<PAGE>
As filed with the Securities and Exchange Commission on June 22, 2000.
Registration No. 333-38824
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
CoorsTek, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 3679 84-0178380
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification
incorporation or Classification Code Number)
organization) Number)
16000 Table Mountain Parkway
Golden, Colorado 80403
(303) 277-4000
(Address, including zip code, and telephone number, including area code, of the
Registrant's principal executive offices)
---------------
Joseph Coors, Jr., Chief Executive Officer
Katherine A. Resler, General Counsel
CoorsTek, Inc.
16000 Table Mountain Parkway
Golden, Colorado 80403
(303) 277-4000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Steven A. Cohen, Esq. Christopher L. Kaufman, Esq.
Whitney Holmes, Esq. William C. Davisson, III, Esq.
Hogan & Hartson L.L.P. Latham & Watkins
1200 Seventeenth Street, Suite 1500 135 Commonwealth Drive
Denver, Colorado 80202 Menlo Park, California 94025
(303) 899-7300 (650) 328-4600
---------------
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, as amended, 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, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If 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 statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of this prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 22, 2000
[LOGO OF CoorsTek]
2,000,000 Shares
Common Stock
We are offering 2,000,000 shares of our common stock. Our common stock is
traded on the Nasdaq National Market under the symbol "CRTK." The last reported
sale price of our common stock on the Nasdaq National Market on June 21, 2000
was $34.625 per share.
--------------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 5.
--------------
<TABLE>
<CAPTION>
Per Share Total
----------- ---------
<S> <C> <C>
Public Offering Price..................................... $ $
Underwriting Discounts and Commissions.................... $ $
Proceeds, before expenses, to CoorsTek.................... $ $
</TABLE>
The Securities Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
We have granted the underwriters a 30-day option to purchase up to an
additional 300,000 shares of common stock to cover over-allotments. FleetBoston
Robertson Stephens Inc. expects to deliver the shares of common stock to
investors on , 2000.
--------------
Robertson Stephens
CIBC World Markets
Needham & Company, Inc.
First Security Van Kasper
Friedman Billings Ramsey
The date of this Prospectus is , 2000.
<PAGE>
Inside Front Cover
[Graphic material omitted, including text
"Customer Solutions begin with . . ." and
pictures labeled "Design," "Engineering,"
"Manufacturing" and "Assembly" and
photographs of semiconductor manufacturing
equipment components.]
<PAGE>
You should rely on the information contained in this prospectus. We have not
authorized anyone to provide you with information different from that contained
in this prospectus. We are offering to sell, and seeking offers to buy, shares
of common stock only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of
this prospectus, regardless of the time of delivery of this prospectus or of
any sale of our common stock. In this prospectus, the "company," "CoorsTek,"
"we," "us," and "our" refer to CoorsTek, Inc., a Delaware corporation.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Where You Can Find More Information...................................... ii
Prospectus Summary....................................................... 1
Risk Factors............................................................. 5
Special Note Regarding Forward-Looking Statements........................ 15
Use of Proceeds.......................................................... 15
Price Range of our Common Stock.......................................... 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Selected Consolidated Financial Data..................................... 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 27
Management............................................................... 38
Certain Relationships and Related Transactions........................... 48
Principal Stockholders................................................... 50
Description of Capital Stock............................................. 52
Shares Eligible for Future Sale.......................................... 62
Underwriting............................................................. 64
Legal Matters............................................................ 66
Experts.................................................................. 66
Index to Consolidated Financial Statements............................... F-1
</TABLE>
----------------
This prospectus contains trademarks and tradenames of other companies.
i
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1, of which
this prospectus is a part, under the Securities Act of 1933 with respect to the
shares of common stock offered hereby. This prospectus does not contain all of
the information contained in the registration statement and the exhibits to the
registration statement. For further information with respect to us and our
common stock, we refer you to the registration statement and the exhibits filed
as part of the registration statement. Statements in this prospectus concerning
the contents of any contract or any other document are not necessarily
complete. If a contract or document has been filed as an exhibit to the
registration statement, we refer you to that exhibit. Each statement in this
prospectus relating to a contract or document filed as an exhibit to the
registration statement is qualified by the filed exhibits.
In addition, we file periodic reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available
to the public on the SEC's website at www.sec.gov. You may also inspect these
reports, proxy statements and other information at the offices of Nasdaq
Operations, 1735 K Street, N.W, Washington, D.C. 20006.
ii
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and consolidated financial statements and the related notes
appearing elsewhere in this prospectus. This prospectus contains forward-
looking statements that involve risks and uncertainties. Our actual results
could differ materially from those anticipated in those forward-looking
statements as a result of the factors described under the heading "Risk
Factors" and elsewhere in this prospectus.
Our Business
We are a leading designer and manufacturer of components and assemblies for
semiconductor capital equipment and for telecommunications, electronics,
automotive, medical and other industrial applications. During our 89-year
history, we have developed core competencies in the design, engineering,
manufacturing and assembly of critical components made from advanced materials.
We use precision-machined metals, technical ceramics and engineered plastics to
design solutions that enable our customers' products to overcome technological
barriers and enhance performance. We offer a full range of services from
initial prototype design to volume manufacturing, worldwide distribution and
customer support.
Semiconductor fabrication involves several complex processing steps that
require highly sophisticated, dedicated capital equipment. The semiconductor
device manufacturing industry is experiencing several trends that are
increasing the demand for more sophisticated capital equipment, including a
migration to larger 300mm wafers, shrinking line widths and the continual
introduction of new materials and manufacturing processes. According to VSLI
Research Inc, a market research firm, the semiconductor capital equipment
market will grow from $33.1 billion in 1999 to $84.5 billion in 2002.
Stringent semiconductor fabrication requirements are driving the need for
more specialized precision-machined components and systems that must be
manufactured and assembled to precise specifications and tolerances in order to
ensure the performance of semiconductor processing equipment. In addition, to
achieve optimum performance in the harsh conditions under which this machinery
must operate, components and component materials must exhibit structural
integrity, corrosion and abrasion resistance and specific thermal, electrical,
magnetic and optical properties. As a result, components and systems are
increasingly precision-machined from metals and advanced materials, such as
technical ceramics.
Original equipment manufacturers, or OEMs, of semiconductor capital
equipment historically either manufactured the components for their equipment
internally or relied on a large number of small suppliers with limited
financial resources, product breadth and service capabilities. Increasingly,
OEMs are outsourcing the engineering, prototyping, manufacturing, assembly and
testing of components and integrated systems to larger, turnkey suppliers in
order to focus on their core processing technology. These OEMs are selecting
suppliers that can provide integrated solutions from product design and
prototyping to manufacturing and assembly, work in tandem to accelerate
development of new technologies and improve time to market.
We believe that we offer our customers significant advantages including:
.advanced materials expertise;
.comprehensive design and prototype services;
.a full range of engineering, manufacturing, assembly and support
services;
. global scale and infrastructure; and
. semiconductor capital equipment expertise.
1
<PAGE>
We believe the breadth of our competencies and experience has made us a
supplier of choice with key customers in the semiconductor capital equipment
market and several other industries that are currently experiencing a
consolidating supplier base. We offer custom-designed products to over 5,000
customers worldwide, including leading manufacturers such as Applied Materials,
LAM Research and Texas Instruments.
Our objective is to enhance our position as a leader in the design,
engineering, manufacturing and assembly of components and assemblies for the
semiconductor capital equipment market and establish or expand our position in
other high growth markets. To achieve our objective, we are pursuing the
following strategies:
. focus on the semiconductor capital equipment market;
.target other high growth markets;
.use customer relationships to expand product and service offerings;
.maintain technological expertise in advanced materials;
.diversify semiconductor capital equipment OEM customer base; and
.pursue strategic acquisitions.
Our Address
Our principal executive office is located at 16000 Table Mountain Parkway,
Golden, Colorado 80403, and our telephone number is (303) 277-4000. Our website
is located at www.coorstek.com. Information contained in our website is not
part of this prospectus.
2
<PAGE>
The Offering
Common stock offered by CoorsTek......
2,000,000 shares
Common stock to be outstanding after 9,183,058 shares
the offering..........................
Use of proceeds.......................
We are required to apply 75% of the net
proceeds from this offering, or
approximately $46.7 million at an
assumed public offering price of
$34.625 per share, to repay principal
indebtedness under our credit facility.
We expect to use the balance of the net
proceeds to repay additional
indebtedness under this facility, or
for working capital or other general
corporate purposes. We also may use a
portion of the net proceeds of this
offering to acquire or invest in
complementary businesses or
technologies. See "Use of Proceeds."
Nasdaq National Market Symbol.........
CRTK
The outstanding share information is based on our shares outstanding as of
June 1, 2000. This information excludes:
. 1,264,565 shares of common stock underlying options granted under our
Stock Option and Incentive Plan and outstanding as of June 1, 2000 at a
weighted average exercise price of $26.69 per share;
. 168,768 shares of common stock reserved for exercise of outstanding
warrants at an exercise price of $22.22 per share;
.831,072 shares of common stock reserved for issuance under our Stock
Option and Incentive Plan;
. 500,000 shares of common stock reserved for issuance under our Employee
Stock Purchase Plan; and
. 47,244 shares of common stock unissued under our Executive Deferred
Compensation Plan.
Unless otherwise noted, all information contained in this prospectus assumes
that the underwriters' over-allotment option is not exercised.
3
<PAGE>
Summary Consolidated Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended December 31, March 31,
-------------------------- ----------------
1997 1998 1999 1999 2000
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net sales......................... $304,824 $296,614 $365,061 $76,579 $120,819
Cost of goods sold................ 219,821 222,906 274,398 58,305 93,400
-------- -------- -------- ------- --------
Gross profit...................... 85,003 73,708 90,663 18,274 27,419
Selling, general and
administrative expenses.......... 41,754 37,758 53,202 9,008 14,449
Asset impairment charges.......... -- 11,814 -- -- --
-------- -------- -------- ------- --------
Operating income.................. 43,249 24,136 37,461 9,266 12,970
Interest expense, net............. 68 3,524 4,981 701 4,713
Income tax expense................ 16,192 7,682 12,425 3,355 3,055
-------- -------- -------- ------- --------
Net income........................ $ 26,989 $ 12,930 $ 20,055 $ 5,210 $ 5,202
======== ======== ======== ======= ========
Net income per share:
Basic........................... $ 3.78 $ 1.81 $ 2.81 $ 0.73 $ 0.73
======== ======== ======== ======= ========
Diluted......................... $ 3.78 $ 1.81 $ 2.81 $ 0.73 $ 0.72
======== ======== ======== ======= ========
Weighted average shares
outstanding:
Basic........................... 7,142 7,142 7,142 7,142 7,143
======== ======== ======== ======= ========
Diluted......................... 7,142 7,142 7,142 7,142 7,220
======== ======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
March 31, 2000
--------------------
Actual As Adjusted
-------- -----------
<S> <C> <C>
Balance Sheet Data:
Total assets.............................................. $364,057 $364,057
Working capital........................................... 104,622 104,622
Long-term debt (net of the $9,025 current maturity)....... 217,267 154,942
Total stockholders' equity................................ 64,411 126,736
</TABLE>
The statement of income data appearing above includes the results of
operations of each of the companies that we have acquired since the date of
acquisition. See Note 3 of the notes to our consolidated financial statements.
For 1998, operating expenses included $11.8 million of asset impairment
charges. See Note 4 of the notes to our consolidated financial statements.
Prior to January 1, 2000, we were not a public company and our capital
structure was not indicative of our current structure. As such, earnings per
share for 1997, 1998 and 1999 have been calculated using the actual number of
shares distributed on December 31, 1999. See Note 2 of the notes to our
consolidated financial statements.
The as adjusted balance sheet data appearing above gives effect to the sale
of 2,000,000 shares of common stock offered hereby and the application of the
proceeds from this offering at an assumed public offering price of $34.625 per
share, after deducting underwriting discounts and commissions and estimated
offering expenses payable by us.
4
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before purchasing shares of our common
stock. Investing in our common stock involves a high degree of risk. The risks
and uncertainties described below are not the only ones that we face.
Additional risks and uncertainties not presently known to us or that we
currently believe are immaterial also may impair our business. If any of the
events described in the following risks occur, our business, results of
operations and financial condition could be materially adversely affected. In
addition, the trading price of our common stock could decline due to any of the
events described in these risks, and you may lose all or part of your
investment.
Risks Related to Our Company
Our quarterly revenues and operating results may fluctuate because of a variety
of factors, any of which may result in volatility or a decrease in the price of
our common shares.
