<PAGE> 1
As filed with the Securities and Exchange Commission on September 29, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
TRANSISTOR DEVICES INC.
(Exact name of Registrant as specified in its charter)
NEW JERSEY 3629 22-1515239
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
---------------------------
85 HORSEHILL ROAD
CEDAR KNOLLS, NEW JERSEY 07927-2097
(973) 267-1900
(Address, including zip code, and telephone
number, including area code, of
Registrant's principal executive offices)
---------------------------
RICHARD F. BLAKE
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
TRANSISTOR DEVICES INC.
85 HORSEHILL ROAD
CEDAR KNOLLS, NEW JERSEY 07927-2097
(973) 267-1900
(Name and address, including zip code, and telephone
number, including area code, of agent for service)
---------------------------
With copies to:
GARY L. SELLERS, ESQ. CHRISTOPHER E. MANNO, ESQ.
SIMPSON THACHER & BARTLETT WILLKIE FARR & GALLAGHER
425 LEXINGTON AVENUE 787 SEVENTH AVENUE
NEW YORK, NEW YORK 10017 NEW YORK, NEW YORK 10019
(212) 455-2000 (212) 728-8000
---------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration number of the earlier effective registration statement for the
same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
---------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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PROPOSED PROPOSED
AMOUNT TO MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED PER OFFERING REGISTRATION
REGISTERED (1) UNIT (2) PRICE(1)(2) FEE(2)
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<S> <C> <C> <C> <C>
Common Stock, $.10 par value..... 4,140,000 $15.00 $62,100,000 $18,320
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</TABLE>
(1) Includes Common Stock that the Underwriters may purchase to cover
over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended.
---------------------------
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, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
The information contained in this prospectus is not complete and may be amended.
These securities may not be sold until the related registration statement filed
with the Securities and Exchange Commission or any applicable state securities
commission is effective. This prospectus is not an offer to sell and is not
seeking an offer to buy these securities in any state where the offer or sale of
securities is not permitted.
Prospectus
Subject to Completion, dated September 29, 1998
3,600,000 Shares
[TRANSISTOR DEVICES INC. LOGO]
Common Stock
---------------------------
Of the 3,600,000 shares of common stock, par value $0.10 per share (the
"Common Stock"), offered hereby (the "Offering"), 2,150,000 shares are being
sold by Transistor Devices Inc. (the "Company") and 1,450,000 shares are being
sold by selling shareholders (the "Selling Shareholders").
Prior to the Offering, there has not been a public market for the Common
Stock. Currently it is estimated that the initial public offering price will be
between $13.00 and $15.00 per share. See "Underwriting" for a discussion of the
factors considered in determining the initial public offering price.
The Company will file an application to list the shares of Common Stock on
the New York Stock Exchange under the symbol "TDV."
---------------------------
PLEASE REFER TO RISK FACTORS BEGINNING ON PAGE 7 FOR A DISCUSSION OF
FACTORS TO CONSIDER BEFORE PURCHASING THE COMMON STOCK.
---------------------------
Neither the Securities and Exchange Commission nor any State Securities
Commission has approved or disapproved these securities or determined whether
this Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
<TABLE>
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UNDERWRITING PROCEEDS PROCEEDS TO
PRICE DISCOUNTS AND TO SELLING
TO PUBLIC COMMISSIONS (1) COMPANY (2) SHAREHOLDERS
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<S> <C> <C> <C> <C>
Per Share......... $ $ $ $
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Total(3).......... $ $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $700,000.
(3) The Selling Shareholders have granted the Underwriters an over-allotment
option exercisable within 30 days of the date of this Prospectus to
purchase up to 540,000 additional shares of Common Stock. If the option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Selling Shareholders will be $ , $ and
$ , respectively. See "Underwriting."
---------------------------
The shares of Common Stock are being offered by the Underwriters when, as
and if delivered to and accepted by the Underwriters and subject to various
prior conditions, including the right to reject orders in whole or in part. It
is expected that delivery of the certificates representing the shares will be
made against payment therefor at the offices of ING Baring Furman Selz LLC in
New York, New York on or about , 1998.
---------------------------
ING Baring Furman Selz LLC Wheat First Union
The date of this Prospectus is , 1998
<PAGE> 3
[INSIDE FRONT COVER]
[Photographs of Company's facilities]
---------------------------
IN CONNECTION WITH AN UNDERWRITTEN OFFERING, THE SEC RULES PERMIT THE
UNDERWRITERS TO ENGAGE IN TRANSACTIONS THAT STABILIZE THE PRICE OF OUR COMMON
STOCK. THESE TRANSACTIONS MAY INCLUDE PURCHASES FOR THE PURPOSES OF FIXING OR
MAINTAINING THE PRICE OF THE COMMON STOCK AT A LEVEL THAT IS HIGHER THAN THE
MARKET WOULD DICTATE IN THE ABSENCE OF SUCH TRANSACTIONS.
DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS
PARTICIPATING IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN
ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS IN OUR COMMON STOCK PURSUANT TO
EXEMPTIONS FROM RULE 10b-6 AND 10b-7 UNDER THE SECURITIES EXCHANGE ACT OF 1934.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the consolidated financial statements and notes thereto
appearing elsewhere in this Prospectus. Information contained in this Prospectus
gives effect to the 100-to-1 stock split to be effected immediately prior to the
Offering.
THE COMPANY
The Company is a leading designer and manufacturer of high-power,
fault-tolerant, uninterruptible electronic power supplies and other power
systems used in mission critical applications. The Company's electronic power
supply systems are used in computer data storage, large computer systems,
telecommunications equipment (particularly wireless base stations) and
transportation equipment such as aircraft, ships and locomotives.
The power supply industry covers a wide range of products from
low-power commodity products to high-power and custom-designed units produced
for demanding specialty applications. The Company develops products for niche
markets in the high-end or premium segment of the power supply market where
there is an emphasis on providing mission critical or uninterruptible supply of
power. For example, in order to eliminate the risk of computer system failure or
shutdown at a money center bank, power supplies must be redundant both in terms
of (i) external source of power (e.g., battery back up in the event of an
electric power failure) and (ii) power supply systems (i.e., back up
sub-systems). The transition to the redundant power source or sub-system must be
seamless so that no transactions are lost.
The Company, founded in 1951, was primarily a supplier to the defense
industry through the early 1990s. For fiscal 1998, substantially all of the
Company's $116 million net sales were to non-defense related, original equipment
manufacturers ("OEM"). The Company's OEM customers include EMC Corporation
("EMC"), Tandem Computer Inc. (a subsidiary of Compaq Computer Corporation),
Glenayre Technologies Inc., Aspect Telecommunications Corporation, IPC
Information Systems Inc., Bell Atlantic Mobile Service, GTE Corporation,
Raytheon Company, BE Aerospace, Lockheed Martin Corporation and Schlumberger
Ltd.
The Company's largest customer is EMC. The Company began selling power
supplies to EMC in 1991 initially developing one power supply model for use in
one of EMC's product lines. Since 1996, the Company has been the primary
supplier of power supply systems for EMC. Sales to EMC represented 64% of the
Company's consolidated net sales for fiscal 1998. In fiscal 1998, EMC acquired
7.5% of the Company's then-outstanding common stock. See "Principal and Selling
Shareholders."
The Company's customers frequently operate with short lead times for
product development and demand innovative products, superior quality, high
reliability and meticulous customer service. As it has with EMC, the Company
seeks to develop collaborative ("partnering") relationships with its customers
to position itself as the primary source for its customers' product development
needs and thereby maintain or acquire a large percentage of that customer's
power supply business.
The Company currently manufactures substantially all of its products in
the United States which has enabled the Company to operate in close proximity to
its customers, allowing it to respond to customer needs more quickly and
efficiently. The Company recently expanded its operations internationally with
the opening of design, manufacturing and sales facilities in Cork, Ireland that
are intended primarily to support EMC's manufacturing operations in Ireland and
which the Company expects will provide it with more immediate access to the
European markets. The Company recently established limited manufacturing
operations in Shenzen Province, China to develop a presence in the Asian
telecommunications power supply markets.
3
<PAGE> 5
The Company is a New Jersey corporation, its principal executive
offices are located at 85 Horsehill Road, Cedar Knolls, New Jersey 07927, and
its telephone number is (973) 267-1900.
THE OFFERING
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<S> <C>
Common Stock offered:
By the Company....................... 2,150,000 shares.
By the Selling Shareholders(1) 1,450,000 shares.
Common Stock to be outstanding after
the Offering......................... 11,306,800 shares.
Use of proceeds......................... The net proceeds to the Company from the
Offering, estimated to be approximately $27
million, will be used to repay substantially
all of the Company's existing indebtedness
(approximately $8.4 million at September 21,
1998), and for general corporate purposes. The
Company will not receive any proceeds from the
sale of shares by the Selling Shareholders.
See "Use of Proceeds" and "Principal and
Selling Shareholders."
Dividend policy......................... After the Offering, the Company intends to
retain any earnings to finance its operations
and future growth and does not expect to pay
dividends for the foreseeable future. See
"Dividend Policy."
Listing................................. The Company will file an application to list
the shares of Common Stock on the New York
Stock Exchange.
Proposed New York Stock Exchange
symbol............................... "TDV."
</TABLE>
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(1) Does not include up to 540,000 shares of Common Stock issuable if the
Underwriters exercise in full the over-allotment option to be granted by
the Selling Shareholders. See "Underwriting".
4
<PAGE> 6
SUMMARY FINANCIAL AND OPERATING DATA
The following table summarizes certain summary financial data, which
should be read in conjunction with the Company's Consolidated Financial
Statements and notes thereto included elsewhere herein and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
selected financial data as of and for each of the fiscal years in the four year
period ended July 31, 1998 have been derived from the Company's consolidated
financial statements which have been audited by Arthur Andersen LLP, the
Company's independent auditors. The report of Arthur Andersen LLP on such
Financial Statements as of July 31, 1998 and for each of the fiscal years in the
three year period ended July 31, 1998 appears elsewhere in this Prospectus. The
selected financial data as of and for the fiscal year ended July 31, 1994 were
not audited by Arthur Andersen LLP but were derived from financial statements
audited by the Company's former auditors with certain adjustments made by the
Company's management so as to be consistent with the presentation for fiscal
1995 through 1998. In the opinion of management, such financial statements were
prepared on the same basis as the financial statements audited by Arthur
Andersen LLP and include all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the financial position and the
results of operations of the Company as of and for such fiscal year.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED JULY 31,
----------------------------------------------------------------------------------
1998
1994 1995 1996 1997 (53-WEEK YEAR)
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $ 42,317 $ 64,763 $ 80,277 $ 102,711 $ 115,653
Cost of goods sold 32,431 47,027 54,265 75,819 78,741
----------- ----------- ----------- ----------- -----------
Gross profit on sales 9,885 17,736 26,012 26,892 36,912
Selling, general and administrative
expenses 5,528 8,654 9,368 12,906 16,061
Research and development expenses 2,227 2,239 3,148 3,113 4,140
----------- ----------- ----------- ----------- -----------
Operating income 2,130 6,843 13,496 10,873 16,711
Interest expense 561 691 821 1,265 1,412
Interest income (13) (6) (9) (76) (54)
Other expense (income) (132) (9) 124 51 (368)
Litigation expense -- -- -- 2,221(1) --
----------- ----------- ----------- ----------- -----------
Income from continuing operations before
provision for income taxes and minority
interest 1,714 6,167 12,560 7,412 15,721
Provision for income taxes 550 2,478 5,117 3,020 6,511
----------- ----------- ----------- ----------- -----------
Income before minority interest 1,164 3,689 7,443 4,392 9,210
----------- ----------- ----------- ----------- -----------
Minority interest in net loss of
consolidated subsidiary -- -- -- -- 15
----------- ----------- ----------- ----------- -----------
Income from continuing operations 1,164 3,689 7,443 4,392 9,225
----------- ----------- ----------- ----------- -----------
Loss (gain) from operations of
discontinued division in Florida (88) (17) 924 207 --
Loss (gain) on disposal of Florida
division including operating losses
during phase-out period -- -- -- 325 (119)
----------- ----------- ----------- ----------- -----------
Total discontinued operations (88) (17) 924 532 (119)
----------- ----------- ----------- ----------- -----------
Net income $ 1,252 $ 3,706 $ 6,519 $ 3,860 $ 9,344
=========== =========== =========== =========== ===========
</TABLE>
5
<PAGE> 7
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED JULY 31,
---------------------------------------------------------------------------------
1998
1994 1995 1996 1997 (53-WEEK YEAR)
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
SHARE DATA (2):
Income from continuing operations per share:
Basic $ 0.14 $ 0.43 $ 0.90 $ 0.54 $ 1.04
Diluted 0.14 0.43 0.89 0.52 1.02
Net income per share:
Basic 0.15 0.44 0.79 0.47 1.05
Diluted 0.15 0.44 0.78 0.46 1.03
Cash dividends per share 0.02 0.02 0.04 0.05 0.05
Weighted average shares outstanding:
Basic 8,488,800 8,511,900 8,304,200 8,185,400 8,893,400
Diluted 8,495,400 8,518,900 8,370,400 8,466,000 9,032,100
SELECTED OPERATING DATA:
Gross profit margin 23.4% 27.4% 32.4% 26.2% 31.9%
EBITDA(3) $ 3,703 $ 8,388 $ 15,128 $ 13,235 $ 19,683
EBITDA margin 8.8% 13.0% 18.8% 12.9% 17.0%
Cash flows from:
Operating activities $ 2,576 $ 2,568 $ 4,723 $ 6,109 $ 8,647
Investing activities (1,172) (3,408) (6,163) (11,604) (794)
Financing activities (1,389) 1,295 1,449 6,372 (3,870)
Capital expenditures 1,151 3,421 6,189 12,000 3,689
BALANCE SHEET DATA:
Working capital $ 17,020 $ 23,282 $ 18,266 $ 33,779
Total assets 45,164 52,483 68,314 74,402
Total debt 9,911 11,492 18,790 10,004
Total stockholders' equity 22,297 27,788 31,308 45,852
</TABLE>
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(1) Litigation expense included $1,292 of legal fees incurred during fiscal
1997 in connection with an indictment brought against the Company that was
resolved favorably to the Company and $929 incurred in connection with the
settlement of a related civil suit. See "Business--Legal Proceedings" and
Note 9 of Notes to the Consolidated Financial Statements.
(2) Per share data has been adjusted to reflect a 100-to-1 split of the Common
Stock to be effected prior to the Offering.
(3) EBITDA consists of income from continuing operations plus interest
expense, income taxes, depreciation and amortization, and less interest
income. EBITDA for fiscal 1997 does not include litigation expense of
$2,221. EBITDA for fiscal 1998 does not include a gain of $368 on the sale
of property and assets. EBITDA is a supplemental financial measurement
used by the Company in the evaluation of its business and by many analysts
in the Company's industry. However, EBITDA should only be read in
conjunction with all of the Company's financial data summarized above and
its financial statements prepared in accordance with generally accepted
accounting principles appearing elsewhere herein, and should not be
construed as an alternative either to operating income as an indicator of
the Company's operating performance, or to cash flows from operating
activities as a measure of liquidity.
6
<PAGE> 8
RISK FACTORS
This Prospectus contains certain forward-looking statements. Actual
results could differ materially from those projected in such forward-looking
statements as a result of certain of the risk factors set forth below and
elsewhere in this Prospectus. Prospective investors should carefully consider
the specific factors set forth below as well as the other information included
elsewhere in this Prospectus before deciding to purchase the shares of Common
Stock offered hereby. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" for a description of other
factors generally affecting the Company's business.
RELIANCE ON MAJOR CUSTOMER
The Company is the primary supplier of power supply equipment to EMC, a
manufacturer of a wide range of storage hardware, software and service products
used in mainframe computers, open systems and network attached storage systems.
For fiscal 1998, EMC accounted for approximately 64% of the Company's net sales
compared to 63% during fiscal 1997. The next four largest customers together
accounted for approximately 10% of the Company's net sales during fiscal 1998.
Most of the Company's customers, including EMC, are not contractually obligated
on a long-term basis to utilize the Company's products or services. Consequently
there can be no assurance that EMC or any other customer will not transfer,
reduce the volume of, or cancel a power supply order, each of which could
adversely impact the Company's financial condition. The loss of EMC as a
customer, or any other material adverse change in EMC's business or in the
Company's relationship with EMC, would have a material adverse effect on the
Company's financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Customers."
TECHNOLOGICAL CHANGE
The Company's markets are subject to technological change resulting in
frequent improvements to power supply designs. If the Company does not
adequately anticipate technological advances or develop and market product
enhancements or new product lines that respond to significant technological
change in a timely manner, the Company's financial condition could be materially
adversely affected. There can be no assurance that the Company's research and
development efforts will result in commercially successful new technology and
products in the future. In addition, as the technical complexity of new products
increases, it may become more difficult to introduce new products quickly and
according to schedule, and there can be no assurance that new products will meet
the requirements of the Company's customers. See "Business--Customers."
RELIANCE ON PROPRIETARY INFORMATION
The Company relies on trade secrets and other unpatented proprietary
information, which it generally seeks to protect by confidentiality and
non-disclosure agreements with its employees, consultants, advisors and
collaborators. Nevertheless, these agreements may not effectively prevent
disclosure of the Company's confidential information and may not provide it with
an adequate remedy in the event of unauthorized disclosure of such information.
If the Company's employees, consultants, advisors or collaborators develop
inventions or processes independently that may be applicable to its products
under development, disputes may arise about the ownership of proprietary rights
to those inventions and processes. Such inventions and processes will not
necessarily become the Company's property, but may remain the property of those
persons or their employers. Failure to obtain or maintain patent and trade
secret protection, for any reason, would have a material adverse effect on the
Company's financial condition and results of operations.
7
<PAGE> 9
COMPETITION
The Company faces strong competition in all its product lines from
numerous domestic and foreign manufacturers of varying sizes located throughout
the world, some of which have advantages in terms of labor and component costs
and technology or have substantially greater resources and geographic presence.
The degree of competition varies depending on the product line and application
involved. The Company's products generally compete on the basis of price,
product performance, features and delivery schedule. There can be no assurance
that the Company will be able to compete favorably in any of its product lines.
The Company may encounter competition from current and prospective customers
that may decide to design and manufacture power supplies internally to lower
costs or control production. In the event of an economic downturn, or when
dealing with high-volume orders, price becomes an increasingly important
competitive factor, which could cause the Company to reduce prices on its
products and thereby adversely affect the Company's financial condition. See
"Business--Competition."
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs being written to
use two digits to define year dates. Computer programs running date-sensitive
software may recognize a date using "00" as the year 1900 rather than the Year
2000. This could result in system failures or miscalculations causing
disruptions of operations. The Company utilizes information technology to
facilitate (i) communications with customers, (ii) financial management and
support systems and (iii) the scheduling of production.
The Company has upgraded its primary computer systems and software
programs and currently has certifications from its key software suppliers
regarding Year 2000 compliance. The Company's personnel have conducted testing
and will continue to monitor and test the systems through the summer of 1999 to
ensure Year 2000 compliance. Failure of these third parties to timely convert
their systems may have a material adverse impact on the Company's operations.
See "Management's Discussion and Analysis of Results of Operations."
The Company anticipates completing its Year 2000 review no later than
the first quarter of 1999. The Company has budgeted $30,000 that it will expense
as incurred, to address Year 2000 issues. The Company's total Year 2000 project
cost estimates include the impact of third party Year 2000 issues.
The Company has relied on numerous assumptions about future events,
including third party modification plans and other factors, in arriving at cost
and timing estimates. However, there can be no assurance that actual results
will not differ materially from the Company's estimates. Factors that may cause
material differences include the availability and cost of personnel trained in
this area, the ability to locate and correct all relevant computer source code,
and similar uncertainties.
INTERNATIONAL OPERATIONS
The Company commenced manufacturing operations outside the United
States in 1996. The Company's international operations are subject to the risks
usually associated with foreign operations including the disruptions of markets,
political and economic instability, changes in export and import laws,
restrictions on currency exchanges and modification and introduction of other
governmental policies with potential adverse effects. In addition, while the
Company transacts business predominantly in U.S. dollars and most of its
revenues are collected in U.S. dollars, a small portion of the Company's labor
costs are denominated in other currencies such as the Irish pound. Fluctuations
in the value of the U.S. dollar relative to such foreign currencies will affect
the Company's cost of goods sold and operating margins and could result in
exchange losses. Historically, the Company has not actively engaged in any
material exchange rate hedging activities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity."
8
<PAGE> 10
ABILITY TO RETAIN AND ATTRACT KEY PERSONNEL
The Company's success depends in part on the efforts of senior
management and other executive officers. The Company's operations may be
adversely affected if one or more members of senior management ceases to be
active in the Company. Furthermore, the Company's ability to maintain its
competitive position and enhance product and manufacturing technologies will
depend, in part, on how successfully it attracts and retains personnel with
technical skills. Competition for such qualified technical personnel is intense
due to the relatively limited number of power supply engineers worldwide. There
can be no assurance that the Company will be able to attract and retain
qualified management or other highly technical personnel. See "Management."
