47
--------------------------------------
17 $17.49 $18.14 $18.81
--------------------------------------
18 $17.74 $18.39 $19.07
--------------------------------------
19 $17.99 $18.66 $19.34
--------------------------------------
20 $18.23 $18.90 $19.59
--------------------------------------
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33. Personnel assigned to Facilities, Level I in Wage Grade 4 will be
considered a temporary employee and will not accumulate any seniority or
share in any benefits other than holidays as spelled out in the contract.
Every attempt will be made to hire full time students who are children of
Company employees.
a. Anyone assigned to the above position beyond 6 months will be
considered to have completed his/her temporary assignment and will
be deemed to have completed his/or probationary period. At this
point the individual will be converted to regular status, credited
with seniority as of their start date, afforded all rights under the
contract and upgraded to Wage Grade 5.
34. An employee whose base rate is in excess of the established maximum of his
job classification shall retain the rate for as long as he works in that
particular job classification. If the employee is transferred to another
classification his rate of pay shall be governed by the established rate
range for the new classification. If the employee returns to the former
job classification in which he received the rate in excess of the
established maximum, that former rate shall be reinstated.
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35. Labor Grades and Classifications within the scope of this agreement:
-----------------------------------------------
Labor Grade Classification
-----------------------------------------------
-----------------------------------------------
4.00 Facilities I
-----------------------------------------------
5.00 Facilities II
-----------------------------------------------
6.00 Inventory I
-----------------------------------------------
7.00 Facilities III
-----------------------------------------------
8.00 Metal Prep & Weld I
-----------------------------------------------
8.50 Inventory IA
-----------------------------------------------
9.00 New - no classifications
-----------------------------------------------
10.00 Facilities IV
-----------------------------------------------
Inventory II
-----------------------------------------------
Assembly I
-----------------------------------------------
11.00 Inventory III
-----------------------------------------------
Metal Prep & Weld II
-----------------------------------------------
Assembly II
-----------------------------------------------
-----------------------------------------------
Machining I
-----------------------------------------------
12.00 Metal Prep & Weld III
-----------------------------------------------
Assembly III
-----------------------------------------------
13.00 Assembly IV
-----------------------------------------------
-----------------------------------------------
Inventory IV
-----------------------------------------------
Metal Prep & Weld IV
-----------------------------------------------
14.00 Facilities V
-----------------------------------------------
Machining II
-----------------------------------------------
15.00 Facilities VI
-----------------------------------------------
Inventor V
-----------------------------------------------
Assembly V
-----------------------------------------------
Machining III
-----------------------------------------------
16.00 Facilities VII
-----------------------------------------------
Metal Prep & Weld V
-----------------------------------------------
17.00 Assembly VI
-----------------------------------------------
Facilities VIII
-----------------------------------------------
18.00 Machining IV
-----------------------------------------------
Assembly VII
-----------------------------------------------
19.00 Machining V
-----------------------------------------------
Metal Prep & Weld VI
-----------------------------------------------
Assembly VIII
-----------------------------------------------
20.00 Machining VI
-----------------------------------------------
Assembly IX
-----------------------------------------------
Metal Prep & Weld VII
-----------------------------------------------
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36. Employees may buy job related tools and equipment through the Company with
the following repayment schedule: Please note that repayments will be made
in $25- $35 increments.
------------------------------------------
Dollar amount of Maximum repayment
purchase period
------------------------------------------
to $50 2 weeks
------------------------------------------
$51 to $100 4 weeks
------------------------------------------
$101 to $200 6 weeks
------------------------------------------
$201 and over 8 weeks
------------------------------------------
37. Cost of Living Allowance (1967 C.P.I.-W BASE = 100)
a) Effective with the first full pay period beginning after February 1,
1999, and thereafter, during the, period of this agreement a Cost-
of Living adjustment, if applicable, shall be made quarterly with
the first full pay period beginning on or after February 1, May 1,
and August 1. Such adjustment shall be based on changes, if any, in
the C.P.I.-W above as of the prior September 15, January 15, March
15, and July 15 respectively.
b The Cost-of-Living allowance shall be adjusted so that all employees
shall receive an allowance of one cent per hour for each .3 by which
the C.P.I.-W exceeds the September 1976 index of 172.6.
c) If, after the Cost-of-Living adjustment has been in effect pursuant
to the foregoing provision, it shall be found that as of March,
June, and September of any year during the life off this agreement
the C.P.I.-W has decreased during the preceding 3 months, then one
cent shall be deducted from the Cost -of- Living allowance for each
full .3 decrease in the C.P.I.- W below the level which the C.P.I.
-W was required to reach in order to earn previous amount of
allowance.
d) The Maximum Amount of Cost-of-Living Allowance the Company will pay
shall not exceed twelve (12) cents per hour in any one year.
e) The Cost of-Living allowance when earned will be paid on the
following schedule: The September 1998 index when compared to the
December 1998 index released in January 1999 will determine the
amount to be paid on the first full work week in February 1999. The
next payoff date will be determined by the March 1999 index that
will be released in April 1999 for pay-off, if any, on the first
full work week in May of 1999. The index values of June 1999 and
September 1999 will determine the amount of pay out, if any on the
first full weeks of August 1999 and November 1999 respectively.
Subsequent payments for the balance of the contract will follow the
same pattern.
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f) In the event the members of the Union did receive in any one of the
contract years any increase in Cost- of- Living allowance up to and
including the twelve (12) cents, such allowance will incorporated
into the basic wage rate and cannot be deducted in any succeeding
contract year from the basic wage structure.
V. HOURS OF WORK, OVERTIME, REPORTING & CALL BACK PAY
38. Hours of Work and Overtime For the purposes of this Agreement, the
employee's work week will begin 12:01 a.m. Saturday, and will end the
following Friday at 12:00 a.m. For purposes of this Agreement, the first
(A) shift is that shift which starts nearest 7:00 a.m., the second (B)
shift follows the first shift, and the third (C) shift follows the second
shift. On all three (3) shifts, the regular days work shall consist of
either eight (8) hours or ten (10) hours of work and an unpaid lunch
period on one- half (1/2) hour. Refer to Article X paragraph 96.
39. The hours of work are normally from 7:00 AM to 3:30 PM for the 1st shift,
3:00 PM to 11:30 PM for the 2nd shift, and 11:00 PM to 7:30 AM for the 3rd
shift. Employees may request in writing (Appendix K), to flex their start
times one (1) hour before or after the original starting time. Employees
on the second shift may, with written permission from their immediate
supervisor, use flex time up to two (2) hours before or after the
scheduled shift time to attend the regular monthly union membership
meetings. . On all three (3) shifts, the regular day's work shall consist
of eight (8) hours of work and an unpaid lunch period of one- half (1/2)
hour. If approved by management, employees will be allowed to fulfill
their 40 hour week by working four 10-hour days instead of five 8-hour
days. In such cases a a written agreement between the employee and the
company (to be copied to the steward) will be created and approved in
weekly increments. Requests should be in by the first of each month for
seniority to govern, otherwise the first request will be granted. Holidays
which fall during an employee's four day week schedule will only be paid
at straight time pay for 8 hours.
40. Employees covered by this Agreement will be compensated for hours worked
as follows:
a) Straight Time: For the first eight (8) hours or for the first ten
(10) hours, in those situations where the employee and the company
have mutually agreed in writing to a four 10 hour day work week,
worked in any continuous twenty- four hour period beginning with the
starting time of the employee's shift. Straight time is also paid
for the regular working hours worked on any shift that starts on the
day before and continues into Saturday or a specified holiday
b) Time And One-Half: For all hours worked in excess of eight (8) hours
per day in any continuous twenty- four (24) hour period beginning
with the starting time of the employee's shift. In those situations
when an employee by mutual written agreement with the company is
working ten (10) hour shifts, time and one -half shall be paid for
all hours worked in excess of ten (10) hours per day in any
continuous twenty-four (24) hour period beginning with the starting
time of the
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employee's shift. Time and one- half shall also be paid for all
hours worked on any shift on the first day worked during a weekend
(Saturday or Sunday)
c) Double Time: For all hours worked on any shift on the second
consecutive day worked during a weekend (Sunday) and the recognized
holidays as listed in Article VIII. To receive double time pay on
Sunday, the employee must work the Saturday before, or in the event
of a production scheduling need, be specifically asked by management
to work. Notification of such a situation shall be documented and
provided to the Human Resource department to ensure accurate
payroll.
41. Employees working in necessary continuous seven (7) day operations are not
subject to the overtime provisions covering work on Saturdays and Sundays
as such. Employees in these occupations shall be paid time and one- half
for all work performed on the sixth day worked in the employee's work week
and double time for all work performed on the seventh day worked in the
employee's work week. Such employees will be paid double time for hours
worked during the regular working hours of any shift that start on any of
the holidays defined in the Holiday Pay Section.
42. The Company will pay an employee the greater of one hour overtime or half
the scheduled overtime if the scheduled overtime is not canceled 24 hours
in advance except for acts of God, machine breakdown, power failure or
labor disputes. By agreement, the term 24 hours in advance means that the
overtime is canceled before the employee leaves the plant the day before
the overtime is to take place.
43. Assignment Of Overtime Work
a) When overtime is required in a given classification, it will be the
policy and intent of the Company to offer overtime Opportunities to
employees in the classification. However, in the event no employee
desires to work overtime, it shall be the prerogative of the Company
to require employees in the classification to perform a reasonable
amount of overtime work, or the company may, at its discretion, have
work performed by employees in another classification. A reasonable
amount of overtime is defined to be not more than 8 hours in any one
week. In the event an emergency situation occurs, as declared by the
Vice President of Operations or the Manager of Manufacturing, and
having exhausted all options as stated in 43) , the company will
follow 43) of this paragraph.
b) When overtime work is required, the company will earnestly endeavor
to provide an equitable distribution of overtime work among
employees in the same classification within the department and on
the shift involved. If any employee is loaned to another department
to work overtime, the first 8 hours per week worked in the other
department will not be charged. WGLs are excluded from equalization
of overtime distribution. When an employee is asked to travel, the
actual time taken to travel will not be included for the purpose of
equalization of
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<PAGE>
overtime. The Company will, whenever feasible, try to equalize the
future distribution of overtime within the same classification
between shifts.
c) A weekly record of overtime hours worked shall be maintained and
posted by the department supervisor and the union will be advised
weekly as to the identities of the employees scheduled for daily,
Saturday, Sunday or Holiday overtime. Overtime notification will be
provided as far in advance as possible and except in instances of
emergencies, such as those caused by customer requirements, every
effort will be made to provide such notification at least four hours
in advance; when feasible the union will be notified of emergencies.
d) Overtime distribution shall be made on an annual basis from January
1st to December 3 1st. Any grievances regarding distribution may be
filed only during the last ten (10) working days of March, June,
September and December, when in the opinion of the employee he/she
has not shared in the overtime during that quarter as provided
herein.
e) When an employee has not shared in the overtime as provided herein,
he shall be afforded the next overtime available for which he/she is
qualified, or such other remedy as may be available, within the same
year period as defined above.
f) When overtime is required within the department, job classification
and shift, no probationary employee shall be scheduled for overtime
until all other employees involved are afforded the opportunity to
work the overtime.
g) When an employee has completed the probationary period or has been
transferred to a different job classification, department or shift,
the employee shall then commence to share equitably in the
distribution of future overtime without regard to the previous
overtime status of the employee or the other employees involved. The
individual employee will be immediately assigned the amount of
overtime equal the highest level of overtime within the
classification, shift of his/her new department. From that point
overtime will be equalized as per 43).
h) Any employee who is offered overtime and refused shall be considered
to have worked such overtime for the purpose of overtime
distribution. In the case where overtime is canceled by Management,
those employees who refused overtime for the same period will not be
charged for those hours.
i) In the event of a breakdown or failure of a system occurs after
regular scheduled working hours (i.e.: Saturday, Sunday, Holidays or
evenings) or an emergency situation is declared as outlined in 43),
the Company will follow the procedure listed below:
1) The Vice President of Operations and/or department supervisor
must be notified immediately.
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2) The VP of Operations and/or supervisor will make an assessment
as to the nature of the problem and whether the problem
involves other departments.
3) The supervisor will utilize appropriate bargaining unit
personnel as determined in step 2, who may be currently within
the facility.
4) If no bargaining unit personnel are present then phone contact
should be made with the personnel working on that specific
equipment to discuss the necessity of bringing an individual
into the plant on a "call-in" basis.
5) If no bargaining unit personnel can be contacted the Union
President or Chief Steward will be informed and the VP of
Operations and/or supervisor will utilize any other employee
as appropriate.
j) Overtime will be equalized by hours paid, not hours worked. An
employee working 4 hours of overtime at time and one-half, will be
charged with 6 hours for purposes of equalization. Similarly, 4
hours of overtime at double time will be charged at 8 hours for
purposes of equalization.
k) If a person is not at work (vacation, illness, PAA) when overtime is
being offered, that person will not be offered or charged any
overtime hours unless the entire department is offered overtime. In
the case where the entire department is offered overtime, those
people who are not at work when the overtime is offered will be
charged. If a person is out of work (vacation, disability, leave of
absence, illness, injury) for a period of more than two weeks, upon
return to work, he/she will be charged with the average number of
overtime hours asked during their absence for his/her
classification, department, and shift. If the extended absence
occurs anytime in the month of December, the Company will not be
required to equalize the employee.
l) If a person is on light duty for any reason, he/she will not be
offered any overtime until all light duty restrictions have been
removed and the employee is returned to his/her normal job. Upon
return to normal duties, the employee will be placed into the
overtime equalization group for his/her classification, department,
and shift at the average number of hours for that group on the day
that he/she returns to work.
m) An employee who agrees to work weekend overtime is expected to
fulfill that obligation. If an employee cannot work the agreed-to
overtime, it is his/her responsibility to notify his/her supervisor,
either in person or via phone (see paragraph 100 regarding call-in
practices) prior to the overtime period. Failure to follow proper
call-in procedure, or abuse of this procedure on weekends, will
result in disciplinary action.
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44. Reporting Pay: An employee who reports for work on his regular shift
without having been notified prior to reporting that no work is available
shall receive four (4) hours work beginning with the regular starting of
the employee's shift. If no work is available, he shall receive four (4)
hours pay at his straight time hourly rate in lieu thereof beginning with
the regular starting time of the employee's shift, except in case of labor
dispute. When notifying employees not to report for work, the Company
shall be entitled to rely upon the latest address shown on the employee's
personnel record. Radio and television announcements which commence at
least two hours prior to the start of the employees shift concerning the
plant being closed will constitute notice which will nullify the four hour
reporting pay.
45. Call-back Pay: An employee who is called back to the plant to perform
emergency work after having completed his regular shift, or who is called
to perform emergency work on a day when he has not scheduled to work shall
receive a minimum of four (4) hours work, or four (4) hours pay at his
straight time hourly rate in lieu thereof if work is not available.
VI. GRIEVANCE PROCEDURE AND ARBITRATION
46. Grievance Procedure: If a grievance or dispute should arise between the
Company and the Union or between the Company and an employee or a group of
employees with respect to rates of pay, wages, hours of employment or
other conditions of employment as specified under the terms of this
Agreement and its written supplements, such grievance or dispute shall be
taken up in accordance with the procedure outlined herein.
47. No complaint or grievance will be considered which is not submitted to the
immediate Supervisor under Step 1 within twenty (20) working days after
the employee was aware of the occurrence. Retroactive monetary claims
shall be limited to thirty (30) day period prior to the date the grievance
was first submitted in writing to the Company.
48. Grievances regarding discharge or disciplinary layoffs must be filed
within three (3) working days from the date of discharge or the
commencement date of the layoff.
49. It is agreed that no grievance shall be valid unless appealed within the
time limits established within each step of the Grievance Procedure and
that these time limits may, by mutual agreement of the parties, be
extended in any step.
50. Step One:
a) An employee having a complaint shall, either alone, in company with,
or through either his or her Steward, take up the complaint with the
Supervisor. The Steward will encourage the employee who has the
complaint to meet with the supervisor and try to resolve the
complaint. All discussions should follow paragraph 123 regarding
leaving their workstations.
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b) If the complaint is not resolved through oral discussions within two
(2) working days, the Steward shall reduce the complaint to writing
on a form provided by the company and submit a grievance signed by
the Steward to the immediate Supervisor. The Supervisor shall render
his decision on the grievance form in writing within two (2) working
days, mark the grievance not accepted, sign the grievance form and
submit it to Step 2.
51. Step Two:
a) In the event a satisfactory settlement is not reached in Step One,
the Steward shall present the written grievance to the Chief Steward
who shall request and schedule a meeting with the next higher level
of COMPANY management to discuss the grievance. Such meeting shall
be requested within five (5) working days of the appeal from Step
One and shall take place within five (5) working days of the request
for the meeting. The Manager will render his decision in writing on
the grievance from within five (5) working days of the date of which
the meeting occurs. If the answer is accepted, the Chief Steward
shall sign the acceptance. If it is not accepted, the Chief Steward
shall, within an additional five (5) working days mark the grievance
not accepted, sign the grievance and submit it to Step Three.
52. Step Three:
a) In the event a satisfactory settlement is not reached in Step Two
(2) the Chief Steward who shall request and receive an appointment
with the VP of Operations and the Director of Human Resources to
discuss the grievance. Such meeting shall be requested within five
(5) working days of the appeal from Step Two (2) and shall take
place within five (5) working days of the request for the meeting.
At this meeting, the Union shall be represented by the President of
the local Union, the Chief Steward and the Steward involved on the
grievance. The International Representative may also attend such
meeting if his attendance is requested and Company notified in
advance by the Union. The Director of Human Resources shall render
the company decision in writing on the grievance form within five
(5) working days of the date on which such meeting occurs. If the
answer is accepted, the Chief Steward and the Director of Human
Resources shall sign the acceptance.
53. The decision of the Company in any step of the grievance procedure shall
be final and binding and the grievance shall be considered settled on the
basis of the Company's last answer, unless notice of appeal to succeeding
steps, including arbitration, is filed with the Company within five (5)
working days after the Company has rendered its decision.
54. It is understood that the Union or the Company may call the aggrieved
employee as a witness in the Third Step meeting provided for herein. The
requesting party will give advanced notice to the other party that the
aggrieved employee may be called as a witness.
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55. The Union may on its own, initiate and process a grievance of a policy
nature. Such grievance may be submitted at step three of the Grievance
Procedure.
56. Arbitration: Any grievance or dispute falling within the scope of this
Agreement which is not settled in the final step of the Grievance
Procedure provided for herein may be submitted to an impartial arbitrator.
57. Arbitration proceedings may be instituted by either the Company or the
Union. Within thirty (30) days after the effective date of this Agreement,
the parties shall request from the Federal Mediation and Conciliation
Service a list of fifteen (15) names, from which list a permanent
arbitrator and first and second alternate arbitrator shall be selected for
the life of this Agreement. The list of proposed arbitrators shall be made
up of people within a reasonable distance from Rochester, New York. These
people should also know that they are expected to give a quick response on
discharge cases.
58. Selection of the permanent arbitrators shall be as follows:
a) The Union and the Company shall alternately strike out a total of
fourteen (14) names from the list furnished by the Federal Mediation
and Conciliation Service.
b) The remaining name shall become the permanent arbitrator.
c) The fourteenth name struck out will be the first alternate
arbitrator
d) The thirteenth name struck out will be the second alternate
arbitrator.
59. Unless otherwise agreed to by the parties, arbitration proceedings shall
be held within thirty (30) days after the grievance or dispute has been
submitted to arbitration. In all cases, the permanent arbitrator will be
given first notice. However, if he is not available within the thirty (30)
days, the first alternate arbitrator will then be called. The second
alternate arbitrator will be called if the first alternate arbitrator is
not available within thirty (30) days.
60. The permanent arbitrator shall be notified by the parties of the time and
place for the hearing, which time and place shall be mutually agreed to.
Each party may submit pre and post hearing briefs to the arbitrator which
state the position of the parties and furnish to the arbitrator any
arguments, in support thereof. If either party submits briefs or other
written arguments to the arbitrator following the hearing, the other party
will be furnished copies of such material simultaneously with its being
furnished to the arbitrator. Any post- hearing submittal by either party
shall be submitted within seven (7) days of the conclusion of the hearing.
61. The arbitrator shall have no power to add to, subtract from or modify any
of the terms of this Agreement, or any other terms of this Agreement or
any other terms made supplemental hereto, or to arbitrate any matter not
specifically provided for by this Agreement. The arbitrator's authority is
to interpret and apply provisions of the
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Agreement. It is further understood and agreed that the arbitrator shall
not rule on proposed amendments or proposed modifications of this
Agreement or its extension or renewal.
62. The arbitrator shall render a decision, in writing, to both parties. The
hearing shall be considered closed when arguments are concluded or when
the transcript of the proceedings, if any, is received by the arbitrator
or upon submission of the post-hearing briefs of the parties. After a case
on which the arbitrator is empowered to rule has been submitted to
arbitration, it may not be withdrawn by either party except by mutual
agreement.
63. There shall be no appeal from the arbitrator's decision, which shall be
final and binding on the Company, the Union and the employees involved.
64. Regardless of the outcome of any matter submitted to arbitration, the
costs thereof shall be shared equally by the Union and the Company. Such
costs shall be limited to the arbitrator's fees and expenses. The cost of
any additional services required by either party shall be borne by the
party requesting these additional services.
65. In disciplinary layoff and discharge cases, the arbitrator shall have the
power to adjudge the guilt or innocence of the employee involved and
review any penalties imposed on employees and modify or amend penalties,
if in his judgment the penalty is too severe. If the arbitrator shall
adjudge the employee innocent of the offense for which he was disciplined
or discharged and so orders the Company shall reinstate the employee in
full with accumulated seniority, and in case the employee was penalized by
loss of working time, will pay him back wages less any time during the
period the employee was off wherein the plant was not operating on a
standard work week resulting from shorter hours, shutdowns for any reason,
including emergency and inventory, and less any money the employee
received from other employment during the period he was off, including
self-employment, Unemployment Compensation or Workman's Compensation.
66. Either party may, however, upon thirty (30) days written notice to the
other party dismiss the permanent arbitrator and the parties will then, by
the above procedure, select another permanent arbitrator.
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VII. DISCIPLINE AND DISCHARGE
67. The Company may discipline, suspend or discharge any employee for good and
sufficient cause. Good and sufficient cause is defined as violation of CVC
policies and procedures or failure to perform assigned duties.
a) Disciplinary action will take the following steps:
STEPS RETENTION TIME IN FILE
----- ----------------------
1. Oral warning 6 months
2. Written warning #1 12 months
3. Written warning #2 18 months
4. Suspension pending discharge 24 months
5. Discharge n/a
b) Infractions listed in Appendix C under "suspension pending
discharge" may lead to immediate discharge.. Reference Appendix C
for examples of conduct requiring the disciplinary action.
c) Cases other than those involving disciplinary layoff or discharge
may be contested through the normal grievance procedure.