Our quarterly revenues and operating results may vary significantly because
of a number of factors, including:
. cyclicality in the semiconductor industry;
. changes in general economic conditions and specific conditions in the
geographic areas where we or our customers do business;
. the timing of customer orders, cancellations and shipments;
. production capacity constraints;
. the length and variability of the sales cycle for our products;
. the emergence of new industry standards and product obsolescence;
. the introduction of new products and enhancements by us or our
competitors;
. disruptions in sources of supply;
. our ability to fund our capital requirements;
. changes in our pricing and pricing by our suppliers, competitors and
customers;
. changes in our product mix; and
. exchange rate fluctuations.
These factors are difficult or impossible to forecast and any of them could
harm our business and results of operations.
We derive a significant percentage of our net sales from a small number of
large customers, and if we are not able to retain these customers, or they
reschedule, reduce or cancel orders, our net sales would be reduced and our
financial results would suffer.
We derive, and believe that in the future we will continue to derive, a
significant portion of our net sales from a limited number of customers. For
example, our largest ten customers represented 49.0% and 39.5% of our net sales
for the three months ended March 31, 2000 and for the year ended December 31,
1999, respectively. Applied Materials, our largest customer, accounted for
35.7% and 22.5%, respectively, of our net sales for these periods. We expect to
depend upon a small number of large customers, particularly Applied Materials,
for a significant portion of our net sales for the foreseeable future. The loss
of or decrease in orders from one or more major customers could significantly
reduce our net sales and profitability. In addition, because our sales are
concentrated to a small number of large customers, these customers may be able
to exert pricing pressure on us which could lead to decreases in our gross
margins.
The level and timing of orders placed by our customers vary because of a
number of factors, including customer attempts to manage inventory, changes in
customer manufacturing strategies and variations in demand
5
<PAGE>
for customer products. Because we do not obtain long-term purchase orders or
commitments from our customers, we must anticipate the future volume of orders
based on discussions with our customers. We rely on our estimates of
anticipated future volumes when making commitments regarding the orders that we
will seek and accept, product mix, product schedules and levels and utilization
of personnel, equipment and other resources. A customer may cancel, reduce or
delay orders that were previously made or anticipated. A significant portion of
our backlog at any time may be subject to cancellation or postponement without
penalty. We may not be able to timely replace canceled or delayed orders.
Significant or numerous cancellations, reductions or delays in orders by a
customer or group of customers could lead to under-utilization of our installed
capacity and materially harm our results of operations.
The semiconductor industry is highly cyclical. Because the semiconductor
capital equipment market has become a larger portion of our net sales, a
downturn in this industry may result in poor operating performance.
Our business depends, and we believe will increasingly depend, on the
procurement expenditures of semiconductor capital equipment manufacturers,
which, in turn, is dependent upon the current and anticipated demand for
semiconductors and products utilizing semiconductors. The semiconductor
industry is highly cyclical and historically has experienced significant
periodic downturns. These downturns generally have adversely affected the
sales, gross profits and operating results of semiconductor materials and
equipment suppliers. From 1996 through 1998, the semiconductor industry
experienced a downturn, which led semiconductor manufacturers to delay or
cancel capital expenditures. During this downturn, some of our customers
delayed or canceled purchases of semiconductor components and materials, which
had a negative impact on our net sales, gross profits and operating results.
While this downturn was not significant to us because the semiconductor capital
equipment market represented only a small percentage of our net sales at that
time, future downturns will have a greater impact on our net sales and
financial results as the semiconductor capital equipment market now represents
a greater portion of our net sales. We cannot predict when downturns will occur
nor how severely we will be affected.
If it is determined that our recent spin-off from Graphic Packaging
International Corporation, formerly named ACX Technologies, Inc., is not tax-
free, we could be liable to Graphic Packaging for any tax liability related to
the spin-off.
In connection with our December 31, 1999 spin-off from Graphic Packaging, we
obtained a private letter ruling from the Internal Revenue Service that the
spin-off would be a tax-free transaction to Graphic Packaging and its
shareholders so long as certain conditions are met. Among these conditions is
the requirement that we incur additional indebtedness to finance acquisitions.
Since the spin-off, a variety of factors have changed, both within our company
and in the markets we serve, that may make it impractical for us to complete
such acquisitions. In light of the foregoing, we currently plan to apply to the
Internal Revenue Service for a supplemental private letter ruling that the
spin-off will continue to be a tax-free transaction. However, we do not know
whether the Internal Revenue Service will issue the requested supplemental
private letter ruling, whether such a ruling, if issued, will contain
conditions that we will be able to satisfy or whether the spin-off will
ultimately be determined to be a taxable transaction if we do not receive such
ruling. We have agreed to indemnify Graphic Packaging against liabilities in
the event that non-fulfillment of our undertakings causes the spin-off to
become taxable. While we cannot accurately predict the amount of our ultimate
liability in the event the spin-off is determined to be a taxable transaction,
the resulting payment obligations could materially affect our assets, the value
of our company and our stock price.
Our semiconductor capital equipment component business requires substantial
resources, and we may not be able to increase our net sales or maintain our
market share if we do not increase our manufacturing capacity.
The semiconductor capital equipment business has high fixed costs and the
process by which components are manufactured is becoming increasingly complex.
This trend is driving the need for substantial investments in advanced
production facilities, engineering and manufacturing expertise and technology.
We believe our long-term competitive position depends in part on our ability to
increase manufacturing capacity. In certain
6
<PAGE>
product lines within the semiconductor capital equipment market, we are
currently manufacturing at full capacity. We will need to invest in additional
plants and equipment to expand capacity in our current facilities or through
acquisitions. Either of these alternatives will require substantial additional
capital, which we may not be able to obtain on favorable terms or at all.
Further, we may not be able to acquire sufficient capacity or successfully
integrate and manage additional facilities. Even if we are able to obtain
sufficient capital, expansion of some of our current facilities may take more
than one year. The failure to obtain capacity when needed or to successfully
integrate and manage additional manufacturing facilities could adversely impact
our relationships with our customers and materially harm our business and
results of operation.
We are growing and may be unable to manage our growth effectively.
Our past growth, and our expected future growth, places significant demands
on our management systems and resources including our financial and managerial
controls, reporting systems and procedures. In addition, we will need to
continue to expand, train and manage our workforce worldwide. We may not be
able to raise cash to support our expected growth on terms acceptable to us or
at all. Financing may be on terms that are dilutive or potentially dilutive. If
sources of financing are insufficient or unavailable, we will be required to
modify our growth and operating plans.
We may make future acquisitions that may be costly, difficult to integrate,
divert management resources or dilute stockholder value.
Part of our continuing business strategy is to make acquisitions of, or
investments in, companies, products or technologies that complement our current
products, enhance our market coverage, technical capabilities or production
capacity, or offer growth opportunities. Future acquisitions could pose
numerous risks to our operations, including:
.difficulty integrating the purchased operations, technologies or
products;
. unanticipated costs;
. diversion of management's attention from our core business;
. adverse effects on existing business relationships with suppliers and
customers;
. entrance into markets in which we have limited or no prior experience;
and
. potential loss of key employees, particularly those of the purchased
operation.
In connection with these acquisitions or investments, we could incur debt,
amortization expenses related to goodwill and other intangible assets, large
and immediate write-offs, assume liabilities, or issue stock that would dilute
our current stockholders' percentage of ownership. We may not be able to
complete acquisitions or integrate the operations, products or personnel gained
through any such acquisition without a material adverse effect on our business,
financial condition and results of operations.
Our dependence on sole and limited source suppliers could materially harm our
business and results of operations.
We rely on sole and limited source suppliers for certain raw materials,
components and subassemblies that are critical to our business. This reliance
involves several risks, including the following:
. the potential inability to obtain an adequate supply of required raw
materials, components or subassemblies;
. the reduced control over pricing and timing of delivery of raw
materials, components or subassemblies; and
. the potential inability of our suppliers to develop technologically
advanced products to support our expected growth and development of
new products and assemblies.
7
<PAGE>
Seeking alternative sources of raw materials or parts could require us to
redesign our products, resulting in increased costs and shipping delays. We may
be unable to redesign our products. These increased costs would decrease our
profit margins if we were unable to pass the costs on to our customers.
Further, if we experience shipping delays or if we do not maintain acceptable
product quality or reliability in the future, our relationships with current
and potential customers could be damaged, which would cause a material adverse
effect on our business and results of operations.
Sales to foreign markets constitute approximately 19% of our gross sales and,
therefore, our sales and results of operations could be adversely affected by
economic conditions in countries outside of the U.S., exchange rate
fluctuations and our failure to comply with U.S. international laws.
International sales, which include sales by our foreign manufacturing
facilities, accounted for approximately 16.7% of gross sales for the three
months ended March 31, 2000, 19.3% of gross sales for 1999 and 24.9% of gross
sales for 1998. We are subject to the risks inherent in doing business
internationally, including:
. fluctuations in exchange rates and currency controls;
. political and economic conditions and instability;
. imposition of trade barriers and restrictions, including changes in
tariff and freight rates;
. the difficulty of coordinating our management and operations in
several different countries;
. liability for not complying with complex laws governing exports,
embargoes, boycotts and sanctions, sales of products used in atomic
energy applications and the Foreign Corrupt Practices Act;
. limited intellectual property protection in some countries;
. longer accounts receivable payment cycles in some countries; and
. the burden of complying with a variety of foreign laws.
An increase in the exchange value of the U.S. dollar would reduce the value
of revenue and profits generated by our international operations in Scotland
and Korea. The strength of the dollar relative to the currency of our customers
or competitors may have a material effect on our profit margins or sales to
international customers.
We anticipate that international sales will continue to account for a
significant portion of our net sales. In addition, certain of our key domestic
customers derive a significant portion of their revenues from sales in
international markets. Therefore, our net sales and results of operations could
be adversely affected by economic slowdowns and other risks associated with
international sales.
Because we maintain floating interest rate debt, changes in interest rates will
impact our earnings.
We had approximately $226.3 million of floating interest rate debt as of
March 31, 2000. As interest rates fluctuate, we may experience increases in
interest expense which may materially impact financial results. For example, if
interest rates were to increase or decrease 1%, the result would be an annual
increase or decrease of interest expense of approximately $2.3 million.
We have invested significant resources in the development of 300mm
semiconductor wafer manufacturing technology. If 300mm fabrication is not
widely accepted or we fail to successfully develop 300mm products that are
accepted by the marketplace, our long-term growth could be diminished.
To date, we have invested significantly, and expect to continue investing
significantly, in the development of 300mm wafer technology for high
performance semiconductor manufacturing. The development of this technology is
emerging and complex, and the market for equipment incorporating this
technology is not expected to reach commercial acceptance until after 2000. We
cannot assure you that our efforts in this area will be timely, technologically
successful or commercially accepted. If we fail to achieve commercial success
in 300mm wafer manufacturing technology for the semiconductor capital equipment
market, our long-term growth prospects could be diminished.
8
<PAGE>
A breach of any of the restrictive covenants in our bank credit facility could
result in a default. If we are unable to repay our debt, the lender has the
right to foreclose on our assets pledged as security.
Our bank credit facility contains restrictive covenants and requires us to
maintain specified financial ratios and satisfy financial condition tests at
the end of each quarter. Our ability to meet these financial ratios and tests
may be affected by events beyond our control, and we cannot assure you that we
will meet those tests. A breach of any of these covenants could result in a
default under our bank credit facility. All of our inventory and accounts are
pledged as security under our bank credit facility. If the lender accelerates
amounts owed under the bank credit facility because of a default, and we are
unable to pay such amounts, the lender has the right to foreclose on our
assets.
Our business is difficult to evaluate because we have a limited operating
history as an independent company and have been focused on our current business
strategy for only approximately two years.
We were a wholly owned subsidiary of Graphic Packaging until January 2000.
As a result, until recently, we relied on Graphic Packaging for cash
management, tax, legal, risk management and investor relations services and
access to capital markets. Our continued implementation of these functions as
an independent company may not be cost-effective. Not only is our operating
history as an independent company short, but we refocused our business strategy
in 1998 to emphasize supplying the semiconductor capital equipment market.
Accordingly, we have a limited operating history from which you can evaluate
our present business and future prospects and face risks and uncertainties
relating to our ability to implement our business plan successfully. Our
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by newly public companies that have recently changed
their business strategies, particularly companies in the intensely competitive
semiconductor capital equipment component industry. If we are unsuccessful in
addressing these risks and uncertainties, our business, results of operations,
financial condition and prospects will be materially harmed.