DEPENDENCE ON SUPPLIERS
The Company is dependent on its suppliers for timely shipments of
components and typically uses a primary source of supply for each component used
in its products. Establishing alternate sources of supply, if needed, could take
a significant period of time which might result in supply shortages. Any
shortages of particular components could adversely affect the Company's business
by creating product delivery delays, increasing costs associated with
manufacturing, and reducing gross margins and may cause a loss of business due
to shipment delays. Any significant shortage or price increase of components
could have a material adverse effect on the Company's financial condition. The
electronic equipment industry currently is, and for the past few years has been,
experiencing significant growth. If the industry continues to grow, it is
possible that a shortage of components and a resulting increase in the price of
the components may occur which could have a material adverse effect on the
Company's financial condition. See "Business--Suppliers."
MANAGEMENT OF GROWTH; NEED FOR FUTURE CAPITAL
The Company has recently expanded and intends to continue to expand the
scope of its operations and the products which it offers. Such expansion has
resulted and will continue to result in an expansion of the Company's facilities
and workforce. This growth can be expected to place strains on the Company's
financial, managerial and other resources. There can be no assurance that the
Company will be able to continue to improve and upgrade its operations,
financial and management information systems, and to attract, train, motivate,
manage and retain key executives and employees in order to manage its growth
effectively.
EXPANSION THROUGH ACQUISITION
Historically, the Company has grown internally rather than by
acquisition. However, an element of the Company's strategy for growth in the
future is expansion through the acquisition of businesses, products and
technologies that could complement or expand the Company's existing businesses
and operations. There can be no assurance that the Company can appropriately
identify future suitable acquisition candidates, that acquisitions can be
consummated, that the Company will be able to integrate any acquired business,
products or technologies into its existing businesses and operations, or that
such integration would not cause an excessive diversion of management time and
resources. In addition, it is possible that the Company would incur additional
indebtedness in connection with any potential acquisition. See
"Business--Strategy."
FLUCTUATIONS IN QUARTERLY RESULTS
The Company's quarterly results of operations have fluctuated in the
past and may continue to fluctuate in the future. Variations in volume
production orders and in the mix of products sold by the Company have
significantly affected net sales and gross profit. Operating results generally
may also be affected by other factors, including the receipt and shipment of
large orders, plant utilization, product mix, manufacturing process yields, the
timing of expenditures in anticipation of future sales, raw material
availability and pricing, product and price competition, the length of sales
cycles and economic conditions
9
<PAGE> 11
in the electronics industry. Many of these factors are outside the control of
the Company. As a result, in some future quarter or quarters the Company's
operating results may be below the expectations of securities analysts and
investors. In such event, the price of the Company's Common Stock may be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RISKS INHERENT IN GOVERNMENT CONTRACTS
Approximately 9% of the Company's sales are to agencies of the U.S.
government, either on a direct contract basis or through sales made to primary
government contractors. Companies engaged in supplying equipment and services to
government agencies are subject to certain business risks including, among other
things, the ability of the Government to: (i) suspend unilaterally the Company
from receiving new contracts pending resolution of alleged violations of
procurement laws or regulations, (ii) terminate existing contracts, (iii) audit
the Company's contract-related costs and fees, including allocated indirect
costs, and (iv) control and potentially prohibit the export of the Company's
products. In addition, Government contracts are conditioned upon the continuing
availability of Congressional appropriations. Furthermore, as a government
contractor, the Company is subject to investigation, legal action and/or
liability that would not apply in a commercial context. See "Business--Legal
Proceedings" and "Business--Products and Services."
The Company is also subject to risks associated with the frequent need
to bid on programs in advance of design completion (which may result in
unforeseen technological difficulties and/or cost overruns), the substantial
time and effort required for relatively unproductive design and development,
design complexity and rapid obsolescence and the constant necessity for design
improvement. The Company obtains many of its government contracts through a
process of competitive bidding. There can be no assurance that the Company will
continue to be successful in winning competitively awarded contracts or that
awarded contracts will generate sufficient sales to result in profitability to
the Company.
PRODUCT AND WARRANTY LIABILITY
The Company's sales to certain customers entail the risk of involvement
in product liability actions. Although the Company has product liability
insurance coverage, there can be no assurance that current or future policy
limits will be sufficient to cover all possible liabilities. Although
historically product warranty claims have been immaterial, future product
warranty claims and costs associated with related recalls, if substantial, could
have a material adverse effect on the Company's financial condition.
ENVIRONMENTAL RISKS AND POTENTIAL LIABILITIES
The Company is subject to federal, state and local environmental laws
and regulations that govern the handling, transportation and discharge of
materials into the environment, including into the air, water and soil.
Environmental laws could become more stringent over time, imposing greater
compliance costs and increasing risks and penalties associated with violations.
Should there be an environmental occurrence, incident or violation, the
Company's financial results may be adversely affected. The Company could be held
liable for significant damages for violation of environmental laws and could
also be subject to a revocation of certain licenses or permits, thereby
materially adversely affecting the Company's financial condition.
ABSENCE OF PRIOR PUBLIC MARKET FOR THE COMMON STOCK
There has not been a public market for the Common Stock prior to the
Offering, and there can be no assurance that an active trading market will
develop or be sustained after the Offering. The initial public offering price
will be determined through negotiations between the Company and the
representatives of the Underwriters. See "Underwriting" for a discussion of the
factors considered in determining the initial public offering price. The
negotiated public offering price may not be indicative of the market price for
the Common Stock following the Offering. In recent years, the stock market in
general and the stock prices of
10
<PAGE> 12
new public companies, and many high technology companies in particular, have
experienced extreme price fluctuations, sometimes without regard to the
operating performance of particular companies. Factors such as variations in
actual or anticipated quarterly operating results (which the Company has
experienced in past years and recent quarters), changes in or failure to meet
earnings estimates of securities analysts, market conditions in the industry,
regulatory actions and general economic conditions, may have a significant
effect on the market price of the Common Stock. Following periods of volatility
in the market price of a corporation's securities, securities class action
litigation often has resulted. There can be no assurance that such litigation
will not occur in the future with respect to the Company. Such litigation could
result in substantial costs and a diversion of management's attention and
resources, which could have a material adverse impact on the Company's financial
condition.
SUBSTANTIAL AND IMMEDIATE DILUTION
The initial public offering price is substantially higher than the
tangible book value per share of the Common Stock. Investors purchasing shares
of Common Stock in the Offering will therefore incur immediate and substantial
dilution. See "Dilution."
CONTROL BY PRINCIPAL SHAREHOLDERS
Upon completion of the Offering, the Company's ten largest shareholders
will own or control approximately 51% of the Common Stock (approximately 48% if
the Underwriters' over-allotment option is exercised in full). Although there is
no agreement to do so, such shareholders acting in concert, will be able to
elect the Company's Board of Directors (the "Board") and take other corporate
action requiring shareholder approval. Such concentration of ownership also
could have the effect of delaying, deterring or preventing a change in control
of the Company that might otherwise be beneficial to shareholders. See
"Principal and Selling Shareholders" and "Underwriting."
EFFECT ON MARKET PRICE OF COMMON STOCK OF SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have outstanding
11,306,800 shares of Common Stock. On the date of this Prospectus, only shares
offered hereby will be immediately eligible for resale in the public market.
Taking into account the effect of lock-up agreements binding on substantially
all the Company's shareholders, 7,706,700 additional shares of Common Stock will
be eligible for sale beginning 180 days after the date of this Prospectus,
unless earlier agreed by ING Baring Furman Selz LLC. Therefore, sales of a
substantial number of shares in the public market or the prospect of such sales
could adversely affect the market price of the Common Stock. See "Description of
Capital Stock," "Shares Eligible for Future Sale" and "Underwriting."
POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
Effective upon the closing of the Offering, the Board will be divided
into three groups. Generally, each director (other than those directors elected
to fill vacancies on the Board) will serve until the date of the third annual
meeting following the annual meeting at which the director is elected and until
his or her successor is elected and qualified. The Company's Certificate of
Incorporation and By-Laws require that shareholders give advance notice to the
Company's Secretary of any nominations of directors made or other business to be
brought by shareholders at any shareholders' meeting. The Certificate of
Incorporation also requires the approval of two-thirds of the Company's voting
stock to amend certain of its provisions. The Board has the authority to issue
up to five million shares of Preferred Stock and to determine the price, rights,
preferences and privileges of those shares without any further vote or action by
the shareholders. The rights of the holders of Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of Preferred Stock
that may be issued in the future. The staggered Board provision, the issuance of
Preferred Stock and other charter provisions may discourage certain types of
transactions involving an actual or potential change in control of the Company,
including transactions in which the shareholders might otherwise
11
<PAGE> 13
receive a premium for their shares over then current market prices, and may
limit the ability of the shareholders to approve transactions that they may deem
to be in their best interests. See "Management--Directors and Executive
Officers" and "Description of Capital Stock--Possible Anti-Takeover Effect of
Certain Charter Provisions."
12
<PAGE> 14
USE OF PROCEEDS
The net proceeds to the Company from the Offering, assuming an initial
public offering price of $14 per share, are estimated to be approximately $27
million (after deducting underwriting discounts and commissions and offering
expenses), will be used principally to retire approximately $8.4 million in
indebtedness with maturities ranging from April 1999 to April 2004, and with
interest rates as of September 21, 1998, ranging from 6.35% to 8.80%. As of
August 1, 1998 approximately $290,000 would be required to pay prepayment
penalties associated with repayment of such indebtedness. The remaining net
proceeds will be used for general corporate purposes, including capital
expenditures and working capital. Pending use of the net proceeds, the Company
intends to invest such funds in short-term and medium-term, interest bearing,
investment-grade obligations. The Company will not receive any proceeds from the
sale of shares to the Selling Shareholders. See "Principal and Selling
Shareholders."
DIVIDEND POLICY
The Company currently intends to retain all its earnings from periods
commencing in fiscal 1999 to finance current operations and future growth and
does not expect to pay dividends in the foreseeable future. Any determination to
pay dividends in the future will be at the discretion of the Board and will
depend upon the Company's results of operations, financial condition, capital
expenditures, working capital requirements, any contractual restrictions and
other relevant factors considered by the Board. The Company paid dividends on
its Common Stock in each of the past five years. The Company paid per share
dividends of $0.04 in fiscal 1996, $0.05 in fiscal 1997 and $0.05 in fiscal
1998.
13
<PAGE> 15
CAPITALIZATION
Set forth below is the total capitalization of the Company at July 31,
1998, and as adjusted to give effect to the Offering and the sale by the Company
of 2,150,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $14.00 per share and the application of the estimated proceeds
therefrom, net of underwriting discounts and expenses of the Offering. This
table should be read in conjunction with the Financial Statements and related
notes appearing elsewhere in this Prospectus. See also "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
AT JULY 31, 1998
----------------
PRO FORMA
ACTUAL ADJUSTED(1)
------ -----------
(dollar amounts in thousands)
<S> <C> <C>
Cash and cash equivalents ........................................ $ 5,375 $23,685
======= =======
Current portion of long-term debt ................................ $ 1,648 $ --
Long-term debt, less current maturities .......................... 8,356 --
------- -------
Total debt .................................................... $10,004(2) $ --
======= =======
Stockholders' equity:
Common stock, $0.10 par value, 50,000,000 shares authorized and
9,156,800 shares outstanding ................................ $ 916 $ 1,131
Additional paid-in capital .................................... 3,083 29,868
Retained earnings ............................................. 41,853 41,563
------- -------
Total stockholders' equity .................................. $45,852 $72,562
======= =======
Total capitalization ............................................. $55,856 $72,562
======= =======
</TABLE>
- ------------------
(1) Adjusted to reflect a 100-to-1 stock split to be effected prior to the
Offering and application of the net proceeds from the Offering as
described under "Use of Proceeds."
(2) At September 21, 1998, long-term debt was $8.4 million.
14
<PAGE> 16
DILUTION
At July 31, 1998 the Company had a net tangible book value of $5.01 per
share of Common Stock. Assuming an initial public offering price of $14.00 per
share of Common Stock, the net tangible book value after giving effect to the
Offering would be $6.42 per share. Dilution, for this purpose, represents the
difference between the price per share paid by purchasers in the Offering and
the pro forma net tangible book value per share at July 31, 1998. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial offering price per
share ...................................................... $14.00
Net tangible book value per share
before the Offering at July 31, 1998...................... $5.01
Increase in net tangible book value per
share attributable to the Offering........................ 1.41
-----
Pro forma net tangible book value per
share after giving effect to the
Offering.................................................... 6.42
------
Dilution per share to purchasers of
Common Stock................................................ $7.58
======
</TABLE>
The following table summarizes, as of , 1998, after giving
effect to the Offering, the number of shares of Common Stock to be purchased
from the Company, the total consideration to be paid to the Company and the
average price paid per share by (i) existing shareholders and (ii) new
investors, at an assumed initial public offering price of $14.00 (before
deducting underwriting discounts and commissions and estimated expenses payable
by the Company):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE PER
NUMBER % AMOUNT % SHARE
------ - ------ - -----
<S> <C> <C> <C> <C> <C>
Existing shareholders................... $ $
New investors...........................
---- ----- ------- -----
Total.................................. 100.0% $ 100.0%
===== ===== ======= =====
</TABLE>
Currently there are no options outstanding to purchase any shares of
Common Stock.
15
<PAGE> 17
SELECTED FINANCIAL AND OPERATING DATA
The following table summarizes certain selected financial data, which
should be read in conjunction with the Company's Consolidated Financial
Statements and notes thereto included elsewhere herein and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
selected financial data as of and for each of the fiscal years in the four year
period ended July 31, 1998 have been derived from the Company's consolidated
financial statements which have been audited by Arthur Andersen LLP, the
Company's independent auditors. The report of Arthur Andersen LLP on such
Financial Statements as of July 31, 1998 and for each of the fiscal years in the
three year period ended July 31, 1998 appears elsewhere in this Prospectus. The
selected financial data as of and for the fiscal year ended July 31, 1994 were
not audited by Arthur Andersen LLP but were derived from financial statements
audited by the Company's former auditors with certain adjustments made by the
Company's management so as to be consistent with the presentation for fiscal
1995 through 1998. In the opinion of management, such financial statements were
prepared on the same basis as the financial statements audited by Arthur
Andersen LLP and include all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the financial position and the
results of operations of the Company as of and for such fiscal year.
16
<PAGE> 18
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED JULY 31,
---------------------------------------------------------------------------------
1998
1994 1995 1996 1997 (53-WEEK YEAR)
---- ---- ---- ---- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ................................. $ 42,317 $ 64,763 $ 80,277 $ 102,711 $ 115,653
Cost of goods sold ........................ 32,431 47,027 54,265 75,819 78,741
----------- ----------- ----------- ----------- -----------
Gross profit on sales ..................... 9,885 17,736 26,012 26,892 36,912
Selling, general and administrative
expenses ................................ 5,528 8,654 9,368 12,906 16,061
Research and development expenses ......... 2,227 2,239 3,148 3,113 4,140
----------- ----------- ----------- ----------- -----------
Operating income .......................... 2,130 6,843 13,496 10,873 16,711
Interest expense .......................... 561 691 821 1,265 1,412
Interest income ........................... (13) (6) (9) (76) (54)
Other expense (income) .................... (132) (9) 124 51 (368)
Litigation expense ........................ -- -- -- 2,221(1) --
----------- ----------- ----------- ----------- -----------
Income from continuing operations before
provision for income taxes and minority
interest ................................ 1,714 6,167 12,560 7,412 15,721
Provision for income taxes ................ 550 2,478 5,117 3,020 6,511
----------- ----------- ----------- ----------- -----------
Income before minority interest ........... 1,164 3,689 7,443 4,392 9,210
----------- ----------- ----------- ----------- -----------
Minority interest in net loss of
consolidated subsidiary ................. -- -- -- -- 15
----------- ----------- ----------- ----------- -----------
Income from continuing operations ......... 1,164 3,689 7,443 4,392 9,225
----------- ----------- ----------- ----------- -----------
Loss (gain) from operations of
discontinued division in Florida ........ (88) (17) 924 207 --
Loss (gain) on disposal of Florida
division including operating losses
during phase-out period ................. -- -- -- 325 (119)
----------- ----------- ----------- ----------- -----------
Total discontinued operations ............. (88) (17) 924 532 (119)
----------- ----------- ----------- ----------- -----------
Net income ................................ $ 1,252 $ 3,706 $ 6,519 $ 3,860 $ 9,344
=========== =========== =========== =========== ===========
SHARE DATA (2):
Income from continuing operations per share:
Basic ..................................... $ 0.14 $ 0.43 $ 0.90 $ 0.54 $ 1.04
Diluted ................................... 0.14 0.43 0.89 0.52 1.02
Net income per share:
Basic ..................................... 0.15 0.44 0.79 0.47 1.05
Diluted ................................... 0.15 0.44 0.78 0.46 1.03
Cash dividends per share ................... 0.02 0.02 0.04 0.05 0.05
Weighted average shares outstanding:
Basic ..................................... 8,488,800 8,511,900 8,304,200 8,185,400 8,893,400
Diluted ................................... 8,495,400 8,518,900 8,370,400 8,466,000 9,032,100
SELECTED OPERATING DATA:
Gross profit margin ........................ 23.4% 27.4% 32.4% 26.2% 31.9%
EBITDA(3) .................................. $ 3,703 $ 8,388 $ 15,128 $ 13,235 $ 19,683
EBITDA margin .............................. 8.8% 13.0% 18.8% 12.9% 17.0%
Cash flows from:
Operating activities ...................... $ 2,576 $ 2,568 $ 4,723 $ 6,109 $ 8,647
Investing activities ...................... (1,172) (3,408) (6,163) (11,604) (794)
Financing activities ...................... (1,389) 1,295 1,449 6,372 (3,870)
Capital expenditures ....................... 1,151 3,421 6,189 12,000 3,689
BALANCE SHEET DATA:
Working capital ............................ $ 17,020 $ 23,282 $ 18,266 $ 33,779
Total assets ............................... 45,164 52,483 68,314 74,402
Total debt ................................. 9,911 11,492 18,790 10,004
Total stockholders' equity ................. 22,297 27,788 31,308 45,852
</TABLE>
- ------------------
(1) Litigation expense included $1,292 of legal fees incurred during fiscal
1997 in connection with an indictment brought against the Company that was
resolved favorably to the Company and $929 incurred in connection with the
settlement of a civil suit. See "Business--Legal Proceedings" and Note 9
of Notes to the Consolidated Financial Statements.
(2) Per share data has been adjusted to reflect a 100-to-1 split of the
Common Stock to be effected prior to the Offering.
(3) EBITDA consists of income from continuing operations plus interest
expense, income taxes, depreciation and amortization, and less interest
income. EBITDA for fiscal 1997 does not include litigation expense of
$2,221. EBITDA for fiscal 1998 does not include a gain of $368 on the sale
of property. EBITDA is a supplemental financial measurement used by the
Company in the evaluation of its business and by many analysts in the
Company's industry. However, EBITDA should only be read in conjunction
with all of the Company's financial data summarized above and its
financial statements prepared in accordance with generally accepted
accounting principles appearing elsewhere herein, and should not be
construed as an alternative either to operating income as an indicator of
the Company's operating performance, or to cash flows from operating
activities as a measure of liquidity.
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The matters discussed herein may include "forward-looking statements"
as defined in the Private Securities Litigation Reform Act of 1995. Such
statements involve risks and uncertainties which could result in operating
performance that is materially different from management's projections. This
section should be read in conjunction with the Company's Consolidated Financial
Statements and notes thereto and with "Risk Factors."
OVERVIEW
The Company is a leading designer and manufacturer of a broad range of
power supplies and power systems for the premium and niche markets of the
broadly based power industry. The Company manufactures over 500 products that it
sells primarily to commercial OEMs, to governmental agencies that include the
U.S. Department of Defense and to manufacturers in the aerospace industry. The
Company is organized into product and market-focused divisions and also has
regional facilities in New England, the West Coast, Europe and China which
concentrate on local customer needs. The Company is relatively vertically
integrated with three support divisions that provide magnetics, circuit boards
and metal work.
The Company sells its products primarily in the United States. The
Company opened manufacturing and distribution facilities in Cork, Ireland in
1996 to support the European operation of EMC and in Shenzhen, China in May 1998
to enter the Asian telecommunications power markets. For fiscal 1998, foreign
sales represented approximately 2.9% of total sales. The majority of the
Company's international sales are denominated in U.S. dollars. Historically,
currency exchange movements have not had a material effect on the Company's
results of operations. As the Company's international operations expand, the
effect of currency fluctuations may have a material impact on the Company's
revenues and expenses.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
financial data expressed as a percentage of net sales:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------------------
1998
1996 1997 (53-WEEK YEAR)
---- ---- --------------
<S> <C> <C> <C>
Net sales .............................. 100.0% 100.0% 100.0%
Cost of goods sold ..................... 67.6 73.8 68.1
----- ----- -----
Gross profit on sales .................. 32.4 26.2 31.9
Selling, general and administrative
expenses ............................. 11.7 12.6 13.9
Research and development expenses ...... 3.9 3.0 3.5
----- ----- -----
Operating income ....................... 16.8 10.6 14.5
Net interest expense ................... 1.0 1.2 1.2
Other expense (income) ................. 0.1 2.2 (0.3)
----- ----- -----
Income from continuing operations before
provision for income taxes ........... 15.7 7.2 13.6
Provision for income taxes ............. 6.4 2.9 5.6
----- ----- -----
Income from continuing operations ...... 9.3% 4.3% 8.0%
===== ===== =====
</TABLE>
18
<PAGE> 20
FISCAL YEAR ENDED JULY 31, 1998 COMPARED TO FISCAL YEAR ENDED JULY 31, 1997
Net Sales. Net sales for fiscal 1998 increased by 12.6% to $115.7
million compared to $102.7 million for fiscal 1997. Net sales to EMC increased
13.8% to $74.2 million for 1998 from $65.2 million for 1997. The percentage of
sales to EMC as a percent of total sales increased to 64.2% for fiscal 1998 from
63.4% for fiscal 1997, primarily as a result of an increase in the number of
units sold to EMC.