68. In the event of any disciplinary action, whether it is a formal warning or
a complaint of the employee's work attitude and performance, the Area
Steward will be informed before the disciplinary action takes place:
a) The employee will be informed of his union representation rights in
the presence of the Area Steward before disciplinary action takes
place. If the employee does not wish union representation at the
meeting, he or she must sign a waiver (copy to Union) to that effect
in the presence of the member mentioned above. The disciplinary
action will not take place before a waiver is signed, if such a
waiver is the wish of the employee.
b) In the event that disciplinary action involves suspension or
discharge, the Union President, Chief Steward and Area Steward must
be present before such action takes place.
c) In case of disciplinary layoff or discharge, a member of the
grievance committee shall introduce the employee's complaint into
Step Three of the Grievance Procedure. This will be done within
three (3) working days of such action. A meeting will be held within
two (2) working days unless an extension is mutually agreed to by
the parties. The Union may request a postponement, not to exceed
fifteen (15) days, with the understanding that the Company shall not
be obligated to pay any award beyond the date set for the original
meeting unless the case is referred to arbitration. In no case is a
delay caused by the Union to cause a loss to
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the Company by reason of the delay. Upon request, the Company will
furnish the Union the employee's most recent address as shown on the
employment record.
d) The decision of the Company in any step will be final unless notice
of appeal to succeeding steps, including arbitration, is filed with
the Company within five (5) working days after the Company has
rendered its decision.
69. A copy of any disciplinary action or record of oral warning shall be given
to the employee, the Area Steward, and the Chief Steward at the time of
discipline, or as soon as possible thereafter.
VII. HOLIDAYS, VACATIONS AND PAID ABSENCE
70. Holiday Pay: CVC observes 11 paid holidays each year. These include New
Year's Day, Good Friday, Memorial Day, Independence Day. Labor Day,
Thanksgiving Day, the day after Thanksgiving, December 24th, Christmas
Day, and December 31st; the eleventh day is a floating holiday and is
available as an additional vacation day; use of this day is subject to
proper notification to the Company per Paragraph 79. These holidays are
available to all employees as of date of hire. Holidays which fall during
an employee's four day week schedule will only be paid at straight time
pay for 8 hours. The Company and the Bargaining Unit representatives will
review the holiday schedule for the next calendar year by September 1st
of the current year. Any revisions to how the company holidays are
scheduled will be mutually agreed to before communicating to the
employees.
71. If a holiday occurs on a Saturday or Sunday, the Company observes that
holiday on Friday or Monday respectively. The particular holidays to be
observed are communicated annually. Any exceptions to the above will be
mutually agreed to by the employee and the company.
72. Company holidays falling within an employee's scheduled vacation are
counted as holidays, not vacation days.
73. Employees cannot reschedule a holiday because of sickness or injury.
74. Employees receive holiday pay equivalent to 8 hours pay. Shift premium is
included in the holiday pay only if this premium is regularly received.
75. To receive holiday pay an employee must be in a paid status (working day,
vacation day, PAA day or mutually agreed to excused absence) the work day
before and the work day after the holiday. If an employee calls in sick
the day before or the day after the holiday, and he/she was previously
denied this time off by the supervisor, the employee will not receive
holiday pay, unless the employee brings in a doctor's excuse, receipt for
services or other valid proof to justify the absence.
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76. If an employee is required to work on a Company holiday, he will receive
holiday pay at straight time equivalent to 8 hours pay plus overtime at
the regular overtime rate (refer to Paragraph 40 for all hours worked on
the holiday.
77. Vacations: The vacation year is defined as the twelve (12) month period
from hire date or anniversary of hire date.
a) Vacation allowances are as follows:
---------------------------------------------------
Length of Service Vac. Pay Physical
Allowance Vacation
---------------------------------------------------
0 - < 6months 0 0 days
---------------------------------------------------
6 months to < 12 40 hours 5 days
months
---------------------------------------------------
12 months to < 3 years 80 hours 10 days
---------------------------------------------------
3 years to < 5 years 100 hours 12.5 days
---------------------------------------------------
5 years to < 10 years l20 hours 15 days
---------------------------------------------------
10 years to < 20 years 160 hours 20 days
---------------------------------------------------
20 years to < 30 years 200 hours 25 days
---------------------------------------------------
30 + years + 220 hours 27.5 days
---------------------------------------------------
78. Employees who lose seniority, as provided in Paragraph 87 of this
Agreement, prior to the end of the anniversary year of the particular
vacation year are eligible for a vacation with pay except that payment for
a vacation allowance to which an employee would otherwise have been
entitled shall not be denied because of separation of the employee from
the payroll by death or retirement under the Pension Plan prior to the end
of the anniversary year. Employees with less than six month service are
not eligible for vacation allowance.
79. All employees, if eligible, will be required to take a minimum of two (2)
weeks physical vacation time off and are urged to take the full vacation
period.
80. Employees may, with proper notice given, take vacation at a time requested
by the employee, production requirements and seniority permitting. All
employees are required to provide a minimum of one (1) week's notice for
vacation periods of less than five (5) days and are further required to
provide a minimum of one (1) month's notice for vacation periods of five
(5) days or longer. For seniority to govern, this request for physical
time off must be made by March 31st each year.
81. Employees may carry over their vacation time which exceeds 80 hours into
the following vacation year, not to exceed 80 hours carry- over.
82. Vacation pay allowance will be based on the employee's current straight
time hourly rate. The vacation pay allowance will be paid to the employee
as physical time -off is scheduled and taken.
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83. An employee who is placed on lay- off shall receive his/her vacation time
and pay as originally scheduled.
a. If you leave CVC due to indefinite lay-off, retirement or death,
vacation time will be paid according to the schedule in Appendix B.
The time which you are accruing for service in your current
anniversary year will be paid on a prorated basis which is based on
the number of months of completed service since your last
anniversary (1/12 of your annual vacation Lime per month of
completed service).
84. In the event an employee does not take physical time off equivalent to
his/her total vacation allowance, that differential will be paid at the
end of the anniversary year at the request of the employee. In the case of
a laid off employee this will be paid either at the anniversary date or
earlier upon the employee's request.
85. Paid Absence Allowance Credit: The Company recognizes that any one of us
may occasionally be away from work because of minor illness or the need to
attend to pressing personal business which cannot be addressed during
non-work time. While receiving a pay check from the Company, bargaining
unit employees will receive an allotment of hours which may be used for
incidental personal and sicktime. The use of this time is described below.
The hours are paid at the employee's regular hourly rate and are credited
to the employee on the anniversary of the
a) PAA benefits are provided according to your length of service as
outlined in the following table:
------------------------------------------------
Length of Service Sick Days Personal Days
(hours) (hours)
------------------------------------------------
0 to 6 months 0.00 0.00
------------------------------------------------
6 months < 1 year 2 (16 hours) 2 (16 hours)
------------------------------------------------
1 year + 5 (40 hours) 3 (24 hours)
------------------------------------------------
b) Employees not earning a Company paycheck (e.g. on disability or
leave), will not earn PAA time for each month of work missed (1/12
of your annual PAA time per month of completed service).
c) When an employee is sick and unable to report for work at the
regularly scheduled time he/she must notify the Company as
instructed in Paragraph 99. Proper notification is necessary to
ensure that Company's management can effectively maintain a smooth
work flow during the absence.
d) Employees are responsible for calling in at the beginning of each
work day when sick and uncertain from day to day as to when they
will be able to return. If the duration of an absence is known, you
must advise the Human Resource Department accordingly.
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e) Personal and sick time is measured from one anniversary of the date
of hire to the next. You may use the personal time for any purpose
when proper notification has been supplied to the Company by
submitting a Personal Time Request: refer to Appendix E. You may use
personal time before or after a company holiday or with vacation if
you receive your immediate supervisor's written approval in advance.
Personal days may also be used for personal reasons all at one time
with prior written permission from your immediate supervisor.
f) Although illness is not predictable, the use of personal time
usually is. Personal days must be scheduled a minimum of 24 hours in
advance with your immediate supervisor. The supervisor can grant the
use of personal time the same day if the situation warrants it.
g) Employee with less than ten years of service may carry over a
maximum of 32 hours of sicktime over to the following year;
employees with ten years or more may carry over a maximum of 40
hours sicktime.
h) On your anniversary date, you have the option of cashing in any or
all of your accumulated personal time and sicktime for pay. You
must cash in all personal time and any sicktime over the maximum
number of hours which you are allowed to carry over (refer to
Paragraph 84 g above).
i) PAA time must be used in increments of at least one hour. Personal
absences which are not pre-approved will not be paid. If you have
used all of your PAA time and must miss work, the absence will be
considered unexcused. The exception to this is if a previously
approved unpaid day is taken immediately before or after a holiday,
you will still be eligible for the holiday with pay.
j) If you leave the Company due to indefinite lay-off, retirement or
death PAA time will be paid according to the schedule in Appendix B.
The time which you are accruing for service in your current
anniversary year will be paid on a prorated basis which is based on
the number of months of completed service since your last
anniversary (1/12 of your annual PAA time per month of completed
service). If you leave the Company due to a voluntary quit or
discharge PAA time will not be paid.
k) As an individual you are important in the performance of your work
and our plans are based on the expectation that you will be at work
on a daily basis. Therefore unexcused absence is grounds for
disciplinary action.
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IX. PROBATION AND SENIORITY
86. Probationary Period:
a) Any employee who has been in the employment of the Company for
ninety (90) consecutive days without a break in service, shall be
granted seniority from their hire date. Until receiving seniority,
employees shall be subject to layoff, discipline or discharge at the
sole discretion of the Company. Probationary employees who are
terminated and are rehired within fifteen (15) working days after
being terminated, shall be considered to have been continuously
employed.
b) All probationary employees will be reviewed by management on a
minimum of once a month as to their job performance. The Union
Steward, Chief Steward or President will be present during such
reviews.
c) If, in the opinion of the Company, an employee has not
satisfactorily completed their probationary period, the Company may
extend the probationary period for not more than an additional
forty-five (45) days.
87. Seniority
a) Seniority shall be defined as the length of service of the employee
with the Company or its predecessors in the bargaining unit
beginning with the starting date of initial employment or the
starting date of re-employment, whichever is later.
b) When employees have the same starting date, seniority order shall be
established by the lower of their individual social security
numbers.
c) On all employees covered by the Agreement, the Company shall
maintain seniority records, a copy of which will be furnished to the
Union each month.
d) After completion of the Probationary period, an employee will
accumulate seniority continuously except as provided in Paragraph
88.
88. Loss of Seniority:
a) Seniority shall be lost for the following reasons:
1) Voluntary quitting.
2) Discharge for good and sufficient cause.
3) Failure on the part of the laid- off employee to return to
work within three (3) working days after receipt of
notification by the Company, by registered letter to the
employee's last known address, that the employee is to return
to work. When an employee, for valid reasons, is unable to
return to work or to notify the Company within three (3)
working days,
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<PAGE>
they shall, upon presenting proof to the Company of their
inability to return to work or to so notify the Company, be
reinstated on the job. When the Company has recalled an
employee from layoff, a delay by the employee in reporting to
work shall not preclude the Company from working an other
employee, including a junior recalled employee, in the
recalled employee's job pending the reporting to work of the
recalled employee.
4) Exceeding leave of absence without giving a satisfactory
reason.
5) Employees on layoff out of the plant shall have recall rights
for a period equal to their seniority from date of hire but
not to exceed eighteen (18) months. Employees on layoff in
classifications within the plant shall have unlimited recall
rights subject to the other provisions of this Agreement.
6) An employee who fails to notify the Company on the third day
of absence shall be deemed to have quit. Notice herein
referred to shall be made to the Human Resource Department. An
employee who reports ill and remains away from work for more
than three (3) working days, will be responsible for
requesting a leave of absence, which leave shall be subject to
revocation and the employee subject to discharge upon failure
to present satisfactory proof of illness.
89. Application of Seniority: Seniority will be used only for purposes set
forth in this Agreement.
90. Layoffs:
a) In all cases of temporary layoffs for periods not exceeding three
(3) working days or any extension mutually agreed to by the parties,
seniority shall govern, except that under no circumstances shall the
Company be obligated in such cases to change the job assignment of
any employee involved which would entail a familiarization period or
to change the employee's present department or shift.
b) The Company will not temporarily layoff an employee more than three
(3) working days in any thirty (30) day period nor eighteen (18)
cumulative days in any contract year unless agreed to by the
employee. The Company will not maintain records of temporary layoff
for individual employees and it will be incumbent upon the employee
to point out to their supervisor whenever they have reached the
maximum days specified in Paragraph 89 a) and above. If the employee
does not contest the matter at the time of temporary layoff, it will
be assumed they are agreeable to accept the temporary layoff.
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<PAGE>
c) An indefinite layoff is a layoff expected to continue beyond three
(3) consecutive working days. An employee who is to be placed on
indefinite layoff will be entitled to exercise their seniority
rights in accordance with the terms of this Agreement.
d) Employees who are placed on indefinite layoff will be given 3 days
pay, and will not work those 3 days. In addition, the company will
pay the monthly premium for health benefits for the month following
the month of layoff. Those employees affected will be informed as a
group if more than one employee is involved. The Union President,
Chief Steward and the respective Area Stewards will be present. The
procedure outlined in Appendix B will be followed.
e) On an indefinite layoff, the Company will layoff the least senior
employee in the classification, department, and shift affected.
Seniority will be determined by the employee's original date of
hire.
f) When an indefinite layoff is to occur, the Company will, if at all
possible, notify the Union at least three (3) working days prior to
such layoff as to the classification, department and shifts to be
affected. Such three (3) working days notice will also be given
those employees to be laid off where the reduction is to take place.
Employees bumped will be afforded as much advance notice as possible
but in no event less than one (1) working day.
91. Inventory: During period of physical inventory, seniority within the
department shall govern in the scheduling of employees to work within that
department. If additional employees are required beyond those available
from the department, all employees will be considered and seniority
honored in the further selection provided the employee is qualified to
perform the work required. The Union will be given a minimum of two (2)
days notice by the Company of the employees that are scheduled for
inventory work outside their department. In the event overtime is required
during or on inventory, this overtime shall not be charged in considering
overtime distribution.
92. Bumps:
a) An employee placed on indefinite layoff will report to the Human
Resources Department of the Company for an exit interview, at which
time they will complete a "Recall and Bump Form", two copies of
which will be given to the employee, one of which will be furnished
to the Union by the employee. The positions listed on the "Bump and
Recall Form" will not be taken lightly and the employee involved
should have a real conviction that he or she can perform the jobs
listed. Cross-training records will also be used to determine the
eligibility of employees to bump into another classification. There
will be no obligation on the part of the Company to return an
employee to work other than to their regular classification until
they have completed the Bump and Recall form.
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<PAGE>
b) When bumping, a qualified employee may bump into a classification of
their choice and on a shift of their choice. They may only bump in
the same labor grade of their regular classification or to a
classification in a lower paid labor grade. They may only bump an
employee of lesser seniority and will be required to bump the least
senior employee of that classification on the shift of his choice
whose job they are qualified to perform. Seniority will be
determined by the employee's original date of hire.
c) The determination of an employee's qualification to perform a job
entered on their "Recall and Bump Form" will be made following the
exit interview. If they are disqualified, the reasons for such
disqualification will be reduced to writing and given to the
employees and the Area Steward.
d) In exercising bumping rights, an employee must first exhaust all
possibilities in the classification from which laid off or bumped,
except that they will not be required to change shifts.
e) When exercising bumping rights, an employee will not be trained to
do the job; however when an employee bumps into a classification of
their choice as provided in Paragraph 91 c. above, the Area Steward
and a member of Management will mutually agree on a specified period
of time, during which the employee will be given, with suitable
orientation, an opportunity to demonstrate that they can
satisfactorily perform the job. If it is then found that they cannot
satisfactorily perform the job, they will be laid off and allowed to
exercise their seniority rights.
f) An employee who declines to bump at the time of layoff will so state
on his Recall and Bump form. They will then remain on layoff until
recalled; refer to Recalls, Paragraph 93.
93. Recall:
a) Employees working out of their regular classifications and employees
on indefinite layoff will be recalled to their regular
classification when their services are needed, in seniority order.
The same procedure will be used when employees are recalled to
positions listed on their Bump and Recall forms. Seniority will
govern in cases where an employee is competing in trying to return
to their regular classification with another employee who has such
classification listed on their Recall and Bump form; refer to
Appendix I. Seniority will be determined in accordance with
Paragraph 87 of this Agreement.
b) An employee may be recalled only to a classification in the same or
to a lower paid labor grade.
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<PAGE>
c) On recall, an employee will not be trained to do the job, however,
they will be oriented and directed in such a manner as to provide an
opportunity to satisfactorily perform the job. If it is found that
they cannot satisfactorily perform the job, they will be
disqualified and placed on layoff.
d) An employee who declines recall to their regular classification or
any other classification listed on their Recall and Bump form will
be treated as a voluntary quit, unless they have an adequate reason
for such failure to return.
e) An employee on layoff who has completed a Recall and Bump form may
change such form by notifying the Human Resource Department in
writing any time prior to recall.
94. Transfers Out of Bargaining Unit: Any employee who is transferred out of
the bargaining unit for any reason shall have no contractual right to
return to the bargaining unit in a classification in which employees are
on layoff. Employees transferred out of the bargaining unit shall continue
to accumulate seniority for a period of one (1) year. If returned to the
bargaining unit within such time period. and there is an opening the
employee shall be returned to the job held prior to their transfer out of
the bargaining unit or to the classification now covering the type of work
they performed at the time of transfer out of the bargaining unit. If
there is no opening in the classification from which the employee was
from, the employee may "bump" his/her way back into their previous
position, if seniority warrants, as per paragraph 92.
95. Flexibility of Work Assignments:
a) It is understood and agreed between the parties that irrespective of
job classification, employees may be assigned to perform work
outside their current job classification based on the understanding;
of an acceptance by the parties that work requirements vary from day
to day based upon customer orders and needs and production
schedules. When such work assignments occur, the employees involved
shall not suffer a loss in base wages as a result of such
assignment. The provisions of this section shall not be applied in a
discriminatory or arbitrary manner. Nothing in this section shall be
intended to permit circumvention of the job promotion procedure
outlined in the Agreement, Article XII or to deny full time
employment to an employee on layoff status.
b) It is recognized and agreed that certain employees spend a portion
of their time in the classifications over which they serve. This
principle is applicable whether or not employees are on lay- off
from the classifications over which they serve.
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X. SHIFT PREFERENCE & PREMIUM
96. Shift Preference:
a) Management reserves the right to make any temporary shift transfers
to not exceed thirty (30) working days duration, in a calendar year,
using seniority, job skills, and business needs as the selection
criteria. Personal hardship cases will exempt individuals from shift
change requirements. If you work the majority (more than 50%) of
your straight time hours between the times listed below, you will be
paid the appropriate shift differential for all hours worked on that
shift.
b) Employees may request of their immediate supervisor, in writing, a
transfer to another shift. The shift change shall be limited to
their present job classification and department, and they must be
able to perform the available work. Employees shall be permitted
upon the expiration of twenty (20) working days, to displace the
employee having the least amount of seniority on the shift of their
preference, provided the above qualifications are met. All employee
requested shift changes will become effective on a mutually agreed
upon day. An employee may request a shift change only twice in a
calendar year. Exceptions must be mutually agreed to by the Union
and Management.
97. Shift Premium
----------------------------------------------------------
Shift hours Shift Title ShiftPremium
----------------------------------------------------------
7:00 am to 3:30 PM
or A none
7:00 am to 5:30 PM
----------------------------------------------------------
3:00 PM to 11:30 PM
or B 10% over base rate
3:00 PM to 1:30 am
----------------------------------------------------------
11:00 PM to 7:30 am C l5% over base rate
----------------------------------------------------------
98. If you regularly receive shift premium, your vacation and holiday pay will
also include shift premium.
XI. ABSENCE AND LEAVES OF ABSENCE
99. Absences: It is understood and agreed that a high standard of attendance
is essential to an efficient plant operation. The Union pledges that it
will cooperate fully and will encourage its members to cooperate fully
with Management, both in maintaining good attendance records and in prompt
notification when absence is necessary.
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100. Report of Absence: On the day of an absence, employees on the first shift
must notify the immediate supervisor or Human Resource Department between
the hours of 7:00 AM and 8:30 AM, second shift between 2:00 and 3:30 PM.
and third shift between 10:00 and 11:30 PM, unless this absence has been
previously approved. Voice mail messages are not an acceptable form of
notification; the employee must contact the supervisor or Human Resource
department directly, Employee are urged to use the supervisor's Pager.
Such notification will be waived in unique cases where it is physically
impossible for the employee to contact the above. In such cases, it is the
employee's responsibility to contact the Human Resource Department as soon
after 9:30 as is physically possible and to provide a written doctor's
note upon return to work. The employee, upon providing notice of an
absence for personal business, shall specify the period of and reason for
the absence. Failure to notify the Company on the first day of absence
will result in appropriate disciplinary action.
101. Leave of Absence: Limited leave of absence for sufficient cause will be
granted by the Company, upon application, to employees who have completed
their probationary period. Requests for leave of absence must be made in
writing on the form provided for that purpose, and must be approved by the
employee's immediate supervisor, VP of Operations and the Director of
Human Resources. Refer to Appendix D for Leave of Absence Forms.
102. Seniority shall continue to accumulate during the approved leave of
absence; however, all such leaves are without pay and an employee on leave
shall not be entitled to any other benefit provided by the terms of this
Agreement unless eligibility for such benefits is otherwise expressly
provided for in the Agreement. When an employee has been granted a leave
of absence for a specific period of time, it will be the employee's
responsibility to request an extension of such leave if additional time is
required.
103. Subject to the conditions stipulated on this section, leaves of absence
may be granted under the following guidelines:
a) Leave of absence for personal business or vacation may be granted to
employees when justification satisfactory to management is presented
and when work schedules permit. An approved leave of absence for
personal business shall not exceed thirty (30) calendar days and an
employee requesting such a leave shall make his request a minimum of
(5) work days in advance of the effective date of the leave. An
approved leave of absence for vacation purposes will be marked
"Vacation". When granted a personal leave of absence, you will be
expected to utilize all unused vacation time at the commencement of
your leave. Depending on the remaining time in your anniversary
year, and with your manager's approval, this requirement may be
modified.
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b) Leave of absence for personal health reasons, in no event to exceed
twelve (12) calendar months or any extension thereof mutually agreed
to by the parties, will he granted to employees when supported by
satisfactory medical proof supplied by the employee. A request for
an extension shall not be unreasonably denied. An employee
requesting a leave of absence for medical reasons shall be subject
to examinations by the Company physician if the Company determines
such an examination to be necessary. A leave of absence which is
granted for personal health reasons, shall be considered to be
continuous if the employee is sequentially placed on another leave
for the same general condition after working less than thirty (30)
working days following completion of the previous leave of absence.
A leave of absence for maternity reasons is considered a leave of
absence for personal health reasons.
c) An employee on leave of absence for personal health reasons may
return to work prior to or at the expiration of such leave upon the
release of their personal physician and subject to the approval of
the Company's physician, if required. Such examinations to occur no
later than the day before the return from leave,
d) Leave of absence for extended time duty with the Local, District or
International Union or to any appointed or elected public office may
be granted to employees, either appointed or elected to fill such
positions, for a period not to exceed twelve (12) calendar months.