We are parties to litigation which, if we are found liable, could have a
material adverse effect on our business and results of operations.
In the ordinary course of business, we are subject to various pending
claims, lawsuits and contingent liabilities. We are currently subject to a
claim by five former employees alleging gender discrimination, sexual
harassment and retaliation. These five plaintiffs are seeking class
certification, which we are resisting based on the distinctions among their
respective claims. If the class were to be certified, our management's
attention may be diverted from the operation of our business, and we would
likely incur substantial defense costs. Additionally, if these plaintiffs were
ultimately successful, we could incur costs which would materially harm our
business and financial condition.
If we lose key personnel, we could experience reduced sales, delayed product
development and diversion of management resources.
Our success depends largely on the continued contributions of our key
management, engineering, sales and marketing and professional services
personnel, many of whom would be difficult to replace. If one or more of these
key employees were to resign, we may experience loss of sales, delays in new
product development and diversion of management resources. In addition, we do
not maintain "key man" insurance policies on any of our personnel, but we
generally require our personnel to enter into non-compete agreements with us.
Competition in the markets we serve is intense and diverse and could reduce our
sales and prevent us from maintaining profitability.
We compete in the market for precision metal machining and assembly of
semiconductor capital equipment and in the market for advanced materials. Our
competitors in precision metal machining are typically
smaller, privately-held companies. In addition, we compete with the in-house
manufacturing and assembly
9
<PAGE>
capabilities of our current and potential customers who continually evaluate
the relative benefits of internal manufacturing compared to outsourcing. Our
competitors in the advanced materials industry are typically divisions of
large, multinational companies such as Kyocera Corporation (Japan), Morgan
Crucible Co. (United Kingdom), NGK Insulators, Ltd. (Japan), Metallgesellshaft
AG (Germany) and Saint Gobain (France). We believe that some of these
competitors in the advanced materials industry may enter the market for
precision metal machining for semiconductor capital equipment.
Some of our competitors and potential competitors may have a number of
significant advantages over us, including:
. greater financial, technical, marketing and manufacturing resources;
. preferred vendor status with our existing and potential customers;
. more extensive delivery capabilities and broader geographic scope; and
. larger customer bases.
In addition, these competitors may have the ability to respond more quickly
to new or emerging technologies, may adapt more quickly to changes in customer
requirements and may devote greater resources to the development, promotion and
sale of their products than us. We must continually develop improved
manufacturing processes to meet our customers' needs for complex products.
Furthermore, our basic manufacturing technology is not subject to significant
proprietary protection. We may not be able to maintain or expand our sales if
competition increases and we are unable to respond effectively. During
downturns in the semiconductor industry, our customers may become more price
sensitive, thereby reducing the importance of our competitive advantages in the
areas of providing an integrated manufacturing solution and responsive customer
service.
Our success depends, in part, on intellectual property, which may be difficult
to protect and could affect our ability to compete effectively.
We believe that our success depends, in part, on our ability to obtain and
protect patents. We currently have 53 U.S. and foreign patents and 23 patent
applications pending.
We cannot assure you that:
. pending patent applications or any future applications will be
approved;
. any patents will provide us with competitive advantages or will not be
challenged by third parties; and
. the patents of others will not have an adverse effect on our ability to
do business.
Others may independently develop similar products, duplicate our products
or, if patents are issued to us, design around our patents. In addition, we may
be forced to expend time and resources on litigation to defend our intellectual
property rights against third parties. Further, because patents may afford less
protection under foreign law than is available under U.S. law, we cannot assure
you that any foreign patents issued to us will adequately protect our
proprietary rights.
In addition to patents, we rely upon trade secrets to protect our
manufacturing and sales processes and products. We take certain measures to
protect our trade secrets, including executing non-disclosure agreements with
our employees, customers and suppliers. Despite these efforts,
. others may independently develop substantially equivalent proprietary
information and techniques;
. competitors may otherwise gain access to our trade secrets;
. others may disclose our technology; and
10
<PAGE>
. we may not be able to meaningfully protect our trade secrets.
Successful infringement claims by third parties could result in substantial
damages, lost product sales and the loss of important proprietary rights.
There has been substantial litigation regarding patent and other
intellectual property rights in the semiconductor capital equipment and other
high technology industries. In the future, we may be notified of allegations
that we may be infringing on the intellectual property rights possessed by
others. Even if we are ultimately successful in our defense, any litigation of
this type could result in substantial cost and diversion of time and effort by
our management, which by itself could have a negative impact on our business.
Adverse determinations in that litigation could:
. result in our loss of proprietary rights;
. subject us to significant liabilities, including treble damages in some
instances;
. require us to seek licenses from third parties, which may not be
available on reasonable terms, if at all; and
. prevent us from manufacturing and selling our products.
Any of these outcomes could harm our business.
Our results of operations and reputation could be harmed by environmental
regulation and associated costs.
We are required to comply with foreign, federal, state and local laws and
regulations regarding health and safety and the protection of the environment
including those governing the storage, use, handling, discharge and disposal of
hazardous substances in the ordinary course of our manufacturing processes. We
are required to obtain and comply with various permits under current
environmental laws and regulations, and new laws and regulations may require us
to obtain and comply with additional permits. We may be unable to obtain or
comply with, and could be subject to revocation of, permits necessary to
conduct our business.
Environmental laws and regulations may be enacted or interpreted to impose
environmental liability on us with respect to our facilities or operations.
Under various foreign, federal, state and local laws and regulations relating
to the protection of the environment, an owner or operator of real property may
be held liable for the costs of investigation or remediation of certain
substances located at or emanating from the property. These laws often impose
liability without regard to fault for the presence of such substances. The
costs of investigation or remediation of such substances may be substantial,
and the presence of such substances may adversely affect the ability to sell or
lease the property or borrow using such property as collateral. The presence of
such substances may also expose the owner or operator to liability resulting
from any release of or exposure to such substances, including toxic tort
claims. Persons who arrange for the disposal or treatment of certain substances
may also be liable for the costs of investigation and remediation of such
substances at the disposal facility, whether or not such facility is owned or
operated by such person. Third parties may also seek recovery from owners or
operators of real properties for personal injury associated with the release of
certain substances. We are currently involved in environmental remediation
efforts. In connection with our ownership and operation of our current and
former facilities, we may be liable for other investigation or remediation
costs, as well as certain related costs, including fines and penalties and
injuries to persons and property. Further, we cannot assure you that additional
environmental matters will not arise in the future at our sites where no
problem is currently known to us or at sites that we may acquire in the future.
More stringent environmental laws as well as more vigorous enforcement policies
or discovery of previously unknown conditions requiring remediation could have
a material adverse effect on our business, financial condition and results of
operations.
11
<PAGE>
We may have difficulty responding to rapidly changing technology, materials and
processes, which may harm our operating results.
The market for semiconductor capital equipment components is characterized
by rapidly changing technology and continuing process development. Our future
success will depend in large part upon our ability to timely and cost-
effectively:
. maintain and enhance our technological capabilities;
. develop and market products and services that meet changing customer
needs; and
. successfully anticipate or respond to technological changes.
In addition, the semiconductor capital equipment component market could
encounter competition from new technologies that render existing semiconductor
capital equipment component technology less competitive or obsolete, including
technologies that may reduce the number of semiconductors required in
electronic equipment. We may not be able to effectively respond to the
technological requirements of the evolving market. If we determine that new
technologies and equipment are required to remain competitive, we may have to
invest significant capital in the development, acquisition and implementation
of these technologies and equipment. We may not be able to access sufficient
capital for this purpose in the future. In addition, investments in new
technologies may not provide us with commercially viable technological
processes, or there may not be commercial applications for the technologies we
acquire or develop. If we are unable to develop or utilize new technologies, or
if our competitors are more effective at developing or utilizing new
technologies, our business could be harmed.
Defects in our products could diminish demand for our products and result in
loss of sales, delay in market acceptance and injury to our reputation.
Complex components and assemblies like ours may contain undetected errors or
defects that are subsequently detected at any point in the life of the product.
We have in the past discovered errors in our products and, as a result, have
experienced delays in the shipment of products during the period required to
correct these errors. Defects in our products may result in loss of sales,
delay in market acceptance, injury to our reputation or increased warranty
costs.
If we become subject to product liability litigation, it could be costly and
time consuming to defend.
Since our products are used in applications that are integral to our
customers' businesses, errors, defects or other performance problems could
result in financial or other damages to our customers. Although our purchase
orders generally contain provisions designed to limit our exposure to product
liability claims, existing or future laws or unfavorable judicial decisions
could negate these provisions. Product liability litigation, even if it were
unsuccessful, would be time consuming and costly to defend. Additionally,
although we carry product liability insurance, in some circumstances it may not
be adequate to cover claims.
Risks Related to This Offering
The market price of our common stock has been and may continue to be highly
volatile.
The market price of our common stock has fluctuated widely and may continue
to do so. For example, for the period from our spin-off from Graphic Packaging
in January 2000 through June 21, 2000, the trading price of our common stock
has ranged from a high of $49.44 per share to a low of $14.75 per share. Many
factors could cause the market price of our common stock to rise and fall. Some
of these factors include:
. actual or anticipated variations in our quarterly operating results;
. limited average daily trading volume of our common stock;
12
<PAGE>
. announcements of technological innovations or new products by us or our
competitors;
. conditions and trends in the semiconductor capital equipment component
industry;
. changes in estimates of our performance or recommendations by
securities analysts;
. market conditions in our industries and the economy as a whole;
. announcements by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments;
. additions or departures of key personnel; and
. other events or factors, many of which are beyond our control.
The financial markets in the U.S. have experienced significant price and
volume fluctuations, and the market prices of companies in the semiconductor
industry have been and continue to be extremely volatile. Historically,
following periods of volatility in the market price of a public company's
securities, securities class action litigation has been initiated against that
company. Such litigation could result in substantial costs and a diversion of
our management's attention and resources.
Coors family trusts will, in the aggregate, continue to own a significant
amount of our common stock and will have influence over our business after the
offering regardless of the opposition of other stockholders.
Coors family trusts will, in the aggregate, own approximately 35.1% of our
outstanding common stock following the completion of this offering. Joseph
Coors, Jr., our Chairman and Chief Executive Officer, and John K. Coors, our
President and a director, are trustees of some of these trusts. The interests
of these stockholders may not always coincide with our interests or those of
our other stockholders. These stockholders, acting together, will continue to
have significant influence over all matters submitted to our stockholders,
including the election of our directors and approval of business combinations,
and could delay, deter or prevent a change of control of our company. These
stockholders will be able to exercise significant control over our business,
policies and affairs.
While 75% of the net proceeds from this offering must be used to repay
indebtedness, we have discretion as to the use of the remaining proceeds and
may not obtain a significant return on the use of these remaining proceeds.
While 75% of the net proceeds from this offering must be used to repay
indebtedness under our credit facility, our management has broad discretion as
to how to spend the remaining proceeds and may spend these proceeds in ways
with which our stockholders may not agree. We plan to use the remaining
proceeds from this offering to repay additional indebtedness under our credit
facility, or for working capital or other general corporate purposes. We may
also use some of the proceeds to acquire other companies, technologies or
assets that complement our business. We cannot predict that investment of the
proceeds will yield a favorable return.
Our charter documents and Delaware law may inhibit a takeover or change in our
control that stockholders may consider beneficial.
Provisions in our Certificate of Incorporation and Bylaws may have the
effect of delaying or preventing a merger or acquisition of us, or making a
merger or acquisition less desirable to a potential acquirer, even when the
stockholders may consider the acquisition or merger favorable. Our Certificate
of Incorporation provides for a staggered board of directors, which will make
it more difficult for a group of stockholders to elect board members of their
choice. Our stockholders have adopted a stockholder rights plan, or "poison
pill," which may have the effect of delaying or prohibiting our acquisition and
may also make a merger or acquisition of us less desirable. Provisions of the
Delaware General Corporation Law may also delay, prevent or discourage someone
from merging with or acquiring us.
13
<PAGE>
Future sales of our stock could cause the price of our stock to decline.
Sales of a substantial number of shares of our common stock in the public
market after this offering could cause the market price of our common stock to
decline. In addition, the sale of these shares could impair our ability to
raise capital through the sale of additional equity securities. Upon the
completion of this offering, we will have approximately 9,183,058 shares of
common stock outstanding, and approximately 9,483,058 shares if the
underwriters' over-allotment option is exercised in full, based on shares
outstanding as of June 1, 2000.
On both the 91st and 181st days following this offering, a substantial number
of shares of our common stock may become eligible for sale.