Gross Profit on Sales. Gross profit on sales for fiscal 1998 increased
37.3% to $36.9 million compared to $26.9 million for fiscal 1997. Gross profit
margin on sales realized for 1998 was 31.9% compared to 26.2% for fiscal 1997.
The improvement in gross profit on sales during fiscal 1998 was due primarily to
a shift in product mix to higher margin products and, to a lesser extent, to
improved absorption of manufacturing overhead that resulted from higher
production volume at the new production facilities brought on line during the
previous fiscal year.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal 1998 increased 24.4% to $16.1 million
compared to $12.9 million for fiscal 1997. Selling, general and administrative
expenses for fiscal 1998 was 13.9% of sales, compared to 12.6% for fiscal 1997.
The increase in selling, general and administrative expenses was due primarily
to (i) the expansion of administrative support staff, (ii) increased selling
expenses, and (iii) expenditures incurred in connection with the implementation
of new management information systems.
Research and Development Expenses. Research and development expenses
for fiscal 1998 increased 33.0% to $4.1 million compared to $3.1 million for
fiscal 1997. Research and development expenses for fiscal 1998 were 3.5% of
sales compared to 3.0% for fiscal 1997. The increase was due primarily to an
increase in engineering expenses related to the introduction of engineering
designs for new product concepts targeted primarily at commercial OEMs.
Net Interest Expense. Net interest expense for fiscal 1998 increased
14.2% to $1.4 million compared to $1.2 million for fiscal 1997. The increase was
due primarily to increased borrowings to support the modernization of production
facilities and to fund increased working capital requirements for higher sales
volume.
Other Expense (Income). The Company realized other income of $368,000
for fiscal 1998, representing primarily capital gains on the sale of a
manufacturing facility in Randolph, New Jersey. For fiscal 1997, other expense
included $2.2 million in legal fees and settlement expenses relating to an
indictment that was resolved favorably to the Company and the subsequent civil
settlement of a suit brought against the Company by the U.S. Attorney for the
Northern District of Florida in connection with the Company's operations at the
Military Power Systems division in Fort Walton Beach, Florida. See
"Business--Legal Proceedings" and Note 9 to the Notes to the Consolidated
Financial Statements.
Income Taxes. Income taxes for fiscal 1998 increased $3.5 million to
$6.5 million compared to $3.0 million for fiscal 1997. The increase in income
taxes resulted primarily from increased pre-tax income. The total effective tax
rate for the Company increased slightly from 40.7% for fiscal 1997 to 41.4% for
fiscal 1998.
Discontinued Operations. During fiscal 1997, the Company discontinued
operations at the Military Power System Division in Fort Walton Beach, Florida,
primarily as a result of the decline in the market for military power suppliers.
The results from discontinued operations for fiscal 1998 were a gain of
$119,000, resulting primarily from the sale of the Fort Walton Beach, Florida
facility. This compares to a loss of $532,000 from discontinued operations for
fiscal 1997 which represented losses from the sale of discontinued inventory and
expenses incurred in maintaining the unoccupied facility at Fort Walton Beach,
Florida, until the building was sold during fiscal 1998. See Note 10 to the
Notes to the Consolidated Financial Statements.
19
<PAGE> 21
FISCAL YEAR ENDED JULY 31, 1997 COMPARED TO FISCAL YEAR ENDED JULY 31, 1996
Net Sales. Net sales for fiscal 1997 increased by 27.9% to $102.7
million compared to $80.3 million for fiscal 1996. Net sales to EMC increased
$16.2 million to $65.2 million for fiscal 1997 from $49.0 million for fiscal
1996. During this period, the percentage of sales to EMC as a percentage of
total sales increased from 61.0% for fiscal 1996 to 63.4% for fiscal 1997. The
remaining $6.2 million increase in total sales was attributable primarily to
growth in sales of new uninterruptible, fault tolerant product lines to new OEM
customers.
Gross Profit on Sales. Gross profit on sales for fiscal 1997 increased
3.4% to $26.9 million compared to $26.0 million for fiscal 1996. The gross
margin realized on sales for fiscal 1997 was 26.2%, compared to 32.4% for fiscal
1996. The decline in gross margin during fiscal 1997 was due primarily to a
temporary shift in product mix to lower margin products. During fiscal 1997,
four of the Company's seven divisions, representing approximately 85% of sales,
moved to new facilities and one division discontinued operations.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal 1997 increased 37.8% to $12.9 million,
compared to $9.4 million for fiscal 1996. Selling, general and administrative
expenses increased to 12.6% from 11.7%, as a percentage of sales. This increase
was due primarily to increased consulting fees and, to a lesser extent,
increased selling expenses.
Research and Development Expenses. Research and development expenses
for fiscal 1997 remained constant at $3.1 million compared to fiscal 1996.
Research and development expense as a percentage of sales decreased to 3.0%
during fiscal 1997 from 3.9% during fiscal 1996.
Net Interest Expense. Net interest expense for fiscal 1997 increased
46.4% to $1.2 million compared to $812,000 for fiscal 1996. The increase was due
primarily to an increase in bank borrowings to fund expansion of facilities and
increased working capital requirements necessary to support higher sales volume.
Other Expense (Income). Other expense for fiscal 1997 increased to $2.3
million compared to $124,000 for fiscal 1996. This increase resulted entirely
from litigation expenses and settlement costs related to the Company's Military
Power Systems division, whose operations were discontinued in fiscal 1997. See
"Business--Legal Proceedings" and Note 9 to the Notes to the Consolidated
Financial Statements.
Income Taxes. Income taxes for fiscal 1997 decreased 41.0% to $3.0
million, compared to $5.1 million for fiscal 1996. The decrease resulted
primarily from decreased pre-tax income. The total effective tax rate for the
Company remained constant at 40.7% for both fiscal years.
Discontinued Operations. Losses from discontinued operations for fiscal
1997 decreased 42.4% to a loss of $532,000, compared to a loss of $924,000 for
fiscal 1996. The decreased loss resulted primarily from the closure of the
Military Power System division during fiscal 1997. See Note 10 to the Notes to
the Consolidated Financial Statements.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly financial
information of the Company. The Company has experienced varying demand for
certain of its products at certain times during the year, primarily as a result
of customer new product introduction cycles and the overall level of capital
expenditures by certain OEM customers. These factors may be offset in part by
the growth in product lines or fluctuations in customer order volumes. This
information has been derived from the unaudited quarterly financial statements
of the Company which, in the opinion of management, were prepared on the same
basis as the audited financial statements and include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the financial results for such periods. This information should
be read in conjunction with the Consolidated Financial Statements and the notes
thereto and the other financial
20
<PAGE> 22
information appearing elsewhere in this Prospectus. The operating results for
any previous quarter are not necessarily indicative of results for any future
period.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------------------
OCTOBER JANUARY OCTOBER JANUARY
31, 31, APRIL 30, JULY 31, 31, 31, APRIL 30, JULY 31,
1996 1997 1997 1997 1997 1998 1998 1998
(13 WEEKS) (14 WEEKS) (13 WEEKS) (12 WEEKS) (13 WEEKS) (14 WEEKS) (13 WEEKS) (13 WEEKS)
------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ............ $23,517 $25,165 $28,326 $25,703 $22,967 $29,789 $29,322 $33,575
Gross profit on sales 6,912 6,367 6,840 6,773 7,666 9,373 9,430 10,443
Operating income ..... 3,658 2,499 2,266 2,450 3,241 4,119 4,488 4,863
Income from continuing
operations ........... 1,800 1,115 1,005 472 1,679 2,121 2,783 2,642
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1998, the Company generated cash flow from operations of
$8.6 million compared to $6.1 million for fiscal 1997. Cash flow from operations
increased primarily due to a $5.4 million increase in net income over the prior
year and a $2.8 million increase in accrued income taxes. These increases were
partially offset by a $3.1 million decrease in accounts payable and a $2.0
million increase in accounts receivable.
Net sales increased 24.0% in fiscal 1996 and 27.9% in fiscal 1997,
which required the addition and upgrading of manufacturing facilities. The
Company embarked on a major plant expansion and improvement program starting in
fiscal 1996. The new investments in property, plant and equipment rose from $6.2
million during fiscal 1996 to $12.0 million during fiscal 1997, and then
declined to $3.7 million during fiscal 1998. Although new investment in
property, plant and equipment declined in fiscal 1998, there were significant
additions in leased plant and office space in Cork, Ireland; Shenzhen, China;
Hopkinton, Massachusetts; and San Clemente, California during fiscal 1998.
The Company has historically funded its operations primarily from cash
flow generated by its operating activities supplemented in part by long- and
short-term bank borrowings. The high level of investment in property, plant and
equipment during fiscal 1997, however, required a significant increase in bank
debt. Total bank borrowings increased $6.7 million, from $11.5 million on July
31, 1996 to $18.2 million on July 31, 1997. During fiscal 1998, the Company
reduced its total outstanding indebtedness to $10.0 million at July 31, 1998,
through the sale to EMC for $5.0 million of 7.5% of the Company's
then-outstanding shares of Common Stock, the sale of two buildings for $2.9
million, and cash flow from operations.
As described above, during fiscal 1997, the Company experienced
temporary cash shortages primarily due to the rapid expansion and modernization
of its production facilities. During this period, Richard Blake, the Company's
Chairman and Chief Executive Officer, twice lent the Company up to $250,000
which was repaid shortly thereafter. See "Certain Relationships and Related
Transactions." Subsequently, the Company increased its existing revolving line
of credit by $5.0 million.
As of July 31, 1998, all the Company's loans and mortgages were with
First Union National Bank ("First Union"). All term loans and mortgages are at
fixed interest rates or floating rates which have been swapped to a fixed rate
for the term of the loan. These fixed rates range from 6.35% to 8.80%. In
addition, the Company has a $10.5 million revolving loan agreement with First
Union with a floating interest rate of LIBOR plus 1.05%. As of July 31, 1998 the
interest rate was 7.41% and the outstanding balance was $2.0 million. The loan
matures in October 1999. The Company uses interest rate swap arrangements to
manage
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<PAGE> 23
risks from fluctuations in interest rates. Derivative financial instruments are
not used for trading or speculative purposes.
The Company believes its existing working capital and borrowing
capacity, together with the funds generated from the Company's operations and
the net proceeds from the Offering, will be sufficient to fund its anticipated
working capital, capital expenditure and debt payment requirements for the
foreseeable future.
Inflation. Inflation generally affects the Company by increasing the
cost of labor, equipment and raw materials. The Company does not believe that
inflation has had any material effect on its business during the periods
discussed herein.
Year 2000 Compliance. The Year 2000 issue is the result of computer
programs being written to use two digits to define year dates. Computer programs
running date-sensitive software may recognize a date using "00" as the year 1900
rather than the Year 2000. This could result in system failures or
miscalculations causing disruptions of operations. The Company utilizes
information technology to facilitate (i) communications with customers, (ii)
financial management and support systems and (iii) the scheduling of material
and manufacturing resources.
The Company has upgraded its primary computer systems and software
programs and currently has certifications from its key software suppliers
regarding Year 2000 compliance. The Company's personnel have conducted testing
and will continue to monitor and test the systems through the summer of 1999 to
ensure Year 2000 compliance.
The Company's primary business does not rely on material relationships
with third party vendors but utilizes third party vendors for a number of
functions including its payroll functions, insurance and investment of
retirement funds. The Company is initiating formal communications with third
party providers to determine the extent to which these third parties are moving
toward Year 2000 compliance. The Company utilizes third party on-line
information services and the Internet to retrieve information about current and
potential customers and to make information available regarding its own
products. Failure of these third parties to timely convert their systems may
have a material adverse impact on the Company's operations.
The Company anticipates completing its Year 2000 review no later than
the first quarter of 1999. The Company has budgeted $30,000 that it will expense
as incurred, to address Year 2000 issues. The Company's total Year 2000 project
cost estimates include the impact of third party Year 2000 issues.
The Company believes that failure to be Year 2000 compliant will not
have a significant impact on its human resource functions. The Company has
received certification that its financial systems are Year 2000 compliant.
However, any failure of such systems could impact timely reporting of financial
data since the Company would have to perform financial functions utilizing
slower systems or resort to performing such reporting manually. In addition, if
any non-information technology is not compliant, the Company will have to
replace such systems.
The Company relied on numerous assumptions about future events,
including third party modification plans and other factors, in arriving at cost
and timing estimates. However, there can be no assurance that actual results
will not differ materially from the Company's estimates. Factors that may cause
material differences include the availability and cost of personnel trained in
this area, the ability to locate and correct all relevant computer source code,
and similar uncertainties.
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<PAGE> 24
BUSINESS
GENERAL
The Company is a leading designer and manufacturer of high-power,
fault-tolerant, uninterruptible electronic power supplies and other power
systems used in mission critical applications. The Company's electronic power
supply systems are used in computer data storage, large computer systems,
telecommunications equipment (particularly wireless base stations) and
transportation equipment such as aircraft, ships and locomotives.
Power supplies are an essential component in the supply, regulation and
distribution of electrical power in electronic equipment which requires a steady
supply of electrical power at varying voltage levels. AC-to-DC converters are
used to convert alternating current (AC) (the form in which virtually all
utilities deliver electric current) to a precisely controlled direct current
required to operate virtually all solid state electronic equipment. DC-to-DC
converters are used to convert a particular direct current voltage into another
(higher or lower) direct current voltage required by the electronic device to
which it is connected.
The power supply industry covers a wide range of products from
low-power commodity products to high-power and custom-designed units produced
for demanding specialty applications. The Company develops products for niche
markets in the high-end or premium segment of the power supply market where
there is an emphasis on providing mission critical or uninterruptible supply of
power. For example, in order to eliminate the risk of computer system failure or
shutdown, at a money center bank, power supplies must be redundant both in terms
of (i) external source of power (e.g., battery back up in the event of an
electric power failure) and (ii) power supply systems (i.e., back up
sub-systems). The transition to the redundant power source or sub system must be
seamless so that no transactions are lost.
The Company, founded in 1951, was primarily a supplier to the defense
industry through the early 1990s. For fiscal 1998, substantially all of the
Company's $116 million net sales were to non-defense related, OEM customers. The
Company's OEM customers include EMC Corporation ("EMC"), Tandem Computer Inc. (a
subsidiary of Compaq Computer Corporation), Glenayre Technologies Inc., Aspect
Telecommunications Corporation, IPC Information Systems Inc., Bell Atlantic
Mobile Service, GTE Corporation, Raytheon Company, BE Aerospace, Lockheed Martin
Corporation and Schlumberger Ltd.
The Company's largest customer is EMC. The Company began selling power
supplies to EMC in 1991 initially developing one power supply model for use in
one of EMC's product lines. Since 1996, the Company has been the primary
supplier of power supply systems for EMC. Sales to EMC represented 64% of the
Company's consolidated net sales for fiscal 1998. In fiscal 1998, EMC acquired
7.5% of the Company's then-outstanding common stock. See "Principal and Selling
Shareholders."
The Company currently manufactures substantially all of its products in
the United States which has enabled the Company to operate in close proximity to
its customers, allowing it to respond to customer needs more quickly and
efficiently. The Company recently expanded its operations internationally with
the opening of design, manufacturing and sales facilities in Cork, Ireland that
are intended primarily to support EMC's manufacturing operations in Ireland and
which the Company expects will provide it more immediate access to the European
markets. The Company recently established limited manufacturing operations in
Shenzen Province, China to develop a presence in the Asian telecommunications
power supply markets.
During the past five years the Company expanded its operating
capabilities in the United States and initiated manufacturing overseas. During
this period, the Company more than doubled the square footage of its plants in
the United States by opening new regional facilities including facilities
located in Hackettstown, New Jersey; Hopkinton, Massachusetts; and San Clemente,
California, which facilitated the growth in net sales during this period. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation--Liquidity." In addition, the Company established TDI Europe in fiscal
1997 and
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<PAGE> 25
TDI China in fiscal 1998 thereby expanding its international operations. In
addition to these expansions, the Company utilizes contract manufacturing
through a maquiladora in Mexico that manufactures low technology, high volume
components for power supplies and which has enabled the Company to reduce labor
expenses. In fiscal 1997, the Company terminated operations of its Military
Power Systems division in Fort Walton Beach, Florida, primarily as a result of
cutbacks in military spending by the U.S. government.
STRATEGY
The Company's strategy is to be the "supplier of choice" to an
increasing number of leading OEMs who require sophisticated power supply
solutions. In order to become the supplier of choice for several significant
customers the Company believes it must provide (i) superior products and
technical leadership, (ii) unequaled service and (iii) excellent value.
Superior Products and Technical Leadership. The Company seeks to
manufacture products that lead the power supply industry in innovation and
quality. The Company has developed and introduced proprietary products
throughout its history. The Company believes it has among the most reliable
power supply products in the industry as measured by mean-time-between-failure
("MTBF"). In addition, the Company believes its products have among the highest
power density, thereby allowing the Company's customers to utilize space more
efficiently.
The Company seeks to operate at the forefront of technological
developments in the power supply industry with a view to anticipating the future
power needs of existing and potential customers. To assist in accomplishing this
goal the Company continues to develop a broad product line and to develop
complementary products in order to anticipate customers needs. By developing
close working relationships with its customers, the Company is better able to
continually upgrade its products to meet changing market demands, thereby
providing customers access to technological advances in the power supply
industry.
Unequaled Service. The Company's goal is to make the design, delivery
and operation of its customers' power supply systems faultless so that they are
able to focus on their core businesses. To achieve this goal, the Company
creates interdisciplinary teams to coordinate development, delivery and service
in an attempt to foster strong working relationships with customers. Through
these collaborative relationships, the Company becomes aware of the upcoming
power supply requirements of its customers' new products and can begin to
formulate appropriate solutions.
Excellent Value. To be its customers' power supplier of choice, the
Company must be able to consistently provide excellent value. The Company seeks
to operate in the high end or premium portion of the market where a customer's
perception of value is primarily based on performance and quality rather than
simply on price.
Even in the premium segment of the market, price is a significant
factor. Accordingly, to ensure cost competitiveness, the Company has invested in
creating high-quality production facilities in the United States which use
sophisticated design and manufacturing techniques including computer aided
design and computer programmed manufacturing. At the same time, the Company
manufacturer low-technology, high volume components by developing low cost
manufacturing capabilities in China to complement existing low cost
manufacturing operations in Mexico.
INDUSTRY OVERVIEW
Power supplies often are defined as linear or switching. Linear power
supplies are relatively large and inefficient but provide low noise power for
critical applications. Switching power supplies dominate most power supply
markets since they are often lower cost, smaller and more efficient in the high
end or premium. The market for power supplies can be further segmented in
several different ways, including by
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<PAGE> 26
(i) captive manufacturers compared to merchant manufacturers (i.e.,
independents), (ii) custom compared to standard products and (iii) power output
(i.e., wattage).
Merchant vs. Captive Manufacturers. Merchant manufacturers such as the
Company design and manufacture power supplies for use by others. Captive
manufacturers are OEMs that design and manufacture power supplies in-house for
use in their own products. According to industry sources, the merchant power
segment accounted for approximately 61.5% or $3.5 billion of all power supplies
sold in the United States in 1996.
Custom vs. Standard and Modified Standard. Custom power supplies are
designed for a specific customer to meet the exact form, fit and function
required by a specific application. Custom products are characterized by lead
times ranging between six and 12 months from initial development to full
production and tend to use cutting-edge power supply engineering methodologies.
Standard power supplies are designed for a wide range of customers and
applications. Standard power supplies offer benefits to the OEM in that there
are no up-front engineering charges or minimum order quantities and the product
is readily available, which provides the OEM the ability to reduce its
time-to-market for new products. In addition, standard products have lower risks
associated with technology, production ramps, and customer product
qualification.
Modified standard (tailored) power supplies are standard products that
have been modified in a way that does not change the basic product architecture.
Modified standard products are characterized by short lead times and low
up-front engineering costs.
Approximately 40% of the Company's power supplies are standard and
modified standard products, while approximately 60% are custom products.