No more than two (2) employees shall be granted a leave of absence
for this purpose during the same period of time.
e) When leaves of absence are granted, the employee, upon return to
active employment, will be returned to a job of like classification,
if such a job still exists and provided his/her seniority standing
entitles him/her to the position. However, if circumstances have
eliminated such comparable jobs, the employee will be reclassified
to the most nearly comparable job for which he/she is qualified and
to which his seniority standing will entitle him/her.
f) When an employee fails to return to work at the expiration of the
approved leave of absence or accepts gainful employment during the
leave of absence, the employee will be terminated.
g) Leave of absence for compensable injury and legal occupational
disease cases will be granted automatically for the full period of
legal temporary disability and seniority will accumulate for the
full period of such leave.
h) Any employee who enters into active service in the Armed Forces of
the United States, as defined below, will be given a leave of
absence for and will accumulate seniority during such a period of
service, and upon termination of such service, shall be offered
re-employment in their previous position, in line with their
seniority, at the current rate of pay for such work, unless the
circumstances have so changed as to make it impossible or
unreasonable to do so, in which event he/she will be offered such
employment as may be available in line with their seniority, on work
which is similar to that which he/she was doing before he/she
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left, at the current rate of pay for such work, provided he/she has
been honorably discharged, is physically able to do the work, and
reports for work within ninety (90) days after their discharge. As
used in this section, entrance into active service is defined as
limited to:
1) Having entered into such service under the terms of the
Selective Service Act of 1940 as amended
2) or Entering into service under the Selective Service Act of
1948
3) or Entering into service under the Universal Military Training
Act of 1951, as a member of the United States Army, United
States Navy, or United States Air Forces
4) or Whose service is subject to the jurisdiction of the United
States Air Force, and whose entrance into such service cannot
be terminated by voluntary resignation.
XII. NEW JOBS, PROMOTIONS, Posting, Bidding, Promotions
104. New Jobs: When new jobs arise which cannot be properly placed in
classifications which have been established previously, the Company will
establish new job classification and place within or above the wage
structure. A copy of the new classification and rate range shall be
furnished to the Union.
a) Thereafter, within thirty (30) days from the effective date of such
new job classification, the Union may request a review of the rate
range being established on the new job classification. When the
Company and the Union have mutually agreed on a rate range for the
new job, such rate range, if different from the one originally
established by the Company, shall be effective, and all hours worked
within such a new job classification shall be paid accordingly.
b) When the parties, after a period of thirty (30) days, cannot agree
where a new job is to be inserted, the issue of the proper slotting
of the job may be submitted by either party to arbitration.
c) Any dispute arising as to the proper classification of an employee
or employees as the result of a grievance claiming that new work
should be performed by a new job classification, will be subject to
the grievance procedure, including arbitration. Conversely, where
the Company has decided that a new job exists and the Union claims
that the work should be slotted into an existing classification the
dispute may be made the subject of a grievance which may be
processed through the grievance procedure, including arbitration.
This section shall in no way authorize the arbitrator to establish
or act on wage rates.
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105. Promotion:
a) General Provisions: Employees may only bid or apply for an opening
in the same or higher labor grade than the classification in which
they are currently assigned. An employee may however, apply for a
lower labor grade in certain extenuating circumstances such as for
medical reasons. If an employee has been granted a change of regular
classification under the provisions of the Article and is later
found to be not qualified to perform the work, the employee will be
disqualified and returned to their last previous regular
classification, seniority permitting. If the employee lacks
sufficient seniority to return to such regular classification, then
the employee may be laid off or exercise seniority rights in
accordance with this Agreement. The employee will not be permitted
to again bid or apply for a promotion for a period of six months.
b) Definitions:
1) Regular Classification- An employee's regular classification
is that job classification to which he/she was last assigned
by a) hire, b) a successful bid or application, or c) a change
by the Company with employee's consent.
c) The Company need not act on applications if an opening ceases to
exist.
106. Filling Openings:
a) An Opening will be filled by a qualified employee who has bid or
applied for such opening. If there are two (2) or more qualified
employees, the more senior employee shall be awarded the opening.
b) If an opening, cannot be filled through the provisions of this
section, it may be filled by the individual consent of an employee
or at the discretion of the Company. In any event if the opening is
not filled within a six month period after posting, a new posting
must be made.
c) The Company will determine the size and composition of its workforce
and will determine when an opening exists. The Company need not act
on bids or applications if an opening ceases to exist after posting.
107. Posting: An opening will be posted on the shop bulletin boards for a
period of 10 (10) consecutive working days, excluding Saturdays, Sundays
and Holidays. Such posting shall indicate the department, labor grade, job
classification, shift and rate of pay.
108. Bidding: Employees who have completed their probationary period who meet
the minimum qualifications to bid on openings may do so, in writing, on
forms designed and supplied by the Company. Only those bids submitted
within the ten (10) posting period will be considered.
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109. Promotion Application:
a) Employees who have completed their probationary period may make
application for an opening by properly filling out an application
form designed and supplied by the Company and submitting it to the
Human Resource Department; refer to Appendix H.
b) An employee may file a promotion application at any time.
Applications will remain on file until December 31 of each year, at
which time they will become inactive. Employees desiring to
remaining in consideration for promotions must file new applications
after January 1. Applications may be withdrawn at any time.
Applications of file by any employee will not be considered if the
employee is present in the plant the ten days that the job is
posted.
XIII. BULLETIN BOARDS, SAFETY AND HEALTH, ANTI -DISCRIMINATION, BULLETIN BOARDS
110. Bulletin Boards:
a) The Company will provide bulletin boards which may be used
exclusively by the Union for posting notices approved by the
designated Management Representative and restricted to:
1. Notices of Union recreational and social affairs.
2.) Notices of Union elections.
3.) Notices of Union appointments and results of Union elections.
4.) Notices of Union meetings.
5.) Notices of official Union business.
b) There shall be no other posting or distribution by employees of
pamphlets, advertising, political matter, notices, or any kind of
literature upon the Company's property other than as herein
provided.
111. Safety and Health:
a) The Union may at any time draw safety hazards to the attention of
the Management. The Company will not require employees to work under
conditions which are unsafe or injurious.
b) Refusal of an employee to follow safety rules and regulations or to
use available safety devices and equipment when instructed to, will
subject him/her to disciplinary action up to and including
discharge.
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c) The Company shall continue to make reasonable provisions for the
safety and health of the employees during the hours of their
employment. Both the Union and the Company agrees that they will
cooperate with each other in all matters concerning the health and
safety of the employees. The Company shall provide such protective
equipment as it deems necessary to protect the employees from injury
and sickness.
d) Effective January 1, 1989 the wearing of safety shoes by all
bargaining unit employees is mandatory during working hours. The
Company will pay the total cost ($150.00 maximum) for the
replacement of safety shoes as required (manager approval) but not
more often than every 18 months. Only AISI approved shoes will be
allowed and the company will provide a list of local stores where
these shoes are available.
e) A Safety Committee, with two representatives from the bargaining
unit, will meet quarterly to conduct safety audits of the
manufacturing areas.
112. Anti-Discrimination: The Company and Local 342 agree they will not
discriminate in hiring or treatment of employees in their training,
upgrading, promotion, transfer, layoff, discipline, discharge, or
otherwise because of race, color, creed, national origin, sex, age,
marital, handicapped, or Veteran status, or membership in the Union.
XVI BEREAVEMENT PAY, JURY DUTY, REST PERIODS, WASH -UP TIME
113. Bereavement Pay:
a) When death occurs in an employee's immediate family, defined as:
current spouse, parent, parents of current spouse, child, brother,
sister, step-children, step parents, grandparents, or any dependent
person living in the employee's home, the employee, on request, will
be excused for any of the first three (3) regularly scheduled
working days (excluding Saturdays and Sundays); or in the case of
seven day operations, excluding the sixth and seventh work days of
the employee's scheduled work week immediately following the date of
death.
b) In the case of the death of an employee's sister-in-lawor
brother-in-law ,he/she will, on request, be excused for one (1)
regularly scheduled working day coincident with the day of the
funeral.
c) After making written application, therefore, the employee shall
receive pay for any scheduled hours of work up to eight (8) per day
for which the employee is excused (excluding Saturdays and Sundays;
or in the case of seven day operations, employee's scheduled work
week) provided he/she attends the funeral and provides satisfactory
evidence of their attendance to the Company.
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d) Payment shall be made at the employee's regular straight time hourly
rate (excluding overtime and night shift premium) as of their last
day worked. Time thus paid will not be counted as hours worked for
purposes of overtime.
114. Jury Duty Service:
a) Any employee with one or more years of seniority who is called to
and reports for jury duty, shall be paid by the Company for each day
partially or wholly spent in performing jury duty; the employee
otherwise would have been scheduled to work for the Company and does
not work, an amount equal to the difference between the employee's
regular straight time hourly rate exclusive of shift premium,
overtime premium and any other premiums for the number of hours up
to eight (8) that he/she otherwise would have been schedule to work
and the daily jury duty fee paid by the court (not including travel
allowance or reimbursement of expenses).
b) In order to receive payment under this section, an employee must
give the Company prior notice that he/she has been summoned for jury
duty and must furnish satisfactory evidence that jury duty was
performed on the days for which they claim such payment. The
provisions of this section are not applicable to an employee who,
without being summoned volunteers for jury duty.
c) Employees working the second or third shift who are summoned and
perform jury duty and elect not to report to work those days, will
receive jury duty pay.
115. Rest Periods: There shall be two (2) fifteen (15) minute rest periods with
pay during each regular shift at a stated time as defined by the Company
and consistent with production requirements.
116. Wash Up and Clean Up Time: There shall be two (2) five (5) minute wash- up
periods, one (1) before lunch period and one (1) before quitting time of
each shift for the purpose of personal wash up.
XV. REPRESENTATION
117. The Union shall select a bargaining committee to be composed of not more
than four (4) employees, which will include the President and Chief
Steward. The duties of the bargaining committee shall be to negotiate the
Collective Bargaining Agreement with the Company.
118. The union shall also select stewards to represent the employees in the
bargaining unit. The number of stewards and the department steward
assignments shall be determined annually by mutual agreement of the
parties. In the annual determination of the number of stewards, the ratio
of stewards to employees shall not exceed one for each thirty (30)
employees in the bargaining unit who are actively at work. Such
redetermination shall be
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completed sufficiently prior to May 31 of each year to permit the Union to
hold the necessary steward elections and advise the Company of the new
stewards by June 1 of each year. One employee shall be designated by the
Union as the Chief Steward, which position is an elective office.
119. In the event a second (2nd) or third (3rd) shift is started, a steward
will be permitted for the shift even though less than thirty (30)
employees may be assigned to the shift. However, a second steward will not
be provided until and unless the ratio of one (1) steward to thirty (30)
employees is present on the shift.
120. All stewards and other union officials shall be selected from among the
employees in the bargaining unit. In conjunction with the grievance
procedure, each steward shall act only for the employees within their
jurisdiction. It is agreed that no probationary employee shall be eligible
to serve as a Union Representative in any capacity.
121. The names of the members of the bargaining committee and the names of the
Chief Steward and stewards shall be supplied to the Company President, VP
of Operations and Director of Human Resources at the time of their taking
office, and the Company shall recognize such personnel on the day after
receipt of such certification. The Company shall also be advised in
writing of changes in such officials.
122. Authorized non-employee representative of the Union shall be allowed
access to the Company's premises at reasonable times during business hours
and subject to reasonable restrictions against interference with
production activities, for the purpose of carrying on such Union business
as from time to time may be necessary. Such representatives shall request
such access from the designated Management Representative.
123. Employees shall not leave their work stations to communicate with Union
representatives with reference to the purposes authorized by this
Agreement until they have obtained permission from their supervisor and
identified the purpose of their leaving their work stations.
124. Employees may be absent from work on Union business during their regular
shifts without pay when prior arrangements are made with the designated
Management Representative, in writing, by an officer of the union, with
the understanding that the total absence from work under this paragraph
will not exceed six (6) in number at any one time, or a number mutually
agreed to by the parties in each instance. Where the employee works a
portion of their shift before leaving the plant, a pass must be obtained
and shall be granted.
125. The Chief Steward and the President shall each be allowed twenty (20)
hours per month, non-cumulative, during working hours and without loss of
pay, for Union related business such as recording overtime schedules,
consultation on Union -Company related problems, and grievances. The
stewards authorized shall each be allowed twelve (12) hours per month,
non-accumulative, during working hours and without loss of pay, for Union
related business such as recording overtime schedules, consultation on the
Union
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Company related problems, and grievances. The Union Recording Secretary
shall be allowed six (6) hours per month, non-cumulative, during working
hours and without loss of pay for Union related business such as posting
notices, etc. The Union Financial Secretary shall be allowed nine (9)
hours per month for Union related business.
126. Any time, by the Bargaining Committee, spent in meetings with Management
which are outside the normal negotiations and have been requested by the
Company, will be paid for by the Company.
127. Time spent in Step 3 of the Grievance Procedure by the President, Chief
Steward and the applicable steward shall be paid by the Company. Such time
will be held to the minimum necessary time required to settle or process
the grievance.
128. Any time spent on Union business by the representatives listed above,
which exceeds the pay limitations of the Company for such matters, shall
be paid for by the Union local.
129. Before leaving their work stations for purpose of the activities
authorized by this Agreement, the Stewards, Chief Steward and President
shall request and will receive a written pass for Union business from
their supervisor authorizing them to leave their work station. At the time
of the request, they shall identify to the supervisor the purpose for
their leaving. They shall not, however, be permitted to go on Union
business until a substitute worker is provided in their place, if one is
required. No undue delay shall occur in providing a substitute.
130. Upon entering a department other than their oven which they enter for
purposes of the activities authorized by this Agreement, they shall state
the reason for their business to the supervisor of the department and show
him/her their pass for Union business and obtain his signature on the pass
before talking with any employee in said department. The Union agrees to
hold to a minimum all time spent on Union business.
131. The President and the Chief Steward shall have top seniority in the event
of a layoff for so long as they continue to hold such office. Area
stewards shall have top seniority in the areas under their jurisdiction in
the event of layoff and for so long as they continue to hold such office.
132. Members of the Union Bargaining Committee not already covered by top
seniority provisions will have top seniority in the event of a layoff four
(4) months prior to the expiration of the contract and such top seniority
will continue until the contract is ratified.
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XVI. SHORT-TERM MILITARY PAY:
133. An employee with one or more years of seniority who is called to and
performs short term active duty of thirty (30) days or less, including
annual active duty for training, as a member of the United States Armed
Forces Reserve or National Guard shall be paid by the Company for each day
partially or wholly spent in performing such duty, if the employee
otherwise would have Been scheduled to work for the Company and does not
work, an amount equal to the difference, if any, between (i) the
employee's regular straight time hourly rate on the last day worked,
exclusive of shift, overtime and any other premiums for the number of
hours up to eight (8) that he/she otherwise would have been scheduled to
work and (ii) their daily military earnings (including all allowances
except for rations, subsistence and travel). The Company's obligation to
pay an employee for performance of military duty under this Article is
limited to a maximum of ten (10) scheduled working days in any calendar
year.
134. In order to receive payment under this Article, an employee must give the
Company prior notice of such military duty, and upon their return to work,
must furnish the Company with a statement of their military pay while on
such duty.
XVII DURATION OF AGREEMENT
135. From time to time issues may arise as a result of the changing nature of
work at CVC, Inc. which may best be addressed by negotiations between CVC
and the Union. The parties may mutually agree to open negotiations which
they deem appropriate under this Collective Bargaining Agreement.
136. The Company and the Union, for the life of this Agreement, agree that the
other shall not be obligated to bargain collectively with respect to any
subject of matter referred to or covered in this Agreement, even though
such subject or matter may not have been within the knowledge or
contemplation of either or both of the parties at the time that they
negotiated or signed this Agreement.
137. This Agreement shall remain in full force and effect until midnight,
October 31, 1998, and shall thereafter be continued in full force and
effect from year to year after October 31, 2001 unless notice of
termination or a desire to modify or change this Agreement is given in
writing by either party at least sixty (60) days before the expiration
date. Upon receipt of such notice, a conference shall be arranged for
within thirty (30) days. This provision shall not be interpreted to
require a meeting prior to sixty (60) days before the expiration date of
this Agreement.
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XVIII. COMPANY BENEFITS
MEMORANDUM OF Agreement: Below) are brief outlines of the Health Insurance
coverage, Life Insurance coverage and Pension Program applicable to the
bargaining unit employees at CVC Products. It is not intended that the entire
contract language for all these programs be included, however, the highlights of
the various programs are provided:
138. Short Term Disability:
o After 30 days of employment, employees are eligible for Short Term
Disability benefit.
o If an employee is out of work due to non-work related injury,
illness, or surgery, for a period greater than 5 days, he/she may be
eligible for Short Term disability benefit. Short term disability
can begin on the 6th day of absence and coverage can continue up to
26 weeks. If admission to the hospital is required on the first day
of absence, the five day waiting period will be waived and short
term disability payments will begin on the first day of absence.
This benefit pays 2/3 of base pay and overtime wages are not
included in the calculation of Short Term Disability.
o A bargaining unit employee that has greater than 5 PAA or vacation
days at the time of disability/absence, may elect to exhaust all
paid time off before STD begins.
o If the situation arises that requires an absence of greater than 5
days, supervision is to be notified. If possible, the employee
should let the supervisor know when he/she is expected to return to
work.
o Return to Work: A return to work certification from a health care
provider (doctor's release) is required for absences greater than 5
days. This release should be submitted to Human Resources prior to
the start of the shift.
o Returning to Work With Modified/Light Duty: In some circumstances an
employee can return to work under the conditions of a modified/light
duty arrangement. Modified/light duty restriction (if any) and
duration should be specifically noted in a doctor's release to
return to work.
o Every effort will be made to accommodate a modified/light duty
restriction. The type of accommodation for modified/light duty will
be determined by the Department Manager/Supervisor, Human Resources
Representative, the employee and union representative. This
accommodation will be within the scope of the Americans with
Disabilities Act.
o Reasonable accommodation can include reassignment to another
position if there is an opening. If the reassignment is in a lower
classification, current job classification will be retained for a
period of 90 days. If the accommodation in the lower classified
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position is greater than 90 days, the employee classification will
be adjusted to the lower classification. Upon return to regular duty
and to the previous position, the former job classification will be
reinstated.
o If modified/light duty restriction is temporary (9 months or less in
duration) assignment will be based on the duties that can be
performed. Employee will not bump another for temporary
modified/light duty. This bumping will only be allowed if the
employee meets minimum requirements for the position and follows
requirements for bumping in Paragraph 92.
o If modified/light duty cannot be reasonably accommodated, the
employee will be sent home and paid short term disability until an
accommodation can be found or he/she can return to regular duty. If
under this circumstance STD reaches 26 weeks, the employee will be
given the option to apply for long term disability. CVC does reserve
the right to terminate employment if a reasonable accommodation
and/or reclassification to another position is refused by employee.
139. Long Term Disability:
o After 30 days of employment, employees are eligible for Long Term
disability.
o This benefit is paid beginning the 27th week of an extended absence
due to the inability for an employee to return to work after Short
Term Disability. Coverage is provided up to 60 percent of an
employee's base salary. Continues for the length of the disability.
o Employees on long term disability will be removed from CVC payroll.
o Return to Work From LTD: A doctor's release is necessary for an
employee to return to work from LTD. An employee should notify CVC,
in writing, of his/her intent to return to work, two weeks prior to
the anticipated return to work date. If the absence is less than 18
months, the employee will then be allowed to bump, based on
seniority, (as stated in Paragraph 92) into the position they held
prior to the absence. If the absence is greater than 18 months and
the Company has an open position available, an employee can return
to work from LTD. Bumping will not be allowed and the employee could
be assigned a position of a lower classification than was held prior
to the absence. CVC reserves the right to assign the position based
on qualifications to perform the assigned duties. If the absence is
greater than 18 months and no position is available, then the
terminated status is deemed final.
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140. Worker's Compensation:
Worker's compensation Insurance provides cash benefits and medical care payment
for employees who become disabled because of job related injury or illness.
o It is entirely paid for by CVC.
o An employee who is eligible for Worker's compensation is entitled to
all necessary care that the injury/illness or the process of
recovery may require. The individual is free to choose any
physician, podiatrist or chiropractor authorized to give medical
care by the New York State Worker's Compensation Board.
o Beginning with the 8th calendar day of the work-related/illness,
employees who lose time from work are eligible to receive 2/3 of
their weekly wages to a maximum of $400. These weekly benefits are
based on Worker's Compensations Law and are subject to modification.
If the disability lasts more than 14 days, payments are made
retroactive to the first day.
o Injured employees have the right to select their own physicians.
However, CVC may require an injured employee to submit to an
independent physical examination by a doctor chosen by CVC. CVC does
reserve the right to challenge excessive or unnecessary treatment
for an injured employee.
o The injured or ill employee's department supervisor should notify
the Payroll Administrator as soon as they have knowledge of a
work-related injury or illness by filling out the form located on
V?\CVC forms\HR\accident-illness report form.
o The New York State Workers' Compensation law requires that a C-2
Form (Employer's Report of Work Related Accident/Occupational
Disease) be received at the Workers' Compensation Board within ten
days of specified incidents; failure to do so could result in a
fine. Therefore, the department must submit a completed C-2 Form to
the Payroll Administrator when the work-related injury or illness
results in one or more of the following: The employee is absent for
three or more work days. The employee requires three or more medical
visits. The employee sustains a facial injury or one that may cause
a permanent or partial loss of bodily function regardless of lost
work time. The Payroll administrator will review and forward the
completed C-2 form for filing with the New York State Workers'
Compensation Board.
141. Blue Cross/Blue Shield, Blue Choice, Preferred Care: Employees may enroll
in one of the above medical insurance programs. Refer to the Human
Resource department for full details. Coverage begins 30 days after your
hire date. Coverage terminates on the last day worked, unless you are
eligible for COBRA. See the Human Resource department for further details.
41
<PAGE>
142. Prescription Drugs: Prescription drug purchases arc covered under the
chosen health/medical plan.
143. Dental Plan: The Company will provide each employee with dental coverage
for a single plan. If the employee wants dependent coverage, they must
elect to pay an additional amount currently at $2.88 per week. The dental
plan will provide 100 percent for preventive services, 75 percent for
basic services, and 50 percent for major services. There will be a $50
deductible, which will be waived for preventive services. There will be a
$1,000 calendar year maximum per participant and three time the $50
deductible per family. This plan does not have orthodontic coverage.
Coverage begins 30 days after your hire date. Coverage terminates on the
last day worked, unless you are eligible for COBRA. See the Human Resource
department for further details.
144. Life Insurance: Each employee is provided with a $10,000 non-contributory
group life insurance coverage. This coverage may be increased by $8,000
for total coverage of $18,000. The cost of the additional coverage is
shared by the employee and the Company. In addition, the plan provides for
an accidental death and dismemberment benefit which is equal to the amount
of the coverage.
145. Pension Plan for Hourly Employees of CVC Products: The pension plan for
hourly employees was "frozen" effective September 30, 1991. No future
benefits will accrue to employees after that date. All benefits accrued
prior to October 1, 1991 remain intact and unchanged. The Company, Inc.
hourly and salaried employees pension plans have been merged effective
September 30, 1991. The merged plan will continue in existence until it is
fully funded. The Company is responsible for the full funding of the plan.