All of our executive officers and directors and several of our
securityholders holding an aggregate of 2,277,708 shares of our common stock
have agreed that they will not offer, sell, agree to sell, directly or
indirectly, or otherwise dispose of any shares of common stock without the
prior written consent of FleetBoston Robertson Stephens Inc. for a period of
180 days after the date of this prospectus. FleetBoston Robertson Stephens Inc.
granted an exception to three of our executive officers to transfer or dispose
of an aggregate of 39,261 shares of our common stock underlying option grants
that, according to their terms, expire before the 181st day following this
offering. Warrantholders having the right to purchase an aggregate of 168,768
shares of our common stock have agreed that they will not offer, sell, agree to
sell directly or indirectly, or otherwise dispose of any of these shares of our
common stock without the prior written consent of FleetBoston Robertson
Stephens Inc. for a period of 90 days after the date of this prospectus. After
the expiration of this period, shares held by some of these stockholders will
become eligible for sale to the public free from any contractual restrictions.
The market price of our common stock could decline as a result of sales of a
large number of shares after this offering or the perception that sales could
occur. In addition, the large number of shares eligible for sale might make it
more difficult for us to sell common stock in the future at a time and or a
price that we deem appropriate.
We do not plan to pay dividends in the foreseeable future.
We do not anticipate paying cash dividends to the holders of our common
stock in the foreseeable future. Additionally, we are currently restricted from
paying any non-stock dividends under our credit facility. Accordingly,
investors must rely on sales of their common stock after price appreciation,
which may never occur, as the only way to realize a return on their investment.
Investors seeking cash dividends should not purchase our common stock.
14
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities and
Exchange Act of 1934. These statements identify risks and uncertainties and
relate to future events or our future financial performance. In some cases you
can identify forward-looking statements by terminology including "could,"
"may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate,"
"predict," "potential" or "continue" or the negative of these terms or other
comparable terminology. These statements are only predictions. Actual events or
results may differ materially. In evaluating these statements, you should
specifically consider various factors, including the risks described above and
in other parts of this prospectus. These factors may cause our actual results
to differ materially from any forward-looking statements. Although we believe
the expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform them to actual results
or to changes in our expectations.
USE OF PROCEEDS
Net proceeds from the sale of the 2,000,000 shares of common stock in this
offering are estimated to be approximately $62.3 million at an assumed public
offering price of $34.625 per share, after deducting estimated underwriting
discounts and commissions and our estimated offering expenses. The net proceeds
will be approximately $72.1 million if the underwriters' over-allotment option
is exercised in full.
Our credit facility requires that 75% of the net proceeds, or approximately
$46.7 million, from this offering be used to repay indebtedness. We expect to
use the balance of the net proceeds of this offering to repay additional
indebtedness under this facility, or for working capital or other general
corporate purposes. We also may use a portion of the net proceeds of this
offering to acquire or invest in complementary businesses or technologies,
although we have no present commitments or agreements with respect to any
material acquisition or investment. Pending the application of the proceeds
towards one of the above uses, we intend to invest the net offering proceeds in
short-term, interest-bearing, investment-grade securities.
We are required to use 75% of the net proceeds to repay, ratably Term Loan A
and Term Loan B, our credit facility. However, Term Loan B note holders have
the option to reject any prepayment. If Term Loan B note holders do reject
prepayment, the remainder of the proceeds are applied to Term Loan A. As of May
31, 2000, Term Loan A had a balance of $83.1 million and an interest rate of
8.55% and matures on December 6, 2004. As of May 31, 2000, Term Loan B had a
balance of $89.8 million and an interest rate of 9.30% and matures on December
2, 2006.
As of May 31, 2000, we had $225.9 million borrowed under our credit
facility. On January 4, 2000, we used $200.0 million of this credit facility to
pay Graphic Packaging for intercompany obligations and a one-time dividend in
conjunction with our spin-off. The remainder of the borrowings was used to fund
working capital and capital expenditures primarily for our semiconductor
capital equipment business.
15
<PAGE>
PRICE RANGE OF OUR COMMON STOCK
Our common stock has been traded on the Nasdaq National Market under the
symbol "CRTK" since January 4, 2000. The following table sets forth, for the
periods indicated, the high and low closing daily sales prices for our common
stock as reported by the Nasdaq National Market:
<TABLE>
<CAPTION>
Price Range
of
Common Stock
-------------
2000 High Low
---- ------ ------
<S> <C> <C>
First Quarter (commencing on January 4, 2000)................. $42.00 $16.00
Second Quarter (through June 21, 2000)........................ 47.13 32.00
</TABLE>
On June 21, 2000, the last reported sale price for our common stock on the
Nasdaq National Market was $34.625 per share. As of June 1, 2000, there were
approximately 2,722 holders of record of our common stock.
DIVIDEND POLICY
Other than a special, one-time dividend of $131.6 million paid to Graphic
Packaging in connection with our spin-off, we have not declared or paid any
cash dividends on our common stock or other securities during any of the
periods presented above, and we do not intend to pay any cash dividends with
respect to our common stock in the foreseeable future. Additionally, we are
restricted from paying non-stock dividends under our credit facility. We intend
to retain any earnings for use in the operation of our business and to fund
future growth.
16
<PAGE>
CAPITALIZATION
The following unaudited table sets forth our capitalization as of March 31,
2000:
. on an actual basis; and
. on an as adjusted basis to reflect the sale of 2,000,000 shares of
common stock offered at an assumed public offering price of $34.625
per share, after deducting the estimated underwriting discounts and
commissions and offering expenses, and the application of the net
proceeds.
Please read this table in conjunction with our consolidated financial
statements and the related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
March 31, 2000
---------------------
Actual As Adjusted
-------- -----------
(in thousands,
except share data)
<S> <C> <C>
Current maturities of long-term debt.................. $ 9,025 $ 9,025
Long-term debt, excluding current maturities.......... 217,267 154,942
Stockholders' equity:
Common stock, $0.01 par value, 100,000,000 shares
authorized; 7,146,284 shares issued and
outstanding, actual; 9,146,284 shares issued and
outstanding, as adjusted........................... 72 92
Paid-in capital..................................... 57,862 120,167
Paid-in capital--warrants........................... 1,600 1,600
Retained earnings................................... 5,202 5,202
Other............................................... (325) (325)
-------- --------
Total stockholders' equity........................ 64,411 126,736
-------- --------
Total capitalization............................ $290,703 $290,703
======== ========
</TABLE>
The outstanding share information is based on our shares outstanding as of
March 31, 2000. This information excludes:
. 1,301,729 shares of common stock underlying options granted under our
Stock Option and Incentive Plan and outstanding as of March 31, 2000
at a weighted average exercise price of $26.74 per share;
. 168,768 shares of common stock reserved for exercise of outstanding
warrants at an exercise price of $22.22 per share;
. 840,883 shares of common stock reserved for issuance under our Stock
Option and Incentive Plan;
. 500,000 shares of common stock reserved for issuance under our
Employee Stock Purchase Plan; and
. 47,244 shares of common stock unissued under our Executive Deferred
Compensation Plan.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and the related notes
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The selected consolidated
statement of income data for the years ended December 31, 1997, 1998 and 1999,
and selected consolidated balance sheet data as of December 31, 1997, 1998 and
1999, are derived from our audited consolidated financial statements. The
selected consolidated statement of income data for the years ended December 31,
1995 and 1996 and the selected consolidated balance sheet data as of December
31, 1995 and 1996 are derived from our unaudited consolidated financial
statements. The selected consolidated statement of income data for the three
months ended March 31, 1999 and 2000 and the selected consolidated balance
sheet data as of March 31, 2000 are derived from our unaudited consolidated
financial statements. The operating results for the three months ended March
31, 2000 are not necessarily indicative of results that may be expected for the
year ended December 31, 2000 or any other interim period or future year.
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended December 31, March 31,
----------------------------------------------- -----------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- ------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income
Data:
Net sales............... $270,877 $276,352 $304,824 $296,614 $365,061 $76,579 $120,819
Cost of goods sold...... 190,711 200,220 219,821 222,906 274,398 58,305 93,400
-------- -------- -------- -------- -------- ------- --------
Gross profit............ 80,166 76,132 85,003 73,708 90,663 18,274 27,419
Selling, general and
administrative ex-
penses................. 36,613 35,928 41,754 37,758 53,202 9,008 14,449
Asset impairment
charges................ 438 -- -- 11,814 -- -- --
-------- -------- -------- -------- -------- ------- --------
Operating income........ 43,115 40,204 43,249 24,136 37,461 9,266 12,970
Interest and other in-
come
(expense), net......... 393 (6) (68) (3,524) (4,981) (701) (4,713)
-------- -------- -------- -------- -------- ------- --------
Income before income
taxes.................. 43,508 40,198 43,181 20,612 32,480 8,565 8,257
Income tax expense...... 14,545 14,996 16,192 7,682 12,425 3,355 3,055
-------- -------- -------- -------- -------- ------- --------
Net income.............. $ 28,963 $ 25,202 $ 26,989 $ 12,930 $ 20,055 $ 5,210 $ 5,202
======== ======== ======== ======== ======== ======= ========
Net income per share:
Basic................. $ 4.06 $ 3.53 $ 3.78 $ 1.81 $ 2.81 $ 0.73 $ 0.73
======== ======== ======== ======== ======== ======= ========
Diluted............... $ 4.06 $ 3.53 $ 3.78 $ 1.81 $ 2.81 $ 0.73 $ 0.72
======== ======== ======== ======== ======== ======= ========
Weighted average shares
outstanding:
Basic................. 7,142 7,142 7,142 7,142 7,142 7,142 7,143
======== ======== ======== ======== ======== ======= ========
Diluted............... 7,142 7,142 7,142 7,142 7,142 7,142 7,220
======== ======== ======== ======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
December 31, March
-------------------------------------------- 31,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets............ $189,191 $216,635 $262,687 $278,359 $327,490 $364,057
Working capital......... 47,567 62,480 71,649 89,295 83,674 104,622
Long-term debt.......... -- -- -- 50,000 191,600 217,267
Total stockholders'
equity................. 130,381 163,463 203,155 165,825 59,388 64,411
</TABLE>
The statement of income data appearing above includes the results of
operations of each of the companies that we have acquired since the date of
acquisition. See Note 3 of the notes to our consolidated financial statements.
For 1998, operating expenses included $11.8 million of asset impairment
charges. See Note 4 of the notes to our consolidated financial statements.
Prior to January 1, 2000, we were not a public company and our capital
structure was not indicative of our current structure. As such, earnings per
share for 1995, 1996, 1997, 1998 and 1999 have been calculated using the actual
number of shares distributed on December 31, 1999. See Note 2 of the notes to
our consolidated financial statements.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We are a leading designer and manufacturer of components and assemblies for
semiconductor capital equipment and for telecommunications, electronics,
automotive, medical and other industrial applications. We use advanced
materials such as precision-machined metals, technical ceramics and engineered
plastics to design solutions that enable our customers' products to overcome
technological barriers and enhance performance. We offer custom-designed
products to over 5,000 customers worldwide, including leading manufacturers
such as Applied Materials, LAM Research and Texas Instruments.
Since our founding 89 years ago, we have developed expertise in designing,
engineering, manufacturing and assembling advanced ceramics components. We have
leveraged these core competencies to expand our product offerings to include
metals and plastics, and targeted new opportunities in other high growth
industries.
At the end of 1998, we focused our resources on growing our business in the
semiconductor capital equipment market, both internally and through
acquisitions. Since 1998, we have completed five strategic acquisitions of
suppliers to the semiconductor capital equipment market. In March 1999, we
acquired two manufacturers of precision-machined metal products: Edwards
Enterprises located in Newark, California and Precision Technologies located in
Livermore, California. In April 1999, we acquired Dallas Ceramics, Inc., a
manufacturer of ceramic components located in Dallas, Texas. In December 1999,
we acquired Doo Young Semitek Co., Ltd., a manufacturer of technical ceramic
components located in Kyungbook, South Korea. In March 2000, we acquired
Liberty Machine, Inc., a manufacturer of metal components and assemblies
located in Fremont, California.
Our net sales to the semiconductor capital equipment market have increased
significantly, growing from $17.1 million, or 5.8%, of our net sales for 1998
to $111.1 million, or 30.4%, of our net sales for 1999. For the three months
ended March 31, 2000, our net sales to this market were $53.6 million, or
44.3%, of our net sales. Our largest semiconductor customer, Applied Materials,
accounted for 22.5% of net sales for 1999 and 35.7% of net sales for the three
months ended March 31, 2000. As a result of the significance of our
semiconductor business, we now report two business segments, Semiconductor and
Advanced Materials.