Power Output. Power supplies can be grouped by power output (watt)
ranges: low power, mid power and high power. Low-range power supplies (under 151
watts) tend to be commodities since they are less technologically complex,
manufactured in high volumes, and used in various lower cost applications, such
as personal computers, small networking systems and small industrial
instrumentation systems. Mid-range power supplies (151-500 watts) tend to be
more technologically complex, manufactured in moderate to high volumes, and used
in more sophisticated products, such as computer workstations, data and voice
communications systems, and medical and diagnostic equipment. High (premium)
power supplies (over 500 watts) generally are technologically complex,
value-added products used in sophisticated systems, such as mainframe computers,
automated systems, telecommunications and transportation equipment. The Company
primarily designs and manufactures premium grade, valued-added power supplies.
The following table summarizes the segmentation of the power supply market by
power output range in 1996:
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<PAGE> 27
<TABLE>
<CAPTION>
1996
% of Market
Typical for Switching Power Primary
Power Range Characteristics Supplies (1) End Users
- ----------- --------------- ------------ ---------
<S> <C> <C> <C>
Low Less than 151 Watts 24% Consumer
Lower Technology Electronics
Higher Volume
Lower Margin
Mid 151-500 Watts 32% Work Stations
High Technology Mini Computers
Moderate Volume
Moderate Margin
High More than 500 Watts 44% Computer Companies
High Technology Industrial
Lower Volume Companies
Higher Margin Telecommunications
Military
Aerospace
Transportation
</TABLE>
- ------------------
(1) By percent of dollar volume.
INDUSTRY TRENDS
The markets for electronic products are growing as a result of new
product introductions, technological change, and demand for a wider variety of
electronic product features at reduced costs. To compete successfully, the
Company's OEM customers must meet shorter time-to-market demands with increasing
performance pressures. OEMs are therefore moving toward flexible, scaleable,
low-cost power systems that facilitate their goals of rapid and cost-effective
product development and introduction. These increasing performance demands
translate into several significant trends in the power supply industry,
including:
- Strategic Alliances and Consolidation of Supplier Base. In
order to lower administrative costs and accelerate delivery
schedules, OEMs and electronic distributors are reducing their
supplier base to include only vendors who can offer a broad
range of quality products that fully service their needs. This
one-stop shopping approach places increased demands on power
supply manufacturers to invest in providing full product line
offerings and sophisticated technology.
- Increased Outsourcing by Captive Power Supply Manufacturers.
Many OEMs historically have built power supplies for use in
their own products. As the level of complexity and investment
in designing and manufacturing power supplies have increased,
these OEMs are increasingly outsourcing their power supply
needs in order to focus on research, development and marketing
of their own products.
- Increased Power Density. Large data storage and computer
systems have higher power requirements that may continue to
grow in the future. Customers in these sectors require high
density power units that utilize less space, a trend that
favors the products that the Company manufactures.
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<PAGE> 28
PRODUCTS AND SERVICES
The Company currently manufactures over 500 power supply products that
cover extensive applications, with a range from 500 to 100,000 watts. These
products include AC-DC rectifiers, DC-DC converters, DC-AC inverters and
uninterruptible power systems ("UPS") with both DC and AC outputs. Power
supplies are available with single and multiple outputs, are fault tolerant (N+1
redundant), power factor corrected and computer programmable. Modular power
systems are available with hot bus plug-in which allows replacement of power
supply modules without system interruption. Most power supply products
manufactured by the Company are AC-DC, DC-DC and DC-AC and utilize advanced
switching technology.
The following table illustrates the Company's product mix, presented in
order of highest unit volume of sales, and the markets served:
<TABLE>
<CAPTION>
PRODUCT FUNCTION INDUSTRY SEGMENT
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
UPS (DC output) Provides steady state Computers,
uninterruptible (battery telecommunications,
backed) DC output; usually military/aerospace
operates from an AC source
AC-DC Rectifiers Converts AC current (such Computers,
as utility AC) to regulated telecommunications,
DC military/aerospace
DC-DC Converters Converts a DC voltage to Computers,
one or more different DC telecommunications,
voltages military/aerospace
DC-AC Inverters Converts DC (such as from a Aircraft, oil
battery) to AC (such as a exploration and military
utility)
UPS (AC output) Delivers uninterruptible Aircraft, oil
(battery backed) AC output; exploration and military
usually operates from an AC
source (utility or
generator)
Test Equipment Specialized electronic Telecommunications,
instruments used to verify computers,
proper operation of a power military/aerospace
source
Integration and Value added technical Telecommunications
Support services that provide a
"turn-key" product to power
users
Metal, Printed Mechanical and electro- Computers,
Circuit Boards mechanical elements used to telecommunications,
and Magnetics fabricate electronic military/aerospace
systems
</TABLE>
Computers--Data Storage. The Company manufactures uninterruptible,
fault tolerant and modular power systems, for use in mainframe, open systems and
network attached storage systems. The Company began manufacturing power supplies
for EMC in 1991, initially developing one power supply product for one of EMC's
major product lines. By 1996, the Company had become the supplier of choice for
EMC on the majority of EMC's product lines and the Company believes that
currently it is the sole supplier of power supplies for EMC on many of its
product lines. The Company developed a "partnering" relationship with EMC
whereby the two companies work closely in developing products and sharing ideas
for improvements and design. Another major OEM customer in the computers and
data storage product line is Tandem Computer Inc., a subsidiary of Compaq. Sales
in this product line contributed approximately 67%, 71% and 70% to the Company's
net sales during fiscal years 1996, 1997 and 1998, respectively.
Over the past two years the Company opened facilities in close
proximity to EMC's main manufacturing plants at Hopkinton, Massachusetts and
Cork, Ireland. Initially, the purpose of these facilities was logistical,
allowing the Company to deliver power supplies manufactured in the Company's New
Jersey plants for assembly with heavy and cumbersome battery back-up units prior
to delivery to EMC. Over the
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<PAGE> 29
past year, each facility evolved into regional sales and servicing centers with
on-site manufacturing and new product development capabilities.
Telecommunications. The Company provides over 30 different types of
tailored telecommunications power systems that range in power configuration from
1,000 to 100,000 watts. These products feature high power density, remote and
local monitoring instrumentation and fault alarms that constantly monitor the
power supply to a telecommunications systems array. The Company currently offers
field integrated services directly in key markets and is developing a national
network of service subcontractors to install and maintain telecommunications
power systems at customer sites.
The demand for power supplies in the telecommunications industry is
driven primarily by the expansion of fiber optic voice and data transmission
systems used principally by end users and service providers in the internet
market, in wireless telecommunications and in long distance fiber transport.
With the development of broadband cable for use in fiber backbone networks, the
demand for higher density, highly reliable power systems has expanded. The
Company's customers in this market segment include IXC Communications Inc.,
Williams Communications Corp. and Bell Atlantic Mobile Service - Southeast.
Sales in this product line contributed approximately 13%, 12% and 11%
to the Company's net sales during fiscal years 1996, 1997 and 1998,
respectively.
Other Markets. The Company develops custom power supplies for a broad
range of other customers in the electronics, military and high-technology
industries. The Company currently manufactures custom products such as
lightweight AC/AC frequency chargers for airborne and mobile military
applications, rugged UPS for severe applications, programmable DC power sources
for industrial uses such as oil field exploration, multi-output DC/DC converters
for locomotive cabs and railroads, DC/AC sinewave inverters for severe
environments and battery chargers for rugged and mobile environments.
Customers who purchase power supplies for use in severe environments
include primarily branches of the U.S. military for which the Company
manufactures custom products for use in applications such as submarines, in the
C-130 transport plane and in other rugged applications. Other customers in this
segment include Lockheed Corporation, Northrup Grumman Corporation, Raytheon
Corporation and BE Aerospace Inc.
Approximately 9% of the Company's sales are to agencies of the U.S.
government, either on a direct contract basis or through sales made to primary
government contractors. Companies engaged in supplying equipment and services to
government agencies are subject to certain business risks including, among other
things, the ability of the Government to: (i) suspend unilaterally the Company
from receiving new contracts pending resolution of alleged violations of
procurement laws or regulations, (ii) terminate existing contracts, (iii) audit
the Company's contract-related costs and fees, including allocated indirect
costs, and (iv) control and potentially prohibit the export of the Company's
products. In addition, government contracts are conditioned upon the continuing
availability of Congressional appropriations. Furthermore, as a government
contractor, the Company is subject to investigation, legal action and/or
liability that would not apply in a commercial context. See "--Legal
Proceedings" and "Risk Factors--Risks Inherent in Government Contracts."
Sales in this product line contributed approximately 13%, 11% and 12%
to the Company's net sales during fiscal years 1996, 1997 and 1998,
respectively.
Test Equipment. The Company also is a leader in the design and
manufacture of electronic loads (dynaloads) which allow users to simulate field
conditions. Such testing ensures proper functioning of the electronic equipment
prior to operation in the field. The Company manufacturers over 50 different
types of dynaloads that range in power from 250 to 4,000 watts and can be
paralleled to simulate loads up to 20,000
28
<PAGE> 30
watts. The Company sells test equipment to battery pack and power supply
manufacturers (including certain of the Company's competitors).
Sales in this product line contributed approximately 4% to the
Company's net sales during each of the fiscal years 1996, 1997 and 1998.
Other Products and Services. The Company provides upgrade service and
repairs for power supplies currently in use by its customers. Units that require
refurbishment are received from customers and updated with current technology
that can provide higher power outputs more reliably. The Company also repairs
units that are out of warranty. The Company also manufactures magnetic
components, printed circuit boards and metal chassis for use in the manufacture
of power supplies. Sales in this product line contributed 3%, 2% and 3% to the
Company's net sales during fiscal years 1996, 1997 and 1998, respectively.
SALES AND MARKETING
The Company markets through a variety of sales outlets including direct
regional sales managers, manufacturer representatives, international
representatives, distributors and key account program managers. Detailed sales
strategies are developed with a focus on specific markets, customers and
products. A corporate sales and marketing group oversees sales strategy and
coordinates advertising, trade shows and market analysis, and supports
divisional sales.
The Company has a coordinated marketing and sales force consisting of
30 persons employed by the Company worldwide that sells its power supply
products and components. The Company employs four regional sales managers
strategically based in Hopkinton, Massachusetts; San Clemente, California;
Dublin, Ireland; and Shenzhen, China. Each sales manager is responsible for
servicing existing customers and developing new accounts in the service
territory. The Company also employs six regional sales representatives with
offices in Atlanta, Georgia; Branchville, New Jersey; Chicago, Illinois; Dallas,
Texas; Denver, Colorado; and Houston, Texas that are responsible primarily for
servicing customers and developing new accounts in the telecommunications
industry, which the Company believes is the fastest growing segment of the power
supply market.
The Company has contractual agreements with 13 manufacturers'
representatives who collectively employ more than 60 salespeople in more than 51
offices throughout the United States. These representatives are directly
supervised by the Company's regional managers and are an important part of the
Company's sales force. While they handle a variety of products, none of the
manufacturers' representatives represent a competing power supply manufacturer.
OEM and Strategic Account Sales. EMC, the Company's principal customer,
accounted for 63% of the Company's net sales in fiscal 1997 and 64% in fiscal
1998. The Company's top five customers (including EMC) accounted for
approximately 74% of the Company's total sales in fiscal 1998. The percentage of
the Company's OEM business is expected to rise in the future, as more emphasis
is placed on multinational strategic accounts. See "Risk Factors--Reliance on
Major Customer."
Advertising. The Company regularly advertises in a variety of industry
journals to generate customer awareness and to create markets for the Company's
products. Advertising and promotion expenses historically have been less than 1%
of sales. The Company also advertises through the use of press releases, direct
mail programs and catalogs.
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<PAGE> 31
International Markets. International markets present new opportunities
which the Company is poised to pursue. Historically, the Company has not had
significant sales outside the United States. These markets became accessible
through TDI Europe, TDI China, and a network of international representatives/
distributors dedicated to increasing the Company's international sales.
MANUFACTURING
Quality products and responsiveness to customers' needs are critical to
the Company's success. The Company strives for continuous improvements in its
processes, products, and services. The Company's principal manufacturing
facilities in the United States and in Ireland are certified to ISO 9001.
The Company combines advanced management and manufacturing techniques
with flexible manufacturing technology, continuous process improvement and
statistical process control. These techniques allow the Company to decrease
production costs by improving the efficiency of production processes and
increasing production yields. Through its commitment to customer service and
quality, the Company believes it is able to provide superior value to its
customers.
Automation and monitoring of the production process is essential to
product uniformity and production efficiency. Throughout the production process,
the Company applies highly accelerated stress screening ("HASS") followed by
meticulous failure analysis and corrective action which has resulted in
ever-increasing MTBF and added value to the customer. Since it introduced HASS
in 1996, MTBF has improved an average of 100% for new commercial power supplies.
Approximately 90% of the Company's power supplies are subjected to HASS testing.
A typical power supply consists primarily of electronic and magnetic
components and printed circuit boards in a metal assembly. The Company's
divisions provide the capability to manufacture practically all the critical
components of power supplies from the metal chassis, to the printed circuit
boards and magnetic components. Production of the Company's power supplies
entails the assembly of structural hardware combined with sophisticated assembly
of electronic components on circuit boards using pin-through-hole assembly and
automated surface mount interconnection technology. Through-hole assembly
involves attaching electrical components to circuit boards by means of pins or
leads that are inserted into pre-drilled holes and soldered to the electrical
circuits on the boards. Surface mount technology permits reduction in board size
by eliminating the need for holes in the printed circuit boards, thereby
allowing components to be placed on both sides of a board.
Many of the Company's commercial customers and other end-users
increasingly require that their power supplies meet or exceed established
international safety and quality standards as their international operations
expand. The Company designs and manufactures power supplies in accordance with
the certification requirements of many international agencies, such as
Underwriters Laboratories Incorporated (UL) in the United States; Comunaute
Europeenne in the European Union; the Canadian Standards Association in Canada;
Technischer Uberwachungs-Verein and Verband Deutscher Electrotechniker in
Germany; the British Approval Board for Telecommunications in the United
Kingdom; and International Electrotechnical Committee, a European standards
organization.
The Company's customers often require products that meet certain
government standards and contract specifications. In addition to the Company's
quality control personnel, certain government agencies also require their
employees to inspect production. The Company's Fernwood Magnetics Division is
one of only eight facilities in the country certified under military standard
981 (MIL-981) which qualifies it to manufacture components for use in NASA's
Space Shuttle program and in the space station Freedom that currently is being
constructed by NASA.
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<PAGE> 32
SUPPLIERS
The Company forms strategic alliances with primary vendors to
cost-effectively purchase preferred components and service. Back-up sources are
also developed to ensure uninterrupted supply of raw materials. The Company's
structure is vertically integrated with support divisions to provide custom
design components, such as printed circuit boards (Circuitek), magnetics
(Fernwood) and metal work (Alumitek) each of which is a division of the Company.
High-volume orders for these components may be outsourced when it is
cost-effective.
No supplier provides more than 10% of the dollar value of material used
by the Company on a consolidated basis. The Company has not had a significant
supply shortage that has materially adversely affected its operations. There can
be no assurance, however, that such a supply shortage will not occur in the
future, particularly as the expanding electronics industry increases demand for
supplies. See "Risk Factors--Dependence on Suppliers."
RESEARCH AND DEVELOPMENT
The Company's product research and development is ongoing at each
division and regional facility by an engineering department of professionals
specializing to that division's products. A corporate development staff designs
new products and develops new technologies. The engineering staff's function
includes improvement of existing products, modification of products to meet
customer demands and engineering, research and development of new products and
applications. The Company considers its research and development activities
vital to its future business and prospects. Within its target markets, the
Company strives to expand the number of products using its power supplies by
approaching present and potential customers and discussing their future product
directions and requirements. Engineering activities include the creation of
custom products, with the related cost of custom work partially being reimbursed
by the customer through non-recurring engineering charges and premium pricing.
The Company spent approximately $3.1 million, $3.1 million and $4.1 million in
fiscal 1996, 1997 and 1998, respectively, on such research and development
activities.
CUSTOMERS
The Company sells its products to numerous customers ranging in size
from small companies to large Fortune 500 corporations, who are end-users, OEMs
and system integrators.
Although the Company seeks to diversify its customer base, sales to one
customer, EMC, represented approximately 64% of the Company's revenues in fiscal
1998 and 63% in fiscal 1997. The Company's other OEM customers are in diverse
market segments such as telecommunications, automatic test equipment and
industrial. Many of the OEMs are leaders in their respective industries. No
single OEM other than EMC represented 10% or more of the Company's sales.
The Company's sales efforts focus on end-users who traditionally place
medium- to high-volume orders. Orders for the Company's products are filled by
divisions depending on the type of product ordered. Standard orders may be
filled from inventories maintained by the Company at its facilities. Custom
orders are filled (depending on the complexity) on a schedule agreed to with the
customer. Modified standard orders may be filled from existing inventory
modified according to the customer's specifications.
The Company believes that OEMs generally prefer not to change suppliers
because change often requires time-consuming and costly re-testing and
re-certification by one or more regulatory agencies or potential redesign of the
OEM's existing products. Typically, once the Company begins to supply an
end-user, the Company usually can retain the customer for the life-cycle of that
customer's particular product. In addition, the Company believes that the
relationship it develops with its customers may lead to repeat business when the
customer develops a new product.
31
<PAGE> 33
BACKLOG
Sales generally are made pursuant to purchase orders rather than
long-term contracts. Backlog consists of purchase orders on hand with scheduled
delivery dates. The Company's backlog remained constant at $41.4 million for
fiscal 1998 compared to fiscal 1997. Although customers may cancel or reschedule
deliveries without penalty. However, the Company does not expect backlog to be
as reliable an indicator in the future as customers switch more orders to
just-in-time deliveries. As a result, backlog may decrease even if sales
increase. See "Risk Factors--Fluctuations in Quarterly Results."
COMPETITION
The Company believes that there are more than 200 merchant power supply
manufacturers in the United States and that it is the eleventh largest.
According to industry sources, the top fifteen manufacturers accounted for 23%
of total power supply sales in 1996. The Company faces intense competition in
each of its product lines from numerous domestic and foreign manufacturers of
varying sizes located throughout the world, some of which have advantages over
the Company in terms of labor and component costs and technology or have
substantially greater resources and geographic presence than the Company. The
degree of competition varies depending on the product line/model and application
involved. The Company's products generally compete on the basis of product
performance, features, price and delivery schedule. The Company's principal
competitors include Lucent Technologies Inc., Reltec Corporation and Artesyn
Technologies Inc. (the entity resulting from the merger of Computer Products
Inc. and Zytec Corporation).
Management believes that the Company's principal strengths in its
targeted market are diversity of product line, quality, reliability, technical
knowledge, flexibility, readily available products and value. However, in times
of an economic downturn, or when dealing with high-volume orders, price becomes
an increasingly important competitive factor.
INTELLECTUAL PROPERTY MATTERS
Certain equipment, processes, information and knowledge developed by
the Company and used in the design and manufacture of its products are regarded
as proprietary by the Company. The Company relies on a combination of trade
secret and other intellectual property laws, confidentiality agreements executed
by customers, (as appropriate), and employees, and other measures to protect its
proprietary rights. The Company currently holds two patents in the United States
neither of which the Company believes is material. Patents and other proprietary
information are of value to the Company, but they are not key factors in
determining the Company's overall success, which depends principally on its
emphasis on quality, reliability, service and value. See "Risk Factors--Reliance
on Proprietary Information."
EMPLOYEES
At July 31, 1998, the Company had a total of 707 full-time employees,
of whom 579 were employed in New Jersey, while the other employees were employed
at facilities located in Pennsylvania, Massachusetts, California, Texas,
Illinois, Ireland (10 employees) and China (7 employees). Management considers
its relations with employees to be good. The Company's employees are not
represented by any unions.
LEGAL PROCEEDINGS
From time to time, the Company is party to legal proceedings relating
to claims that arise out of the normal course of its business. The Company has
been named a potentially responsible party at the High Point Sanitation, Inc.
landfill site located in Warren County, New Jersey, but it does not believe that
the amount for which it may be held liable will be material. Management is not
aware of any other pending or threatened legal proceedings against the Company
or any property of the Company. See "Risk Factors--Product and Warranty
Liability."
32
<PAGE> 34
In 1996, the United States Attorney for the Northern District of
Florida (the "U.S. Attorney") filed a criminal action against the Company and
certain of its employees. The indictment alleged that between 1994 and 1995, the
Company failed to manufacture products in accordance with government standards
and inspection procedures but that it nonetheless offered Certificates of
Compliance indicating that those standards and procedures had been followed. The
primary contract in the allegations involved an order for commercial
off-the-shelf equipment with modifications for military specifications. In 1997,
the United States District Court for the Northern District of Florida dismissed
the indictment against the Company and the named employees because the
government had failed to meet its burden of proving that the alleged activities
in the indictment had been committed.
Following dismissal of the indictment, the U.S Attorney filed a civil
suit claiming damages caused by the alleged misconduct of the Company and its
employees. The Company settled this suit in November 1997 for $929,000. During
1997, the Company discontinued operations of the Military Power Systems division
in Florida.
PROPERTIES
The Company maintains sales, development and production facilities in
areas of high concentration of demand for power supplies. The following table
sets forth the principal properties and facilities of the Company setting forth
in square feet the combined size of offices, plants and warehouses at each
facility:
33
<PAGE> 35
<TABLE>
<CAPTION>
PROPERTY SIZE
LOCATION PRINCIPAL USE INTEREST (SQ. FT.)