When the plan is fully funded, it is expected that all benefits will be
distributed or transferred to another plan. The Company is responsible for
the termination of the pension plan, subject to the approval of the IRS
and/or the Department of Labor, and will hold the Union harmless for any
action that the Company may take which results in any type of protest
which may be brought by any pension plan participant.
146. 401(k) Plan:
o This language provides only a highlight of the 401(k) plan. The plan
document shall control in the event of any disputes. A copy of the
plan can be obtained in the Human Resource department for additional
details about this plan.
o Effective October 1, 1991, the Company adopted a 401(K) Profit
Sharing Plan for all employees. The plan will be administered by the
Chief Financial Officer. A 401(K) committee consisting of a minimum
of 3 employees each from the bargaining unit and the non-bargaining
unit will meet quarterly to review any changes or modifications to
the plan which are not required by law.
o Eligible employees can elect, through payroll deduction, to
contribute up to 4% of his/her pay into the basic savings portion of
the plan. The Company will make a
42
<PAGE>
matching contribution at a rate of $.50 on $1.00 on the first 4%
that an employee contributes. The matching contributions are made
each pay period.
o Any eligible employee may further elect to contribute an additional
11% of his/her pay beyond the original 4% contribution (for a
maximum of 15%). However, he/she does not receive an employer match
on the additional contributions
o At the end of each fiscal year (September), the Company will
determine the amount, if any, of additional, discretionary
contribution to be made to the plan (refer to the official plan
document). The CVC contributions to your 401(K) account are subject
to change The discretionary contribution, if any, will be made by
December 15 of the year.
o No administrative charges for life of contract
147. Retirement Benefits:
o In addition to the pension, employees who retire on or before
November 1, 2001, will cost-share 35% of the medical insurance
premium cost; the Company will pay 65%. Employees who retire after
November 1, 2001 will cost-share the medical insurance premium with
the Company; paying 50% and the employees paying 50%.
o Additionally, the Company will provide thirty-five hundred dollars
($3500.00) of life insurance at no cost to the retiree.
o The Company pays 100% of the medical insurance premiums for
bargaining unit employees hired prior to 11/8/91. Effective 1/1/98,
the Company pays 60% and employees pay 40% of the cost of premiums.
148. Severance Pay:
a) In the event the Company plant is closed or in the event a product
line is discontinued at that plant or is transferred to another
plant of the Company which results in employees being laid off, the
effected employees shall be entitled to severance pay provided they
meet the following eligibility requirements.
1) The employee has a minimum of 3 years seniority at the time of
layoff.
2) The employee has exercised all his seniority rights under
paragraphs 91 through 92 of this Agreement.
3) The employee must notify the Company in writing within three
(3) working days after notification of layoff of their
election to take severance pay.
b) Employees accepting severance pay shall forfeit all their seniority
rights and shall not be subject to recall by the company.
43
<PAGE>
c) Any employee who is 65 years or older at the time of layoff and is
eligible for retirement, shall not be eligible for severance pay.
The severance pay provided herein shall not be applicable to
voluntary quits, discharge or economic layoffs.
d) The severance payment referred to above shall be equal to the
employee's total years of seniority multiplied by $350.00.
44
<PAGE>
Signatures
In witness hereof the parties hereto have caused their names to be subscribed by
their duly authorized officers and representatives this day of November 9, 1998.
For: For:
Local 342 International Union CVC Products
of Electronic, Electrical, Rochester New York
Salaried, Machine & Furniture
Workers, AFL-CIO
/s/ Terry W. James /s/ Richard Chicotka
- ----------------------------------- ----------------------------------------
Terry James Richard Chicotka
/s/ Robert Kimmel /s/ Mark Dehlman
- ----------------------------------- ----------------------------------------
Robert Kimmel Mark Dehlman
/s/ Richard Manginell /s/ Dave Kolczynski
- ----------------------------------- ----------------------------------------
Rick Manginell Dave Kolczynski
/s/ Alan Shanks /s/ Dennis Raup
- ----------------------------------- ----------------------------------------
Alan Shanks Dennis Raup
/s/ Oscar L. Wilson II
- -----------------------------------
Oscar Wilson
For:
International Union of Electronic, Electrical, Salaried,
Machine & Furniture Workers, AFL-CIO
/s/ Jean Zimber
Jean Zimber
45
<PAGE>
Appendix A LAYOFF PROCEDURE
The personnel affected will be informed as a group with the Union President,
Chief Steward and appropriate Area Steward present.
Exit interviews will be held on an individual basis with proper Union
representation present This exit interview will include:
1) Completion of the Bump and Recall form.
2) Scheduling of interviews for positions listed on the Bump and Recall
form.
3) Interviews with the HR department for full explanations of COBRA,
PAA, vacation, etc.
When the Bump and Recall interviews are completed a copy of the result of the
interviews will be provided to the individual and the Area Steward.
Refer to the chart below for separation coverage:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Type of Separation Accrued Accrued Unused Unused Dental Medical
Vacation PAA Vacation PAA Ins. Ins.
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Indefinite Lay-off yes* yes* yes yes COBRA COBRA
** **
- -------------------------------------------------------------------------------------
Retirement yes yes yes yes no 40%***
- -------------------------------------------------------------------------------------
Death yes yes yes yes no no
- -------------------------------------------------------------------------------------
Quit yes no yes no yes yes
- -------------------------------------------------------------------------------------
Discharge no no yes no yes yes
- -------------------------------------------------------------------------------------
</TABLE>
* Unless otherwise requested accrued vacation and PAA will be paid on the
anniversary date. Employees laid off within 6 months of hire date are not
eligible for vacation and/or PAA allowances.
** COBRA is an elected benefit
*** CVC will provide 65% of the medical insurance premium to employees who
retire prior to 11/1/2001
46
<PAGE>
Appendix B DISCIPLINARY ACTIONS
Disciplinary Actions: NOTE: Compliance with all present and future Corporate
policies is a condition of employment for all CVC employees. Adherence to
policies and procedures is mandatory; violation will result in the appropriate
disciplinary action.
Suspension pending discharge: The following actions, but not limited to these
offenses, will lead to immediate suspension pending discharge:
1) Falsification of personnel or other records.
2) Theft or misappropriation of property of other employees or of CVC.
3) The use, possession, distribution, sale or offering for sale of illegal
drugs on CVC property.
4) Sabotage, abuse, misuse, or deliberate destruction of the property, tools,
or equipment belonging to CVC or to other employees.
5) Reporting to work while under the influence or in an unsafe condition.
Please note that substance abuse testing will be required after just
reason/cause is shown. Test expense will be paid by CVC.
6) Physical abuse, assault or fighting.
7) Insubordination -refusal to obey direct orders of Supervisory and/or
Management staff.
8) Possession of weapons on CVC property without permission.
9) Possession or consumption of any alcohol or controlled substance on CVC
property.
10) Harassment; the use of abusive language, threats, intimidation or coercion
towards anyone on CVC property. This includes interfering with others by
distracting attention through unnecessary noise, throwing objects or other
means of disruption.
11) Flagrant disregard for CVC Safety Rules, Clean Room Practices or other
industry standard safety practices. Refer also to Appendix J & K.
Oral Warning, 1st Written, 2nd Written, Suspension, Discharge: The following
offenses, but not limited to these offenses, will lead to disciplinary action
including Oral Warning, 1st Written, 2nd Written, Suspension, and Discharge:
12) Failure to comply with current smoking and/or fire regulations.
13) Restriction of output, making unnecessary scrap or unauthorized use of
machines, tools or equipment.
47
<PAGE>
14) Leaving CVC property without permission during work hours, wasting time or
loitering.
15) Immoral or indecent conduct.
16) The making of false or malicious statements concerning any individual at
CVC, the Company or its products.
17) Unauthorized use of Company phones or pay phones during work hours.
18) Unauthorized distribution of literature or other printed matter of any
description on Company property.
19) Unauthorized posting of, or removal of notices, signs, or writing in any
form on bulletin boards or other Company property.
20) Unauthorized absences
21) Disregard for CVC Safety Rules, Clean Room Practices or other industry
standard safety practices. Refer also to Appendix J & K.
48
<PAGE>
Appendix C BARGAINING UNIT EMPLOYEE LEAVE of ABSENCE FORM
<TABLE>
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Name: Reason for Request (check 1) Return Date:
- -------------------------------------------------------------------------------------------------
Street Address: Personal Business Leave Date:
- -------------------------------------------------------------------------------------------------
City, State, Zip: Personal Illness Hire Date:
- -------------------------------------------------------------------------------------------------
Telephone: Personal Illness - extension Dept:
- -------------------------------------------------------------------------------------------------
Employee No: Vacation - extension Classification:
- -------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Vacation time available:
- --------------------------------------------------------------------------------
Personal time available:
- --------------------------------------------------------------------------------
Employee Signature: _________________________________________ Date: ____________
Management Approval/Denial:
- --------------------------------------------------------------------------------
Title Signature Approve Deny Date
- --------------------------------------------------------------------------------
Supervisor:
- --------------------------------------------------------------------------------
VP of Operations:
- --------------------------------------------------------------------------------
Director of HR:
- --------------------------------------------------------------------------------
General:
All Leaves of Absence are subject to the provisions of the collective bargaining
agreement and the conditions of this application.
Only employees who have completed the probationary period will be granted a
leave of absence.
Applications for a Leave of Absence must be submitted for approval a minimum of
five (5) working days in advance of the requested leave date.
Employees who fail to report to work at the expiration of the leave, or fails to
request an extension or accepts gainful employment during a leave will be
considered a voluntary quit.
Leaves of Absence and Extensions to Leaves of Absence must be requested by the
employee in writing, in advance per the above.
Personal Business Leaves shall not exceed thirty (30) days.
Vacation Leaves will not be granted until all available vacation allowance has
been utilized.
49
<PAGE>
Personal Illness Leaves:
Medical statements covering the period of each Personal Illness Leave and each
Personal Illness Leave Extension must be provided to the Human Resource
department prior to final approval of such leaves.
The employee must submit a request for leave with these medical records; a
statement from the doctor is not sufficient to grant or extend such leaves.
Employees on Personal illness Leave and/or Personal Illness Leave Extension may
return to work prior to the expiration of the leave only upon release by their
doctor and the approval of the Company doctor, if required.
Employees returning from Personal Illness Leave and/or Personal Illness Leave
Extension must report to the HR department prior to reporting to their
supervisor for assignment of duties. A release from the Company doctor is
required for all absences in excess of three days.
50
<PAGE>
Appendix D FAMILY MEDICAL LEAVE ABSENCE FORM
[LOGO]
C V C
Request for Family and Medical Leave (FMLA)
Name:_______________ Date: __________
Reason for Family/Medical Leave:
|_| Birth/placement of child
|_| Serious health condition of self
|_| Serious health condition of:
|_| spouse
|_| child
|_| parent
Start date: ____________________ End date: ____________________
_______________________________________________________________
Employee Signature
Approvals:
_______________________________________________________________
Supervisor/Manager Date
_______________________________________________________________
Functional Vice President Date
_______________________________________________________________
Human Resources Date
Copies: Employee
Supervisor
Personnel File
51
<PAGE>
Appendix E EMPLOYEE PAA / VACATION REQUEST FORM
- --------------------------------------------------------------------------------
Name: Reason for Request (check 1) Return Date:
- --------------------------------------------------------------------------------
Street Address: Vacation 1st Absence Date:
- --------------------------------------------------------------------------------
City, State, Zip: Personal Time Hire Date:
- --------------------------------------------------------------------------------
Telephone: Dept:
- --------------------------------------------------------------------------------
Employee No: Classification:
- --------------------------------------------------------------------------------
Employee Signature: _________________________________________ Date: ____________
- --------------------------------------------------------------------------------
Vacation time available:
- --------------------------------------------------------------------------------
Personal time available:
- --------------------------------------------------------------------------------
Management Approval/Denial:
- --------------------------------------------------------------------------------
Title Signature Approve Deny Date
- --------------------------------------------------------------------------------
Supervisor:
- --------------------------------------------------------------------------------
VP of Operations:
- --------------------------------------------------------------------------------
Director of HR:
- --------------------------------------------------------------------------------
52
<PAGE>
Appendix F UNION TIME REQUEST FORM
Date:
Time departing department:
- --------------------------------------------------------------------------------
Name:
- --------------------------------------------------------------------------------
Union Office held:
- --------------------------------------------------------------------------------
Request: provide department, individual to be consulted:
Supervisor's authorization # 1:
(supervisor of department union official works in)
Supervisor's authorization #2:
(supervisor of department entered for consultation)
Time returning to department:
- --------------------------------------------------------------------------------
Union time available:
- --------------------------------------------------------------------------------
Union time used:
- --------------------------------------------------------------------------------
Union time remaining:
- --------------------------------------------------------------------------------
Original: HR Department
53
<PAGE>
Appendix G DISCIPLINARY ACTION FORM
Date:
Employee name:
Description of infraction:
Level of discipline (retention period): Oral warning (6 months)
1st Written (12 months)
2nd Written (18 months)
3 day suspension (24 months)
Date: to Date:
Discharge:
Supervisor:
Retention: This disciplinary action will be held in the employee file for the
designated period from the above date.
Original:employee File
xc: Operations Manager
Supervisor
Employee
Area Steward
Chief Steward
54
<PAGE>
Appendix H PROMOTION APPLICATION
Employees wishing to apply for future promotional opportunities must submit
completed form with current resume to HR Department. Applications may be
submitted at any time and will expire on the last day of the calendar year;
employees are responsible for updates to all applications.
Name:
Department:
Position applied for:
Qualifications:
Education:
Documented Cross-training:
Experience:
55
<PAGE>
Appendix I BUMP & RECALL FORM
- --------------------------------------------------------------------------------
Date: Seniority Date:
- --------------------------------------------------------------------------------
Name: Employee No.
- --------------------------------------------------------------------------------
Address: Classification:
- --------------------------------------------------------------------------------
Wage Grade:
- --------------------------------------------------------------------------------
Telephone: Shift:
- --------------------------------------------------------------------------------
Other: Layoff date:
- --------------------------------------------------------------------------------
Seniority rights are available to the following job classifications:
- --------------------------------------------------------------------------------
Classification Wage Grade Shift
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
I wish to exercise bumping rights or be recalled to the following positions,
(listed in order of preference):
- --------------------------------------------------------------------------------
Classification Wage Grade Shift
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
It is understood that if recalled to the regular classification or any other
classification listed on this form and refuse such recall or fail to respond
this action will be considered as a voluntary quit.
It is further understood that management has the responsibility of determining
the qualifications of individuals for all classifications and that records of
performance, interviews and/or tests may be used to determine the qualifications
for the above listed positions. If unable to meet the required qualifications a
layoff will occur.
It is further understood that the listed classifications may be amended by
submitting a new form to the HR department.
- --------------------------------------------------------------------------------
Employee signature:
- --------------------------------------------------------------------------------
Supervisor
signature:
- --------------------------------------------------------------------------------
HR signature:
- --------------------------------------------------------------------------------
original: HR
xc: Employee, Supervisor, Chief Steward
56
<PAGE>
Appendix J CAR POLICY
Compliance with this and other CVC policies is a condition of employment for all
employees. Failure to comply will lead to disciplinary action including
discharge.
Access:
Access is restricted to necessary personnel; those essential to the build and
test functions
Entry must be made through the gowning area.
Gowning Requirements:
The following must be worn by all personnel entering the CAR:
Disposable shoe covers or clean room sneakers*
Disposable latex or nitrile, powder-free gloves**
Disposable head cover
Lab coat
* Clean room sneakers must be removed when leaving the clean area to enter
any other part of the facility, or when leaving the building.
** Touching any vacuum surface with ungloved hands is considered a flagrant
violation of Clean Room Practices and is subject to suspension pending
discharge. This may also apply to any finished surfaces on the exterior of
vacuum chambers.
57
<PAGE>
Appendix K SAFETY & HEALTH RULES
The personal safety and health of each employee of CVC, Inc., is of the utmost
importance. We maintain a health and safety program conforming to the best
practices of similar manufacturing environments and comply with all pertinent
regulations.
To be successful, such a program must embody proactive attitudes toward injury
and illness prevention on the part of both management and employees. It also
requires cooperation in all health and safety matters between managers,
employees, and co-workers. Through mutual cooperation CVC can establish and
maintain a safe workplace.
Our objective is to provide a health and safety program that will minimizes
on-the-job-accidents and injuries. This health and safety program includes:
A program of health and safety inspections to identify and eliminate unsafe
working conditions or practices. To correct any health hazards or safety hazard,
and to comply fully with all Federal, State and Local health and safety
standards for each function.
To insure compliance with all applicable regulations, CVC will provide
mechanical and physical safeguards on all equipment when required.
Provide health and safety training to all employees.
Provide necessary personal protective equipment and instructions for its use and
care.
Provide an investigation of every accident to determine what caused it and to
take corrective action to prevent recurrence.
Provide enforcement of the the Company, health and safety rules
Health and Safety Rules
The Health and Safety Rules contained herein are supplementary to applicable
Federal, State and local statutes, regulations, laws and ordinances. In the
event of variance, the more strict requirement shall apply
General
All employees must know and understand all safety rules and procedures that are
applicable to their work and location
All employees are required to cooperate with these rules as a condition of
employment.
All employees are expected to use proper care in the performance of work.
58
<PAGE>
All employees are expected to be watchful for the safety of others.
All visitors to CVC, Inc. must sign in at the reception desk to obtain a
visitor's badge and must be accompanied at all times. Employees are expected to
direct all visitors to the reception area.
Injuries/Illness
Immediately report all injuries to your WGL and/or manager. All first aid
treatments performed must be followed up by a competent medical authority. This
responsibility lies with the injured person. If you feel ill or if you believe
someone working with you is ill, notify your manager immediately.
All accidents, injuries and illness' which require medical treatment by an
external facility must be reported to Payroll & Benefits within 1 working day.
Refer to CVC Employee Accident/Injury/Illness Report.
Wearing Apparel
Clothing appropriate to the work being performed will be worn at all times.
Shorts are not permitted in the manufacturing areas.
Gloves shall not be worn when operating machines with revolving spindles and/or
tools such as lathes, milling cutters and boring mills, drill presses, etc.
Loose or ragged clothing and handing chains will not be permitted around moving
machinery.
Safety shoes are to be worn by all manufacturing personnel and employees whose
regular job function requires them to be on the manufacturing floor.
Refer to the Company. CAR Policy for gowning requirements within the Clean
Assembly Rooms
Eye Protection
It is mandatory for all employees of CVC Inc. to wear safety glasses whenever
they are in the manufacturing areas. The first pair of safety glasses (plain)
will be provided by the company.
CVC Inc. is not responsible for the cost of the eye examination. You must obtain
an Empire Vision voucher from the HR department to take with you when ordering
safety glasses.
59
<PAGE>
Housekeeping
Good housekeeping requires all items be kept in their proper place. Do not allow
unnecessary articles to be kept around the work area. All employees are expected
to cooperate in this Remember, a clean work area is a safe area.
Place refuse in the trash containers that are provided.
Recyclable materials must be placed in the appropriate containers.
Scrap metals must be placed in the provided containers.
Oil, grease, water or any other material that is spilled or collects on the
floor, stairs, walk ways, etc. must be cleaned up immediately; contact the
Facilities department for assistance. No oil or grease should be dumped into any
drain.
All walkways, aisles, steps and emergency exits must be kept clean and
unobstructed.
Access to emergency devices, such as Fire Extinguishers, control valves,
electrical switchboxes, etc., must be kept open at all times and must not be
obstructed by any material.
Hearing Protection
All areas of our plant have been audibly analyzed. Those areas which have been
identified as potentially harmful to hearing have been designated with warning
signs which state CAUTION -- EAR PROTECTION MUST BE WORN WHILE WORKING IN THIS
AREA -- Employees working in any of these designated areas must wear hearing
protection devices.
Hearing protection devices are supplied by the company.
Radio headphones are not permitted on the company premises.
Radios are permitted in areas when they are not distracting to others; the
volume must not be audible from several feet away.
Emergency Situations
Emergency situations fall into three categories, personnel injury requiring
immediate medical attention, hazardous material spill or fire. In each case,
pick up the nearest telephone, dial 60 (to page), state what the problem is and
the location. Refer to the Company Contingency Plan for full details.
Smoking
CVC, Inc. is a no-smoking facility; smoking is restricted to the area outside
the employee entrance.
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<PAGE>
The no-smoking zone begins ten feet from the building doorways.
Smoking by bargaining unit employees is restricted to the two 15-minute break
periods and the 30-minute lunch period.
Inspection Of Machinery, Tools, Equipment, And Safety Apparel
Before using, employees are expected to inspect all tools, machines, pieces of
equipment, and safety apparel. If it is defective or in any way unsafe, do not
use it; report the condition to your manager immediately.
Machine guards and other safety devices are provided for protection and may not
be removed except for making repairs, lubricating, or cleaning.
Removal of protective guards must be done by authorized persons. Guards that
have been removed for routine maintenance anchor service must be replaced before
staffing machinery. Proper lockout/tag out procedures must be observed.
Operation Of Lift Trucks
Only authorized employees are permitted to operate any piece of power-driven
equipment.
Authorization to operate lift trucks will be issued to an employee only after
the successful completion of the required training program.
No one shall ride operate a lift truck unless they are properly positioned.
Passengers are strictly prohibited, and no person may ride on the fork of any
fork lift truck.
Hazardous Materials
CVC, Inc. complies with the requirements of OSHA "Hazard Communication
Standard", 29CFR1910.1200. Refer to the Company. Hazardous Materials
Communication for detail.
None of the following materials can be disposed of down the drains or to the
sewer system.
Combustible Liquids; cutting, hydraulic, lubricating oils, etc.
Flammable Liquids; lacquer thinner, gasoline, kerosene, etc.
Toxic Materials; pesticides, concentrated lab chemicals, etc.
Should an accidental spill of any of the above materials take place, every
effort must be made to keep the spill from entering the sewer. Our maintenance
personnel are trained to respond to such incidents and must be summoned.
The Hazardous Material Coordinator will determine the proper method and disposal
method for all spilled materials.
61
<PAGE>
Compressed Air
When compressed air is used, an OSHA approved (1910.242(b) safety nozzle must be
in place and the pressure must be kept at a minimum.
Under no circumstances may compressed air be used to clean clothing or any part
of the body.
Compressed air hoses or nozzles may never be pointed at yourself or any part of
another's body.
Compressed Gas Cylinders
Compressed gas cylinders should always be handled as if full.
When being transported cylinders must be chained on a cart, or when in use or in
storage chained to an immovable object or in a cylinder rack.
The protective cap over the valve must be screwed in place when the cylinder is
not in use.
Cylinders should be stored where they will not be subject to excessive
variations in temperature.
Keep cylinder fittings clean from oil or grease.
Hand Tools
Check the condition of all hand tools before you use them; if they are
defective, have them repaired or replaced.
All powered hand tools will comply with OSHA 1910.242.
Keep your tools in their storage place. Do not leave them where they present a
hazard to yourself or a co-worker.