At the end of January 2000, we began to provide clean room assembly services
for a major semiconductor capital equipment customer. These services include
assembling various components, some of which are manufactured by us, for
inclusion in our customer's final products. In providing assembly services, we
are enhancing our position as a leading strategic supplier for major customers
in the markets that we serve. Compared with our historical semiconductor
business, our assembly services have lower gross margins but significantly
lower capital requirements.
We recognize revenue when our products are shipped or our services have been
rendered. We sell products primarily to OEMs for incorporation into
semiconductor capital equipment and other industrial applications. We generate
sales through direct sales employees, manufacturers' representatives and
distributors located throughout the U.S., Asia and Europe. Our sales personnel,
many with engineering expertise, receive substantial technical assistance from
our development engineers because of the highly technical nature of our
products. Initial sales are typically the result of a multi-level sales effort
that involves senior management, design engineers and our sales personnel
interacting with our customers' decision-makers throughout the product
development and purchasing processes.
Development and engineering are core elements of our business. However, we
have not historically reported separate research and development expenses.
Since development expenses are a normal part of our manufacturing costs to
design custom products for specific applications, our development and
engineering expenses are included in our cost of goods sold.
19
<PAGE>
We were incorporated in 1911 as a Colorado corporation and were formerly
named Coors Porcelain Company and operated our business as Coors Ceramics
Company. In December 1999, we reincorporated as a Delaware corporation. Prior
to December 31, 1999, we were a wholly owned subsidiary of Graphic Packaging.
On December 31, 1999, we spun off from Graphic Packaging through a 100%
distribution of our shares to Graphic Packaging shareholders. Prior to the
spin-off, Graphic Packaging provided general management, legal, treasury, tax,
internal audit, financial reporting, investor relations and environmental
services to us. These Graphic Packaging costs were allocated to us in the form
of an annual management fee. We no longer incur these fees but will experience
costs to administer similar functions as a stand-alone company. Graphic
Packaging also provided centralized cash management and allocated interest
income or interest expense to us based on intercompany balances. In conjunction
with the spin-off, we paid Graphic Packaging $131.6 million as a special one-
time dividend and $68.4 million for intercompany obligations.
Results of Operations
The following table sets forth, for the periods indicated, our consolidated
statement of income data reflected as a percentage of our net sales.
<TABLE>
<CAPTION>
Three
Months
Year Ended Ended March
December 31, 31,
------------------- ------------
1997 1998 1999 1999 2000
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net sales.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold......................... 72.1 75.2 75.2 76.1 77.3
----- ----- ----- ----- -----
Gross profit............................... 27.9 24.8 24.8 23.9 22.7
Selling, general and administrative
expenses.................................. 13.7 12.7 14.6 11.8 12.0
Asset impairment charges................... -- 4.0 -- -- --
----- ----- ----- ----- -----
Operating income........................... 14.2 8.1 10.2 12.1 10.7
Interest expense, net...................... -- 1.2 1.4 0.9 3.9
Income tax expense......................... 5.3 2.5 3.3 4.4 2.5
----- ----- ----- ----- -----
Net income................................. 8.9% 4.4% 5.5% 6.8% 4.3%
===== ===== ===== ===== =====
</TABLE>
Results of Operations for the Three Months Ended March 31, 2000 and March 31,
1999
Net sales. Net sales consist of gross sales of components, assemblies and
services, less discounts, allowances and returns. Our net sales for the three
months ended March 31, 2000 were $120.8 million, an increase of $44.2 million,
or 57.8%, from our net sales of $76.6 million for the three months ended March
31, 1999. This increase in sales was primarily attributable to the
Semiconductor segment. Specifically, our acquisitions of Edwards Enterprises
and Precision Technologies in March of 1999, the start of our clean room
assembly business in January 2000 and strong demand in the semiconductor
capital equipment market contributed to this growth. In addition, net sales in
our Advanced Materials segment grew approximately 6.0% in the three months
ended March 31, 2000 following stronger demand and pricing in certain product
lines compared with the three months ended March 31, 1999.
Approximately 44.3% of our net sales for the three months ended March 31,
2000 were to the Semiconductor segment compared with 17.2% for the three months
ended March 31, 1999. One customer, Applied Materials, accounted for
approximately 35.7% of our net sales for the three months ended March 31, 2000.
Cost of goods sold and gross profit. Cost of goods sold consists primarily
of expenses for manufacturing labor, raw materials, manufacturing overhead and
product development. Our gross profit for the three months ended March 31, 2000
was $27.4 million, an increase of $9.1 million, or 50.0%, from $18.3 million
for the three months ended March 31, 1999. Our acquisition of Edwards
Enterprises and Precision Technologies and strong demand in the semiconductor
equipment industry fueled this growth. Our overall increase in gross profit
20
<PAGE>
was partially offset by a slight decrease in gross profit in our Advanced
Materials segment as a result of an unfavorable product mix, costs associated
with new product development and production inefficiencies experienced at
certain facilities. Our gross margin decreased to 22.7% for the three months
ended March 31, 2000 from 23.9% for the three months ended March 31, 1999, in
part because of the decrease in the gross profit of our Advanced Materials
segment described above. In addition, the decrease in our gross margin is
partially attributable to the clean room assembly business we started in
January 2000, which has a lower margin than our historical Semiconductor
segment business.
Selling, general and administrative expenses. Selling, general and
administrative expenses consist primarily of expenses for executive management
compensation, sales salaries and commissions, accounting, information
technology, legal, risk management, treasury, goodwill amortization and certain
other corporate overhead costs. Our selling, general and administrative
expenses for the three months ended March 31, 2000 were $14.4 million, an
increase of $5.4 million, or 60.4%, from $9.0 million for the three months
ended March 31, 1999. Our selling, general and administrative expenses as a
percentage of sales remained relatively consistent at 12.0% for the three
months ended March 31, 2000 compared with 11.8% for the three months ended
March 31, 1999. Selling, general and administrative expenses for the three
months ended March 31, 1999 included $1.3 million in management fees paid to
Graphic Packaging.
Operating income. Our operating income for the three months ended March 31,
2000 was $13.0 million, an increase of $3.7 million, or 40.0%, from $9.3
million for the three months ended March 31, 1999. The increase in our
operating income is primarily due to the increase in net sales in the
Semiconductor segment. Our operating margin for the three months ended March
31, 2000 was 10.7% compared with 12.1% for the three months ended March 31,
1999. The decrease in our operating margin resulted from the decrease in our
gross margin discussed above.
Interest expense, net. For the three months ended March 31, 2000, interest
expense, net, consisted primarily of interest expense associated with our bank
credit facilities. For prior periods, interest expense, net, consisted
primarily of interest expense associated with our intercompany borrowings with
Graphic Packaging. Our interest expense for the three months ended March 31,
2000 was $4.7 million compared with $0.7 million for the three months ended
March 31, 1999. This increase resulted from a $200 million payment to Graphic
Packaging for a one-time dividend and intercompany obligations in conjunction
with the spin-off, which was funded under our $270 million credit facility. In
addition, our interest expense has increased due to borrowings to fund working
capital and capital expenditures, primarily in the Semiconductor segment.
Income tax expense. Income tax expense for the three months ended March 31,
2000 decreased to $3.1 million from $3.4 million for the three months ended
March 31, 1999. Our consolidated effective tax rate was 37.0% for the three
months ended March 31, 2000 compared with 39.2% for the three months ended
March 31, 1999. Foreign tax credit refunds realized for the three months ended
March 31, 2000 resulted in the effective tax rate change.
Results of Operations for the Years Ended December 31, 1999 and December 31,
1998
Net sales. Our net sales for 1999 were $365.1 million, an increase of $68.5
million, or 23.1%, from net sales of $296.6 million for 1998. The acquisitions
of Edwards Enterprises and Precision Technologies in March, 1999 accounted for
the increase in our net sales. Excluding these acquisitions, our net sales
decreased $2.6 million for the year ended December 31, 1999 as compared with
1998. This decrease is primarily attributable to reduced sales in the
industrial and electronic markets within our Advanced Materials segment as a
result of price competition and weakened demand primarily experienced in the
first half of 1999. Our Advanced Materials segment sales strengthened in the
second half of 1999 as demand and pricing improved in these markets.
Approximately 30.4% of our 1999 net sales were to the semiconductor capital
equipment market compared with 5.8% of our 1998 net sales. This increase in
concentration is a result of the Edwards Enterprises
21
<PAGE>
and Precision Technologies acquisitions and strong demand in the semiconductor
capital equipment market. One customer, Applied Materials, accounted for
approximately 22% of our 1999 net sales.
Cost of goods sold and gross profit. Our gross profit for 1999 was $90.7
million, an increase of $17.0 million, or 23.0%, from $73.7 million for 1998.
This increase is attributed to the acquisition of Edwards Enterprises and
Precision Technologies, which contributed $18.2 million to gross profit. Our
gross margin remained constant at 24.8% for 1999 and 1998.
Selling, general and administrative expenses. Our selling, general and
administrative expenses for 1999 were $53.2 million, an increase of $15.4
million, or 40.9%, from $37.8 million for 1998. Our selling, general and
administrative expenses as a percentage of net sales increased to 14.6% for
1999 from 12.7% for 1998. The increase in our selling, general and
administrative expenses, in dollars, is primarily attributable to increased
sales volume. The increase in selling, general and administrative expenses, in
dollars and as a percentage of sales, is also attributable to higher
administrative costs related to the centralization of accounting and
information systems, $2.1 million of nonrecurring costs associated with our
spin-off from Graphic Packaging, and an increase in goodwill amortization
related to the acquisitions of Edwards and Precision. Included in our selling,
general and administrative expenses were $5.0 million and $4.7 million in
management fees paid to Graphic Packaging for 1999 and 1998, respectively.
While we will not incur these management fees in the future, we will experience
costs to administer the corporate functions required of a public company.
Asset impairment charges. We recorded no asset impairment charges for 1999.
During 1998, we recorded $11.8 million in asset impairment charges. In the
first quarter of 1998, we recorded $6.2 million in asset impairment charges in
conjunction with the cancellation of the C-4 technology agreement with IBM to
manufacture ceramic electronic packages. Changes in the market for C-4
applications extended the time frame for achieving commercial sales beyond
original expectations. The lack of near term commercial sales opportunities,
combined with increasing overhead costs, prompted us to terminate the agreement
with IBM. In the third quarter of 1998, we recorded an additional $5.6 million
asset impairment charge related to the Chattanooga, Tennessee operation. Strong
offshore competition in the electronic package market made it uneconomical to
have a manufacturing facility dedicated to the Chattanooga product line.
Consequently, the long-lived assets of the Chattanooga operation were written
down to their estimated fair value using the asset held for use model.
Operating income. Our operating income for 1999 was $37.5 million, an
increase of $13.4 million, or 55.6%, from $24.1 million for 1998. Our operating
margin for 1999 was 10.3% compared with 12.1% for 1998, excluding the asset
impairment charges. The decrease in operating margin was primarily attributable
to nonrecurring costs associated with our spin-off from Graphic Packaging.
Interest expense, net. Our interest expense for 1999 was $5.0 million
compared with $4.1 million for 1998. Interest expense for both periods was a
result of an allocation of debt from Graphic Packaging. In conjunction with the
spin-off, we paid Graphic Packaging $200 million to satisfy intercompany
obligations and as a one-time dividend. This payment was funded through
borrowings under our $270 million credit facility.
Income tax expense. Income tax expense for 1999 was $12.4 million compared
with $7.7 million for 1998. Our consolidated effective tax rate for 1999 was
38.3% compared with 37.3% for 1998.
Results of Operations for the Years Ended December 31, 1998 and December 31,
1997
Net sales. Our net sales for 1998 were $296.6 million, a decrease of $8.2
million, or 2.7%, from $304.8 million for 1997. The lower net sales for 1998
reflect downturns resulting from pricing pressures in the industrial and
telecommunication markets within our Advanced Materials segment and volume
declines in our Semiconductor segment.
Cost of goods sold and gross profit. Our gross profit for 1998 was $73.7
million, a decrease of $11.3 million, or 13.3%, from $85.0 million for 1997.
The decrease was primarily attributable to increased price
22
<PAGE>
competition, particularly in international markets due to the strength of the
U.S. dollar compared with certain foreign currencies. Our gross margin declined
to 24.8% for 1998 from 27.9% for 1997 due to a decline in the industrial,
telecommunications and semiconductor capital equipment markets and competitive
pricing pressures. In early 1998, we changed the estimated depreciable lives
for certain long-lived assets based on the actual lives demonstrated for
similar assets. This change had a $2.0 million positive impact on gross profit
for 1998.