- -------- ------------- -------- ---------
<S> <C> <C> <C>
UNITED STATES:
Cedar Knolls, New Jersey(1) Company headquarters/ Owned 53,000
production facility for custom
power supplies
Hackettstown, New Jersey(1) Production facilities for power Owned 146,000
supplies
Belvidere, New Jersey(1) Production facilities for printed Owned 33,000
circuit boards and magnetic
components
Randolph, New Jersey(1) Currently not in use Owned 45,000
Emery Avenue, Randolph, New Jersey Production facility for dynaloads Leased 19,000
Stroudsburg, Pennsylvania(1) Production facility for metal work Owned 55,000
Hopkinton, Massachusetts Headquarters for TDI New Leased 11,000
England/product development and
light manufacturing
San Clemente, California Headquarters for TDI Leased 9,000
California/product development
and light manufacturing
IRELAND:
Cork Headquarters for TDI Europe, Leased 25,000
Ltd./product development and
light manufacturing
CHINA:
Shenzhen Headquarters for TDI Leased 25,000
China/product development and
light manufacturing
</TABLE>
- ------------------
(1) The Company granted security interests in these properties to First Union
National Bank in connection with certain indebtedness. The total amount of
indebtedness was approximately $10 million at July 31, 1998.
34
<PAGE> 36
ENVIRONMENTAL MATTERS
The Company, like other companies in the power supply industry, is
subject to environmental regulation in each jurisdiction where it does business.
United States federal, state and local laws govern the handling, transportation
and discharge of materials into the environment, the handling of hazardous
substances, environmental protection, workplace exposure and other matters.
Management believes that the Company is in substantial compliance with all such
laws. In addition, management does not anticipate that the Company will incur
any material capital expenditures in order to meet current environmental,
workplace health or safety requirements.
Management is not aware of any environmental matters that could have a
material adverse effect on the Company's financial position or results of
operations. Certain of the Company's properties are located in industrial areas
that have a history of industrial use, including in New Jersey, where that
state's Industrial Site Recovery Act ("ISRA") may require investigation and,
depending on the results thereof, remediation of contamination at an "industrial
establishment" upon the closure of industrial operations or transfer of control
of the property. These and other properties for which the Company may have
liabilities under the environmental laws may give rise to environmental
liabilities in the future and could have a material adverse effect on the
Company's financial condition and results of operations. The Company was named a
potentially responsible party at the High Point Sanitation, Inc. landfill site
located in Warren County, New Jersey, and it does not believe that the amount
for which it may be held liable will be material. See "Risk
Factors--Environmental Risks and Potential Liabilities" and "Business--Legal
Proceedings."
35
<PAGE> 37
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company is managed by its Board of Directors which, in accordance
with the Company's amended and restated By-laws, must consist of at least three
directors who are elected at the annual shareholders' meeting. The Company's
certificate of incorporation provides for a staggered board with one-third of
the Directors elected every year for a three-year term. The terms of office of
the current Group I, Group II and Group III directors expire at the annual
shareholders' meeting in 1999, 2000 and 2001, respectively. If a vacancy occurs
prior to the annual shareholders meeting, the Board may elect a temporary
director to fill the vacancy until the next regularly scheduled meeting of
shareholders. Each division of the Company is headed by a division president.
Each division president reports directly to the Chief Executive Officer and the
Chief Operating Officer of the Company.
<TABLE>
<CAPTION>
Name Age Position Director Group
- ---- --- -------- --------------
<S> <C> <C> <C>
Richard F. Blake.......... 73 Chairman of the Board and Chief Executive Officer III
James B. Clark............ 64 Director II
George M. Duff Jr. ....... 82 Director and Secretary I
William M. Kearns, Jr..... 63 Director III
Richard Lehane............ 38 Director I
Bernard N. Silver......... 60 Director III
Robert H. Smolinski....... 51 Director, President and Chief Operating Officer II
Richard H. Dunn........... 43 President, TDI Europe Ltd.
James M. Feely............ 46 Vice President, Finance and Chief Financial Officer
David C. Fisk............. 55 Vice President, TDI West Coast
Richard Huo............... 32 President, Transdev (Shenzhen) Electronics, Ltd.
Gary J. Mulcahy........... 44 President, Enterprise Power Systems
Martin O'Donnell.......... 33 President, Dynaload
Arthur J. Petitt.......... 48 President, Alumitek, Fernwood Magnetics and Circuitek
Alex Rokhvarg............. 39 President, Advanced Conversion Products
Norman R. Wolf, III....... 41 President, Telecommunications Power System Division
</TABLE>
BIOGRAPHICAL INFORMATION
The following is a selected biographical description of each of the
members of the Board and the executive officers of the Company:
Richard F. Blake led the group that acquired the Company in 1960. He
has been Chairman of the Board since 1991 and Chief Executive Officer of the
Company since 1960. Mr. Blake is a registered Professional Engineer in the
District of Columbia and a member of the Naval Ad Hoc Power Supply Committee.
James B. Clark has been a Director of the Company since 1980. Mr. Clark
has been a partner in the law firm of Peterpaul, Clark, Corcoran & Costello,
formerly Yauch, Peterpaul, Clark & Vitolo, since 1958. Mr. Clark served as
Council Person from 1991 to 1996 and as Council President of the Town of Summit,
New Jersey during 1997. Mr. Clark has also served as an Officer in James B.
Clark, Inc. and JBC Corp. since 1960, and in JBC Investments, Inc., each of
which is an investment company, since 1986.
36
<PAGE> 38
George M. Duff, Jr. has been a Director of the Company since 1960 and
serves as Secretary of the Board. Until 1997, Mr. Duff was a Senior Partner
in the law firm of Wise and Shepard LLP, formerly known as Holtzmann, Wise &
Shepard, in New York City.
William M. Kearns, Jr. has been a Director of the Company since 1991.
Mr. Kearns has been President of W. M. Kearns & Co. Inc., a private investment
company, since 1994 and is a senior consultant to ING Baring Furman Selz LLC,
one of the underwriters. Mr. Kearns was a Managing Director of Lehman
Brothers, an investment bank, and its predecessor firms from 1969 to 1992 and
an advisory director from 1992 to 1993. Mr. Kearns also serves as a Director
for Kuhlman Corporation, Malibu Entertainment Holdings Inc., Selective
Insurance Group, Inc., Marine Transport Corporation, Greenfield Capital
Partners (USA), as Vice-Chairman and Director for Fundamental Management
Corporation and EQ Advisors Trust (Equitable Life Assurance of the U.S.) and
as an Advisor for Proudfoot plc, London, England.
Richard Lehane has been a Director of the Company since July 1997. Mr.
Lehane currently is Senior Vice President of Worldwide Manufacturing at EMC
Corporation. Mr. Lehane is a member of the Institute of Directors in Ireland.
Bernard N. Silver, CPA has been a Director of the Company since March
1998. Mr. Silver is a Senior Partner in the accounting firm of Druckman &
Hill, LLP in New York City where he has been an accountant since 1971.
Druckman & Hill,LLP. were the Company's independent auditors until December
1998. Mr. Silver has served on the Business Council of the School of Business
Administration at Monmouth University since 1988.
Robert H. Smolinski has been President, Chief Operating Officer and a
Director of the Company since 1997. Mr. Smolinski joined the Company in 1965
and has been promoted to management capacities of increasing responsibility.
Richard H. Dunn was appointed President of Transistor Devices Europe
Ltd., a subsidiary of the Company, in 1997, and Vice President of New England
Region in 1996. Mr. Dunn has also been a Director of TDI Europe since 1997.
Prior to joining the Company, Mr. Dunn held managerial positions with Data
General, Lexmark International and EMC.
James M. Feely has been Vice President of Finance and Chief Financial
Officer since January 1998. Prior to joining the Company, Mr. Feely was Chief
Financial Officer at Satellite Transmission Systems, a division of California
Microwave, Inc., from 1995 to 1997, and Chief Financial Officer at National
Response Corporation, a subsidiary of Seacor Smit Inc., from 1992 to 1994.
David C. Fisk was appointed Vice President of the Company's West Coast
regional facility in San Clemente, California in 1996. Mr. Fisk joined the
Company in 1988 as Vice President of Business Development and was President of
the Company's now discontinued Military Power Systems division in Fort Walton
Beach, Florida from 1993 to 1998. Prior to 1988 he was President and General
Manager of Keltec Florida, a subsidiary of Signal Technology, which is an
electronics manufacturer.
Richard Huo was appointed President of Transdev (Shenzhen) Electronics,
Ltd. ("TDI China"), a subsidiary of the Company, in March 1998. Prior to joining
the Company, Mr. Huo was Vice President of Cogent International, Inc., a
diversified company that specializes in developing industries in China, from
1992 to 1998.
Gary J. Mulcahy joined the Company in 1996 as Director of Engineering
at Modular Power Systems, a division of the Company, and became Vice President
of Engineering at Modular Power Systems. In January 1998, Mr. Mulcahy was
elected President of Enterprise Power Systems, a new division of the Company.
Prior to joining the Company, Mr. Mulcahy worked for 20 years in power supply
development and engineering management and he was an Engineering Program Manager
at Lambda Electronics, Inc.
37
<PAGE> 39
Martin O'Donnell was appointed President of the Dynaload, a division of
the Company in August 1997. Prior to assuming his current position, Mr.
O'Donnell worked as director of sales at the Company since 1993.
Arthur J. Petitt was appointed President of Alumitek, Fernwood
Magnetics and Circuitek, all divisions of the Company, in 1996. Prior to
assuming his current position, Mr. Petitt was director of corporate quality at
the Company.
Alex Rokhvarg has been President of the Advanced Conversion Products
Division of the Company since 1995. He joined the Company in August 1990, and
served in positions of increasing responsibilities as Director of Engineering
and General Manager.
Norman R. Wolf III was appointed President of the Telecommunications
Power Systems, a division of the Company, in 1997. Prior to assuming his current
position, Mr. Wolf worked at the Company as Vice President of Sales from 1990 to
1995, President of Military Power System, a division of the Company from 1995 to
1997 and Senior Vice President of Sale and Marketing in 1997. Prior to joining
the Company, Mr. Wolf was Eastern Regional Sales Manager of Tecnetics, Inc., a
power supply manufacturing company, from 1980 to 1989.
COMMITTEES OF THE BOARD
Audit Committee. The Audit Committee is currently comprised of Messrs.
Silver and Clark. The Committee makes recommendations concerning the engagement
of independent public accountants, review with such accountants the plans and
results of the audit engagement, approve professional services provided by such
accountants, review independence of the independent public accountants, consider
the range of audit and non-audit fees and review the adequacy of the Company's
internal accounting controls.
Compensation Committee. The Compensation Committee, comprised of
Messrs. Kearns and Duff recommends compensation of the Company's executive
officers for approval of the non-employee directors and administers the
Company's Stock Incentive Plan (the "Plan"). Employee-directors may not serve
on the Compensation Committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the Offering, the Company had no compensation committee or
other committee of the Board performing similar functions. The current salaries
of the executive officers were set by the Board and Messrs. Blake and Smolinski,
current officers of the Company and directors of the Board, participated in
deliberations of the Board concerning executive officer compensation for fiscal
1998.
DIRECTOR COMPENSATION
Following the Offering, non-employee directors will receive an annual
fee of $15,000 and a meeting fee of $1,000 for every board meeting attended and
each committee meeting held separately. All directors will be reimbursed for
reasonable out-of-pocket expenses. Any member of the Board who is also an
employee of the Company does not receive payment for service on the Board. The
Board may, from time to time and in its sole discretion, grant stock options to
members of the Board.
EXECUTIVE COMPENSATION
The following table sets forth a summary of annual and long-term
compensation awarded to, earned by, or paid to the Chairman and Chief Executive
Officer of the Company and each of the four other most highly compensated
executive officers (the "Named Executive Officers") of the Company whose total
annual salary and bonus for fiscal 1998 exceeded $100,000:
38
<PAGE> 40
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------------- ---------------------------------------
AWARDS PAYOUTS
------------------------ ----------
RESTRICTED SECURITIES LONG-TERM
OTHER ANNUAL STOCK UNDERLYING INCENTIVE
NAME AND POSITION SALARY BONUS(1) COMPENSATION AWARD(S) OPTIONS PAYOUTS OTHER
- ----------------- ------ -------- ------------ -------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Richard F. Blake, Chairman
and Chief Executive Officer $291,500 $489,378 $ 5,799(2) -- -- -- $ 10,804(3)
--------
Robert H. Smolinski,
President and Chief
Operating Officer ......... 169,711 204,010 7,159(4) -- -- -- --
Norman R. Wolf, III,
President of
Telecommunication Power
Systems ................... 108,654 46,904 2,750(5) -- -- -- --
Richard H. Dunn, President
of TDI Europe and Vice
President of New England
Region .................... 108,654 48,059 900(6) -- -- -- --
Alex Rohkvarg, President
of Advanced Conversion
Products .................. 98,462 47,902 26,017(7) -- -- -- --
</TABLE>
- ------------------
(1) Includes amounts pursuant to the Company's Incentive Award Plan and 401(k)
matching grants.
(2) Includes $4,125 for car allowances.
(3) Represents payment of insurance premiums that the Company pays for Mr.
Blake.
(4) Includes $6,754 for car allowances.
(5) Includes $2,250 for car allowances.
(6) Includes $445 for car allowances.
(7) Includes $4,154 for car allowances and $20,913 for vacation and sick time
payouts.
OPTIONS IN LAST FISCAL YEAR
The Company did not grant any options to the Named Executive Officers
in fiscal 1998. The following stock options which were previously granted were
exercised in fiscal 1998. See "Management Stock Incentive Plan."
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN
UNEXERCISED OPTIONS AT THE MONEY OPTIONS AT
FISCAL YEAR END FISCAL YEAR END
----------------------------- --------------------------
SHARES
ACQUIRED
ON VALUE
EXERCISE(1) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- -------- ----------- ------------- ----------- -------------
NAME
<S> <C> <C> <C> <C> <C> <C>
Richard F. Blake .................. -- $ -- -- -- -- --
Robert H. Smolinski ............... 50,000 100,000 -- -- -- --
Normal R. Wolf, III ............... 50,000 97,536 -- -- -- --
Richard H. Dunn ................... -- -- -- -- -- --
Alex Rohkvarg ..................... 25,000 50,000 -- -- -- --
</TABLE>
- ------------------
(1) Assumes a 100-to-1 stock split.
39
<PAGE> 41
STOCK INCENTIVE PLAN
Prior to the consummation of the Offering, the Board will adopt and the
shareholders of the Company will approve the Plan, which will provide for the
grant to officers, key employees and directors of the Company of both "incentive
stock options" within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Internal Revenue Code"), with respect to key employees
and officers, and stock options that are non-qualified for United States Federal
income tax purposes. The total number of shares of Common Stock for which
options may be granted pursuant to the Plan will be 770,000, subject to certain
adjustments reflecting changes in the Company's capitalization. In addition, no
employee may receive options for more than 25,000 shares of Common Stock in the
aggregate in any fiscal year. The Plan will be administered by the Compensation
Committee. The Compensation Committee will determine, among other things, which
officers, employees and consultants will receive options under the Plan, the
time when options will be granted, the type of option (incentive stock options
or non-qualified stock options, or both) to be granted, the number of shares
subject to each option, the time or times when the options will become
exercisable, and, subject to certain conditions discussed below, the option
price and duration of the options. Members of the Compensation Committee will be
eligible to receive options under the Plan.
The exercise price of incentive stock options will be determined by the
Compensation Committee, but may not be less than the fair market value on the
date of grant and the term of any such option may not exceed five years and one
month from the date of grant. With respect to any participant in the Plan who
owns stock representing more than 10% of the voting power of the outstanding
capital stock of the Company, the exercise price of any incentive stock option
may not be less than 110% of the fair market value of such shares on the date of
grant. The exercise price of non-qualified stock options will be determined by
the Compensation Committee on the date of grant, but may not be less than the
par value of the Common Stock on the date of grant, and the term of such option
may not exceed five years from the date of grant.
Payment of the option price may be made in cash, by tender of shares of
Common Stock then owned by the optionee for at least six months, partly in cash
and partly in such shares or through the delivery of irrevocable instructions to
a broker to deliver promptly to the Company an amount equal to the aggregate
option price for the shares being purchased. Unless otherwise provided by the
Compensation Committee, options granted pursuant to the Plan will not be
transferable, except by will or the laws of descent and distribution in the
event of death. During an optionee's lifetime, the option will be exercisable
only by the optionee.
The Board shall have the right at any time and from time to time to amend
or modify the Plan, without the consent of the Company's shareholders or
optionees; provided that no such action may adversely affect options previously
granted without the optionee's consent, and provided further that no such
action, without the approval of the shareholders of the Company, may increase
the total number of shares of Common Stock which may be purchased pursuant to
options under the plan, expand the class of persons eligible to receive grants
of options under the Plan, decrease the minimum option price, extend the maximum
term of options granted under the plan or extend the term of the Plan. The
expiration date of the Plan after which no option may be granted thereunder will
be ten years from the effective date of the Plan.
Concurrently with the prior Offering, the Company intends to grant options
to purchase shares under the Plan exercisable at a price per share equal to the
then prevailing market price per share. Such options generally will vest and
become exercisable at the rate of % per year for five years beginning on the
first anniversary of consummation of the Offering.
After the completion of the Offering, the Company will be required to file
with the Securities and Exchange Commission (the "Commission") a registration
statement on Form S-8 covering the shares of Common Stock underlying options
granted under the Plan.
40
<PAGE> 42
INCENTIVE AWARD PLAN
The Company has in place an incentive award plan that applies to all
employees. Incentive awards are made under the plan to employees who made
outstanding contributions to the Company's profitability during the preceding
fiscal year. This plan provides for payments only if the Company's net income
before income taxes is greater than 5% of sales, not including items of
extraordinary income. In such event, the Company sets aside 7% of net income
before income taxes for distribution under the plan. Management allocates
incentive awards in accordance with their assessment of an individual employee's
performance. Recommendations by senior division management are then evaluated by
senior management of the Company and awards to meritorious employees are paid
within 90 days of the close of the fiscal year. Provided the 5% target is met,
the plan also provides for a separate award to the Company's Chief Executive
Officer equal to 2% of net income before income taxes and to the Chief Operating
Officer equal to 1% of net income before income taxes.
401(K) SAVINGS PLAN
The Company has a defined contribution 401(k) plan that covers
substantially all full-time employees of the Company who have been employed
during an open enrollment period. The 401(k) plan allows all enrolled employees
to defer amounts up to the statutory limit each year. The Company has a
discretionary matching program under which, in fiscal 1997, the Company matched
50% of the first 6% of employee contributions.
41
<PAGE> 43
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has been a party to the following transactions with its
executive officers, directors and certain five percent shareholders.
In December 1997, EMC purchased 7.5% of the Company's then-existing shares
of Common Stock for $5.0 million. Under the stock purchase agreement executed in
connection with this sale of shares, the Company agreed that upon any change of
control or business combination of the Company, EMC would be entitled to resell
its shares to the Company at a minimum price equal to the purchase price of such
shares. Richard Lehane, an employee of EMC, serves on the Company's Board of
Directors. As described under "Business," the Company sells its products to EMC.
As the Company's largest customer, the Company will have future transactions
with EMC in the ordinary course of business. See "--Future Transactions."
On November 14, 1996, the Company borrowed from Richard F. Blake, the
Company's Chairman and Chief Executive Officer, $250,000 at an annual interest
rate of 6.53%. The Company repaid this loan on January 7, 1997. On February 10,
1997, the Company borrowed $200,000 from Mr. Blake at an annual interest rate of
6.53%. This loan was repaid on July 17, 1997.
William Kearns, Jr., a Director of the Company, is a senior consultant to
ING Baring Furman Selz LLC, one of the underwriters. ING Baring Furman Selz, LLC
is also a client of Kearns Consulting Corp., a subsidiary of W.M. Kearns &
Company, Inc., of which Mr. Kearns is the sole owner.
In May 1998, the Company and Cogent Securities LLC established China
Electronics Holdings, LLC, the entity that owns 100% of the outstanding stock of
TDI China. The Company has a 75% membership interest in China Electronics
Holdings, LLC. Richard Huo, the Vice President of TDI China, is a principal of
Cogent Securities LLC.
Bernard Silver, a Director of the Company, is a senior partner of Druckman
and Hill, LLP, the former auditors of the Company. During fiscal years 1996,
1997 and 1998, Druckman and Hill, LLP billed $118,044, $183,836 and $303,111,
respectively, in fees from the Company.
James Clark, a Director of the Company, is a partner of Peterpaul, Clark,
Corcoran & Costello, a New Jersey law firm that handles labor relations on
behalf of the Company.
INDEBTEDNESS OF MANAGEMENT
Over the last three fiscal years, the Company has granted options to
Directors and certain executive officers pursuant to a stock incentive plan.
Certain of such Directors and executive officers have borrowed money from the
Company to exercise these options and purchase shares of the Company's Common
Stock. None of such loans are currently outstanding other than as discussed
below.