Electrical Hazards
Unless you are an authorized electrician do not attempt any electrical repairs
or installations.
Treat all electric wires as live wires.
Do not touch any dangling wires that you may come across. Report them to your
manager.
If you find sparking or smoking motors or other electrical equipment,
immediately turn off the power and report the condition.
Extension cords are often the cause of electrical shock. Examine them carefully
for worn insulation and exposed strands of wire before you use them.
62
<PAGE>
When removing a plug from an electrical socket pull out the plug instead of
yanking the cord,
Remember that voltages of less than 110 volts can cause death. All portable
electric power tools (other than all insulated tools) must be grounded. This is
done automatically by three pronged plugs when the plug is inserted into a
grounded receptacle. These three wire cords and caps must never be tampered with
or removed.
Do not use portable electric equipment your hands are wet or you are standing on
wet ground.
Overhead Cranes
Periodic inspection procedures must be followed and apply to lifting straps,
hooks, bales and other associated equipment. The Facilities department is
responsible for annual inspection.
Refueling Vehicles
New York State Laws mandates that, during the refueling of gas or liquid propane
operated vehicle, the engine must be shut off and no smoking is permitted.
Compliance
The management of CVC, Inc. values personnel's lives and property very highly at
CVC and see the need to ensure that these safety precautions and procedures are
complied with at all times. To this extent the previously designated rules and
regulations are required to be obeyed by all CVC employees. Failure to follow
these rules and regulations will result in appropriate disciplinary action
including discharge.
63
<PAGE>
Appendix L: FLEX TIME SCHEDULE
Flex Time Schedule/Temporary Change of Hours
- --------------------------------------------------------------------------------
Date if
Day temporary start time finish time
- --------------------------------------------------------------------------------
Monday
- --------------------------------------------------------------------------------
Tuesday
- --------------------------------------------------------------------------------
Wednesday
- --------------------------------------------------------------------------------
Thursday
- --------------------------------------------------------------------------------
Friday
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Employee
Name _____________________________________________________________________
Supervisor
Signature _____________________________________________________________________
Date
_____________________________________________________________________
64
<PAGE>
Appendix M Membership Dues Deduction Memo
Date
To: Employee No.
I hereby assign, from my earnings now or hereafter payable to me from the
Employer, to Local No. 342 of the International Union of Electronic, Electrical,
Salaried, Machine and Furniture Workers, AFL-CIO, a sum equal to Union
Membership dues and, if owing by me, an initiation fee, as certified to the
Employer by the Local.
65
<PAGE>
Appendix N MEMO OF UNDERSTANDING - LEARNING BLOCK
In an effort to structure job classifications and job descriptions that better
reflect the current and projected business model for CVC, and that reward
employees for learning and experience, the Company and the Union agree to create
a joint committee, consisting of 3 members from each side, that will work to
refine job Classifications. The committee shall utilize the knowledge of members
within their current job classifications. This committee will meet starting by
November 30, 1998 and will have until November 30, 1999 to document a detailed
plan that can be implemented by January 1, 2000. Both parties must come to
agreement on the new policy. Until such time, the agreed current job
classifications, job descriptions and general wage increases will apply.
The committee is accountable to a steering team which will consist of the
Operations Director, HR Director, Chief Steward and Union President. The
steering team has final decision-making authority.
The following team charter will serve as a guideline for this program.
o Number of levels in each classification are targeted to be a maximum of 3.
o Each classification will have a pay range instead of a single rate.
o Advancement through the pay ranges will be based on individual performance
as measured by achievement of learning blocks.
o Learning blocks for each classification will be documented and reviewed on
an annual basis. This group will initially establish learning blocks.
o Performance based pay increases which will be effective annually and will
occur at the same time as general wage increases as defined in paragraph
30. While there is no funding for this provision during the current
contract, describe how would this be effectively implemented in the next
contract.
o Current employees as of the effective date of the agreement would not have
their rate reduced as a result of this program.
o Seniority shall be a primary consideration.
o Inter-departmental cross training will be considered.
66
<PAGE>
Exhibit 10.45
RECEIVED
NOV [ILLEGIBLE] 1998
Manufacturers and Traders Trust Company
M&T Place, 255 East Avenue
P.O. Box 22900, Rochester, NY 14692
September 30, 1998
Mr. Emilio DiCataldo
Senior Vice President/CFO
CVC Products, Inc.
525 Lee Road
Rochester. New York 14606
Dear Emilio:
Reference is made to the Term Loan Agreement (the "Agreement") dated April 14,
1998, between CVC Products, Inc. (the "Borrower") and Manufacturers and Traders
Trust Company ("Bank"). We hereby amend the following financial covenants
included in insert No.6 to the levels indicated below:
b. Tangible Net Worth:
Borrower shall not at any time have a tangible net worth of less than
$11,900,000.00 or, as of the end of any fiscal year, a tangible net worth
which is less than ninety-five percent (95%) of Borrower's tangible net
worth as of the end of the immediately preceding fiscal year. plus the
increase in tangible net worth as a result of any private equity placement
or public offering.
c. Total Liabilities to Tangible Net Worth:
9/30/98 3.0:1
10/31/98 3.0:1
11/30/98 3.0:1
12/31/98 2.5:1
1/31/99 2.5:1
2/28/99 2.5:1
3/31/99 2.5:1
4/30/99 2.5:1
5/31/99 2.5:1
6/30/99 2.5:1
7/31/99 2.5:1
8/31/99 2.5:1
9/30/99 2.5:1 and thereafter
<PAGE>
Mr. Emilio DiCataldo
Senior Vice President/CEO
CVC Products, Inc.
September 30, 1998
Page 2
d. Cash Flow Ratio:
9/30/98 1.45:1
10/31/98 1.45:1
11/30/98 1.45:1
12/31/98 1.1:1
1/31/99 1.45:1
2/28/99 1.45:1
3/31/99 1.75:1
4/30/99 1.75:1
5/31/99 2.0:1
6/30/99 2.0:1
7/31/99 2.25:1
8/31/99 2.25:1
9/30/99 2.5:1 and thereafter
e. Backlog:
9/98 $ 8,000,000.00
10/98 $ 8,000,000.00
11/98 $10,000,000.00
12/98 $13,000,000.00
1/99 $13,000,000.00
2/99 $13,000,000.00
3/99 $15,000,000.00
4/99 $15,000,000.00
5/99 $15,000,000.00
6/99 $18,000,000.00
7/99 $18,000,000.00
8/99 $18,000,000.00
9/99 $18,000,000.00 and thereafter
<PAGE>
Mr. Emilio DiCataldo
Senior Vice President/CEO
CVC Products, Inc.
September 30, 1998
Page 3
f. Maximum Quarterly Negative Income:
9/98 $700,000.00
12/98 $100,000.00
3.99 $100,000.00
6/99 $100,000.00
12/99 $100,000.00 and thereafter
g. Capital Expenditures:
For fiscal year ending September 30, 1998, Borrower shall not make capital
expenditures which exceed $6,700,000.00 and shall not make capital
expenditures which exceed $4,500,000.00 for fiscal year ending September
30, 1999. or any fiscal year thereafter.
We also hereby amend paragraph (ix) on page R-6 as follows:
Borrower also will submit to Bank within fifteen (15) days after the end of each
calendar month a Borrowing Base Certificate reporting on the Borrowing Base as
of the end of the previous month, together with all supporting documentation
requested by Bank and a monthly backlog report. Each Borrowing Base Certificate
shall be in form satisfactory to the Bank and certified to Bank by Borrower's
Chief Financial Officer. Borrower will also, within thirty (30) days of the end
of each calendar month, provide the Bank with a certificate executed by its
Chief Financial Officer, stating that he has read this Agreement, knows its
contents, and that to his knowledge, Borrower is in compliance with all
financial covenants contained in this Agreement, and no Event of Default has
occurred under the Agreement, and no conditions exist, which with notice, lapse
of time or both, would constitute an Event of Default under this Agreement. The
certificate shall also show the computations required to establish Borrower's
compliance with each financial covenant during the period covered by the
certificate. Borrower shall also provide Bank with such additional financial and
other information as Bank shall reasonably, from time to time, request.
<PAGE>
Mr. Emilio DiCataldo
Senior Vice President/CEO
CVC Products, Inc.
September 30, 1998
Page 4
Except as amended above, all other covenants, financial covenants, terms and
conditions of this agreement remain in effect. Consent of this amendment shall
be conditioned upon the acceptance by the Borrower and Guarantor as indicated
below:
Sincerely,
MANUFACTURERS AND TRADERS TRUST COMPANY
/s/ William E. Holston
William E. Holston
Vice President
WEH/ac
Accepted as of Sept 30, 1998
CVC PRODUCTS, INC.
/s/ Emilio DiCataldo
- -----------------------------
CVC HOLDINGS, INC.
/s/ Emilio DiCataldo
- -----------------------------
<PAGE>
EXHIBIT 10.46
Manufacturers and Traders Trust Company
M&T Place, 255 East Avenue
P.O. Box 22900, Rochester, NY 14692
February 19, 1999
Mr. Emilio DiCataldo
Senior Vice President & CFO
CVC Products, Inc.
525 Lee Road
Rochester, New York 14606
Re: Loan Agreement Dated March 31, 1998
Dear Emilio:
Reference is made to the Loan Agreement (the "Agreement") dated March 31, 1998,
amended as per Letter Agreement dated September 30, 1998, between CVC Products,
Inc. (the "Borrower") and M&T Bank (the "Bank"). We hereby further amend the
agreement as follows:
Insert #1 - b (viii) "Borrowing Base", shall also include a sub-limit for
demonstration inventory/equipment at an advance rate of 25% to a maximum of
$1,000,000.00 and to also include up to $500,000.00 in a second collateral
mortgage against the value of the company's real estate at 525 Lee Road,
Rochester, New York. The $500,000.00 collateral mortgage availability is subject
to completion of an increase in the Bank's mortgage lien by $500,000.00.
b (ix) - Borrower will submit Borrowing Base Certificate within 30 days after
the end of each calendar month and as further detailed in this paragraph of the
agreement.
Insert #6, b - Tangible Net Worth covenant as amended in September 30, 1998,
letter shall strike the final phrase "plus the increase in tangible net worth as
a result of any private equity placement or public offering".
Paragraph d - Cash flow ratio as of January 31, 1999, 1.30:1.
Paragraph g - Capital expenditure limitation for fiscal year ending September
30, 1999, or any fiscal year thereafter shall be $6,000,000.00 and shall be
calculated net of any cash proceeds from the sale of any demonstration tools
which are capitalized in Borrower's fixed assets.
<PAGE>
Mr. Emilio DiCataldo
Senior Vice President & CEO
CVC Products, Inc.
February 19, 1999
Page 2
We will have Woods, Oviatt prepare amended loan documentation and the new
collateral mortgage once you have completed your due diligence and analysis with
respect to the pending Commonwealth Scientific merger as it may relate to any
loan covenants in the agreement. The Borrower will pay all fees and expenses
incurred in loan documentation, including closing costs, attorneys' fees,
environmental audit, etc. associated with this transaction. Borrower
acknowledges that not every ancillary provision imposing duties, burdens, or
limitations on Borrower and to be contained in the final documentation customary
for these types of transactions can be set forth in this letter.
Except as amended above, all other covenants, financial covenants, terms and
conditions of this agreement remain in effect. This amendment shall be
conditioned upon the acceptance by the Borrower and the Guarantor as indicated
below.
Sincerely,
MANUFACTURERS AND TRADERS TRUST COMPANY
/s/ William E. Holston
William E. Holston
Vice President
WEH/ac
Accepted as of March 8, 1999
CVC PRODUCTS, INC.
/s/ Emilio DiCataldo
- -----------------------------
Borrower
CVC PRODUCTS, INC.
/s/ Emilio DiCataldo
- -----------------------------
Guarantor
<PAGE>
EXHIBIT 10.52
[LOGO] M&T BANK GENERAL SECURITY AGREEMENT
Manufacturers and Traders Trust Company
Name(s) of Undersigned CVC Process Solutions, Inc.
Address(es) of Undersigned
In consideration of Manufacturers and Traders Trust Company, a New York
banking corporation having its chief executive office at One M&T Plaza, Buffalo,
New York 14240, Attention: General Counsel's Office (the "Secured Party") See
Addendum for additional Secured Parties now heretofore or hereafter (1) granting
any loan, credit or other financial accommodation to, or in reliance upon any
guaranty, endorsement or other assurance of, (a) any of the undersigned; or (b)
cvc Products, Inc. (Name), ______________________________________, a Delaware
Corporation (Type of entity and, if not an individual, jurisdiction in which
organized) _______________________________________________ having his or her
residence or its only place of business or chief executive office at 525 Lee
Road, Rochester, NY 14606 (Address)____________________________________________,
(the "Borrower"), (2) permitting any extension, renewal, refinancing,
modification or replacement of any indebtedness, liability or obligation arising
as a direct or indirect result of any such loan, credit or other financial
accommodation, (3) surrendering or releasing any guaranty, endorsement or other
assurance, any collateral or other security, or any subordination, directly or
indirectly securing the payment of, or otherwise directly or indirectly
applicable to, any such indebtedness, liability or obligation or (4) granting
any waiver of, or any forbearance or other indulgence relating to, any right or
remedy relating to any such indebtedness, liability or obligation, to any such
guaranty, endorsement or other assurance, to any such collateral or other
security or to any such subordination, and for other valuable consideration, the
receipt of which is acknowledged, each of the undersigned agrees with the
Secured Party as follows:
1. Reference to Definitions.
a. For purposes of this Agreement, each of the following terms has the
meaning given it in Section 16 of this Agreement: (i) Bankruptcy Law, (ii)
Collateral, (iii) Debtor, (iv) Equipment, (v) Event of Default, (vi) General
Intangible, (vii) Goods, (viii) Inventory, (ix) Investment Property, (x)
Obligations, (xi) Other Collateral, (xii) Other Obligor, (xiii) Permitted Lien,
(xiv) Person, (xv) Primary Obligor, (xvi) Security Interest and (xvii)
Successor.
b. Unless otherwise defined in this Agreement, capitalized terms shall
have the meanings set forth in the New York Uniform Commercial Code as in effect
as of the date of this Agreement ("UCC").
2. Security Interest; Nature of Security Interest.
a. To secure the payment of the Obligations, each of the undersigned
grants to each Secured Party a security interest in, and assigns, pledges and
hypothecates to each Secured Party, the Collateral.
b. Each Security Interest (i) is unconditional, (ii) is independent of and
in addition to all Other Collateral, (iii) is a continuing security interest,
assignment, pledge or hypothecation, and (iv) shall continue in full force and
effect except insofar as this Agreement is terminated as provided in Section 12g
of this Agreement.
3. Reinstatement of Obligations. Each portion of the Obligations that is
(a) paid by any money received or applied by the Secured Party (including, but
not limited to, any such money constituting, or received or applied because of
the existence of, any of the Collateral or any Other Collateral) and later
returned by or otherwise recovered from the Secured Party as a direct or
indirect result of any claim, regardless of the basis or outcome thereof,
whether asserted affirmatively, as a counterclaim, setoff or defense or
otherwise and whether now existing or hereafter arising, for the return or for
any other recovery of such money (including, but not limited to, any such claim
based, in whole or in part, upon any allegation that (i) such money constituted
trust funds for purposes of the Lien Law of the State of New York or for
purposes of any similar statute, regulation or other law, (ii) the receipt or
application of such money constituted an impermissible setoff or (iii) the
receipt or application of such money, or the grant or perfection of any security
interest in, or of any other lien or encumbrance upon, any of the Collateral or
any Other Collateral, constituted a preference, fraudulent transfer or
fraudulent conveyance) or (b) satisfied by the Secured Party's retention of any
portion of the Collateral, or by the Secured Party's retention of any Other
Collateral, that is later returned by or otherwise recovered from the Secured
Party as a direct or indirect result of any claim, regardless of the basis or
outcome thereof, whether asserted affirmatively, as a counterclaim, setoff or
defense or otherwise and whether now existing or hereafter arising, for the
return or for any other recovery of such portion of the Collateral or Other
Collateral (including, but not limited to, any such claim based, in whole or in
part, upon any allegation that the grant or perfection of any security interest
in, or of any other lien or encumbrance upon, such portion of the Collateral or
Other Collateral constituted a preference, fraudulent transfer or fraudulent
conveyance) shall be reinstated as part of the Obligations for purposes of this
Agreement (including, but not limited to, Section 12g of this Agreement) as of
the date it originally arose and for purposes of each statute of limitations
with respect to any action or other legal proceeding by the Secured Party
against any Debtor relating to this Agreement as of the date of such return or
other recovery of such money, portion of the Collateral or Other Collateral.
4. Covenants.
a. Simultaneously with the execution and delivery to the Secured Party of
this Agreement, each of the undersigned shall execute and deliver to the Secured
Party each financing statement, notice of lien, instrument of assignment and
other writing, and take each other action, that the Secured Party shall deem
necessary or desirable at the sole option of the Secured Party to perfect or
accomplish any Security Interest.
b. Simultaneously with the execution and delivery to the Secured Party of
this Agreement, each of the undersigned shall deliver each presently existing
instrument included in the Collateral (except for any check or other draft) and
held by him, her or it to the Secured Party with each endorsement, instrument of
assignment and other writing that the Secured Party shall deem necessary or
desirable at the sole option of the Secured Party to accomplish the assignment
or other transfer of such Instrument to the Secured Party. Until such delivery,
he, she or it shall hold such Instrument in trust for the Secured Party.
c. Immediately upon receiving any Instrument included in the Collateral
(except for, until (i) the occurrence or existence of any Event of Default or
(ii) any notice to the contrary shall be delivered, given or sent by the Secured
Party to any Debtor, any check or other draft), each Debtor shall deliver such
Instrument to the Secured Party with each endorsement, instrument of assignment
and other writing that the Secured Party shall deem necessary or desirable at
the sole option of the Secured Party to accomplish the assignment or other
transfer of such Instrument to the Secured Party. Until such delivery, such
Debtor shall hold such Instrument in trust for the Secured Party.
d. Each Debtor shall provide to the Secured Party, in form satisfactory to
the Secured Party, (i) the financial and other Information required to be
provided to Bank by Borrower under Loan Agreement dated March 31, 1998
e. Each Debtor shall maintain accurate and complete records relating to
the Collateral (including, but not limited to, upon the request of The Secured
Party, a perpetual inventory record relating to Inventory included in the
Collateral) in conformity with generally accepted accounting principles
consistently applied.
f. Before, the end of any applicable grace period, each Debtor shall pay
each tax, assessment, fee and charge imposed by any government or political
subdivision upon any of the Collateral, upon the ownership, possession, use,
operation, sale or lease of any of the Collateral, upon this Agreement or upon
any Instrument evidencing any of the Obligations.
g. Each Debtor shall obtain and maintain in full force and effect each
authorization, approval, permit, consent, franchise and license from any Person
necessary for the ownership, possession, use, operation, sale or lease of any of
the Collateral.
h. Each Debtor shall defend the Collateral against each demand, claim,
counterclaim, setoff and defense asserted by any Person other than the Secured
Party (including, but not limited to, any Account Debtor).
i. Each Debtor shall indemnify the Secured Party on demand against each
liability, cost and expense (including, but not limited to, if the Secured Party
retains counsel for advice, for litigation or for any other purpose, each
attorney's fee and disbursement) incurred by the Secured Party as a direct or
indirect result of any claim, regardless of the basis or outcome thereof,
whether asserted affirmatively, as a counterclaim, setoff or defense or
otherwise and whether now existing or hereafter arising, arising out of the
ownership, possession, use, operation, sale or lease at any of the Collateral.
j. Each Debtor shall (i) keep all Goods included in the Collateral insured
against each risk to which any of such Goods may at any time be subject
(including, but not limited to, fire, theft and risks covered by extended
coverage) and (ii) maintain insurance against liability on account at damage to
any Person or property arising out of the ownership, possession, use, operation,
sale or lease of any of such Goods. Such insurance shall be provided in such
amounts, for such periods, on such terms, with such special endorsements and by
such companies as shall be satisfactory to the Secured Party. Each Debtor shall
deliver to the Secured Party a copy of each policy pursuant to which any of such
insurance is provided. Without limiting the generality of the first two
sentences of this Section 4j, (i) each policy pursuant to which any of the
insurance described in clause (i) of the first sentence of this Section 4j is
provided shall contain a mortgagee clause and a lender's loss payable clause
(for non-realty collateral), in form and substance satisfactory to the Secured
Party, (A) naming the Secured Party as a mortgagee or lender's loss payable, as
the case may be, as the interest of the Secured Party may appear and (B)
providing that (I) all money payable pursuant to any insurance provided pursuant
to such policy shall be payable to the Secured Party, (II) no insurance provided
pursuant to such policy shall be affected by any act or omission of any Debtor
or of any owner of any real property referred to in such policy and (III)
neither such policy nor such mortgagee or lender's loss payable clause may be
canceled, terminated or adversely amended except upon thirty days' prior written
notice to the Secured Party and (ii) each policy pursuant to which any of the
insurance described in clause (ii) of the first sentence of this Section 4j is
provided shall contain a clause, in form and substance satisfactory to the
Secured Party, (A) naming the Secured Party as an additional insured as the
interest of the Secured Party may appear and (B) providing that neither such
policy nor such clause may be canceled, terminated or adversely amended except
upon thirty days' prior written notice to the Secured Party.
k. Each Debtor shall immediately (i) cause all Goods included in the
Collateral to be properly titled and registered to the extent required by any
applicable statute, regulation or other law, (ii) cause the interest of the
Secured Party to be properly noted on each certificate of title relating to any
of such Goods and (iii) deliver each such certificate received by such Debtor to
the Secured Party.
l. Each Debtor shall (i) keep each Fixture and piece of Equipment included
in the Collateral in as good condition as when first delivered to any Debtor,
ordinary wear and tear excepted, (ii) perform maintenance on each such Fixture
and piece of Equipment strictly in accordance with each applicable specification
of any manufacturer or seller thereof and (iii) use and operate each such
Fixture and piece of Equipment, and permit each such Fixture and piece of
Equipment to be used and operated, only in the manner in which it was designed
to be used and operated so as to subject it only to ordinary wear and tear.
m. Each Debtor shall use his, her or its best efforts to cause any issuer
of any Investment Property included in the Collateral to make public, whether by
filing reports with the Securities and Exchange Commission or otherwise, all
information with respect to such issuer necessary or desirable to permit the
sale or other disposition of such Investment Property without registration
pursuant to the Securities Act of 1933.
n. If any Account or General Intangible included in the Collateral
represents money owing pursuant to any contract for the improvement of real
property or for a public improvement for purposes of the Lien Law of the State
of New York, each Debtor shall (i) immediately send or deliver notice of such
fact to the Secured Party, (ii) receive and hold any money advanced by the
Secured Party with respect to such Account or General Intangible as a trust fund
to be first applied to the payment of trust claims as such term is defined in
Section 71 of such Lien Law, (iii) until each such trust claim is paid, not use
or permit the use of any of such money for any purpose other than the payment of
such trust claims and (iv) promptly upon the request of the Secured Party,
execute and deliver each writing, and take each other action, that the Secured
Party shall deem necessary or desirable at the sole option of the Secured Party
to give or file notice of the Secured Party's interest in such Account or
General Intangible pursuant to whichever of Sections 15, 16 and 73 of such Lien
Law is applicable.
o. If any Account or General Intangible included in the Collateral arises
out of a contract with any government or political subdivision (including, but
not limited to, the United States) or with any department, agency or
instrumentality thereof, such Debtor shall (i) immediately send or deliver
notice of such fact to the Secured Party and (ii) promptly upon the request of
the Secured Party, execute and deliver each writing, and take each other action,
that the Secured Party shall deem necessary or desirable at the sole option of
the Secured Party properly to protect and enforce its rights under any statute,
regulation or other law (including, but not limited to, the Federal Assignments
of Claims Act) the interest of the Secured Party in such Account or General
Intangible.
p. Each Debtor shall promptly deliver or send to the Secured Party notice
of any failure of any Account Debtor or other Person to perform any obligation
relating to any Account, Chattel Paper, General Intangible, Instrument,
Investment Property, Document or Deposit Account included in the Collateral.
q. Immediately upon receiving any proxy statement, notice or other
communication relating to any Investment Property included in the Collateral,
each Debtor shall (i) if such proxy statement, notice or other communication is
in writing, deliver a copy thereof to the Secured Party or (ii) if such proxy
statement, notice or other communication is not in writing, deliver or send
notice thereof to the Secured Party.