Selling, general and administrative expenses. Our selling, general and
administrative expenses for 1998 were $37.8 million, a decrease of $4.0
million, or 9.6%, from $41.8 million for 1997. Our selling, general and
administrative expenses as a percentage of net sales decreased to 12.7% for
1998 from 13.7% for 1997. Included in our selling, general and administrative
expenses were $4.7 million and $5.0 million in management fees paid to Graphic
Packaging for 1998 and 1997, respectively.
Asset impairment charges. During 1998, we recorded $11.8 million in asset
impairment charges. We recorded no asset impairment charges for 1997. In the
first quarter of 1998, we recorded $6.2 million in asset impairment charges in
conjunction with the cancellation of the C-4 technology agreement with IBM.
Changes in the market for C-4 applications extended the time frame for
achieving commercial sales beyond original expectations. The lack of near term
commercial sales opportunities, combined with increasing overhead costs,
prompted us to terminate the agreement with IBM. In the third quarter of 1998,
we recorded an additional $5.6 million asset impairment charge related to the
Chattanooga, Tennessee operation. Strong offshore competition in the electronic
package market made it uneconomical to have a manufacturing facility dedicated
to the Chattanooga product line. Consequently, the long-lived assets of the
Chattanooga operation were written down to their estimated fair value using the
asset held for use model.
Operating income. Our operating income for 1998 was $24.1 million, a
decrease of $19.1 million, or 44.2%, from $43.2 million for 1997. Excluding the
asset impairment charges and the change to the estimated depreciable lives
previously discussed, operating income decreased $9.2 million. Our operating
margin for 1998 was 8.1% compared with 14.2% for 1997. The decreases in
operating income and operating margin for 1998 reflect a decrease in sales to
customers in key markets and the effects of currency influenced price
competition resulting from a strong U.S. dollar.
Interest expense, net. Interest expense, net, was $4.1 million for 1998
compared with $110,000 for 1997. This increase resulted from the allocation of
long-term debt from Graphic Packaging.
Income tax expense. Income tax expense for 1998 was $7.7 million compared
with $16.2 million for 1997. Our consolidated effective tax rate remained
relatively constant for these years at 37.3% for 1998 compared with 37.5% for
1997.
23
<PAGE>
Quarterly Results of Operations
The following table sets forth selected unaudited quarterly statement of
income data for the nine quarters ended March 31, 2000, as well as such data
expressed as a percentage of our net sales for the periods indicated. We
believe this unaudited information has been prepared substantially on the same
basis as the annual audited consolidated financial statements and all necessary
adjustments, consisting of only normal recurring adjustments, necessary for the
fair presentation of such information for the periods presented. The results of
operations for any previous quarter are not necessarily indicative of the
results to be expected for the entire year of any future period.
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1998 1998 1998 1998 1999 1999 1999 1999 2000
-------- -------- --------- -------- -------- -------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Income:
Net sales............... $80,945 $79,422 $70,023 $66,224 $76,579 $95,411 $94,946 $98,125 $120,819
Cost of goods sold...... 60,241 59,258 53,792 49,615 58,305 71,646 70,504 73,943 93,400
------- ------- ------- ------- ------- ------- ------- ------- --------
Gross profit............ 20,704 20,164 16,231 16,609 18,274 23,765 24,442 24,182 27,419
Selling, general and
administrative
expenses............... 10,076 9,762 8,690 9,230 9,008 13,180 13,768 17,246 14,449
Asset impairment
charges................ 6,232 -- 5,582 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- --------
Operating income........ 4,396 10,402 1,959 7,379 9,266 10,585 10,674 6,936 12,970
Interest expense, net... 1,055 984 855 630 701 1,602 1,328 1,350 4,713
Income tax expense...... 1,229 3,485 403 2,565 3,355 3,137 3,609 2,324 3,055
------- ------- ------- ------- ------- ------- ------- ------- --------
Net income.............. $ 2,112 $ 5,933 $ 701 $ 4,184 $ 5,210 $ 5,846 $ 5,737 $ 3,262 $ 5,202
======= ======= ======= ======= ======= ======= ======= ======= ========
<CAPTION>
Three Months Ended
----------------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30 Dec. 31, Mar. 31,
1998 1998 1998 1998 1999 1999 1999 1999 2000
-------- -------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
As a Percentage of Net
Sales:
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold...... 74.4 74.6 76.8 74.9 76.1 75.1 74.3 75.4 77.3
------- ------- ------- ------- ------- ------- ------- ------- --------
Gross profit............ 25.6 25.4 23.2 25.1 23.9 24.9 25.7 24.6 22.7
Selling, general and
administrative
expenses............... 12.4 12.3 12.4 13.9 11.8 13.8 14.5 17.6 12.0
Asset impairment
charges................ 7.7 -- 8.0 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- --------
Operating income........ 5.5 13.1 2.8 11.2 12.1 11.1 11.2 7.0 10.7
Interest expense, net... 1.3 1.2 1.2 1.0 0.9 1.7 1.4 1.4 3.9
Income tax expense...... 1.6 4.4 0.6 3.9 4.4 3.3 3.8 2.3 2.5
------- ------- ------- ------- ------- ------- ------- ------- --------
Net income.............. 2.6% 7.5% 1.0% 6.3% 6.8% 6.1% 6.0% 3.3% 4.3%
======= ======= ======= ======= ======= ======= ======= ======= ========
</TABLE>
Our quarterly net sales and operating results may vary significantly due to
a number of factors, including cyclicality in the semiconductor market and
general economic conditions, production capacity and capital constraints, the
timing of customer orders, cancellations and shipments, changes in our pricing
and pricing by our suppliers and competitors, our product and revenue mix and
exchange rate fluctuations.
Our quarterly net sales decreased for the three months ended March 31, June
30, September 30 and December 31, 1998 due to pricing pressures in the
industrial and telecommunications markets and volume declines in the
semiconductor capital equipment market. Our quarterly net sales increased for
the three months ended March 31 and June 30, 1999 as a result of our
acquisition of Edwards Enterprises and Precision Technologies in March 1999 and
volume increases in the semiconductor capital equipment market. Our quarterly
net sales increased for the three months ended March 31, 2000 as a result of
strong demand in the semiconductor capital equipment market and the start of
our clean room assembly business in January 2000.
Our quarterly gross margin decreased for the three months ended September
30, 1998 and for the three months ended March 31, 1999 primarily due to
currency influenced price competition and product mix. In addition, our gross
margin decreased for the three months ended March 31, 2000 as a result of an
unfavorable
24
<PAGE>
product mix, costs associated with new product development and production
inefficiencies experienced at certain facilities in the Advanced Materials
segment.
Our quarterly selling, general and administrative costs increased for the
three months ended December 31, 1999 primarily due to nonrecurring costs
associated with the spin-off from Graphic Packaging.
For the three months ended March 31, 1998, we recorded $6.2 million in asset
impairment charges in conjunction with the cancellation of the C-4 technology
agreement with IBM. Changes in the market for C-4 applications extended the
time frame for achieving commercial sales beyond original expectations. The
lack of near term commercial sales opportunities, combined with increasing
overhead costs, prompted us to terminate the agreement with IBM. For the three
months ended September 30, 1998, we recorded an additional $5.6 million asset
impairment charge related to the Chattanooga, Tennessee operation. Strong
offshore competition in the electronic package market made it uneconomical to
have a manufacturing facility dedicated to the Chattanooga product line.
Consequently, the long-lived assets of the Chattanooga operation were written
down to their estimated fair value using the asset held for use model.
Our interest expense for the three months ended March 31, 2000 increased due
to borrowings under our credit facility used to fund a $200 million payment to
Graphic Packaging for a one-time dividend and intercompany obligations in
conjunction with the spin-off.
Liquidity and Capital Resources
Our liquidity is generated by both internal and external sources and is used
to fund short-term working capital requirements, capital expenditures and
acquisitions. As of March 31, 2000, our working capital was $104.6 million with
a current ratio of 2.65. As of March 31, 2000, we had a total of $48.4 million
in cash and borrowings available under our credit facility. At December 31,
1999, our working capital was $83.7 million with a current ratio of 2.51.
In conjunction with the spin-off from Graphic Packaging, we negotiated a
$270 million credit facility, which consists of a $95 million revolving line of
credit and an $85 million Senior Term A facility, each of which matures on
December 6, 2004, and a $90 million Senior Term B facility, which matures on
December 6, 2006. Our credit facility is secured by our accounts receivable and
inventory. Currently, the interest rate on the revolving line of credit and
Senior Term A facility is LIBOR plus 2% and the interest rate on the Senior
Term B facility is LIBOR plus 2.75%. The interest rate spreads on the credit
facility vary based upon our financial performance. As of May 31, 2000, the
interest rates on our credit facilities were as follows:
.8.43% for the revolving line of credit;
.8.55% for the Senior Term A facility; and
.9.30% for the Senior Term B facility.
The credit facility contains customary covenants, including covenants
limiting indebtedness, dividends and distributions on, and redemptions and
repurchases of, capital stock and other similar payments, and the acquisition
and disposition of assets. The credit facility also requires that we comply
with specified financial covenants, including interest coverage ratios and
indebtedness to total capital ratios and other covenants. We are currently in
compliance with all covenants under the credit facility.
As of March 31, 2000, we had $226.3 million outstanding under our credit
facility. The majority of the borrowings were used to pay Graphic Packaging, on
January 4, 2000, for intercompany obligations and a one-time dividend. The
remainder of the borrowings was used to fund working capital and capital
expenditures primarily in the Semiconductor segment. The unused portion of the
revolver is expected to be used to fund working capital requirements, internal
growth, acquisitions and capital expenditures. The payment of non-stock
dividends is prohibited under the credit facility.
25
<PAGE>
Our capital expenditures for the three months ended March 31, 2000 and March
31, 1999 were $6.9 million and $1.5 million, respectively. These capital
expenditures were primarily used for the addition of production capacity,
computerized manufacturing equipment and enhancing existing computer systems.
We expect capital expenditures of $30.0 million for 2000, of which
approximately $20.0 million is expected to be used for capacity or capability
additions. Operating leases may also be used to finance additional capacity.
Our capital expenditures for the three years ended December 31, 1999, 1998
and 1997 were $14.6 million, $26.9 million, and $28.8 million, respectively.
These capital expenditures were primarily used for the addition of production
capacity, computerized manufacturing equipment and enhancing existing computer
systems.
We believe that the cash generated from our operations together with our
credit facility is sufficient to meet our anticipated cash needs for working
capital and capital expenditures for the next 12 months.
Quantitative and Qualitative Disclosure About Market Risk
We are exposed to certain market risks which are inherent in our financial
instruments. These instruments arise from transactions entered into in the
normal course of business. We are currently subject to interest rate risk on
our existing senior credit facility. Our variable rate debt consists of
borrowings made under our $270 million senior credit facility.
We had $225.9 million of floating interest rate debt as of May 31, 2000. As
interest rates fluctuate, we may experience increases in interest expense which
may materially impact financial results. For example, if interest rates were to
increase or decrease 1%, the result would be an annual increase or decrease of
interest expense of approximately $2.3 million. In the event of an adverse
change in interest rates, we would likely take actions that would mitigate our
exposure to interest rate risk, through interest rate swaps or otherwise.
However, due to the uncertainty of the actions that would be taken and their
possible effects, this analysis assumes no such action. Further, this analysis
does not consider the effects of the change in the level of overall economic
activity that could exist in such an environment.
Inflation
Inflation has not had a material adverse effect on our results of
operations.
26
<PAGE>
BUSINESS
Overview
We are a leading designer and manufacturer of components and assemblies for
semiconductor capital equipment and for telecommunications, electronics,
automotive, medical and other industrial applications. During our 89-year
history, we have developed core competencies in the design, engineering,
manufacturing and assembly of critical components made from advanced materials.
We use precision-machined metals, technical ceramics and engineered plastics to
design solutions that enable our customers' products to overcome technological
barriers and enhance performance. We offer a full range of services from
initial prototype design to volume manufacturing, worldwide distribution and
customer support.