In fiscal 1998, Robert Smolinski, a Director and the President and Chief
Operating Officer of the Company, borrowed funds from the Company at an annual
interest rate of 8%. Such funds were used to purchase shares of the Company's
Common Stock pursuant to stock options granted to Mr. Smolinski. The highest
aggregate amount of such indebtedness outstanding during fiscal 1998 was
$65,000. At August 1, 1998, approximately $62,000 was outstanding on such loan.
In fiscal 1998, Bernard Silver, a Director of the Company, borrowed money
from the Company at an annual interest rate of 8% to be used in the purchase of
shares of the Company's Common Stock pursuant to stock options granted by the
Company. The largest aggregate amount of such indebtedness outstanding during
fiscal 1998 was $75,000. At September 3, 1998 approximately $75,000 was
outstanding on such loan.
42
<PAGE> 44
The Company believes that the above transactions were or are on terms no
less favorable to the Company than could have been obtained in transactions with
independent third parties. All future transactions between the Company and its
officers, directors, principal shareholders or their respective affiliates, will
be on terms no less favorable to the Company than can be obtained from
unaffiliated third parties.
FUTURE TRANSACTIONS
The Company has implemented a policy requiring that any material
transaction with a party affiliated with the Company must be approved by a
majority of the directors of the Board not interested in such transaction who
must determine that the terms of any such transaction are no less favorable to
the Company than those that could be obtained from an unrelated third party.
43
<PAGE> 45
PRINCIPAL AND SELLING SHAREHOLDERS
As of 1998, there were approximately record holders of
Common Stock. The following table sets forth certain information regarding the
beneficial ownership of the Company's outstanding Common Stock as of , 1998 by
(i) each person known by the Company to own beneficially more than 5% of such
Common Stock, (ii) each named executive officer and director, (iii) directors
and executive officers as a group and (iv) each Selling Shareholder.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
NAME AND ADDRESS OF BENEFICIAL OWNERS BEFORE THE OFFERING(1) AFTER THE OFFERING(1)
------------------------------------- ---------------------- ---------------------
SHARES OF COMMON
SHARES PERCENT STOCK OFFERED SHARES PERCENT
------ ------- ------------- ------ -------
<S> <C> <C> <C> <C> <C>
Richard F. Blake..............................
James B. Clark................................
George M. Duff Jr.............................
William M. Kearns Jr..........................
Richard Lehane ............................... *
Bernard N. Silver............................. *
Robert H. Smolinski...........................
James M. Feely................................ *
Norman R. Wolf III............................
Richard H. Dunn...............................
Alex Rokhvarg.................................
David Fisk....................................
Gary J. Mulcahy............................... *
Martin O'Donnell.............................. *
Arthur J. Petitt.............................. *
Paul Barlock.................................. *
Jack E. Schuss (2)............................
James A. Gilson...............................
EMC Corporation...............................
The SC Fundamental Value Fund, L.P............
[Selling Shareholders.........................
Directors and officers as a group.............
</TABLE>
- ------------------
* Less than 1%.
(1) Gives effect to the consummation of the Offering. Percentage ownership is
based on shares of Common Stock outstanding before the Offering and
shares of Common Stock outstanding after the Offering.
44
<PAGE> 46
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50 million
shares of Common Stock, par value $0.10 per share, and five million shares of
Preferred Stock that may be issued in one or more series. Immediately following
completion of the Offering, an aggregate of 11,306,800 shares of Common Stock
will be issued and outstanding (or shares if the Underwriters exercise their
over-allotment option in full) and no shares of Preferred Stock will be issued
and outstanding. This amount does not include a total of 770,000 shares that may
be purchased by certain officers, key employees and consultants the Company
pursuant to the Plan. See "Management--Stock Incentive Plan."
The following description of the Company's capital stock is a summary
of the material terms of such stock. It does not purport to be complete and is
subject in all respects to the provisions of the Company's Amended and Restated
Certificate of Incorporation (the "Certificate of Incorporation") and Amended
and Restated By-Laws (the "By-Laws"), copies of which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part and to
applicable New Jersey law.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the shareholders. The
holders of Common Stock do not have cumulative voting rights in the election of
directors. Subject to preferential rights with respect to any outstanding
Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board out of funds legally available
therefor. See "Dividend Policy." In the event of liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities and satisfaction of
unpaid dividends and preferential rights of any outstanding Preferred Stock. The
Common Stock has no preemptive or conversion rights or other subscription
rights. There are no redemption or sinking fund provisions applicable to the
Common Stock. Shares of Common Stock shall be transferred only on the books of
the Company by the holder thereof in person or by his attorney, upon surrender
to the Company or a duly appointed transfer agent of the certificate or
certificates properly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer.The outstanding shares of Common Stock are,
and the shares of Common Stock to be issued upon completion of the Offering will
be, duly authorized, validly issued, fully paid and non-assessable.
PREFERRED STOCK
The Board is authorized to issue the Preferred Stock in one or more
series and to fix the designation, rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, sinking fund provisions, terms of redemption, redemption prices,
liquidation preferences, conversion rights and the number of shares constituting
any series or the designation of such series, without further vote or action by
the shareholders. Holders of Preferred Stock will have certain preferential
rights over holders of Common Stock with respect to certain terms, including
dividends, liquidation, dissolution and winding up. Holders of the Preferred
Stock generally are not entitled to vote on any matter submitted to
shareholders, except with respect to certain circumstances, such as the right to
elect two Directors if payment of dividends on Preferred Stock or mandatory
sinking fund payments are in arrears. The issuance of Preferred Stock may have
the effect of delaying, deterring or preventing a change in control of the
Company without further action of the shareholders. The issuance of Preferred
Stock with conversion rights may adversely affect the voting power of the
holders of Common Stock, including the loss of voting control to others. The
Board of Directors could issue Preferred Stock having terms which could
discourage an acquisition attempt or other transaction that some, or a majority
of the shareholders might believe to be in their best interest or in which
shareholders might receive a premium for their stock over the then market price
of such stock. See "--Possible Anti-Takeover Effect of Certain Charter
Provisions."
45
<PAGE> 47
POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
Provisions of the Certificate of Incorporation and the By-Laws may be
deemed to have anti-takeover effects and may delay, defer or prevent a tender
offer or takeover attempt that a shareholder might consider to be in such
shareholder's best interest including those attempts that might result in a
premium over the market price for the shares held by shareholders.
Classified Board of Directors. The Certificate of Incorporation
provides that the Board will be divided into three groups of directors, with the
groups to be as nearly equal in number as possible. As a result, approximately
one-third of the Board will be elected each year. The classification of
Directors will have the effect of making it more difficult for shareholders to
change the composition of the Board. The Certificate of Incorporation provides
that the number of Directors will be fixed from time to time exclusively
pursuant to a resolution adopted by Directors constituting a majority of the
total number of directors that the Company would have if there were no vacancies
on the Board, but must consist of not more than ten nor less than three
directors. In addition, the By-Laws provide that unless the Board otherwise
determines, any vacancies will be filled by a non-shareholder of the Company
only by the affirmative vote of a majority of the remaining Directors, though
less than a quorum.
With a classified Board, at least two annual meetings of shareholders,
generally will be required to effect a change in a majority of the members of
the Board of Directors. As a result, the classification of the Board may
discourage proxy contests for the election of Directors, unsolicited tender
offers or purchases of a substantial block of the Common Stock because it could
prevent a potential acquiror from obtaining control of the Board in a relatively
short period of time.
Removal of Directors. Under New Jersey law, unless otherwise provided
in the Certificate of Incorporation, directors serving on a classified board may
be removed by the shareholders only for cause. In addition, the Certificate of
Incorporation and the Bylaws provide that Directors may be removed only for
cause and, where no cause exists, only upon the affirmative vote of holders of
at least two-thirds of the voting power of all the then-outstanding shares
entitled to vote generally in the election of Directors ("Voting Stock"), voting
together as a single class. This provision delays shareholders who do not agree
with the policies of the Board from replacing Directors, unless they can
demonstrate that the Directors should be removed for cause and obtain the
requisite vote. Such delay may help ensure that the Board, if confronted with a
proxy contest or an unsolicited proposal for an extraordinary corporate
transaction, will have sufficient time to review the proposal and appropriate
alternatives to the proposal and to act in what it believes is the best interest
of the Company and its shareholders.
Filling Vacancies on the Board. The Certificate of Incorporation
provides that, subject to the rights of holders of any shares of Preferred
Stock, any vacancy on the Board that results from an increase in the number of
Directors may be filled only by a majority of the Directors then in office,
provided that a quorum is present, and any other vacancy may be filled by a
majority of the Directors then in office, even if less than a quorum, or by the
sole remaining Director. Accordingly, these provisions could temporarily prevent
any shareholder from obtaining majority representation on the Board by enlarging
the Board and filling the new directorships with its own nominees.
Action by Shareholders. The Certificate of Incorporation and the
By-Laws provide that, subject to the rights of any holders of Preferred Stock to
elect additional Directors under specified circumstances, shareholder action can
be taken only at an annual or special meeting of shareholders and may not be
taken by written consent in lieu of a meeting. The By-Laws provide that special
meetings of shareholders can be called only by the Chairman of the Board or a
majority of Directors. The business permitted to be conducted at any special
meeting of shareholders is limited to the business brought before the meeting
pursuant to the notice of meeting given by the Company. The provisions of the
Certificate of Incorporation prohibiting action by written consent without a
meeting and the provisions of the By-Laws governing the calling of and matters
considered at special meetings may have the effect of delaying consideration of
a shareholder
46
<PAGE> 48
proposal until the next annual meeting. These provisions would also prevent the
holders of a majority of the voting power of the outstanding shares of stock
entitled to vote generally in the election of Directors from using the written
consent procedure to take shareholder action and from taking action by written
consent without giving all the shareholders entitled to vote on a proposed
action the opportunity to participate in determining such proposed action at a
meeting. See "Risk Factors--Possible Anti-Takeover Effect of Certain Charter
Provisions."
CERTAIN PROVISIONS OF NEW JERSEY LAW
The Company is a New Jersey corporation and is subject to Section
14A:10A of the New Jersey Business Corporation Act (the "NJBCL"). In general,
Section 14A:10A prevents an "interested shareholder" (defined generally as a
person owning 10% or more of a corporation's outstanding voting stock) from
engaging in a "business combination" (as defined therein) unless before such
person became an interested shareholder, the board of directors of the
corporation approved the transaction in which the interested shareholder became
an interested shareholder or approved the business combination. Without advance
approval, such interested shareholder is prohibited from effecting any business
combination for a period of five years, at the conclusion of which, such
business combination requires the affirmative vote of the holders of at least
two-thirds of the outstanding voting stock of the corporation not owned by the
interested shareholders or payment of a formula price as set forth in Section
14A:10A.
LIMITATION OF LIABILITY AND INDEMNIFICATION AGREEMENTS
The Certificate of Incorporation provides that to the fullest extent
permitted by the NJBCL, a Director shall not be liable to the Company or its
shareholders for monetary damages for breach of fiduciary duty as a Director.
Under the NJBCL, liability of a director may not be limited (i) for any breach
of the director's duty of loyalty to the Company or its shareholders, (ii) for
acts or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) in respect of certain unlawful dividend payments
or stock redemptions or repurchases and (iv) for any transaction from which the
director derives an improper personal benefit. The effect of the provisions of
the Company's Certificate of Incorporation is to eliminate the rights of the
Company and its shareholders (through shareholders' derivative suits on behalf
of the Company) to recover monetary damages against a director for breach of the
fiduciary duty of care as a director (including breaches resulting from
negligent or grossly negligent behavior), except in the situations described in
clauses (i) through (iv) above. This provision does not limit or eliminate the
rights of the Company or any shareholder to seek nonmonetary relief such as an
injunction or rescission in the event of a breach of a director's duty or care.
In addition, the Company's Certificate of Incorporation provides that the
Company shall indemnify its directors, officers, employees and agents against
losses incurred by any such person by reason of the fact that such person was
acting in such capacity.
The Company has entered into agreements with each of the directors,
executive officers and certain other officers of the Company pursuant to which
the Company has agreed to indemnify such director or officers from claims,
liabilities, damages, expenses, losses, costs, penalties or amounts paid in
settlement incurred by such director or officer in or arising out of his or her
capacity as a director, officer, employee and/or agent of the Company or any
other corporation of which such person is a director or officer at the request
of the Company to the maximum extent provided by applicable law. In addition,
such director or officer is entitled to an advance of expenses to the maximum
extent authorized or permitted by law.
TRANSFER AGENT OR REGISTRAR
The Transfer Agent and Registrar for the Common Stock is .
47
<PAGE> 49
LISTING
Prior to the Offering, there had not been a public trading market for
the Common Stock. The Company will file an application to list the Common Stock
on the New York Stock Exchange ("NYSE") upon notice of issuance, under the
symbol "TDV."
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the Offering, the Company will have
outstanding 11,306,800 shares of Common Stock (assuming no exercise of the
Underwriters' over-allotment option). 770,000 shares will be subject to options
under the Plan. All of the shares of Common Stock sold in the Offering will be
freely tradeable under the Securities Act, unless purchased by "affiliates" of
the Company as that term is defined under the Securities Act. Upon expiration of
lock-up agreements between the Underwriters, all Selling Shareholders, directors
and executive officers and substantially all the shareholders, which will occur
180 days after the date of this Prospectus (the "Effective Date"),
shares of Common Stock owned by these shareholders (the "Restricted
Shares") will become eligible for sale, subject to compliance with Rule 144 of
the Securities Act as described below.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least one year, will be entitled to sell in any three-month period a number of
shares that does not exceed the greater of: (i) 1% of the number of shares of
Common Stock then-outstanding (approximately shares immediately after
the Offering) or (ii) the average weekly trading volume of the Company's Common
Stock on the NYSE during the four calendar weeks immediately preceding the date
on which the notice of sale is filed with the Commission. Substantially all of
the Restricted Shares have been held for over one year. Sales pursuant to Rule
144 are subject to certain requirements relating to manner of sale, notice and
availability of current public information about the Company. A person (or
persons whose shares are aggregated) who is not deemed to have been an affiliate
of the Company at any time during the 90 days immediately preceding the sale and
who has beneficially owned Restricted Shares for at least two years is entitled
to sell such shares pursuant to Rule 144(k) without regard to the limitations
and requirements described above.
The Company, and its officers, directors and substantially all its
current shareholders have agreed with the Underwriters that until 180 days after
the Effective Date not to directly or indirectly, offer, sell, contract to sell,
grant any option to purchase or otherwise dispose of any Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock, or
in any manner transfer all or a portion of the economic consequences associated
with the ownership of the Common Stock, or cause a registration statement
covering any shares of Common Stock to be filed, without prior written consent
of ING Baring Furman Selz LLC, subject to certain limited exceptions. The
Company has also agreed not to directly or indirectly, offer, sell, contract to
sell, grant any option to purchase or otherwise dispose of any Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
or, in any manner, transfer all or a portion of the economic consequences
associated with the ownership of the Common Stock or cause a registration
statement covering any shares of Common Stock to be filed, for a period of 180
days after the Effective Date, without the prior written consent of ING Baring
Furman Selz LLC, subject to certain limited exceptions including grants or
options pursuant to, and issuance of shares of Common Stock upon exercise of
options under, the Plan. The lock-up agreements may be released at any time as
to all or any portion of the shares subject to such agreements at the sole
discretion of ING Baring Furman Selz LLC. See "Risk Factors--Effect on Market
Price of Common Stock of Shares Eligible for Future Sale."
The Company is unable to estimate the number of shares that may be sold
in the future by the existing shareholders or the effect, if any, that sales of
shares by such shareholders will have on the market price of the Common Stock.
Sales of substantial amounts of Common Stock by such shareholders could
adversely affect the market price of the Common Stock.
48
<PAGE> 50
UNDERWRITING
The underwriters named below (the "Underwriters"), for whom ING Baring
Furman Selz LLC and Wheat First Union, a division of Wheat First Securities,
Inc., are acting as representatives (the "Representatives"), have severally
agreed, subject to the terms and conditions set forth in the Underwriting
Agreement (the "Underwriting Agreement") dated , 1998 between the
Company and the Representatives, to purchase from the Company the number of
shares of Common Stock indicated below opposite their respective names:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ----------- ----------------
<S> <C>
ING Baring Furman Selz LLC.............................
Wheat First Securities, Inc............................
Total...............................................
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase the shares of Common Stock listed above are subject to
the approval of certain legal matters by counsel and various other conditions.
The Underwriting Agreement also provides that the Underwriters are committed to
purchase all of the shares of Common Stock offered hereby, if any are purchased
(except for any shares that may be purchased through exercise of the
Underwriters' over-allotment option which may be exercised by the Underwriters
in whole or in part).
The Representatives have advised the Company that the Underwriters
propose to offer the shares of Common Stock to the public at the initial public
offering price set forth on the cover of this Prospectus and to certain dealers
at such price less a concession not in excess of $ per share as follows:
The discounts and commissions to be paid to all dealers in connection
with the Offering is $ .
After the Offering, the public offering price and other selling terms
may be changed by the Representatives. The Common Stock is offered subject to
receipt and acceptance by the Underwriters, and to certain other conditions,
including the right to reject orders in whole or in part.
Prior to this Offering, there has been no public market for the Common
Stock. Accordingly, the initial public offering price has been determined by
negotiation between the Company and the Representatives. Among the factors
considered in determining the initial public offering price were the Company's
present and historical results of operations, the Company's current financial
condition, estimates of the business potential and prospects of the Company, the
condition of the Company's target market, the experience of the Company's
management, the economics of the industry in general, the general condition of
the equities market at the time of the Offering and other relevant factors.
There can be no assurance that any active trading market will develop for the
Common Stock or as to the price at which the Common Stock may trade in the
public market from time to time subsequent to the Offering.
The Company has granted the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to
additional shares of Common Stock at the initial public offering price set forth
on the cover page of this Prospectus, less underwriting discounts and
commissions. To the extent the Underwriters exercise the option, each
Underwriter will become obligated, subject to certain conditions, to purchase
such number of additional shares of Common Stock as is proportionate to such
Underwriter's initial commitment to purchase shares from the Company. The
Underwriters may exercise such option solely to cover over-allotments, if any,
incurred in connection with the sale of shares of Common Stock offered hereby.
49
<PAGE> 51
The Underwriting Agreement provides that the Company has agreed to
indemnify the Underwriters against certain liabilities, including liabilities
under the Securities Act, or to contribute to payments that the Underwriters may
be required to make in respect thereof.
All of the Selling Shareholders, the Company's executive officers and
directors and certain other shareholders have agreed that, for a period of 180
days after the day on which the Registration Statement becomes effective by
order of the Commission, they will not, without the prior written consent of ING
Baring Furman Selz LLC, directly or indirectly, offer for sale, sell, contract
to sell, or grant any option to sell (including, without limitation, any short
sale), pledge, establish an open "put-equivalent position" within the meaning of
Rule 16a-1(h) under the Securities Exchange Act of 1934 (the "Exchange Act"),
transfer, assign or otherwise dispose of any shares of Common Stock or
securities exchangeable for or convertible into shares of Common Stock, or any
option, warrant or other right to acquire such shares, or publicly announce the
intention to do any of the foregoing.
The Representatives have advised the Company that the Underwriters do
not intend to confirm sales of Common Stock offered by this Prospectus made to
any accounts over which they exercise discretionary authority.
An application will be made for quotation of the Common Stock on the
New York Stock Exchange under the symbol "TDV."
The foregoing is a brief summary of the provisions of the Underwriting
Agreement and does not purport to be a complete statement of its terms and
conditions. A copy of the form of Underwriting Agreement has been filed as an
exhibit to the Registration Statement.
William Kearns, a Director of the Company, is a senior consultant to
ING Baring Furman Selz LLC, one of the Underwriters. Wheat First Union, a
division of Wheat First Securities, Inc., one of the Underwriters, is an
affiliate of First Union National Bank, which finances substantially all of the
Company's debt. A portion of the net proceeds of the Company will be used to
repay such debt. "Use of Proceeds."
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Rand, Algeier, Tosti & Woodruff, New Jersey counsel to the
Company. Certain other legal matters in connection with the Offering will be
passed upon for the Company by Simpson Thacher & Bartlett, New York, New York.
Certain legal matters in connection with the Offering will be passed upon for
the Underwriters by Willkie Farr & Gallagher, New York, New York.
EXPERTS
The financial statements of the Company as of and for each of the
periods in the three years ended July 31, 1998, included in this Prospectus and
the related financial statement schedule included elsewhere in the Registration
Statement have been audited by Arthur Andersen LLP, independent auditors, as
stated in
50
<PAGE> 52
their reports appearing herein and elsewhere in the Registration Statement and
are included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on
Form S-1 (together and including all amendments, exhibits, schedules and
supplements thereto, the "Registration Statement") under the Securities Act,
with respect to the Common Stock offered hereby. This Prospectus, which forms
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement, certain parts of which have been omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement. Statements contained in this
Prospectus as to the contents of any contract, agreement or other document are
not necessarily complete and, in each instance, reference is made to the copy of
the document filed as an exhibit to the Registration Statement. The Registration
Statement can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549; at the Commission's regional offices at Suite 1400, Northwest Atrium
Center, 500 West Madison Street, Chicago, Illinois 60661 and at 7 World Trade
Center (13th Floor), New York, New York 10048. Copies of such material can also
be obtained from the Commission at prescribed rates through its Public Reference
at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a
Web site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. In addition, if approved for listing on the NYSE, upon
notice of issuance, the Common Stock, reports and other information concerning
the Company may be inspected at the offices of the NYSE.