2
<PAGE>
r. Immediately upon acquiring knowledge or reason to know that any Goods
included in the Collateral have been affixed to, or have been installed in or
on, any real property or any Goods not included in the Collateral, each Debtor
shall deliver or send notice of such fact to the Secured Party.
s. Immediately upon acquiring knowledge or reason to know of any maturity,
call, exchange, conversion, redemption, offer, tender or similar matter relating
to any Investment Property or Deposit Account included in the Collateral, each
Debtor shall deliver or send notice thereof to the Secured Party.
t. Immediately upon acquiring knowledge or reason to know of any loss,
destruction or theft of, or of any damage to, any of the Collateral from any
cause of any kind, each Debtor shall send or deliver notice thereof to the
Secured Party.
u. Immediately upon acquiring knowledge or reason to know of (i) the
threat or commencement by any Person other than the Secured Party of any action
or other legal proceeding relating to any of the Collateral or questioning the
validity of this Agreement or of any action taken or to be taken pursuant to
this Agreement, (ii) any judgment, order or award of any court, agency or other
governmental authority or of any arbitrator relating to any of the Collateral or
rendering invalid this Agreement or any action taken or to be taken pursuant to
this Agreement or (iii) the assertion by any Person other than the Secured Party
of any demand, claim, counterclaim, set off or defense relating to any of the
Collateral, each Debtor shall deliver or send notice thereof to the Secured
Party.
v. Immediately upon acquiring knowledge or reason to know of the
occurrence or existence of (i) any Event of Default, (ii) any event or condition
that, after notice, after lapse of time or after both notice and lapse of time,
would constitute an Event of Default or (iii) any event or condition that has or
(so far as can be foreseen) will or might have any material adverse effect on
any of the Collateral, on any Debtor, Primary Obligor or Other Obligor or on the
business, operations, assets, affairs or condition (financial or other) of any
Debtor, Primary Obligor or Other Obligor, each Debtor shall deliver or send
notice thereof to the Secured Party.
w. Immediately upon acquiring knowledge or reason to know of any change in
(i) the location of the residence, only place of business or chief executive
office of any Debtor, (ii) the location of any of the Collateral if not (A) in
the possession or under the control of, or enroute to or from, the Secured Party
or (B) mobile Equipment being removed for not more than thirty days at a time
from any location indicated in any questionnaire submitted to the Secured Party
by any of the undersigned in connection with this Agreement as a location where
such mobile Equipment will be kept or (iii) the name, identity or structure of
any Debtor, each Debtor shall deliver or send notice thereof to the Secured
Party.
x. No Debtor shall (i) execute or permit to be filed or remain on file in
any public office any financing statement relating to any of the Collateral,
naming any Debtor as a debtor and naming any Person other than the Secured Party
as a secured party or (ii) execute any application for any certificate of title
or notice of lien, or permit to exist any certificate of title, relating to any
Goods included in the Collateral and naming any Person other than the Secured
Party as a secured party, except for financing statements, applications, notices
of lien and certificates of title fully and accurately described in Exhibit A
attached to and made a part of this Agreement.
y. No Debtor shall (i) permit to exist any registration of any transfer or
pledge of any Investment Property included in the Collateral, (ii) execute or
permit to exist any control agreement, order to register any transfer or pledge
of, or any notification of any security interest in, or of any other lien or
encumbrance upon, any such Investment Property or (iii) permit any such
Investment Property to be shown on the records of any Securities Intermediary or
Issuer other than in the name of any Debtor, of the Secured Party or of any
nominee of the Secured Party, except for registrations, orders, notifications
and Investment Property fully and accurately described in Exhibit A attached to
and made a part of this Agreement.
z. No Debtor shall create or permit to exist, or attempt or agree or
otherwise incur any obligation to create or permit to exist, any security
interest in, or any other lien or encumbrance upon, any of the Collateral,
except for Permitted Liens.
aa. No Debtor shall abandon, assign, sell, lease, exchange, convert or otherwise
transfer or dispose of any of the Collateral or any interest in any of the
Collateral, except that, until (i) the occurrence or existence of any Event of
Default or (ii) any notice to the contrary shall be delivered, given or sent by
the Secured Party to any Debtor, each Debtor may (A) in the ordinary course of
such Debtor's business, (I) abandon, assign, sell, lease, exchange or otherwise
transfer or dispose of any Equipment of such Debtor that is obsolete or
worn-out, (II) sell or exchange any Equipment of such Debtor in connection with
the acquisition by such Debtor of other Equipment that is at least as valuable
as such Equipment, that such Debtor intends to use for substantially the same
purposes as such Equipment and that is not subject to any security interest or
other lien or encumbrance, except for Permitted Liens, (III) assign any Account
of such Debtor for purposes of collection, (IV) assign, sell, lease, exchange or
otherwise transfer or dispose of any Inventory of such Debtor other than in
partial or complete satisfaction of any indebtedness, liability or obligation
and (V) dispose of any money of such Debtor or funds in any Deposit Account of
such Debtor in partial or complete satisfaction of any indebtedness, liability
or obligation of such Debtor incurred in the ordinary course of such Debtor's
business and (B) dispose of any money of such Debtor, funds in any Deposit
Account of such Debtor or funds in any other account of such Debtor evidenced by
a certificate of deposit if such money is held, or if such Deposit Account or
other account is maintained, for personal, family or household purposes.
bb. No Debtor shall use, operate, permit the use or operation of, or
assign, sell, lease, exchange or otherwise transfer or dispose of, any of the
Collateral in any manner that (i) would or might violate, or would or might
result in any violation of, any environmental or other statute, regulation or
other law (including, but not limited to, the Environmental Protection Act, the
Occupational Safety and Health Act, the Comprehensive Environmental Response,
Compensation and Liability Act and the Resource Conservation and Recovery Act),
any policy providing any insurance on any Goods included in the Collateral or
any warranty with respect to any such Goods or (ii) would or might result in any
such insurance not being paid or in any such warranty not being honored.
cc. No Debtor shall remove, or permit the removal of, any of the
Collateral from any location indicated in any questionnaire submitted to the
Secured Party by any of the undersigned in connection with this Agreement as a
location where any of the Collateral will be kept, except that any mobile
Equipment included in the Collateral may be removed for not more than thirty
days at a time from any location indicated in any such questionnaire as a
location where such mobile Equipment will be kept.
dd. No Debtor shall materially alter or permit the material alteration of
any Fixture or piece of Equipment included in the Collateral.
ee. No Debtor shall cause or permit any Goods included in the Collateral
to (i) become a Fixture or (ii) be or become an accession to any Goods not
included in the Collateral.
ff. No Debtor shall cause or permit any Goods included in the Collateral
to be placed in any warehouse that may issue a negotiable Document with respect
to such Goods.
gg. No Debtor shall assign, sell, exchange, convert or otherwise transfer
or dispose of, take any other action with respect to, or permit the assignment,
sale, exchange, conversion or other transfer or disposition of or the taking of
any other action with respect to, any Investment Property not included in the
Collateral if such assignment, sale, exchange, conversion or other transfer or
disposition or such taking of such other action would be required to be
considered in determining whether the sale or other disposition of any
Investment Property included in the Collateral was permissible without
registration pursuant to the Securities Act of 1933.
hh. No Debtor who or which controls any issuer of any stock or share
included in the Collateral shall permit, and no Debtor who or which by acting
with any other Person or with other Persons would cause such control to exist
shall take any action to permit, such issuer to issue (i) any such stock or
share in addition to that or those heretofore issued or (ii) any option, warrant
or other right to purchase any such stock or share.
ii. Upon and after (i) the occurrence or existence of any Event of Default
or (ii) the delivery, giving or sending by the Secured Party to any Debtor of
any notice not to do so, no Debtor shall, without the prior written consent of
the Secured Party, (A) request, demand, accept, collect, enforce, extend, renew,
refinance, modify, compound, subordinate, accelerate, settle, adjust or
compromise, enter into any composition of, replace, cancel, release, surrender,
abandon, discharge, realize upon, commence, prosecute, settle or compromise any
action or other legal proceeding relating to, waive any right or remedy relating
to or otherwise terminate, impair or otherwise affect any indebtedness,
liability or obligation of any
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Account Debtor or other Person relating to, or give any receipt, release or
discharge relating to, any Account, Chattel Paper, General Intangible,
Instrument, Investment Property, Document or Deposit Account included in the
Collateral or (B) attempt or agree or otherwise incur any obligation to do
anything described in clause (A) of this sentence.
jj. Promptly upon the request of the Secured Party made upon or at any
time and from time to time after the occurrence or existence of any Event of
Default, each Debtor shall assemble (i) all Goods included in the Collateral,
except for Fixtures, growing crops and standing timber, and (ii) all Chattel
Paper, Instruments, Documents and records included in the Collateral and make
them available to the Secured Party at each place reasonably convenient to the
Secured Party and to such Debtor as the Secured Party shall designate
(including, but not limited to, any premises of such Debtor).
kk. Promptly upon the request of the Secured Party:
i. Each Debtor shall enter into each warehousing, lockbox or other
custodial arrangement with respect to any of the Collateral that the Secured
Party shall deem necessary or desirable at the sole option of the Secured Party.
ii. Each Debtor shall provide to the Secured Party all information,
in form and substance satisfactory to the Secured Party, that the Secured Party
shall deem necessary or desirable at the sole option of the Secured Party to (A)
identify the nature, extent, value, age and location of any of the Collateral,
(B) identity or contact any Account Debtor or other Person obligated with
respect to any Account, Chattel Paper, General Intangible, Instrument,
Investment Property, Document or Deposit Account included in the Collateral or
(C) verify any insurance on any Goods included in the Collateral.
iii. Each Debtor shall permit each officer, employee, accountant,
attorney and other agent of the Secured Party to inspect the Collateral and to
examine, audit, copy and extract each record included in the Collateral.
iv. Each Debtor shall provide to the Secured Party a writing, in
form and substance satisfactory to the Secured Party, (A) signed by each Person
having any interest whether as an owner, mortgagee or lessee or otherwise, in
any real property to which are affixed, or in or on which are installed or
located, any Goods included in the Collateral or in or on which is located any
Chattel Paper, Instrument, Document or record included in the Collateral, (B)
disclaiming any interest of such Person in such Goods, Chattel Paper,
Instrument, Document or record and (C) containing the agreement of such Person
to the Secured Party, upon and at any time and from time to time after the
occurrence or existence of any Event of Default, (I) entering upon such real
property or upon any other real property of such Person to which are affixed, or
in or on which are installed or located, any such Goods or in or on which is
located any such Chattel Paper, Instrument, Document or record, (II) taking
possession of and removing from such real property or from such other real
property any Goods included in the Collateral and affixed thereto or installed
or located therein or thereon or any Chattel Paper, Instrument, Document or
record included in the Collateral and located therein or thereon and (III)
remaining on, and using, such real property or such other real property in the
examination, storage, preparation for any sale, lease or other disposition or
sale, lease or other disposition of such Goods or in the examination, audit,
copying or extraction of such record, without by doing so incurring any
liability to such Person, except for unreasonable damage to much real property
or to such other real property directly resulting from doing so.
v. Each Debtor shall provide to the Secured Party a writing, in form
and substance satisfactory to the Secured Party, (A) signed by each Person
having any interest, whether as an owner, secured party or lessee or otherwise,
in any Goods not included in the Collateral to which are affixed, or in or on
which are installed, any Goods included in the Collateral, (B) disclaiming any
interest of such Person in such Goods included in the Collateral and (C)
containing the agreement of such Person to the Secured Party, upon and at any
time and from time to time after the occurrence or existence of any Event of
Default, taking possession of and removing such Goods included in the Collateral
from such Goods not included in the Collateral, without by doing so incurring
any liability to such Person, except for unreasonable damage to such Goods not
included in the Collateral directly resulting from doing so.
vi. Each Debtor shall provide all information and assistance,
execute and deliver each writing, and take each other action, that the Secured
Party shall deem necessary or desirable at the sole option of the Secured Party
in connection with the verification of any Account, Chattel Paper, General
Intangible, Instrument, Investment Property, Document or Deposit Account
included in the Collateral.
vii. Each Doctor shall deliver each Chattel Paper, Document and
record included in the Collateral to the Secured Party with each endorsement,
instrument of assignment and other writing that the Secured Party shall deem
necessary or desirable at the sole option of the Secured Party to accomplish the
assignment or other transfer of such Chattel Paper, Document or record to the
Secured Party.
viii. Each Debtor shall execute and deliver or file each form and
other writing (including, but not limited to, any notice of proposed sale of
securities Pursuant to Rule 144 of the Securities and Exchange Commission), and
take each other action (including, but not limited to, making public any
nonpublic material adverse information with respect to any issuer of any
Investment Property included in the Collateral), that the Secured Party shall
deem necessary or desirable at the sole option of the Secured Party to permit
the sale or other disposition of any such Investment Property without
registration pursuant to the Securities Act of 1933.
ix. Each Debtor who or which controls any issuer of any Investment
Property included in the Collateral or otherwise has the right to effect
registration of such Investment Property pursuant to the Securities Act of 1933
shall (A) cause such Investment Property to be so registered, (B) take each
other action (including, but not limited to, complying with any "blue sky" or
securities statute, regulation or other law and delivering to the Secured Party
appropriate quantities of prospectuses) that the Secured Party shall deem
necessary or desirable at the sole option of the Secured Party to permit the
public sale or other disposition of such Investment Property by the Secured
Party in each jurisdiction that the Secured Party shall select at the sole
option of the Secured Party and (C) execute and deliver to the Secured Party a
writing, in form and substance satisfactory to the Secured Party, indemnifying
in connection with such sale or other disposition each Person who or which is an
underwriter (statutory or other) of such Investment Property against each
liability, cost and expense (including, but not limited to, if such Person
retains counsel for advice, for litigation or for any other purpose, each
attorney's fee and disbursement) incurred by such Person as a direct or indirect
result of such sale or other disposition.
x. Each Debtor shall execute and deliver each financing statement,
amendment of any financing statement, application for any certificate of title,
notice of lien, instrument of assignment and other writing, and take each other
action, that the Secured Party shall deem necessary or desirable at the sole
option of the Secured Party (i) to perfect or accomplish any Security Interest,
(ii) otherwise to accomplish any purpose of this Agreement, (iii) in connection
with any transaction contemplated by this Agreement or (iv) in connection with
any of the Collateral.
5. Authorization and Power of Attorney. The Secured Party is irrevocably and
unconditionally authorized to take, and each Debtor irrevocably and
unconditionally appoints the Secured Party as the attorney-in-fact of such
Debtor; with full power of substitution and of revocation, to take, in the name
of such Debtor or otherwise and otherwise as shall be determined by the Secured
Party at the sole option of the Secured Party, each action relating to any of
the Collateral that, subject to this Agreement, such Debtor could take in the
same manner, to the same extent and with the same effect as if such Debtor were
to take such action; provided, however, that, until any notice of intention to
do so shall be delivered, given or sent by the Secured Party to any Debtor upon
or at any time after the occurrence or existence of any Event of Default, (a)
the Secured Party may not, pursuant to such authorization or as such
attorney-in-fact, (i) exercise or direct the exercise of any right to vote or
give any consent, ratification or waiver with respect to any Investment Property
included in the Collateral or (ii) except as expressly permitted by this
Agreement, sell, lease or otherwise dispose of any of the Collateral and (b)
each Debtor shall have the right to exercise any right to vote or give any
consent, ratification or waiver with respect to any Investment Property included
in the Collateral that such Debtor would have but for this Agreement unless
doing so would or might have any adverse effect on the value of such Investment
Property as security for the payment of the Obligations or otherwise be
inconsistent or incompatible with any provision or purpose of this Agreement.
Such power of attorney is coupled with an interest in favor of the Secured
Party, and shall not be terminated or otherwise affected by the death,
disability or incompetence of any Debtor. Without limiting the generality of the
first sentence this Section 5, pursuant to such authorization and as such
attorney-in-fact, the Secured Party may, in the name of any Debtor or otherwise
at the sole option of the Secured Party, (a) execute and deliver any financing
statement or instrument of assignment relating to any of the Collateral, any
amendment of any such financing statement or any application for any certificate
of title or notice of lien relating to any Goods included in the Collateral, (b)
endorse, or execute and deliver any instrument of assignment relating to, and
deliver any of the Collateral (including,
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but not limited to, any Instrument drawn by any company issuing any insurance on
any Goods included in the Collateral), whether such endorsement or assignment is
to the Secured Party or otherwise, (c) execute and deliver any writing, or give
any communication in any other form, requesting any transfer, pledge or release
from pledge of any Investment Property included in the Collateral, (d) execute
and deliver or file any form or other writing (including, but not limited to,
any notice of proposed sale of securities pursuant to Rule 144 of the Securities
and Exchange Commission), or take any other action (including, but not limited
to, making public any nonpublic material adverse information with respect to any
issuer of any Investment Property included in the Collateral), that the Secured
Party shall deem necessary or desirable at the sole option of the Secured Party
to permit the sale or other disposition of any such Investment Property without
registration pursuant to the Securities Act of 1933, (e) receive and collect any
mail addressed to any Debtor, direct the place of delivery of any such mail to
any location designated by the Secured Party, open any such mail and remove from
any such mail and retain any enclosure evidencing, or otherwise relating to, any
of the Collateral, (f) obtain, adjust, settle or cancel any insurance on any
Goods included in the Collateral, (g) use any payment in connection with any
such insurance (including, but not limited to, any refund of any unearned
premium therefor) to pay any of the Obligations, whether due or not due, as the
Secured Party shall determine at the sole option of the Secured Party, (h) take
any action described in clause (A) of Section 4ii of this Agreement or (i)
execute and deliver any other writing, or take any other action, that the
Secured Party shall deem necessary or desirable at the sole option of the
Secured Party (i) to perfect or accomplish any Security Interest, (ii) otherwise
to accomplish any purpose of this Agreement, (iii) in connection with any
transaction contemplated by this Agreement or (iv) in connection with any of the
Collateral. Each Debtor revokes each power of attorney (including, but not
limited to, any proxy) heretofore granted by such Debtor with respect to any
Investment Property included in the Collateral.
6. Certain Rights, Remedies and Duties.
a. With respect to the Collateral, the Secured Party shall have each
applicable right and remedy of a secured party pursuant to the UCC and each
applicable right and remedy pursuant to any other statute, regulation or other
law or pursuant to this Agreement.
b. The Secured Party shall have the right to file in any public office,
without the signature of any Debtor, each financing statement relating to any of
the Collateral that the Secured Party shall deem necessary or desirable at the
sole option of the Secured Party. Each carbon, photographic or other
reproduction of this Agreement or of any financing statement relating to any of
the Collateral shall be sufficient as a financing statement.
c. The Secured Party shall have the right to direct any company issuing
any insurance on any Goods included in the Collateral to make directly and
solely to the Secured Party any payment in connection therewith (including, but
not limited to, any refund of any unearned premium therefor).
d. The Secured Party shall have the right to verify each Account, Chattel
Paper, General Intangible, Instrument, Investment Property, Document and Deposit
Account included in the Collateral in any manner or through any medium that the
Secured Party considers appropriate, whether directly with any Account Debtor or
other Person obligated with respect thereto or otherwise and whether in the name
of any Debtor or otherwise, at the sole option of the Secured Party.
e. The Secured Party shall have the right to (i) notify each Account
Debtor and other Person obligated with respect to any Account, Chattel Paper,
General Intangible, Instrument, Investment Property or Deposit Account included
in the Collateral of the interest of the Secured Party therein, (ii) direct such
Account Debtor or other Person to deliver to the Secured Party directly any
record evidencing, or otherwise relating to, such Account, Chattel Paper,
Investment Property or Deposit Account, (iii) direct such Account Debtor or
other Person to make payment with respect to such Account, Chattel Paper,
Investment Property or Deposit Account directly and solely to the Secured Party
and (iv) take control of all Proceeds of such Account, Chattel Paper, Investment
Property or Deposit Account.
f. The Secured Party shall have the right to transfer to or register in
the name of the Secured Party or of any nominee of the Secured Party any General
Intangible, Instrument, Investment Property or Deposit Account included in the
Collateral so that the Secured Party or such nominee shall appear as the sole
owner of record thereof. Each such transfer or registration may be made with or
without reference to this Agreement or to any Security Interest.
g. Upon and at any time and from time to time after the occurrence or
existence of any Event of Default:
i. The Secured Party shall have the right to use each Fixture and
piece of Equipment included in the Collateral for the purposes of preserving any
Goods included in the Collateral, of completing any work in process included in
the Collateral and of preparing any such Goods for any sale, lease or other
disposition.
ii. The Secured Party shall have the right, without any judicial
process but without any breach of the peace, to (A) enter upon any premises of
any Debtor, (B) take possession of, and remove from any such premises, any
Goods, Chattel Paper, Instrument, Document or record included in the Collateral
and (C) remain on and use any such premises in completing any work in process
included in the Collateral or in preparing for any sale, lease or other
disposition, in selling, leasing or otherwise disposing of, or in collecting,
any of the Collateral and (C) without the payment of any compensation of any
kind, use each trademark, service mark, trade style, trade name, patent,
copyright, license, franchise and similar General Intangible included in the
Collateral to the extent of any Debtor's rights therein for the purpose of
exercising any right or remedy pursuant to this Agreement or any other right or
remedy relating to any of the Collateral; and, to such extent for such purpose,
each Debtor irrevocably grants to the Secured Party a license in each such
trademark, service mark, trade style, trade name, patent, copyright, license,
franchise and similar General Intangible.
iii. If the Secured Party opts for the private sale or other
disposition of any Investment Property included in the Collateral, the Secured
Party shall have the right to (A) restrict the number of prospective bidders in
connection with such sale or other disposition so as to comply with the
Securities Act of 1933 and (B) restrict such prospective bidders to Persons who
will agree to purchase such Investment Property for their own accounts for
investment and not with a view to distribution or resale. No such restriction or
other restriction on such sale or other disposition that the Secured Party shall
deem necessary or desirable at the sole option of the Secured Party in light of
any "blue sky" or securities statute, regulation or other law shall be deemed to
be a factor in determining such sale or other disposition to have been made in
other than a commercially reasonable manner.
iv. The Secured Party shall have the right to perform any obligation
of any Debtor pursuant to this Agreement.
h. Until (i) the occurrence or existence of any Event of Default or (ii)
any notice to the contrary shall be delivered, given or sent by the Secured
Party to any Debtor, the Secured Party shall not have any right to retain any
interest, dividend, distribution or similar income consisting of money or of a
check or other draft and payable on account of any Investment Property included
in the Collateral, and shall pay to any Debtor any such interest, dividend,
distribution or similar income received by it prior thereto.
i. The Secured Party shall apply all proceeds received by it from any
sale, lease or other disposition of, or from any collection of, any of the
Collateral or otherwise on account of any of the Collateral (including, but not
limited to, as money payable pursuant to any insurance on any Goods included in
the Collateral) first to costs and expenses described in Section 10 of this
Agreement and then to such other of the Obligations, whether due or not due as
the Secured Party shall determine at the sole option of the Secured Party.