Our objective is to enhance our position as a leader in the design,
manufacturing and assembly of components and assemblies for the semiconductor
capital equipment market and establish or expand our position in other high
growth markets. We are specifically focusing our resources on growing our
business in the semiconductor capital equipment market, which we believe
currently represents our primary growth opportunity. We have been providing
critical ceramic components to the semiconductor capital equipment market for
nearly 20 years. By leveraging our long-standing relationships with key OEMs as
well as our advanced materials and manufacturing expertise, we have expanded
our historical product offerings from technical ceramic components to include
precision-machined metals and engineered plastics, as well as value-added
assembly services. Building on our success in the semiconductor capital
equipment market, we intend to target other high growth industries where we
believe our advanced materials expertise, customer relationships and full
service capabilities give us an advantage over other competitors. In addition,
we intend to maintain our technological expertise in advanced materials and
expand our product and service offerings to meet evolving customer needs.
We believe the breadth of our competencies and experience has made us a
supplier of choice with key customers in the semiconductor capital equipment
market and several other industries that are currently experiencing a
consolidating supplier base. We offer custom-designed products to over 5,000
customers worldwide, including leading manufacturers such as Applied Materials,
LAM Research and Texas Instruments.
Industry Background
Growth of the Semiconductor Market
The semiconductor industry has grown significantly over the past decade and
is expected to continue to grow in the future. The Semiconductor Industry
Association estimates that worldwide semiconductor sales will increase from
$144.1 billion in 1999 to approximately $233.7 billion in 2002. This increase
is being driven by growth in traditional markets for semiconductors, such as
data processing and personal computers, as well as growth in telecommunications
and wireless communications. In addition, the rapid growth of the Internet and
the proliferation of advanced consumer electronic products have made
semiconductors appear in nearly all electronic products. Dataquest estimates
that in order to support the additional growth in the semiconductor industry
over the next several years, an average of 27 to 30 new wafer fabrication
facilities will need to be constructed per year.
As the market for semiconductor devices grows, VLSI Research estimates that
the semiconductor wafer fabrication equipment market will grow from $33.1
billion in 1999 to $84.5 billion in 2002. In addition to capacity expansion,
there are several technological factors fueling this growth. First, demand for
smaller, faster and more powerful semiconductors is requiring improved
technology and is leading semiconductor manufacturers to develop chips that are
more dense with line spacing of 0.18 micron or less. Second, to reduce
manufacturing costs, semiconductor manufacturers are increasingly upgrading
fabrication machinery from 200mm, or eight-inch, to 300mm, or 12-inch, wafer
design, thus allowing more semiconductor devices to be produced on a single
wafer. Third, to increase performance, new materials are being used to produce
semiconductor devices, such as copper interconnects for better conductivity.
Finally, semiconductor
27
<PAGE>
manufacturers have developed new processes, such as chemical mechanical
planarization, or CMP, allowing them to manufacture semiconductors with reduced
defects and increased overall throughput. All of these recent developments have
required semiconductor manufacturers to undergo significant machinery upgrades
to incorporate these new technologies, which we believe represents one of the
largest ever capital equipment retooling efforts.
Outsourcing to Large Suppliers
Semiconductor capital equipment OEMs historically either manufactured the
components for their equipment internally or relied on a large number of small
suppliers with limited financial resources, product breadth and service
capabilities. OEMs are now increasingly outsourcing the engineering,
prototyping, manufacturing, assembly and testing of components and integrated
systems to larger, turnkey suppliers in order to focus on their core processing
technology. These OEMs are selecting suppliers that can provide integrated
solutions from product design and prototyping to manufacturing and assembly,
work in tandem to accelerate development of technology and improve time to
market.
Need for Precision Machining and Advanced Materials
Technological advancements in the semiconductor manufacturing process, such
as smaller circuit patterns and larger wafers, require highly sophisticated
manufacturing equipment. This machinery must be able to perform under harsh
conditions, which may include highly corrosive chemicals and gases or rapidly
changing temperatures. In addition to producing integrated circuits with
smaller and more precise geometries, semiconductor device manufacturers must
also offer greater functionality at higher speeds.
These requirements are increasing the need for advanced semiconductor
processing equipment and have led to growing demand for more durable and
dependable materials. With the transition to 300mm semiconductor wafer design,
the number of integrated circuits per wafer more than doubles. Consequently,
manufacturers have a heightened emphasis on uptime, yield and throughput as
well as a greater need for precise process controls. As a result, the design
and performance of components and integrated systems are becoming even more
critical to the semiconductor manufacturing process.
Precision-machined metals are used extensively in semiconductor capital
equipment. Usually machined from aluminum, these components are used for
process chambers, bases, lids and other parts for semiconductor capital
equipment. These components, often complex in configuration, must be machined
to precise specifications in order to ensure the performance of manufacturing
equipment. Tolerances must be strictly adhered to and quality is of utmost
importance.
In addition to this demand for precision-machined metal, there are
substantial requirements for other advanced materials, such as technical
ceramics and engineered plastics, in semiconductor capital equipment and in a
wide range of telecommunications, electronics, automotive, medical and other
industrial applications. In addition, to achieve optimum performance in the
harsh conditions under which this machinery must operate, components and
component materials must exhibit structural integrity, corrosion and abrasion
resistance and specific thermal, electrical, magnetic and optical properties.
Advanced materials are typically more expensive than competing materials, but
produce higher value by extending product life and enhancing performance.
Our Competitive Advantages
During our 89-year history, we have developed core competencies in the
design, engineering, manufacturing and assembly of critical components made
from advanced materials. We believe the breadth of
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<PAGE>
our competencies and experience has made us a supplier of choice with key
customers in several industries that are currently experiencing a consolidating
supplier base. We believe that we have the following competitive advantages:
. Advanced Materials Expertise. We engineer solutions incorporating
precision-machined metals, technical ceramics, engineered plastics or
combinations of these materials. The breadth of our materials
expertise permits us to provide our customers with the optimal
materials solution to meet their products' performance needs. We
deliver solutions with specifically designed chemical, electrical,
magnetic, optical, structural and thermal properties. For example, our
products include components for semiconductor etch chambers that
withstand highly corrosive environments and components for
telecommunications fiber optic connectors that maintain structural
stability over a range of temperatures.
. Comprehensive Design and Prototype Services. Our engineering
professionals and our technical sales force work in tandem with our
customers' engineers from product concept through early design and
prototyping. Our involvement at an early stage allows us to respond to
anticipated customer needs, identify their requirements early in the
manufacturing process and partner with customers to derive a design,
manufacturing and production solution. Once our solution is qualified
and integrated into our customers' products, the cost to our customers
to qualify alternate suppliers is relatively high.
. Full Range of Engineering, Manufacturing, Assembly and Support
Services. The scope of our competencies enables us to conceptualize
new products, develop manufacturing specifications, design and build
prototypes, validate product introductions, design for
manufacturability, assemble integrated systems and enables our
customers to bring products to market in a timely and cost-effective
manner. Coupled with our worldwide distribution and service support,
these capabilities enable us to provide our customers with a complete
solution.
. Global Scale and Infrastructure. We are geographically positioned to
provide for our customers' product and service requirements worldwide.
We have manufacturing facilities near a number of our major customers
and periodically place engineers and other personnel on-site with many
of our key customers. We employ flexible manufacturing techniques that
allow us to re-deploy and re-tool our facilities to meet our
customers' changing requirements.
. Semiconductor Capital Equipment Expertise. We have been providing
critical ceramic components to the semiconductor capital equipment
industry for nearly 20 years. By leveraging our long-standing
relationships with key OEMs as well as our advanced materials and
manufacturing expertise, we have expanded our historical product
offerings to include precision-machined metals and engineered
plastics, as well as value-added assembly services. We believe that by
expanding into these new service offerings, we can strengthen our
customer relationships, increase our market share and achieve design
wins with major OEMs.
Our Strategy
Our objective is to enhance our position as a leader in the design,
engineering, manufacturing and assembly of components and assemblies for the
semiconductor capital equipment market and establish or expand our position in
other high growth markets. To achieve this objective, we are pursuing the
following strategies:
. Focus on the Semiconductor Capital Equipment Market. We are focusing
our resources on growing our business in the semiconductor capital
equipment market, which we believe currently represents our primary
growth opportunity. We intend to utilize our strong customer
relationships, reputation for quality and on-time delivery, and range
of services to take advantage of this opportunity. In addition, we are
working with our customers on equipment incorporating the latest
trends in the semiconductor industry, including 300mm semiconductor
wafer design, copper interconnects and CMP.
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<PAGE>
. Target Other High Growth Markets. Building on our success in the
semiconductor capital equipment market, we intend to target other high
growth industries where we believe our advanced materials expertise,
customer relationships and full service capabilities give us an
advantage over other competitors. We believe our reputation as a high
quality supplier of advanced materials gives us a strategic foothold
in these markets, allowing us to build on existing customer
relationships, and identify and solve OEMs' complex problems using our
full complement of design, engineering, manufacturing and materials
capabilities. For example, we believe that the telecommunications
infrastructure buildout represents a significant growth market to
which we can apply our materials expertise and provide our full range
of services.
. Use Customer Relationships to Expand Product and Service
Offerings. Over our 89-year history, we have developed strong customer
relationships with leading manufacturers. These relationships have
enabled us to expand our product offerings in the past. For example,
based on our strong relationship and nearly 20-year history of
successfully supplying technical ceramic components to Applied
Materials, we expanded our product offerings to provide precision-
machined metals, engineered plastics and complex assemblies. We intend
to continue to enhance these relationships to offer new products such
as additional advanced materials, robotics and integrated systems. In
addition, we plan to expand our service offerings by working with our
customers to include shipment of these integrated systems directly to
their end users.
. Maintain Technological Expertise in Advanced Materials. We intend to
maintain our technological expertise in engineered solutions
incorporating precision-machined metals, technical ceramics,
engineered plastics or combinations of these materials. In addition,
we plan to continue working with our customers to enhance existing
materials and incorporate new materials, which will allow our
customers to successfully develop new generations of equipment.
. Diversify Semiconductor Capital Equipment OEM Customer Base. We intend
to diversify our customer base within the semiconductor capital
equipment market through two approaches. First, we plan to extend our
product offerings within existing customers, such as Applied
Materials, ASM Lithography, LAM Research and Novellus, by targeting
additional product lines. Second, we intend to leverage our leadership
position in supplying semiconductor OEMs to actively pursue new
relationships with additional key customers.
. Pursue Strategic Acquisitions. We successfully completed one
acquisition in 1998, four in 1999 and one in the first quarter of
2000. We plan to continue to pursue strategic acquisitions that enable
us to expand our geographic reach, add manufacturing capacity, secure
new customers, diversify into complementary product markets and
broaden our technological capabilities and value-added service
offerings.
Recent Acquisitions
Since our decision in late 1998 to focus our resources on the semiconductor
capital equipment market, we have completed a series of strategic acquisitions
to expand capacity, increase capability and broaden our global presence to
address the evolving service requirements of the semiconductor capital
equipment market. Through these acquisitions, we gained new facilities that are
strategically located to support our customers. Primarily customer-driven, our
acquisition activity in this market has also been influenced by supplier
consolidation and the trend to outsource engineering, prototyping,
manufacturing, assembly and testing of components and integrated systems to
larger, turnkey suppliers.
On March 1, 1999, we acquired Edwards Enterprises for approximately $18.0
million. Edwards Enterprises, a manufacturer of medium to large precision-
machined parts, is located in Newark, California with proximity to our OEM
customer facilities. Edwards Enterprises is the principal supplier of chamber
mainframes, the central component in Applied Materials flagship Centura and
Endura platforms. This acquisition diversified our business within Applied
Materials, expanded our manufacturing capabilities and capacity and enabled us
to gain similar business from other large semiconductor OEM customers.
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<PAGE>
On March 12, 1999, we acquired certain assets and liabilities of Precision
Technologies for approximately $22.0 million in cash and 300,000 warrants to
purchase shares of Graphic Packaging common stock at an exercise price equal to
the fair market value at the date of closing. In connection with our spin-off
from Graphic Packaging, these warrants were converted into warrants to purchase
168,768 shares of our common stock at an exercise price equal to $22.22 per
share. Precision Technologies, located in Livermore, California, manufactures
small to medium precision-machined components for the semiconductor, medical
and aircraft industries. This acquisition expanded our precision-machining
capabilities and our available capacity in this geographic region. In addition,
we began assembling CMP equipment for a major semiconductor capital equipment
manufacturer based on Precision Technologies' prior relationship.
On April 28, 1999, we acquired the assets of Dallas Ceramics, Inc. for
approximately $2.7 million. We consolidated the assets of this company,
formerly located in Dallas, Texas, with one of our facilities in Benton,
Arkansas. This acquisition added the capability to manufacture silicon carbide
using chemical vapor deposition. Because of its high purity and strength at
high temperatures, silicon carbide is an ideal material for use in the
production of semiconductors. This acquisition expanded our materials
capabilities and therefore our product offerings to our semiconductor capital
equipment customers.