The Company is not currently subject to the informational requirements
of the Exchange Act. As a result of the Offering, the Company will become
subject to the informational requirements of the Exchange Act. The Company will
fulfill its obligations with respect to such requirements by filing periodic
reports and other information with the Commission. In addition, the Company
intends to furnish to its shareholders reports containing consolidated financial
statements examined by an independent public accounting firm and other interim
reports as it deems appropriate.
51
<PAGE> 53
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
TRANSISTOR DEVICES, INC. AND SUBSIDIARIES
<TABLE>
<S> <C>
Report of Arthur Andersen LLP, Independent Public Accountants F-2
Consolidated Balance Sheets as of July 27, 1997 and August 1, 1998 F-3
Consolidated Statements of Income for the Fiscal Years Ended July 28, 1996,
July 27, 1997 and August 1, 1998 F-4
Consolidated Statements of Stockholders' Equity for the Fiscal Years Ended
July 28, 1996, July 27, 1997 and August 1, 1998 F-6
Consolidated Statements of Cash Flows for the Fiscal Years Ended July 28, 1996,
July 27, 1997 and August 1, 1998 F-7
Notes to Consolidated Financial Statements F-8
</TABLE>
F-1
<PAGE> 54
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Transistor Devices, Inc.:
We have audited the accompanying consolidated balance sheets of Transistor
Devices, Inc. (a New Jersey corporation) and subsidiaries as of July 27, 1997
and August 1, 1998, and the related consolidated statements of income,
stockholders' equity and cash flows for the fiscal years ended July 28, 1996,
July 27, 1997 and August 1, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Transistor Devices,
Inc. and subsidiaries as of July 27, 1997 and August 1, 1998, and the results of
their operations and their cash flows for the fiscal years ended July 28, 1996,
July 27, 1997 and August 1, 1998 in conformity with generally accepted
accounting principles.
/s/Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Roseland, New Jersey
September 9, 1998
F-2
<PAGE> 55
TRANSISTOR DEVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
July 27, August 1,
ASSETS 1997 1998
------ ---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,392 $ 5,375
Accounts receivable - net of allowance for doubtful accounts of $286
as of July 27, 1997 and August 1, 1998 15,629 17,387
Inventories 27,002 28,378
Prepaid expenses and other current assets 334 953
Deferred tax asset 2,000 1,693
-------- -------
Total current assets 46,357 53,786
PROPERTY, PLANT AND EQUIPMENT, net 20,914 20,517
-------- -------
OTHER ASSETS 0 99
-------- -------
NET ASSETS OF DISCONTINUED OPERATIONS 1,043 0
-------- -------
Total assets $ 68,314 $74,402
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 10,069 $ 1,648
Accounts payable 10,239 7,108
Accrued expenses 6,805 7,446
Taxes payable 978 3,805
-------- -------
Total current liabilities 28,091 20,007
-------- -------
LONG-TERM DEBT, less current maturities 8,158 8,356
-------- -------
DEFERRED TAX LIABILITY 194 177
-------- -------
OTHER LIABILITIES 563 0
-------- -------
MINORITY INTEREST 0 10
-------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value, 250,000 shares authorized, 111,407 and 91,568
issued and 82,001 and 91,568 outstanding as of July 27, 1997
and August 1, 1998, respectively 11 9
Additional paid-in capital 717 3,990
Treasury stock, at cost, 29,406 and 0 shares at July 27, 1997 and
August 1, 1998, respectively (2,378) 0
Retained earnings 32,958 41,853
-------- -------
Total stockholders' equity 31,308 45,852
-------- -------
Total liabilities and stockholders' equity $ 68,314 $74,402
======== =======
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets.
F-3
<PAGE> 56
TRANSISTOR DEVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)
<TABLE>
<CAPTION>
Fiscal Years Ended
--------------------------------------------
July 28, July 27, August 1,
1996 1997 1998
-------- --------- ---------
<S> <C> <C> <C>
SALES $ 80,277 $ 102,711 $ 115,653
COST OF GOODS SOLD 54,265 75,819 78,741
-------- --------- ---------
Gross profit on sales 26,012 26,892 36,912
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 9,368 12,906 16,061
RESEARCH AND DEVELOPMENT EXPENSES 3,148 3,113 4,140
-------- --------- ---------
Operating income 13,496 10,873 16,711
INTEREST EXPENSE 821 1,265 1,412
INTEREST INCOME (9) (76) (54)
OTHER EXPENSE (INCOME) 124 2,272 (368)
-------- --------- ---------
Income from continuing operations before
provision for income taxes and minority interest 12,560 7,412 15,721
PROVISION FOR INCOME TAXES 5,117 3,020 6,511
-------- --------- ---------
Income before minority interest 7,443 4,392 9,210
-------- --------- ---------
MINORITY INTEREST IN NET LOSS OF CONSOLIDATED SUBSIDIARY
0 0 15
-------- --------- ---------
Income from continuing operations 7,443 4,392 9,225
-------- --------- ---------
DISCONTINUED OPERATIONS:
Loss from operations of the discontinued Florida Division (net of income tax
benefit of $638, $143 and $0, respectively) 924 207 0
Loss (gain) on disposal of the Florida division including operating losses
during phase-out period (net of income tax benefit (expense) of $225 and
($80) for the fiscal years ended July 27, 1997 and August 1,
1998, respectively) 0 325 (119)
-------- --------- ---------
Total discontinued operations 924 532 (119)
-------- --------- ---------
Net income $ 6,519 $ 3,860 $ 9,344
======== ========= =========
</TABLE>
F-4
<PAGE> 57
<TABLE>
<CAPTION>
Fiscal Years Ended
----------------------------------------------
July 28, July 27, August 1,
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
EARNINGS PER SHARE OF COMMON STOCK (BASED ON WEIGHTED
AVERAGE NUMBER OF SHARES OUTSTANDING):
Basic-
Income from continuing operations $ 89.63 $ 53.66 $ 103.73
Loss from discontinued operations 11.13 2.53 0
Loss (gain) on disposal of the Florida Division 0 3.97 (1.34)
---------- ---------- ----------
Net income $ 78.50 $ 47.16 $ 105.07
========== ========== ==========
Weighted average shares outstanding 83,042 81,854 88,934
========== ========== ==========
Diluted-
Income from continuing operations $ 88.92 $ 51.88 $ 102.14
Loss from discontinued operations 11.04 2.45 0
Loss (gain) on disposal of the Florida Division 0 3.84 (1.31)
---------- ---------- ----------
Net income $ 77.88 $ 45.59 $ 103.45
========== ========== ==========
Weighted average shares outstanding 83,704 84,660 90,321
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE> 58
TRANSISTOR DEVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
<TABLE>
<CAPTION>
Additional Total
Common Paid-In Treasury Retained Stockholders'
Stock Capital Stock Earnings Equity
---- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE AS OF JULY 30, 1995 $ 11 $ 614 ($1,649) $ 23,321 $ 22,297
Net income 0 0 0 6,519 6,519
Common stock dividends, $4.00 per share 0 0 0 (333) (333)
Proceeds from exercise of stock options 0 34 0 0 34
Repurchase of 3,643 shares of treasury stock 0 0 (729) 0 (729)
---- ------- ------- -------- --------
BALANCE AS OF JULY 28, 1996 11 648 (2,378) 29,507 27,788
Net income 0 0 0 3,860 3,860
Common stock dividends, $5.00 per share 0 0 0 (409) (409)
Proceeds from exercise of stock options 0 69 0 0 69
---- ------- ------- -------- --------
BALANCE AS OF JULY 27, 1997 11 717 (2,378) 32,958 31,308
Net income 0 0 0 9,344 9,344
Retirement of treasury stock (3) (2,375) 2,378 0 0
Common stock dividends, $5.00 per share 0 0 0 (449) (449)
Proceed from sale of stock to EMC Corporation 1 4,999 0 0 5,000
Proceeds from exercise of stock options and sale of common stock 0 649 0 0 649
---- ------- ------- -------- --------
BALANCE AS OF AUGUST 1, 1998 $ 9 $ 3,990 $ 0 $ 41,853 $ 45,852
==== ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE> 59
TRANSISTOR DEVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Fiscal Years Ended
-----------------------------------------
July 28, July 27, August 1,
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,519 $ 3,860 $ 9,344
Adjustments to reconcile net income to net cash provided by
operating activities-
Minority interest 0 0 (15)
Depreciation and amortization 1,756 2,413 2,957
Loss (gain) on sale of property, plant and equipment 0 58 (569)
Provision for doubtful accounts 50 211 289
Deferred income taxes (403) (299) 290
(Increase) decrease in-
Accounts receivable (1,151) (2,256) (1,953)
Inventories (3,043) (2,682) (758)
Prepaid expenses and other assets (193) 126 (616)
Other assets 0 0 (99)
Increase (decrease) in-
Accounts payable 797 3,764 (3,131)
Accrued expenses 602 693 636
Accrued income taxes (211) (342) 2,835
Other liabilities 0 563 (563)
------- -------- --------
Net cash provided by operating activities 4,723 6,109 8,647
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (6,189) (12,000) (3,689)
Proceeds from sale of property, plant and equipment 26 396 2,895
------- -------- --------
Net cash used in investing activities (6,163) (11,604) (794)
------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt (3,023) (4,868) (11,898)
Proceeds from debt 5,500 11,580 2,803
Dividends paid (333) (409) (449)
Purchase of treasury stock (729) 0 0
Proceeds from sale of common stock and exercise of stock options 34 69 5,649
Proceeds from minority interest 0 0 25
------- -------- --------
Net cash provided by (used in) financing activities 1,449 6,372 (3,870)
------- -------- --------
Net increase in cash 9 877 3,983
CASH, beginning of period 506 515 1,392
------- -------- --------
CASH, end of period $ 515 $ 1,392 $ 5,375
======= ======== ========
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for-
Interest 817 1,171 $ 1,474
Income taxes 5,094 3,282 3,420
======= ======== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-7
<PAGE> 60
TRANSISTOR DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
(1) DESCRIPTION OF THE BUSINESS:
The consolidated financial statements include the accounts of
Transistor Devices, Inc., (the "Company"), its wholly-owned
subsidiaries Telecommunications Power Systems, Inc., Transistor Devices
Europe Limited, and TDI Foreign Sales Corporation, and its 75%
subsidiary China Electronics Holdings, L.L.C. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
The Company, incorporated in the State of New Jersey, is a leading
designer and manufacturer of electronic power supplies and power
systems focused on premium and niche segments of the broadly based
power industry.
On March 20, 1998, the Company and a partner entered into a joint
venture, China Electronics Holdings, L.L.C., whereby the Company is the
controlling shareholder with a 75% interest. In connection with the
joint venture, TDI contributed $75,000 and the joint venture partner
contributed $25,000.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Fiscal Year-
The Company's fiscal year ends on the Saturday nearest to July 31st.
The fiscal years for the consolidated financial statements presented
ended July 28, 1996, July 27, 1997 and August 1, 1998.
Use of Estimates-
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
The Company provides an allowance for doubtful accounts which is based
upon a specific review of certain outstanding receivables, as well as
historical collection of information. In determining the amount of the
allowance, management is required to make certain estimates and
assumptions regarding the timing and amount of collection. Actual
results could differ from those estimates.
The Company generally warrants its products for a period of 12 to 24
months from shipment. Estimated product warranty costs are accrued at
the time of sale based on historical warranty experience and are
adjusted as required to reflect subsequent experience. In determining
the amount of the warranty reserve, management is required to make
certain estimates and assumptions. Actual results could differ from
those estimates.
F-8
<PAGE> 61
Revenue Recognition-
Revenues are recognized when products are shipped to the customer.
Inventories-
Inventories are stated at the lower of cost (weighted average) or
market.
Property, Plant and Equipment-
Property, plant and equipment are stated at cost. Major renewals and
improvements are capitalized while maintenance and repairs are expensed
when incurred. Depreciation is computed over the estimated useful lives
(3 to 40 years) of depreciable assets using the straight-line method.
The cost and accumulated depreciation for property, plant and equipment
sold, retired, or otherwise disposed of are relieved from the accounts,
and the corresponding gain or loss is reflected in other expense
(income).
Research and Development-
Research and development costs consist of expenditures incurred during
the course of planned research and investigation aimed at discovery of
new knowledge which will be useful in developing new products or
processes. The Company expenses all research and development costs as
incurred.
Long-Lived Assets-
During 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
("SFAS 121"). SFAS 121 requires, among other things, that an entity
review its long-lived assets and certain related intangibles for
impairment whenever changes in circumstances indicate that the carrying
amount of an asset may not be fully recoverable. Impairment of
long-lived assets exists if, at a minimum, the future expected cash
flows (undiscounted and without interest charges) from an entity's
operations are less than the carrying value of these assets. As a
result of its review, the Company does not believe any impairment
exists in the recoverability of its long-lived assets.
Income Taxes-
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under
this method, deferred tax assets and liabilities are determined based
on the differences between the financial statement and the tax basis of
assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse.
F-9
<PAGE> 62
Interest Rate Swap Agreements-
The Company has entered into interest rate swap agreements as a means
of managing its interest rate exposure. The agreements have the effect
of converting certain of the Company's variable rate obligations to
fixed rate obligations. As of August 1, 1998 variable rates ranging
from 6.82% to 6.92% were converted to fixed rates of 7.96% to 8.62%.
Net amounts paid or received are reflected as adjustments to interest
expense.
Stock Based Compensation-
During 1997, the Company adopted the provisions of Statement of
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"). SFAS 123 requires that an entity account for employee and
director stock compensation under a fair value based method. However,
SFAS 123 also allows an entity to continue to measure compensation cost
for employee and director stock-based compensation using the intrinsic
value based method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees" ("Opinion 25"). Entities
electing to remain with the accounting under Opinion 25 are required to
make pro forma disclosures of net income and earnings per share as if
the fair value based method of accounting under SFAS 123 had been
applied (See Note 11). The Company will continue to account for
employee and director stock-based compensation under Opinion 25 and
will make the pro forma disclosures required under SFAS 123.
Effects of Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, Reporting Comprehensive Income, which is effective for
fiscal years beginning after December 15, 1997. This statement
establishes standards for reporting and presenting information on
comprehensive income and its components (revenues, expenses, gains,
losses and currency translation adjustments) in the financial
statements. Also in June 1997, the FASB issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information,
which is effective beginning in fiscal 1999. This statement revises
standards for public companies to report financial and descriptive
information about reportable operating segments and certain other
geographic information. The Company is evaluating methods for adoption
of these statements, if necessary, and currently does not expect these
new pronouncements to have a material impact on its consolidated
financial statements.
Cash And Cash Equivalents-
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with a maturity of three months or
less to be cash equivalents.
Fair Value of Financial Instruments-
The carrying amount of the Company's financial instruments approximate
fair value, as follows: (a) cash and cash equivalents, based on the
short-term nature of these financial instruments and (b) accounts
receivable and payables based on the allowances to give effect to the
allowance for doubtful accounts and based on the short-term nature of
these financial instruments.
F-10
<PAGE> 63
There are no quoted market prices for the Company's bank borrowings and
other long-term liabilities and a reasonable estimate could not be made
without incurring excessive costs. However, in management's opinion,
these financial instruments approximate fair value based upon their
interest rates which are based on existing market conditions.
Foreign Currency Translation-
All assets and liabilities of the foreign subsidiaries are translated
into U.S. dollars at fiscal year-end exchange rates. Income and expense
items are translated at average exchange rates during the fiscal year.
The resulting translation adjustments are recorded as a component of
stockholders' equity. No adjustment is reflected in the accompanying
consolidated financial statements since the amount is immaterial.
Earnings Per Share-
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share", ("SFAS 128") which requires the presentation of basic earnings
per share ("Basic EPS") and diluted earnings per share ("Diluted EPS").
Basic EPS is calculated by dividing income available to common
shareholders by the weighted average number of shares of common stock
outstanding during the period. Diluted EPS is calculated by dividing
income available to common shareholders by the weighted average number
of common shares outstanding for the period adjusted to reflect
potentially dilutive securities.
(3) EARNINGS PER SHARE:
In accordance with SFAS 128, the following table reconciles income and
share amounts used to calculate basic earnings per share and diluted
earnings per share-
<TABLE>
<CAPTION>
Fiscal Years Ended
-------------------------------------
July 28, July 27, August 1,
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Numerator:
Net income $ 6,519 $ 3,860 $ 9,344
Denominator:
Weighted average number of common shares
outstanding - Basic 83,042 81,854 88,934
Incremental shares for assumed conversions of
options 662 2,806 1,387
Weighted average common and common
equivalent shares outstanding - Diluted 83,704 84,660 90,321
Earnings per share - Basic $ 78.50 $ 47.16 $105.07
Earnings per share - Diluted $ 77.88 $ 45.59 $103.45
</TABLE>
F-11
<PAGE> 64
(4) INVENTORIES:
The composition of inventories are as follows-
<TABLE>
<CAPTION>
July 27, August 1,
1997 1998
------- -------
<S> <C> <C>
Raw materials $11,958 $13,180
Work-in-process 11,348 11,277
Finished goods 3,696 3,921
------- -------
$27,002 $28,378
======= =======
</TABLE>
The Company has financing arrangements with certain of its customers
whereby the customers advance payments in connection with the purchase
of merchandise to be used in the production of the customer's order. To
the extent of these deposits, the customers have a lien on the
Company's inventories. Deposits from customers as of July 27, 1997 and
August 1, 1998 totaled approximately $82 and $75, respectively and are
included in accrued liabilities in the accompanying consolidated
balance sheets.
(5) PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following-
<TABLE>
<CAPTION>
July 27, August 1,
1997 1998
-------- --------
<S> <C> <C>
Land $ 985 $ 868
Buildings 6,416 5,901
Building and leasehold improvements 10,225 10,483
Machinery & equipment 16,962 19,125
Vehicles 516 637
Furniture & fixtures 1,278 1,489
Construction-in-progress 0 79
-------- --------
36,382 38,582
Less - Accumulated Depreciation (15,468) (18,065)
-------- --------
$ 20,914 $ 20,517
======== ========
</TABLE>
(6) LONG-TERM DEBT:
Long-term debt consists of the following-
<TABLE>
<CAPTION>
July 27, August 1,
1997 1998
---- ----
<S> <C> <C>
Variable-rate revolving credit agreement maturing in October 1999. The
effective interest rate was 7.18% at July 27, 1997 and 7.41% at August
1, 1998 $7,488 $2,000
Variable-rate term loan agreement due July 2003, payable in monthly
installments of $14 plus interest. The effective interest rate was
6.84% at July 27, 1997 and 6.82% at August 1, 1998 based on LIBOR plus
1.15% 1,007 825
</TABLE>
F-12
<PAGE> 65
<TABLE>
<CAPTION>
July 27, August 1,
1997 1998
---- ----
<S> <C> <C>
6.35% Fixed-rate term loan agreement payable in monthly installments of
$33 plus interest, due April 1999 $ 700 $ 267
8.80% Fixed-rate term loan agreement payable in monthly installments of
$24 plus interest, due January 2002 1,286 976
Variable-rate term loan agreement due in April 2002, payable in monthly
installments of $58 plus interest. The effective interest rate was
6.94% at July 27, 1997 and 6.92% at August 1, 1998 based on LIBOR plus
1.25% 3,325 2,566
Variable-rate term loan agreement due in October 1997. Interest was
payable monthly at an effective rate of 6.84% at July 27, 1997 based on
LIBOR plus 1.15%. The note was repaid in October 1997 800 0
Variable-rate mortgage due July 2003, payable in varying monthly
principal installments averaging $7 plus interest with a balloon
payment of $1,408 due at maturity. The effective interest rate was
6.94% at July 27, 1997 and 6.92% at August 1, 1998 based on LIBOR plus
1.25% 1,956 1,876
8.75% Fixed-rate mortgage payable in monthly installments of $8 plus
interest with a balloon payment of $325 due May 2002 800 692
Variable-rate mortgage due April 2004, payable in monthly installments of
$5 plus interest with a balloon payment due upon maturity of $474. The
effective interest rate was 6.94% at July 27, 1997, and 6.92% at August
1, 1998 based on LIBOR plus 1.25% 865 802
-------- --------
18,227 10,004
Less: Current portion (10,069) (1,648)
-------- --------
$ 8,158 $ 8,356
======== ========
</TABLE>
On July 1, 1996, the Company entered into a variable-rate $7,500
revolving credit agreement with a bank. Interest rates vary and are
based on either the London Interbank Offered Rate ("LIBOR") plus 1.05%
or the bank's prime rate, selected by the Company. On August 1, 1997,
the revolving credit agreement was amended and restated to increase the
revolver to $10,500.
As of August 1, 1998, borrowings were secured by substantially all of
the assets of the Company and its wholly-owned U.S. subsidiary, except
for inventories.