7. Standards of Care. If any portion of the Collateral shall be transferred to
or registered in the name of the Secured Party or of any nominee of the Secured
Party or shall be in the possession or under the control of the Secured Party,
the Secured Party shall be deemed to have exercised reasonable care in the
custody or preservation of such portion of the Collateral if, subject to the
following sentence, it (a) accords such portion of the Collateral treatment
substantially equal to the treatment that it accords its own assets of a similar
nature or (b) takes such action in the custody or preservation of such action of
the Collateral as is reasonably specified in any notice delivered or sent by any
Debtor and received by it in a reasonable time to evaluate and take such action;
provided, however, that (i) any failure by the Secured Party to take such action
shall not or itself be deemed to be a failure to exercise such reasonable care
and (ii) in no event shall the Secured Party be obligated to take such action if
it determines at its sole option that doing so would or might have any adverse
effect on the value of any of the Collateral as security for the payment of the
Obligations or otherwise be inconsistent or incompatible with any provision or
purpose of this Agreement. In no event shall the Secured Party be obligated to
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(a) preserve any right or remedy against any prior party obligated pursuant to
any Chattel Paper, Investment Property or Instrument included in the Collateral,
whether or not such Chattel Paper, Investment Property or Instrument is in the
possession or under the control of the Secured Party, (b) ascertain any
maturity, call, exchange, conversion, redemption, offer, tender or similar
matter relating to any Investment Property or Deposit Account included in the
Collateral or provide to any Debtor any notice thereof, whether or not the
Secured Party has knowledge thereof, or (c) provide to any Debtor any proxy
statement, notice or other communication received by the Secured Party or by any
nominee of the Secured Party and relating to any of the Collateral.
8. Obligations Immediately Due; Termination of Obligation to Lend.
a. Upon and at any time and from time to time after the occurrence or
existence of any Event of Default other than an Event of Default described in
clause (iv) of Section 16e of this Agreement, all of the Obligations remaining
unpaid shall, at the sole option of the Secured Party and without any notice,
demand, presentment or protest of any kind, become immediately due,
notwithstanding any agreement to the contrary. Upon the occurrence or existence
of any Event of Default described in such clause (iv), all of the Obligations
remaining unpaid shall, without any notice, demand, presentment or protest of
any kind, automatically become immediately due, notwithstanding any agreement to
the contrary. Nothing in this Section 8a shall render any portion of the
Obligations that is payable on demand payable otherwise than on demand or in any
other way affect any right or remedy of the Secured Party with respect to any
such portion of the Obligations.
b. Upon the occurrence or existence of any Event of Default, or any event
or condition that, after notice, after lapse of time or after both notice and
lapse of time, would constitute an Event of Default, any obligation of the
Secured Party to grant any or any additional loan, credit or other financial
accommodation to any Debtor shall terminate, notwithstanding any agreement to
the contrary.
9. Representations and Warranties.
a. Each of the undersigned represents and warrants to the Secured Party,
now and as long as this Agreement is in effect as follows;
i. Each answer contained in any questionnaire submitted to the
Secured Party by him, her or it in connection with this Agreement is true and
correct as of the date of this Agreement.
ii. His, her or its execution, delivery to the Secured Party and
performance of this Agreement do not and will not (A) violate, or result in any
violation of, any statute, regulation or other law or any judgment, order or
award of any court, agency or other governmental authority or of any arbitrator
or (B) violate, result in any violation of, constitute (whether immediately or
after notice, after lapse of time or after both notice and lapse of time) any
default under, or result in or require the imposition or creation of any
security interest in, or of any other lien or encumbrance upon, any of his, her
or its assets pursuant to, any agreement to which he, she or it is a party or by
which he, she or it or any of his, her or its assets is bound, except for this
Agreement.
iii. Each authorization, approval, permit and consent from, each
registration and filing with, each declaration and notice to, and each other act
by or relating to, any Person required as a condition of his, her or its
execution, delivery to the Secured Party or performance of this Agreement has
been duly obtained, made, given or done, and is in full force and effect.
iv. If it is not an individual, its execution, delivery to the
Secured Party and performance of this Agreement (A) are and will be in
furtherance of its purposes and within its power and authority, (B) do not and
will not violate, result in any violation of, or result in or require the
imposition or creation of any security interest in, or of any other lien or
encumbrance upon, any of its assets pursuant to, (I) any certificate or articles
of incorporation, by-laws, partnership agreement, articles of association or
other charter, organizational or governing document of it or (II) any resolution
or other action of record of any shareholders or members of it, of any board of
directors or trustees of it or of any other Person responsible for governing it,
and (C) have been duly authorized by each necessary action of any shareholders
or members of it, of any board of directors or trustees of it or of any other
Person responsible for governing it.
v. He, she or it has not heretofore abandoned, assigned, sold,
leased, exchanged, converted or otherwise transferred or disposed of any of the
Collateral or any interest in any of the Collateral, except as fully and
accurately described in Exhibit A attached to and made a part of this Agreement.
vi. He, she or it has not heretofore extended, renewed, refinanced,
modified, compounded, subordinated, accelerated, settled, adjusted or
compromised, entered into any composition of, replaced, canceled, released or
surrendered, exercised any option or right of subscription relating to, settled
or compromised any action or other legal proceeding relating to, or waived any
right or remedy relating to or otherwise terminated, impaired or otherwise
affected any indebtedness, liability or obligation of any Account Debtor or of
any other Person relating to, any Account, Chattel Paper, Investment Property,
General Intangible, Instrument, Document or Deposit Account included in the
Collateral, except as fully and accurately described in Exhibit A attached to
and made a part of this Agreement.
vii. There exists no demand. claim, counterclaim, setoff or defense,
no action or other legal proceeding, and no outstanding judgment, order or award
of any court, agency or other governmental authority or of any arbitrator,
relating to any of the Collateral or questioning the validity of, or rendering
invalid, this Agreement or any action taken or to be taken pursuant to this
Agreement, except for demands, claims, counterclaims, setoffs, defenses, actions
and other legal proceedings and judgments, orders and awards fully and
accurately described in Exhibit A attached to and made a part of this Agreement.
viii. There is not on file in any public office any presently
effective financing statement relating to any of the Collateral, naming him, her
or it as a debtor and naming any Person other than the Secured Party as a
secured party, except for financing statements fully and accurately described in
Exhibit A attached to and made a part of this Agreement.
ix. There exists no presently effective certificate of title, and no
application for any certificate of title or notice of lien, relating to any of
his, her or its Goods and naming any Person other than the Secured Party as a
secured party, except for certificates of title, applications and notices of
lien fully and accurately described in Exhibit A attached to and made a part of
this Agreement.
x. There exists no (A) presently effective control agreement,
registration of any transfer or pledge of any Investment Property included in
the Collateral, (B) outstanding order to register any transfer or pledge of any
such Investment Property, (C) notification of any security interest in, or of
any other lien or encumbrance upon, any such Investment Property or (D) such
Investment Property that is shown on the records of any Securities Intermediary
or Issuer other than in the name of any Debtor, except for registrations,
orders, notifications and Investment Property fully and accurately described in
Exhibit A attached to and made a part of this Agreement.
xi. There exists no security interest in, and no other lien or
encumbrance upon, any of the Collateral, except for Permitted Liens.
xii. There is no restriction on any assignment or other transfer by
him, her or it of any of the Collateral, except for compliance with any "blue
sky" or securities statute, regulation or other law.
xiii. The real property on which any crop included in the Collateral
is growing or is to be grown, or on which any timber included in the Collateral
is or is to be standing, is fully and accurately described in Exhibit A attached
to and made a part of this Agreement.
xiv. To the extent any of the Collateral consists of mutual fund
shares or any other interest in a mutual fund, such shares or interest shall
have been owned by the Debtor for more than thirty (30) days from the date of
this Agreement.
b. At each time this Agreement is in effect as to any Debtor, such Debtor
shall be deemed to represent and warrant to the Secured Party as follows:
i. Each Instrument, Document and Deposit Account Investment Property
included in the Collateral at such time is genuine, as in all respects what it
purports to be, and is enforceable in accordance with its terms against each
Person obligated with respect thereto.
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ii. Each Account, Chattel Paper and General Intangible included in
the Collateral at such time is genuine, is in all respects what it purports to
be, and is enforceable in accordance with its terms against each Account Debtor
and other Person obligated with respect thereto, and each sum represented by any
Debtor to the Secured Party as owing by such Account Debtor or other Person with
respect thereto is actually and unconditionally owing by such Account Debtor or
other Person, except for any applicable normal cash discount, without any
counterclaim, setoff or defense. The aggregate sum represented at such time by
any Debtor to the Secured Party as owing by Account Debtors and other Persons
with respect to Accounts, Chattel Paper and General Intangibles included in the
Collateral is the aggregate sum actually and unconditionally owing by Account
Debtors and other Persons with respect thereto at such time, except for
applicable normal cash discounts.
(c) Debtor represents, warrants and covenants to the Secured Party, now
and as long as this Agreement is in effect, that (i) it has assessed its
equipment (including embedded systems), software, firmware and computer systems
(including equipment or systems supplied by others or with which Debtor's
equipment and systems exchange date data) that are material to Debtor conducting
its business and/or performing operations collectively, the "Systems") to
determine whether such Systems accurately process date data from, into, and
between the twentieth and twenty-first centuries, including leap year
calculations ("Y2K Compliant"); (ii) in sufficient time before December 31,
1999, Debtor will have corrected and redeployed any non-Y2K Compliant Systems so
that all its Systems are Y2K Compliant and all System will have been tested to
confirm that they are Y2K Compliant; and (iii) the expense of correcting and
redeploying any non-Y2K Compliant Systems and all System testing, and/or the
reasonably foreseeable consequences of any System failing to be Y2K Compliant
will not have a material adverse effect on Debtor. Upon the Secured Party's
request, Debtor shall provide the Secured Party with updates on the status of
its Systems' Year 2000 readiness.
10. Expenses. Each Debtor shall pay to the Secured Party on demand each cost and
expense (including, but not limited to, if the Secured Party retains counsel for
advice, for litigation or for any other purpose, each attorney's fee and
disbursement) incurred by the Secured Party (a) in searching any public record
for, in filing or in recording in any public office, or in obtaining from any
public office any certificate relating to, any financing statement, certificate
of title, application for any certificate of title, notice of lien, instrument
of assignment or other writing relating to any of the Collateral, (b) in
performing any obligation of any Debtor pursuant to this Agreement, (c) in
taking any action pursuant to Section 5 of this Agreement, (d) in connection
with the custody or preservation of any of the Collateral or (e) in endeavoring
to (i) enforce any indebtedness, liability or obligation of any Debtor pursuant
to this Agreement, (ii) preserve or exercise any right or remedy pursuant to
this Agreement, whether against any Debtor or otherwise, (iii) preserve or
exercise any right or remedy relating to, take possession of, collect or
enforce, have registered pursuant to the Securities Act of 1933, prepare for any
sale, lease or other disposition, assign, sell, lease, exchange, convert or
otherwise transfer or dispose of, or realize upon, any of the Collateral, (iv)
obtain any information relating to any Investment Property included in the
Collateral from the issuer of such Investment Property or register any transfer
or pledge of such Investment Property with such issuer or (v) defend against any
claim, regardless of the basis or outcome thereof and whether asserted
affirmatively, as a counterclaim, setoff or defense or otherwise, asserted
against the Secured Party as a direct or indirect result of the execution and
delivery to the Secured Party of this Agreement by any of the undersigned,
except for any claim for any tax imposed by any government or political
subdivision upon any income of the Secured Party or for any interest or penalty
relating to any such tax. Secured Party reserves the right to have Debtor pay,
upon demand, administrative fee(s) in regard to any administrative action
Secured Party is required or requested to take including, without limitation,
the preparation of discharges, release, or assignments to third-parties. After
such demand for payment of any cost, expense or fee hereunder, Debtor shall pay
interest at the default rate specified in any promissory note evidencing any of
the Obligations secured hereby on the portion of such cost or expense remaining
unpaid.
11. Cumulative Nature, Nonexclusive Exercise and Waivers of Rights and Remedies.
a. All rights and remedies of the Secured Party pursuant to this Agreement
or otherwise shall be cumulative, and no such right or remedy shall be exclusive
of any other such right or remedy.
b. No single or partial exercise by the Secured Party of any right or
remedy pursuant to this Agreement or otherwise shall preclude any other or
further exercise thereof, or any exercise of any other such right or remedy, by
the Secured Party.
c. No course of dealing or other conduct heretofore pursued, accepted or
acquiesced in, no course of performance or other conduct hereafter pursued,
accepted or acquiesced in, no oral or written agreement or representation
heretofore made, and no oral agreement or representation hereafter made, by the
Secured Party, whether or not relied or acted upon, and no usage of trade,
whether or not relied or acted upon, shall operate as a waiver of any right or
remedy of the Secured Party pursuant to this Agreement or otherwise. No delay by
the Secured Party in exercising any such right or remedy, whether or not relied
or acted upon, shall operate as a waiver thereof or of any other such right or
remedy. No notice or demand of any kind, and no attempted but unsuccessful
notice or demand of any kind, by the Secured Party prior to exercising any such
right or remedy on any one occasion, whether or not relied or acted upon, shall
operate as a waiver of any right of the Secured Party to exercise the same or
any other such right or remedy on such or any future occasion without any notice
or demand of any kind. No waiver by the Secured Party of any such right or
remedy shall be effective unless made in a writing duly executed by the Secured
Party and specifically referring to such waiver. No waiver by the Secured Party
on any one occasion of any such right or remedy shall operate as a waiver
thereof or of any other such right or remedy on any future occasion.
12. Entire Agreement; Modification; Termination; Nonimpairment; Certain Consents
and Waivers.
a. This Agreement contains the entire agreement between the Secured Party
and each Debtor with respect to the subject matter of this Agreement, and
supersedes each course of dealing or other conduct heretofore pursued, accepted
or acquiesced in, and each oral or written agreement and representation
heretofore made, by the Secured Party with respect thereto, whether or not
relied or acted upon.
b. No course of performance or other conduct hereafter pursued, accepted
or acquiesced in, and no oral agreement or representation hereafter made, by the
Secured Party, whether or not relied or acted upon, and no usage of trade,
whether or not relied or acted upon, shall modify or terminate this Agreement as
to any Debtor or impair or otherwise affect any Security Interest, any
indebtedness, liability or obligation of any Debtor pursuant to this Agreement
or any right or remedy of the Secured Party pursuant to this Agreement or
otherwise.
c. No modification of this Agreement shall be effective unless made in a
writing duly executed by the Secured Party and specifically referring to each
provision of this Agreement being modified.
d. Except as expressly provided in this Agreement, this Agreement shall
not be modified or terminated as to any Debtor, and no Security Interest, no
indebtedness, liability or obligation of any Debtor pursuant to this Agreement,
and no right or remedy of the Secured Party pursuant to this Agreement or
otherwise, shall be impaired or otherwise affected, by any act, omission or
other thing, whether occurring before or after the termination of this Agreement
as to such Debtor with respect to any of the Obligations. Each Debtor consents,
without any notice of any kind, to each act, omission and other thing that would
or might, but for such consent, modify or terminate this Agreement as to any
Debtor or impair or otherwise affect any Security Interest or any such
indebtedness, liability, obligation, right or remedy. Without limiting the
generality of the preceding two sentences, this Agreement shall not be modified
or terminated as to any Debtor by, neither any Security Interest nor any such
indebtedness, liability, obligation, right or remedy shall be impaired or
otherwise affected by, and such consent shall apply to, (i) any extension of any
of the Obligations, regardless of the length of such extension and regardless of
whether such extension was preceded by another or by others, (ii) any renewal,
refinancing, modification, compounding, subordination, acceleration,
composition, settlement, adjustment, compromise, reaffirmation, invalidity,
irregularity, unenforceability or impairment of, any replacement, cancellation,
discharge, assignment, sale, exchange, conversion or other transfer or
disposition of, or any grant of any participation in, any of the Obligations,
(iii) any modification or termination of any writing relating to any of the
Obligations, to any of the Collateral or to any Other Collateral, (iv) any
acceptance of any Other Obligor, (v) any replacement, release or discharge of,
or any modification of any indebtedness, liability or obligation of, any other
Debtor or any Primary Obligor, Other Obligor or other Person, (vi) any taking,
holding, continuation, collection, modification, increase or decrease in value
or impairment of, any replacement, cancellation, release, surrender,
abandonment, discharge, assignment, sale, lease, exchange, conversion or other
transfer or disposition of, any termination of any insurance on, any relying or
realizing upon, any grant, perfection, subordination or enforcement of any
security interest in, or of any other lien or encumbrance upon, any failure to
call for, take, hold, continue, collect, insure, preserve or protect, to
replace, assign, sell, lease, exchange, convert
7
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or otherwise transfer or dispose of, to rely or realize upon or to perfect, keep
perfected or enforce any security interest in, or any other lien or encumbrance
upon, or any delay in calling for, taking, continuing, collecting, insuring,
preserving or protecting, in replacing, assigning, selling, leasing, exchanging,
converting or otherwise transferring or disposing of, in relying or realizing
upon or in perfecting, keeping perfected or enforcing any security interest in,
or any other lien or encumbrance upon, any of the Collateral or any Other
Collateral, regardless of its value, (vii) any security interest or other lien
or encumbrance not being created in favor of the Secured Party, (viii) any of
the Collateral or any Other Collateral being or becoming subject to any security
interest or other lien or encumbrance (whether or not prior to any security
interest or other lien or encumbrance in favor of the Secured Party), subject to
any defense or restriction or unenforceable or impaired, (ix) any exercise,
delay in the exercise or waiver of, any failure to exercise, or any forbearance
or other indulgence relating to, any right or remedy of the Secured Party or of
any other Person against any Debtor, Primary Obligor, Other Obligor or other
Person or relating to any of the Obligations, to any of the Collateral or to any
Other Collateral, (x) any failure of the Secured Party or of any other Person to
make, prove or vote any claim relating to any of the Obligations, to any of the
Collateral or to any Other Collateral in any case or other proceeding pursuant
to any Bankruptcy Law, (xi) the occurrence or existence of any Event of Default,
(xii) the Obligations being at any time or from time to time reduced and then
increased or being at any time or from time to time paid in full, (xiii) any
refusal or other failure of the Secured Party or of any other Person to grant
any or any additional loan, credit or other financial accommodation to any
Debtor or Primary Obligor, (xiv) any refusal or other failure of the Secured
Party or of any other Person heretofore or hereafter to provide to any Debtor
any information relating to any other Debtor, to any Primary Obligor, Other
Obligor or other Person or to the business, operations, assets, affairs or
condition (financial or other) of any other Debtor or of any Primary Obligor,
Other Obligor or other Person or so to provide any such information completely
and accurately, (xv) any notice to the Secured Party or to any other Person from
any Debtor, Primary Obligor, Other Obligor or other Person not to grant any or
any additional loan, credit or other financial accommodation to any Debtor or
Primary Obligor, not to extend, renew, refinance, modify or replace any of the
Obligations or to take or not to take any other action, (xvi) the acceptance by
the Secured Party or by any other Person of any Instrument or other writing
intended by any other Person to create an accord and satisfaction with respect
to any of the Obligations, (xvii) the manner or order of any sale, lease,
exchange, conversion or other transfer or disposition of any of the Collateral
or of any Other Collateral, (xviii) the manner or order of application of any
money received or applied in payment of any of the Obligations, (xix) any change
in the ownership or membership of any Debtor, Primary Obligor, Other Obligor or
other Person, (xx) any change in the location, business, name, identity or
structure of any Debtor, Primary Obligor, Other Obligor or other Person, (xxi)
the expiration of the period of any statute of limitations with respect to any
action or other legal proceeding against any other Debtor, or against any
Primary Obligor, Other Obligor or other Person, relating to this Agreement, to
any of the Obligations, to any of the Collateral or to any Other Collateral or
(xxii) the termination of this Agreement as to any other Debtor, whether by
agreement, by operation of law or otherwise.
e. Each Debtor waives, without any notice of any kind, each act and other
thing upon which, but for such waiver, any Security Interest, any indebtedness,
liability or obligation of any Debtor pursuant to this Agreement, or any right
or remedy of the Secured Party pursuant to this Agreement or otherwise, would or
might be conditioned. Without limiting the generality of the preceding sentence,
neither any Security Interest nor any such indebtedness, liability, obligation,
right or remedy shall be conditioned upon, and such waiver shall apply to, (i)
the acceptance of this Agreement by the Secured Party, (ii) any demand upon, or
any presentment or protest to, any Debtor, Primary Obligor, Other Obligor or
other Person, (iii) any notice to any Debtor, Primary Obligor, Other Obligor or
other Person of any nonpayment, dishonor, default or protest, of the acceptance
of this Agreement by the Secured Party, of the incurring of any of the
Obligations or of any other matter or (iv) any exercise of any right or remedy
of the Secured Party or of any other Person against any Debtor, Primary Obligor,
Other Obligor or other Person or relating to any of the Obligations or to any
Other Collateral.
f. Each Debtor waives, without any notice of any kind, each right of
redemption or appraisal arising in connection with any sale or other disposition
of any of the Collateral.
g. [Left intentionally blank]
h. Understanding that (i) because registration of any Investment Property
included in the Collateral pursuant to the Securities act of 1933 may not have
been effected, because any Investment Property included in the Collateral may
have been acquired by a Debtor or by another Person for his, her or its own
account for investment and not with a view to distribution or to resale or
because of other circumstances relating to any Investment Property included in
the Collateral, there may be restrictions and limitations affecting the Secured
Party in any attempt expeditiously to sell or otherwise dispose of such
Investment Property, (ii) in the absence of any agreement to the contrary, the
Secured Party may have a general duty to attempt to obtain a fair price for such
Investment Property if the Secured Party sells or otherwise disposes of such
Investment Property even though the Obligations may be paid in full through
realization of a lesser price for such Investment Property and (iii) the Secured
Party is not to have any such general duty, each Debtor waives each right to
hold the Secured Party responsible for selling or for otherwise disposing of
such Investment Property at an inadequate price even if the Secured Party in
good faith accepts the first offer received for, or does not approach more than
one possible purchaser of, such Investment Property.
13. Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the internal law of the State of New
York, without regard to principles of conflict of laws.
14. Notices. Any notice or demand hereunder shall be duly given if delivered or
mailed to Debtor (at its address on the Secured Party's records) or to the
Secured Party (at the address on page one and separately to the Secured Party
officer responsible for Debtor's relationship with the Secured Party). Such
notice or demand shall be deemed effective if delivered, upon personal delivery
or if mailed, 3 business days after deposit in an official depository maintained
by the United States Post Office for the collection of mail or 1 business day
after delivery to a nationally recognized overnight delivery service. Notice by
e-mail is not valid notice under this or any other agreement between Debtor and
the Secured Party.
15. General.
a. If there is more than one Debtor, each of them shall be jointly and
severally liable for all amounts and obligations which become due under this
Agreement and the term "Debtor" shall include each as well as all of them.
b. This Agreement shall be binding upon each Debtor and upon each heir and
legal representative of each Debtor, and shall inure to the benefit of, and be
enforceable by, the Secured Party, each Successor of the Secured Party and each
direct or indirect assignee or other transferee of any of the Obligations.
c. Each agreement, consent, waiver, appointment as attorney-in-fact and
other thing made, given or done in this Agreement by any of the undersigned
shall be on his, her or its own behalf and on behalf of each of his, her or its
Successors.
d. Except as expressly provided in this Agreement, each right and remedy
of the Secured Party pursuant to this Agreement, and each action of the Secured
Party pursuant to the authorization and appointment as attorney-in-fact
contained in Section 5 of this Agreement, may be exercised or taken (i) at any
time and from time to time, (ii) at the sole option of the Secured Party, (iii)
without any notice or demand of any kind and (iv) whether or not any Event of
Default has occurred or existed, but the Secured Party shall not be obligated to
exercise any such right or remedy or to take any such action. Each request of
the Secured Party pursuant to this Agreement may be made (i) at any time and
from time to time, (ii) at the sole option of the Secured Party and (iii)
whether or not any Event of Default has occurred or existed.
e. Upon and at any time and from time to time after the occurrence or
existence of any Event of Default, (i) the Secured Party shall have the right to
set off against all of the Obligations remaining unpaid each indebtedness,
liability and obligation of the Secured Party in any capacity to any Debtor in
any capacity, whether alone or otherwise and whether or not then due,
(including, but not limited to, any such indebtedness, liability or obligation
arising as a direct or indirect result of any Instrument or Deposit Account),
and (ii) each holder of any participation in any portion of the Obligations
shall have the right (which may be exercised by such holder in accordance with
clauses (i), (ii) and (iii) of the first sentence of Section 15d of this
Agreement as though it were a right of the Secured Party pursuant to this
Agreement) to set off against all of such portion of the Obligations remaining
unpaid each indebtedness, liability and obligation of such holder in any
capacity to any Debtor in any capacity, whether alone or otherwise and whether
or not then due, (including, but not limited to, any such indebtedness,
liability or obligation arising as a direct or indirect result of any
8
<PAGE>
Instrument or Deposit Account). Each exercise of such right by the Secured Party
or by such holder shall be deemed to be immediately effective at the time the
Secured Party or such holder opts therefor even though evidence thereof is not
entered on the records of the Secured Party or of such holder until later.
f. In conjunction with the Secured Party's assignment, or other transfer
of, or in conjunction with the Secured Party's grant of any participation in,
any of the Obligations, the Secured Party shall have the right to assign or
otherwise transfer, or to grant any participation in, this Agreement, any of the
Secured Party's rights and remedies pursuant to this Agreement, any of the
Collateral or any interest in any of the Collateral. Upon any assignment or
other transfer of any portion of any of the Collateral by the Secured Party,
each responsibility of the Secured Party with respect to such portion of the
Collateral shall terminate.
g.
h. Solely to the extent required by any statute, regulation or other law
to make the Collateral available for the payment of the Obligations, each Debtor
guarantees the payment, without any setoff or other deduction, of the
Obligations, without any limitation as to amount.
i. Each Account Debtor, Securities Intermediary or other Person obligated
with respect to any Account, Chattel Paper, Investment Property, General
Intangible, Instrument, Document or Deposit Account included in the Collateral
may accept without question any exercise by the Secured Party of any right or
remedy pursuant to this Agreement or otherwise with respect thereto, and shall
have no liability to any Debtor as a direct or indirect result of doing so.
j. Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law.
If, however, any such provision shall be prohibited by or invalid under such
law, it shall be deemed modified to conform to the minimum requirements of such
law, or, if for any reason it is not deemed so modified, it shall be prohibited
or invalid only to the extent of such prohibition or invalidity without the
remainder thereof or any other such provision being prohibited or invalid.
k. Any provision of this Agreement that prohibits any Debtor from taking
any action shall be construed to prohibit such Debtor from taking such action
directly or indirectly.
l. Except as expressly provided in this Agreement, any reference in this
Agreement to any statute, regulation or other law shall be deemed to be as of
any time a reference to such statute, regulation or other law as in effect at
such time or, if such statute, regulation or other law is not in effect at such
time, a reference to any similar statute, regulation or other law in effect at
such time.
m. In this Agreement, headings of sections are for convenience of
reference only, and are not of substantive effect.
n. Secured Party shall have the right to set off against the amounts owing
under this Agreement any property held in a deposit or other account with
Secured Party or any of its affiliates or otherwise owing by Secured Party or
any of its Affiliates in any capacity to Debtor or any guarantor or endorser of
this Agreement. Such set-off shall be deemed to have been exercised immediately
at the time Secured Party or such Affiliate elect to do so.
16. Definitions. For purposes of this Agreement:
a. "Bankruptcy Law" means (i) any bankruptcy or insolvency statute,
regulation or other law or (ii) any other statute, regulation or other law
relating the relief of debtors, to the readjustment, composition or extension of
indebtedness, to liquidation or to reorganization.
b. "Collateral" means collectively, wherever located, whether now owned or
hereafter acquired or arising, whether owned alone or otherwise, whether or not
subject to Article 9 of the UCC, whether or not described in any schedule
heretofore or hereafter delivered to the Secured Party and whether or not in the
possession or under the control of, or enroute to or from, the Secured Party in
any capacity or any other Person acting on behalf of the Secured Party, (i) all
Goods, Accounts, Investment Property, Chattel Paper, General Intangibles,
Instruments, Documents, Deposit Accounts and money of each Debtor other than any
Consumer Goods of any Debtor, (ii) all demands, claims and rights (including,
but not limited to, (A) all claims arising out of tort, all rights represented
by any judgment, all rights to money payable pursuant to any insurance, all
rights of setoff, all rights to payment pursuant to any letter of credit and all
other claims and rights to the payment of money and (B) all rights as a seller
of Goods, whether to reclaim Goods or stop Goods in transit or otherwise) of
each Debtor other than any claim for wages, salary and other compensation of any
Debtor as an employee, (iii) all direct or indirect additions to, all direct or
indirect extensions, renewals and replacements of, all direct or indirect
increases in, all direct or indirect profits, interest, dividends, distributions
and other income and payments on account of, and all direct or indirect proceeds
of any replacement, release, surrender, discharge, assignment, sale, lease,
exchange, conversion or other transfer or disposition of, of any collection of,
or of any exercise of any option or right of subscription relating to, any of
the things described in clauses (i) and (ii) of this sentence, whether arising
from any action taken by any Debtor or by the Secured Party or otherwise and
whether arising from any exchange, conversion, stock split, spin-off,
reclassification, merger, consolidation or other absorption, sale of assets or
combination of shares or otherwise, (iv) all Proceeds and Products of any of the
things described in clauses (i) through (iv) of this sentence and (v) all
records (including, but not limited to, all records maintained on computer
software and all schedules, invoices, shipping documents, delivery receipts,
purchase orders and written agreements) of each Debtor evidencing, or otherwise
relating to, any of the things described in clauses (i) through (iv) of this
sentence.
c. "Debtor" means (i) any of the undersigned or (ii) any Successor of any
of the undersigned.
d. "Equipment" has the meaning given it for purposes of Article 9 of the
UCC, and, with respect to any Person, includes, but is not limited to, (i) any
machinery, vehicle or furniture constituting equipment of such Person and (ii)
any part, accessory, attachment, accession or tool installed in, affixed to, or
used or intended to be used in connection with, any equipment of such Person.
e.
<PAGE>
f. "General Intangible" has the meaning given it for purposes of Article 9
of the UCC, and, with respect to any Person, includes, but is not limited to,
(i) any computer software of such Person, (iii) any trademark, service mark,
trade style, trade name, patent, copyright, license or franchise of such Person
and (iv) goodwill of such Person.
g. "Goods" has the meaning given it for purposes of Article 9 of the UCC,
and, with respect to any Person, includes, but is not limited to, any Fixture,
Equipment, Inventory or Farm Product of such Person.
h. "Inventory" has the meaning given it for purposes of Article 9 of the
UCC, and, with respect to any Person, includes, but is not limited to, any
inventory of such Person that is returned, repossessed, reclaimed or stopped in
transit or is raw material or work in process.
i. "Obligations" means collectively all indebtedness, liabilities and
obligations for the payment of money, regardless of kind, of class or of form
and whether for the payment of principal or of interest or otherwise, incurred
for any business, commercial, agricultural or consumer purpose or otherwise, now
exiting or hereafter arising, created directly (including, but not limited to,
all indebtedness, liabilities and obligations arising as a direct or indirect
result of any overdraft) or by any assignment or other transfer, direct or
indirect, absolute or contingent (including, but not limited to, all
indebtedness, liabilities and obligations arising as a direct or indirect result
of any guaranty, endorsement or other assurance or as a direct or indirect
result of any letter of credit), similar or dissimilar, related or unrelated,
due or not due, contractual or tortious, liquidated or unliquidated or arising
by operation of law or otherwise, that are now or hereafter owing by any Debtor
or Primary Obligor in any capacity, whether alone or otherwise, to any Secured
Party or the Secured Parties in any capacity, whether or not allowed as a claim
against such Debtor or Primary Obligor in any case or other proceeding pursuant
to any Bankruptcy Law.
j. "Other Collateral" means, whether now existing or hereafter arising,
(i) any guaranty, endorsement or other assurance, any collateral or other
security, or any subordination, now or hereafter directly or indirectly securing
the payment of, or otherwise now or hereafter directly or indirectly applicable
to, any of the Obligations, except for the Collateral, (ii) any indebtedness,
liability or obligation of the Secured Party to any Debtor, Primary Obligor or
Other Obligor that is now or hereafter available for setoff by the Secured Party
against any of the Obligations (including, but not limited to, any such
indebtedness, liability or obligation arising as a direct or indirect result of
any Instrument or Deposit Account) or (iii) any asset of any Debtor, Primary
Obligor or Other Obligor that is now or hereafter subject to any banker's lien
of the Secured Party.
k. "Other Obligor" means, other than any Debtor or Primary Obligor, any
Person (i) who or which is now or hereafter directly or indirectly liable for
the payment of any of the Obligations, whether as a maker, drawer, acceptor,
endorser, guarantor, surety or accommodation party or otherwise, (including, but
not limited to, if any Debtor or Primary Obligor is a partnership, any general
partner of such Debtor or Primary Obligor) or (ii) any asset of whom or of which
now or hereafter directly or indirectly secures the payment of any of the
Obligations.
l. "Permitted Lien" means (i) any security interest in, or any other lien
or encumbrance upon, any of the Collateral fully and accurately described in
Exhibit A attached to and made a part of this Agreement, (ii) any security
interest in, or any other lien or encumbrance upon, any of the Collateral in
favor of the Secured Party, (iii) any lease of any Inventory included in the
Collateral by any Debtor as a lessor in the ordinary course of his, her or its
business and without interference with the conduct of his, her or its business
or operations, (iv) any pledge or deposit of any Investment Property, Deposit
Account or money included in the Collateral that is made by any Debtor in the
ordinary course of his, her or its business (A) in connection with any workers'
compensation, unemployment insurance, social security or similar statute,
regulation or other law or (B) to secure the payment of any indebtedness,
liability or obligation arising in connection with any letter of credit, bid,
tender, trade or government contract, lease, statute, regulation or other law or
surety, appeal or performance bond, or of any similar indebtedness, liability or
obligation, not incurred in connection with the borrowing of any money or in
connection with the payment of the deferred purchase price of any asset, (v) any
attachment, levy or similar lien against any of the Collateral arising in
connection with any action or other legal proceeding so long as (A) the validity
of the claim or judgment secured thereby is being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted, (B)
adequate reserves have been appropriately established for such claim or
judgment, (C) the execution or other enforcement of such attachment, levy or
similar lien is effectively stayed and (D) neither such claim or judgment nor
such attachment, levy or similar lien has any material adverse effect on any
Debtor or on the business, operations, assets, affairs or condition (financial
or other) of any Debtor, (vi) any statutory lien upon any of the Collateral in
favor of the United States for any amount paid to any Debtor as a progress
payment pursuant to any government contract, (vii) any statutory lien upon any
of the Collateral securing the payment of any tax, assessment, fee, charge, fine
or penalty imposed by any government or political subdivision upon any Debtor or
upon any of the assets, income and franchises of any Debtor or the payment of
any demand or claim of any materialman, mechanic, carrier, warehouseman,
garageman or landlord against any Debtor so long as such tax, assessment, fee,
charge, fine, penalty, demand or claim is not yet due or (A) the validity of
such tax, assessment, fee, charge, fine, penalty, demand or claim is being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted, (B) adequate reserves have been appropriately established
for such tax, assessment, fee, charge, fine, penalty, demand or claim, (C) the
execution or other enforcement of such statutory lien is effectively stayed and
(D) neither the failure to pay such tax, assessment, fee, charge, fine, penalty,
demand or claim nor such statutory lien has any material adverse effect on any
Debtor or on the business, operations, assets, affairs or condition (financial
or other) of any Debtor or (viii) any reservation, exception, encroachment,
easement, right-of-way, covenant, condition, restriction, lease or similar title
exception or encumbrance affecting the title to any Fixture included in the
Collateral but not interfering with the conduct of the business or operations of
any Debtor.
m. "Person" means (i) any individual, corporation, partnership, joint
venture, trust, unincorporated association, government or political subdivision,
(ii) any court, agency or other governmental authority or (iii) any other
entity, body, organization or group.
n. "Primary Obligor" means (i) the Borrower or (ii) any Successor of the
Borrower.
o. "Security Interest" means any security interest granted, or any
assignment, pledge or hypothecation made, pursuant to Section 2a of this
Agreement.
p. "Successor" means, with respect to any Person, (i) if such Person is an
individual, the estate of such Person, (ii) if such Person is not an individual,
any direct or indirect successor of such Person (including, but not limited to,
(A) if such Person is a corporation, any other corporation into which such
Person is hereafter directly or indirectly merged, consolidated or otherwise
absorbed and (B) if such Person is a partnership, any other partnership
hereafter created as a direct or indirect result of the admission of any new
partner or as a direct or indirect result of the death or withdrawal of any
partner) or (iii) any other Person to whom or to which all or substantially all
of the assets of such Person are hereafter directly or indirectly assigned or
otherwise transferred.
q. "Investment Property" has the meaning given it for purposes of Article
9 of the UCC.
10
<PAGE>
17. Jurisdiction. DEBTOR HEREBY IRREVOCABLY CONSENTS TO THE EXCLUSIVE
JURISDICTION OF ANY STATE OR FEDERAL COURT IN NEW YORK STATE IN A COUNTY OR
JUDICIAL DISTRICT WHERE THE SECURED PARTY MAINTAINS A BRANCH AND CONSENTS THAT
THE SECURED PARTY MAY SERVE ANY SERVICE OF PROCESS BY NATIONALLY RECOGNIZED
OVERNIGHT COURIER SERVICE DIRECTED TO DEBTOR AT DEBTOR'S ADDRESS SET FORTH
HEREIN AND SERVICE SO MADE WILL BE DEEMED TO BE COMPLETED ON THE BUSINESS DAY
AFTER DEPOSIT WITH SUCH COURIER; PROVIDED THAT NOTHING CONTAINED IN THIS
AGREEMENT WILL PREVENT THE SECURED PARTY FROM BRINGING ANY ACTION, ENFORCING ANY
AWARD OR JUDGMENT OR EXERCISING ANY RIGHTS AGAINST DEBTOR INDIVIDUALLY, AGAINST
ANY SECURITY OR AGAINST ANY PROPERTY OF DEBTOR WITHIN ANY OTHER COUNTY, STATE OR
OTHER FOREIGN OR DOMESTIC JURISDICTION. Debtor acknowledges and agrees that the
venue provided above is the most convenient forum for both the Secured Party and
Debtor. Debtor waives (i) any objection to venue and any objection based on a
more convenient forum in any action instituted under this Agreement; (ii) any
right to assert any counterclaim or setoff or any defense based upon a statute
of limitations, upon a claim of laches or any other legal theory; and (iii) its
right to attack a final judgment that is obtained as a direct or indirect result
of any such action.
18. Waiver of Jury Trial. DEBTOR AND THE SECURED PARTY HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHT TO TRIAL BY JURY DEBTOR AND THE
SECURED PARTY MAY HAVE IN ANY ACTION OR PROCEEDING, IN LAW OR IN EQUITY, IN
CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS RELATED HERETO. DEBTOR
REPRESENTS AND WARRANTS THAT NO REPRESENTATIVE OR AGENT OF SECURED PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE SECURED PARTY WILL NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THIS JURY TRIAL WAIVER. DEBTOR ACKNOWLEDGES
THAT THE SECURED PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG
OTHER THINGS, THE PROVISIONS OF THIS SECTION.
Dated September 22, 1999/20__ CVC Process Solutions, Inc.
By: /s/ Emilio O. DiCataldo
Name:
Title: Sr.V.P. & CFO
<PAGE>
ACKNOWLEDGMENT
STATE OF NEW YORK )
: SS.
COUNTY OF MONROE )
On the 22nd day of September in the year 1999/20__, before me personally came
EMILIO O. DICATALDO
|_| Individual(s) to me known and known to me to be the person(s)
described in and who executed the above instrument, and
__he (they jointly and severally) acknowledged to me
that __he (they) executed the same.
|_| Partnership to me known and known to me to be a general partner of
the partnership described in and which executed the
above instrument, and __he duly acknowledged to me that
__he executed the above instrument for and on behalf of
said partnership.
|X| Corporation to me known, who, being by me duly sworn, did depose and
say that, __he resides at 58 BRISTOL VIEW DR. FAIRPORT,
NY 14450; that __he is the SVP & CFO of CVC PROCESS
SOLUTION [ILLEGIBLE], the corporation described
in and which executed the above instrument; and that
__he signed his (her) name thereto by order of the board
of directors of said corporation.
|_| LLC to me known, who, being duly sworn, did depose and say
that __he resides at __________________________________;
that __he is the _______________________________________
of the limited company described in and which executed
the above instrument; and that __he signed his (her)
name thereto by order of the members/managers of said
limited liability company.
/s/ [ILLEGIBLE]
-----------------------------------------
Notary Public
[ILLEGIBLE]
Notary Public in the State of New York
[ILLEGIBLE]
[ILLEGIBLE]
[ILLEGIBLE]
[ILLEGIBLE]
FOR SECURED PARTY USE ONLY:
Authorization confirmed.________________________________________________________
12
<PAGE>
ADDENDUM TO GENERAL SECURITY AGREEMENT
DATED SEPTEMBER 22, 1999
EXECUTED BY
CVC PROCESS SOLUTIONS, INC.
IN FAVOR OF
MANUFACTURERS AND TRADERS TRUST COMPANY AND OTHERS
This ADDENDUM is made to a General Security Agreement ("Agreement"), dated
September 22, 1999, executed by CVC PROCESS SOLUTIONS, INC. ("Debtor") in favor
of MANUFACTURERS AND TRADERS TRUST COMPANY ("Bank") and others. This Addendum is
an integral part of the Agreement.
1. M&T Real Estate, Inc. ("RE") and M&T Financial Corporation ("MFC"),
each of whose principal place of business is located at One M&T Plaza, Buffalo,
New York, are each additional Secured Parties under this Agreement.
Manufacturers and Traders Trust Company ("M&T"), RE and MFC are collectively
referred to in this Agreement as "Secured Parties" and individually as a
"Secured Party". M&T may also be at times referred to in this Agreement as
"Bank". COMMONWEALTH SCIENTIFIC CORPORATION is at times referred to in this
Agreement as "Debtor", "undersigned" and "Undersigned". All references in this
Agreement to "Secured Party" shall be deemed to be to "Secured Parties or any
Secured Party."
2. The following is inserted between the words "General Intangibles" and
"Instruments" in the fourth line of the first sentence of Section 16b
(Definition of Collateral) of the preprinted portion of this Agreement:
"(including but not limited to all patents and patent applications,
rights under all licenses, trade secrets, trademarks, copyrights and
other intellectual property of any nature or kind (collectively
"Intellectual Property"), whether such Intellectual Property is now
owned by the undersigned or in which the undersigned now has any
interest or such Intellectual Property is hereafter acquired by the
undersigned or in which the undersigned hereafter acquires any
interest),"
3. Section 16e of the preprinted form of the General Security Agreement is
deemed deleted and replaced with the following:
"e. An Event of Default occurs or exists at any time that an Event
of Default occurs or exists under the Loan Agreement entered into by
CVC Products, Inc. and Bank on March 31, 1998 ("Loan Agreement"), as
the Loan Agreement is amended, extended or replaced from time to
time."
<PAGE>
IN WITNESS WHEREOF, Debtor has executed this Addendum, together with the
preprinted form of the Agreement, on the date indicated in the Acknowledgement.
COMMONWEALTH SCIENTIFIC CORPORATION
By: /s/ Emilio O. DiCataldo
-------------------------------------
Name: Emilio O. DiCataldo
Title: Sr.V.P & CFO
STATE OF NEW YORK)
COUNTY OF MONROE) ss:
On the 22nd day of September in the year 1999 before me, the undersigned,
a Notary Public in and for said State, personally appeared Emilio 0. DiCataldo,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual(s) whose name(s) is (are) subscribed to the within instrument
and acknowledged to me that he/she/they executed the same in his/her/their
capacity(ies), and that by his/her/their signature(s) on the instrument, the
individual(s), or the person upon behalf of which the individual(s) acted,
executed the instrument.
/s/ Kevin V. Reochia
-----------------------------------------
Notary Public
KEVIN V. REOCHIA
Notary Public, State of New York
No. [ILLEGIBLE]
Qualified in Monroe County
Certificate Filed in Monroe County
My Commission Expires Nov. 23, 2000
-2-
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated October 18, 1999, except as to the stock split described in Note 1
which is effective upon the closing of an initial public offering, relating to
the financial statements of CVC, Inc. which appear in such Registration
Statement. We also consent to the references to us under the heading "Experts"
in such Registration Statement.
PRICEWATERHOUSECOOPERS LLP
Rochester, New York
November 3, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Vienna, Virginia
November 2, 1999