Certain of the Company's debt obligations are subject to covenants
including, but not limited to, certain provisions which (i) restrict
the Company's ability to make capital expenditures, (ii) limit the
payment of dividends or other distributions to certain parties, and
(iii) limit the amount of lease payments due in one fiscal year (iv)
limit the ability to incur, create or assume indebtedness,
F-13
<PAGE> 66
and (v) limit the ability to convey, lease, sell, transfer or assign
any assets except in the ordinary course of business. Additionally, the
agreements contain certain financial covenants including minimum
tangible net worth, working capital, debt service coverage ratio, and
debt to equity ratio.
The Company is cross-collateralized on all secured notes, mortgages and
extensions of credit now and hereafter outstanding with the Company's
bank. It is also cross-defaulted on all loans and agreements with the
Company's bank.
The maturities of long-term debt as of August 1, 1998 are as follows-
<TABLE>
<S> <C>
1999 $1,648
2000 3,400
2001 1,409
2002 1,399
2003 1,737
Thereafter 411
-------
Total $10,004
=======
</TABLE>
(7) INCOME TAXES:
The components of the provision for income taxes are summarized as
follows-
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------
July 28, July 27, August 1,
1996 1997 1998
------- ------- ------
<S> <C> <C> <C>
Current $ 5,520 $ 3,319 $6,221
Deferred (403) (299) 290
------- ------- ------
Total $ 5,117 $ 3,020 $6,511
======= ======= ======
</TABLE>
The following table indicates the significant elements contributing to
the difference between the Federal statutory rate and the Company's
effective tax rate-
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------
July 28, July 27, August 1,
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
State taxes net of federal effect 5.9 5.9 5.9
Other (0.2) (0.2) (0.5)
------ ------ ------
40.7% 40.7% 41.4%
====== ====== ======
</TABLE>
F-14
<PAGE> 67
Deferred income taxes represent the tax effect of the difference
between tax bases of assets and liabilities. The major components of
deferred tax assets and liabilities as of July 27, 1997 and August 1,
1998 are as follows-
<TABLE>
<CAPTION>
July 27, August 1,
1997 1998
------- -------
<S> <C> <C>
Deferred tax asset:
Bad debt reserve $ 126 $ 126
Vacation accrual 698 724
Warranty reserve 565 686
Bonus accrual 472 0
Unicap 139 157
------- -------
Net asset 2,000 1,693
Deferred tax liability:
Depreciation (194) (177)
------- -------
Total deferred taxes, net $ 1,806 $ 1,516
======= =======
</TABLE>
(8) ACCRUED EXPENSES:
Accrued expenses are comprised of the following-
<TABLE>
<CAPTION>
July 27, August 1,
1997 1998
------ ------
<S> <C> <C>
Accrued payroll $1,405 $2,091
Accrued vacation 1,589 1,646
Accrued warranty 1,283 1,558
Other accrued expenses 2,528 2,151
------ ------
$6,805 $7,446
====== ======
</TABLE>
(9) COMMITMENTS AND CONTINGENCIES:
Self-insured Medical Plan-
The Company funds a self-insured medical plan for certain employees
administered through CIGNA. The accompanying consolidated balance
sheets include $435 and $489 of self-insurance reserves at July 27,
1997 and August 1, 1998, respectively. These reserves are established
by management based upon specific review of open claims, with
consideration of incurred but not reported claims as of the balance
sheet date. Actual results could differ from these reserve amounts.
Operating Leases-
The Company leases office and manufacturing space under noncancellable
operating leases which expire at various dates through October 2003.
The leases contain escalation clauses for real estate taxes and
utilities.
F-15
<PAGE> 68
Following are future minimum base rents under these operating leases
for the fiscal years ending-
<TABLE>
<S> <C>
1999 $439
2000 394
2001 371
2002 324
2003 220
</TABLE>
Rent expense charged against operations approximated $252, $367 and
$565 for the fiscal years 1996, 1997, 1998, respectively.
Litigation-
On March 7, 1997, the United States District Court for the Northern
District of Florida granted an involuntary judgement of acquittal in
favor of the Company and four individual defendants, who were indicted
in October of 1996 for failure to manufacture its products in
accordance with government standards and inspection procedures. The
criminal charges filed by the Government against the Company were
resolved completely with no conditions attached to the judgement of
acquittal. In a separate civil action which had previously been stayed,
the United States elected to sue for civil fraud. In November 1997, the
Company settled the civil charges in order to avoid the cost of
litigation. The settlement involves the payment of $929 by the Company
to the United States of which $563 is payable subsequent to fiscal 1998
year-end. Accordingly a provision for litigation settlement of $929 has
been charged to operations and is included in other expense in the
accompanying 1997 consolidated statement of income and $563 is included
in other liabilities in the accompanying July 27, 1997 balance sheet.
Additionally, the Company incurred legal fees of approximately $1,292
during fiscal 1997 related to this litigation which are included in
other expense. In July, 1998, the liability of $563 was paid in full.
The Company is not a party to any other pending legal proceedings or
environmental actions that management believes will have a material
adverse effect on its consolidated financial statements.
(10) DISCONTINUED OPERATIONS:
On September 20, 1996, the Company's Board of Directors adopted a
formal plan to sell the Florida Division. The Florida Division was
engaged in the manufacture of military power systems in Florida and was
discontinued due to the sharp reduction in military procurement and the
approaching obsolescence of its product line. On December 6, 1996, the
Company completed a transaction to dispose of certain assets of the
Florida Division. The assets of the Florida Division consisted
primarily of inventories, equipment, building and land.
The net operating losses of these operations prior to September 20,
1996 are included in the consolidated statements of income under
"discontinued operations." Revenues from such operations were $529 for
the period from July 29, 1996 to September 20, 1996 and $6,337 for the
1996 fiscal year.
F-16
<PAGE> 69
The loss on the disposal of the Florida Division reflected in the
consolidated statements of income of $325 (net of income tax benefit of
$225) consists of a loss on the disposal of the business and operating
losses during the phase-out period from September 20, 1996 to December
6, 1996.
Except for inventory and a plant carried at estimated net realizable
values of $619 and $359, respectively, all significant assets of the
operations were disposed of prior to July 27, 1997. The inventory and
plant were sold at a gain of $119 (net of income tax expense of $80)
during fiscal 1998 which is reflected in the 1998 consolidated
statement of income. Additionally, the related mortgage was repaid
during fiscal 1998.
The provision for loss on discontinued operations reflected in the
consolidated statements of income includes the writedown of the assets
of the Florida Division operations to estimated net realizable values
and the estimated costs of disposing of these operations, less expected
tax benefits applicable thereto.
(11) STOCK OPTION PLANS:
On March 23, 1985, the Company adopted an incentive stock option plan
for the issuance of 4,500 shares of common stock. The option plan
expires on November 17, 2005. The purchase price is determined by the
Board of Directors based on the estimated fair market value of the
stock at the date of grant. The options vest immediately upon grant. No
options were outstanding as of August 1, 1998.
Option activity is summarized as follows:
<TABLE>
<CAPTION>
Weighted
Number of Average
Options Exercise Price
------ -------
<S> <C> <C>
Options outstanding - July 30, 1995 1,950 214.78
Options granted 3,850 200.00
Options expired or cancelled (1,750) 217.53
Options exercised (175) 200.00
------ -------
Options outstanding - July 28, 1996 3,875 199.52
Options expired or cancelled (300) 200.00
Options exercised (350) 194.72
------ -------
Options outstanding July 27, 1997 3,225 $200.00
Options expired or cancelled (825) 200.00
Options exercised (2,400) 200.00
------ -------
Options outstanding - August 1, 1998 0 0
====== =======
</TABLE>
F-17
<PAGE> 70
Effective February 22, 1996, the Company adopted a non-incentive stock
option plan for the outside members of its Board of Directors. The
option plan expires on February 22, 2001. The plan provides for the
sale of up to 500 shares of common stock. The purchase price of the
shares is determined by the Board of Directors based on 75% of their
fair market value at the date of the grant. Compensation expense for
the difference between the fair market value and the exercise price of
the options is immaterial to the financial statements.
The following five year options have been granted-
<TABLE>
<CAPTION>
Weighted
Number of Average
Options Exercise Price
------- --------------
<S> <C> <C>
Options granted 400 $237.00
---- -------
Options outstanding - July 28, 1996 and July 27, 1997 400 237.00
Options granted 100 750.00
Options exercised (500) 339.60
---- -------
Options outstanding - August 1, 1998 0 0
==== =======
</TABLE>
The Company has adopted the provisions of SFAS 123 "Accounting for
Stock-Based Compensation." As permitted by the statement, the Company
has elected to continue to account for stock-based compensation using
the intrinsic value method. Accordingly, no compensation expense has
been recognized for stock options granted at or above market value. Had
the fair value method of accounting been applied to the Company's stock
option grants, which requires recognition of compensation cost ratably
over the vesting period of the underlying equity instruments, net
income for the fiscal years ended 1996, 1997 and 1998 would have been
reduced by approximately $52, $66, and $52, respectively. This pro
forma impact only takes into account options granted since July 31,
1995, and is likely to increase in future years as additional options
are granted and amortized ratably over the vesting period. The average
fair value of options granted during the fiscal years ended July 28,
1996 and August 1, 1998 were $97.58 and $284.19, respectively. The fair
values were estimated using the Black-Scholes option pricing model
based on the weighted average market price at grant date of $232.29 and
$750, and a risk free interest rate of 6.5% for the fiscal years ended
July 28, 1996 and August 1, 1998, respectively.
(12) PROFIT SHARING PLAN:
The Company has a 401(k) savings plan whereby employees may elect to
make contributions of 1% to 15% of their salary upon meeting age and
service requirements. During fiscal 1996, 1997 and 1998 the Company
matched 50%, of the employees' contributions up to a maximum Company
contribution of 3% of the employees' base salaries.
The amount of profit sharing plan expense incurred was $262, $345 and
$373 for the fiscal years 1996, 1997 and 1998, respectively, and is
included in selling, general and administrative expenses in the
consolidated statements of income.
F-18
<PAGE> 71
(13) CONCENTRATION OF CREDIT RISK:
Approximately 61%, 63% and 64%, of the Company's sales during the
fiscal years 1996, 1997 and 1998, respectively, were made to one
customer. The total amount due from this customer was approximately
$6,610 and $8,436 as of July 27, 1997 and August 1, 1998, respectively.
(14) SUBSEQUENT EVENT:
Subsequent to year-end, the Board of Directors approved a dividend of
$3.00 per share payable to stockholders of record on September 9, 1998.
F-19
<PAGE> 72
No person has been authorized to give any information or make any
representations other than those contained in this Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized. This Prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any securities other than the securities to
which it relates or an offer to sell or the solicitation of an offer to buy such
securities by any person in any circumstances in which such offer or
solicitation is unlawful. Neither the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of the Company since the date hereof or that
the information herein is correct as of any time subsequent to its date.
TABLE OF CONTENTS
PAGE
Prospectus Summary..................................................... 3
Risk Factors........................................................... 7
Use of Proceeds........................................................ 13
Dividend Policy........................................................ 13
Capitalization......................................................... 14
Dilution............................................................... 15
Selected Financial and Operating Data.................................. 16
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 18
Business............................................................... 23
Management............................................................. 36
Certain Relationships and Related Transactions......................... 42
Principal and Selling Shareholders..................................... 44
Description of Capital Stock........................................... 45
Shares Eligible for Future Sale........................................ 48
Underwriting........................................................... 49
Legal Matters.......................................................... 50
Experts................................................................ 50
Available Information.................................................. 51
Index to Consolidated Financial Statements...... ...................... F-1
UNTIL , 1998 (25 DAYS AFTER COMMENCEMENT OF THE OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
3,600,000 SHARES
[LOGO TRANSISTOR DEVICES INC.]
COMMON STOCK
PROSPECTUS
ING BARING FURMAN SELZ LLC
WHEAT FIRST UNION
, 1998
<PAGE> 73
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a statement of the expenses payable by the Registrant in
connection with issuance and distribution of the securities being registered
hereby. All amounts shown are estimates, except the SEC registration fee and the
NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ 18,320
NASD filing fee............................................. *
NYSE listing fee............................................ *
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Transfer Agent and Registrar fees and expenses.............. *
Blue sky fees and expenses.................................. *
Miscellaneous............................................... *
------
Total................................................. $ *
</TABLE>
- ------------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Eighth of the Registrant's Amended and Restated Certificate of
Incorporation provides that, to the fullest extent permitted by the laws of the
State of New Jersey, directors and officers of the Registrant will not have
personal liability to the Registrant or its shareholders except where liability
arises from an act or omission (a) in breach of such person's duty of loyalty to
the Registrant and its shareholders, (b) not in good faith or involving a
knowing violation of law or (c) resulting in an improper personal benefit to
such person.
Article Eighth also provides that each person who is made (or threatened
to be made) party to any pending or threatened civil, criminal, administrative
or arbitrative action, suit or proceeding, stemming from such person's role as
director or officer of the Registrant, or serving as director, officer, trustee,
employee or agent of any partnership, joint venture, employee benefit plan or
other entity or enterprise at the Registrant's request, shall be indemnified and
held harmless by the Registrant, to the fullest extent permitted by the New
Jersey Business Corporation Act (the "NJBCA"), for all reasonable costs and
expenses and all amounts paid in satisfaction of settlements, judgments, fines
and penalties, incurred in connection with such proceedings and such
indemnification shall continue as to a person who has ceased to be a director,
officer, trustee, employee or agent and shall inure to the benefit of his or her
heirs, executors, administrators and assigns; provided, however, that there
shall be no indemnification with respect to any settlement of any proceeding
unless the Registrant has given its prior consent to such settlement or
disposition. This right to indemnification includes the right to be paid by the
Registrant the expenses incurred in connection with any proceeding in advance of
the final disposition of such proceeding as authorized by the Board of
Directors; provided, however, that if the NJBCA so requires, the payment of such
expenses shall be made only upon receipt by the Registrant of an undertaking to
repay all amounts so advanced unless it shall ultimately be determined that such
director or officer is entitled to be indemnified.
Article Seventh also provides that the right to indemnification is a
contract right and gives claimants certain rights with respect to claims for
indemnification not paid by the Registrant after 30 days following a written
request. Finally, Article Seventh provides that the right to indemnification and
advancement of expenses provided thereby shall not exclude any other rights to
which any person may be entitled under a certificate of incorporation, by-law,
agreement, vote of shareholders or otherwise.
II-1
<PAGE> 74
Article X of the Registrant's Amended and Restated By-Laws also provide
directors and officers with certain rights to indemnity that are substantially
similar to the foregoing provisions of Article Seventh of the Amended and
Restated Articles of Incorporation.
Section 14A:3-5 of the NJBCA provides that no indemnification shall be
made if such person shall have been adjudged liable for negligence or misconduct
unless the court in which such proceeding was brought determines upon
application that the defendant, officers or directors are fairly and reasonably
entitled to indemnity for such expenses despite such adjudication of liability.
In any case, a corporation must indemnify an officer or director against
expenses (including attorney's fees) to the extent that he has been successful
on the merits or otherwise or in defense of any claim or issue.
The Registrant has a liability insurance policy in effect which covers
certain claims against any officer or director of the Registrant by reason of
certain breaches of duty, neglect, errors or omissions committed by such person
in his capacity as an officer or director.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since August 1, 1996, the Registrant sold the following securities without
registration under the Securities Act of 1933, as amended (the "Securities
Act"). No underwriter was involved in such sales and no underwriting commissions
or discounts were paid with respect to any of such sales.
During fiscal 1998, the Registrant sold 666,600 shares of its then
existing common stock (giving effect to a 100-to-1 stock split to be effected in
connection with the Offering herein) to EMC Corporation for $5.0 million. The
Registrant claims exemption from registration of these sales under Section 4(2)
of the Securities Act for transactions not involving a public offering.
During the past three fiscal years, the Registrant sold shares of its
common stock to senior level employees and members of the Registrant's Board of
Directors without registration under the Securities Act. The Registrant sold
shares to senior level employees as part of its stock incentive program at the
then-applicable book value per share. During the fiscal 1996 stock purchase
program, the Registrant sold 17,500 shares of its then existing common stock
(giving effect to a 100-to-1 stock split) to 3 senior level employees for an
aggregate of $35,000. During the fiscal 1997 stock purchase program, the
Registrant sold 35,000 shares of its then existing common stock (giving effect
to a 100-to-1 stock split) to 3 senior level employees for an aggregate of
$68,152. During the fiscal 1998 stock purchase program, the Registrant sold
240,000 shares of its then existing common stock (giving effect to the 100-to-1
stock split) to 16 senior level employees for an aggregate of $480,000. The
Registrant also sold 50,000 shares (giving effect to the 100-to-1 stock split)
to five directors for an aggregate of $169,800. The Registrant claims exemption
from registration of these sales under the Securities Act under Rule 701 for
offers and sales pursuant to benefit plans and compensation arrangements.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
EXHIBIT NO. Description
*1.1 Form of Underwriting Agreement.
*3.1 Amended and Restated Articles of Incorporation of the Registrant.
*3.2 Amended and Restated By-Laws of the Registrant.
*4.1 Form of Common Stock certificate.
*5.1 Opinion of Rand, Algeier, Tosti & Woodruff, New Jersey counsel to
the Registrant re: legality.
*11 Statement re: Computation of per share earnings.
*21.1 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
*23.2 Consent of Rand, Algeier, Tosti & Woodruff (included in Exhibit
5.1).
24.1 Powers of Attorney of Directors and Officers of the Registrant
(included on signature page of Registration Statement).
*27 Financial Data Schedule.
- -----------
* To be filed by amendment.
II-2
<PAGE> 75
(b) Financial Statement Schedules.
Schedule II -- Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
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, each post-effective amendment that contains a form of Prospectus shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To provide to the underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act 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 Securities 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 Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 76
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement, or amendment
thereto, to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Cedar Knolls, State of New Jersey, on the 29th day of
September, 1998.
Transistor Devices Inc.
By: /s/ Richard F. Blake
--------------------
Name: Richard F. Blake
Title: Chairman and Chief Executive Officer
SIGNATURES AND POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Richard F. Blake and James M.
Feely, and each of them individually, the true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for and in the name,
place and stead of the undersigned, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, including any filings pursuant to Rule 462(b) under the Securities
Act of 1933, as amended, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, and hereby gives and grants to such attorneys-in-fact and agents,
and each of them individually, full power and authority to do and perform each
and every act and thing appropriate, requisite or necessary to be done, as fully
to all intents and purposes as the undersigned might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them individually, or his or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement thereto, has been signed by the following persons in the
capacities indicated on the 29th day of September, 1998.
SIGNATURE TITLE
/s/ Richard F. Blake Chairman of the Board and Chief Executive Officer
- ------------------------
Richard F. Blake
/s/ Robert H. Smolinski Director, President and Chief Operating Officer
- ------------------------
Robert H. Smolinski
/s/ James M. Feely Vice President, Finance and Chief Financial Officer
- -------------------------
James M. Feely
II-4
<PAGE> 77
SIGNATURE TITLE
/s/ George M. Duff, Jr. Secretary and Director
- -------------------------
George M. Duff, Jr.
/s/ James B. Clark Director
- -------------------------
James B. Clark
/s/ William M. Kearns, Jr. Director
- --------------------------
William M. Kearns, Jr.
Director
- --------------------------
Richard Lehane
/s/ Bernard N. Silver Director
- --------------------------
Bernard N. Silver
II-5
<PAGE> 78
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Transistor Devices, Inc.:
We have audited in accordance with generally accepted auditing standards, the
financial statements of Transistor Devices, Inc. included in this registration
statement and have issued our report thereon dated September 9, 1998. Our audit
was made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The schedule listed in Item 16(b) of this Registration
Statement is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ Arthur Andersen LLP
Roseland, New Jersey
September 9, 1998
<PAGE> 79
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
---------------------------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS
-------------------------------
<TABLE>
<CAPTION>
Balance at Charged to Balance
Beginning Costs and at End of
of Year Expenses Deductions Year
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
For the fiscal year ending July 28, 1996 $25 $50 $-- $75
For the fiscal year ending July 27, 1997 75 211 -- 286
For the fiscal year ending August 1, 1998 286 289 (289) 286
</TABLE>
<PAGE> 80
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. Description PAGES
- ----------- ----------- ------------
<S> <C> <C>
*1.1 Form of Underwriting Agreement.
*3.1 Amended and Restated Articles of Incorporation of the Registrant.
*3.2 Amended and Restated By-Laws of the Registrant.
*4.1 Form of Common Stock certificate.
*5.1 Opinion of Rand, Algeier, Tosti & Woodruff, New Jersey counsel to the
Registrant re: legality.
*11 Statement re: Computation of per share earnings.
*21.1 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
*23.2 Consent of Rand, Algeier, Tosti & Woodruff (included in Exhibit 5.1).
24.1 Powers of Attorney of Directors and Officers of the Registrant
(included on signature page of Registration Statement).
*27 Financial Data Schedule.
</TABLE>
- -----------
* To be filed by amendment.
<PAGE> 1
Exhibit 23.1
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
included in or made a part of this registration statement.
/s/ Arthur Andersen LLP
Roseland, New Jersey
September 28, 1998