On December 17, 1999, we acquired Doo Young Semitek Co., Ltd., for
approximately $3.6 million. Renamed CoorsTek Korea Co., Ltd., this business,
located in Kyungbook, South Korea, manufactures technical ceramic components
for the semiconductor industry and gives us a critical strategic location from
which to serve the Asian semiconductor capital equipment market. This
acquisition allowed us to address our customers' need for supplier
infrastructure and engineering, prototyping and quick-turn manufacturing
support at a location that has geographic proximity to their Asian
semiconductor customers.
On March 31, 2000, we acquired certain assets and liabilities of Liberty
Machine, Inc. for approximately $4.0 million. In conjunction with the
transaction, we entered into six-year operating leases with one-year renewal
options and end of term purchase options for the manufacturing equipment of
Liberty Machine. Liberty Machine, located in Fremont, California, manufactures
small, medium and large metal components and assemblies for the semiconductor,
aerospace, analytical and medical industries. This acquisition enabled us to
expand our high volume manufacturing capabilities, diversify our customer base
and increase our machining and clean room assembly capacity.
Markets and Products
We offer customers in the semiconductor capital equipment market and a
multitude of other markets solutions using our expertise in design,
engineering, manufacturing and assembly. The solutions we offer are enabling
technologies that allow our customers' products to overcome technological
barriers, enhance performance and function efficiently in adverse environments,
such as corrosive chemicals and gases, extreme heat or pressure.
Semiconductor Market
We supply products for semiconductor capital equipment used to manufacture
integrated circuits. We manufacture, assemble and integrate precision-machined
metal, technical ceramic and engineered plastic components for use in
semiconductor processing equipment. We manufacture and assemble components that
can be used in almost every front-end semiconductor manufacturing process.
These processes include deposition, etch, CMP, ion implantation, metrology and
photolithography. Our capability in metals, ceramics, plastics and assembly
allows us to optimize the solutions we provide to our customers.
We have been successful in vertically integrating our components business
and are now supplying assemblies to customers to whom we had previously only
sold components. For example, we assemble 200mm and 300mm CMP equipment for a
major semiconductor capital equipment manufacturer with whom we have a long-
standing relationship of supplying ceramic components. We are leveraging these
projects to capture other assembly opportunities, specifically in the areas of
ion implantation and robotics.
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<PAGE>
Advanced Materials Markets
In addition to the semiconductor capital equipment market, we provide
components and assemblies for a variety of telecommunications, electronics,
automotive, medical and other industrial applications. Our diverse array of
products include:
. telecommunications products for personal communication devices and
communications infrastructure. Applications include ceramic integrated
circuit packages for portable communication devices and fiber optic
connectors used to connect fiber in data distribution networks;
. electronic products for radio amplification, computer, defense and
power distribution. Applications include electron tubes for signal
amplification used in broadcasting and radar and computer tape guides
used for high-speed data storage;
. automotive products for control and safety systems and engine parts.
Applications include ceramic substrates for anti-lock braking systems
and metering plungers for fuel injectors, where our ability to produce
a part that will hold extremely small tolerances despite fluctuations
in temperature is critical to the correct operation of the engine;
. medical products for blood filtration, blood testing and surgery.
Applications include sheer valves for blood sampling and ceramic
cutting tools which allow simultaneous cutting and cauterizing; and
. other industrial products for the chemical, fluid handling,
mechanical, paper and petroleum industries. Applications include
valves and process flow components for fluid handling and ceramic
beams for coordinate measuring equipment.
Customers
Our top 10 customers include industry leaders such as Applied Materials,
Inc., CTS Corporation (formerly the Motorola CPD division of Motorola, Inc.),
Delphi Delco Electronics Systems, Eaton Corporation--Cutler-Hammer division,
Engineering Ceramic Technologies, Inc., a joint venture between Cummins Engine
Company and Toshiba Corporation, Flowserve Corporation, John Crane, Inc.,
Kavlico Corporation, LAM Research Corporation and Texas Instruments
Incorporated. Our largest customer, Applied Materials, accounted for 35.7% of
net sales for the three months ended March 31, 2000 and 22.5% for 1999. No
other customer accounted for more than 10% of net sales in either of these
periods. While Applied Materials represents a large portion of our net sales,
Applied Materials is the world's largest semiconductor equipment manufacturer
and, according to Dataquest, represents approximately 20% of the total wafer
fabrication equipment market and as much as 60% of the market segments it
serves. In addition, our sales are diversified among multiple product groups
within Applied Materials.
Our top three customers in each of the following markets for the three
months ending March 31, 2000 are listed below.
. Semiconductor capital equipment: Applied Materials, LAM Research and
ASM Lithography Holding N.V.
. Telecommunications: CTS Corporation, Lucent Technologies and C-MAC
Group, Inc.
. Electronics: Cooper Industries, Inc., TT Group PLC and Vishay
Intertechnology, Inc.
. Automotive: Delphi Delco, Texas Instruments and Kavlico.
. Medical: Beckman/Coulter, Gyrus Medical, Ltd. and Boston Scientific
U.S.
. Industrial: Schlumberger Limited, Eaton Corporation and John Crane.
Sales and Distribution
We sell products primarily to OEMs for incorporation into semiconductor
capital equipment and other industrial applications. We generate sales through
direct sales employees, manufacturers' representatives, and
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distributors located throughout the U.S., Asia and Europe. Our sales personnel,
many with engineering expertise, receive substantial technical assistance and
engineering support because of the highly technical nature of our products.
Initial sales are typically the result of a multi-level sales effort that
involves senior management, design engineers and our sales personnel
interacting with our customers' decision-makers throughout the product
development and purchasing processes.
International sales, primarily in European and Asian markets, constituted
approximately 19%, 25% and 27% of our gross sales in 1999, 1998 and 1997,
respectively.
Research, Development and Engineering
To maintain and improve our competitive position, our research, design and
engineering teams work directly with customers to design custom products for
specific applications. The majority of our advanced materials research and
development is a result of our customers experiencing performance limitations
or failures in their applications. As a result, our development encompasses
failure analysis, materials selection and engineering to enable our customers'
products to overcome technological barriers and enhance performance.
We believe our design and engineering capabilities offer critical benefits
to our customers, allowing us to take our customers' products from the concept
stage to production. This enables our customers to focus their efforts on their
core competencies and limits the risk involved in separating design from
manufacturing.
We foster innovation as part of our product development process in response
to customer requests or needs. Since development expenses are a normal part of
our manufacturing costs to design custom products for specific applications,
our research, development and engineering expenses are included in our cost of
goods sold.
Manufacturing and Assembly
Our manufacturing operations consist of formulating, forming and firing of
ceramics, formulating, forming and processing of plastics and precision-
machining of ceramics, metals and plastics. We specialize in highly complex and
sophisticated components and assemblies. We have a full range of machining
capabilities from small to large part manufacturing and can provide customized
service from initial prototyping to high volume production.
We precision-machine metal parts from aluminum and other metals. These
components, often complex in configuration, must be machined to precise
specifications in order to ensure the performance of our customers' products.
Because of the sophistication of our customers' products, we must strictly
adhere to design tolerances and specifications. To enable such precise
machining, we have semi-custom machines, many of which are computer controlled
and have the ability to hold very close tolerances in three, four and even five
axes. Particularly in our metals capability, much of the equipment is
palletized and automated. We also utilize sophisticated software for computer-
aided design and solid modeling capability.
Ceramic manufacturing involves several steps. From raw material preparation
to completion of the finished product, the typical component will be formed,
fired and, if necessary, machined into complex geometries. Our proprietary raw
material preparation involves blending complex formulations to create materials
with desired properties. Our broad forming capabilities range from isostatic
pressing to injection molding. The firing process is specifically designed to
meet product and materials requirements by strictly controlling variables such
as time, temperature and atmosphere. We also coat ceramic components with
metals such as copper, gold and nickel in order to give them desired electrical
and mechanical properties. We may then precision machine parts to meet customer
specifications such as surface finish, dimensions and geometries. For example,
we can consistently precision-machine ceramics to exact tolerances within ten-
millionths of an inch.
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The manufacturing of plastics involves similar steps as the manufacturing
of ceramics. We formulate, form and process plastics into complex components.
In the first stage of this process, we use a proprietary formulation and
blending of raw materials. We then press or extrude the material into the
desired shape. The product is then fired and precision-machined to exact
tolerances.
We provide assembly services for major OEMs in various markets. We have
class 100 to 10,000 clean room capabilities for our semiconductor capital
equipment and other assembly markets, which enable us to meet strict quality
requirements and customer specifications. The assembly process involves
managing the procurement of components, some of which we manufacture while
others are purchased from outside vendors. Our competency of managing this
supply chain ensures that our assemblies, some with up to 500 components and
several hundred configurations, are built cost effectively and that our
finished product delivery satisfies our customer's just-in-time manufacturing
objectives. As a value-added part of our assembly service, we also work
directly with our customers to achieve design enhancements.
Materials and Suppliers
Our raw materials primarily consist of alumina, aluminum,
polytetrafluoroethylene, silicon carbide, stainless steel, tungsten and
zirconia. Most of these raw materials are either readily available or are
procured from suppliers with whom we have long-standing relationships.
We procure many of the components used in our assembly services from our
customers' qualified suppliers. We generally have supply contracts with these
vendors. Some of our components, such as motors and actuators, are sole-
sourced.
Competition
The market for engineering, manufacturing and assembly of precision
components has been highly fragmented. As customers have increasingly demanded
fewer, larger, more financially stable suppliers that offer more complete or
turnkey solutions, the competitive landscape has changed dramatically, and
suppliers are being forced to consolidate and expand their service offerings.
We compete in the market for precision metal machining and assembly of
semiconductor capital equipment and in the market for advanced materials. Our
competitors in precision metal machining are typically smaller, privately-held
companies. In addition, we compete with the in-house manufacturing and
assembly capabilities of our current and potential customers, who continually
evaluate the relative benefits of internal manufacturing compared to
outsourcing. Our competitors in the advanced materials industry are typically
divisions of large, multinational companies such as Kyocera Corporation
(Japan), Morgan Crucible Co. (United Kingdom), NGK Insulators, Ltd. (Japan),
Metallgesellshaft AG (Germany) and Saint Gobain (France).
In addition to quality and price, the principal competitive factors in the
worldwide markets we serve are:
. breadth of product and service offerings and capabilities;
. technological and materials expertise;
. customer service;
. flexible manufacturing capabilities and capacity;
. financial resources; and
. delivery capabilities and geographic scope.
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We provide a comprehensive solution that includes expertise in advanced
materials, precision metal machining and assembly. We believe that we are a
significant competitor in many of our markets and hold a prominent position in
many product lines. We have maintained long-standing relationships with major
corporations by providing consistent, high product quality and customer
service.
Intellectual Property
We hold 53 patents and 23 pending patent applications in the U.S. and in
foreign countries. Generally, our policy is to obtain patent protection that is
considered necessary or advisable for the patentable inventions and
technological improvements of the business. We also rely significantly on trade
secrets, technical expertise and know-how, continuing technological innovations
and other means, such as confidentiality agreements with employees, consultants
and customers, to protect and enhance our competitive position.
We consider the name "Coors" and the goodwill associated with it to be
important to our customer recognition. We have received certain licensing
rights to use the Coors name under a license agreement with Coors Brewing
Company. The terms of the license agreement provide that the license terminates
five years after we cease to be an affiliate of Graphic Packaging. For purposes
of the license agreement, "affiliate" is defined as an entity that controls, is
controlled by or that is under common control with another entity.
We believe that we own or have the right to use the proprietary technology
and other intellectual property necessary to our operations. Except as noted
above, we do not believe that our success is materially dependent on the
existence or duration of any individual patent, trademark or license or related
group of patents, trademarks or licenses.
Facilities
We believe that our facilities are well maintained, suitable and adequate
for their respective operations. Our headquarters and corporate offices are
located in Golden, Colorado. The table below lists our manufacturing plants and
other properties (including distribution facilities):
<TABLE>
<CAPTION>
Location Business Segments Leased/Owned
------------------------------------------------------------------------------------
<S> <C> <C>
Austin, Texas Semiconductor Leased
------------------------------------------------------------------------------------
Benton, Arkansas (3 Advanced Materials, Semiconductor All owned
facilities)
------------------------------------------------------------------------------------
Chattanooga, Tennessee Advanced Materials, Semiconductor Owned
------------------------------------------------------------------------------------
El Segundo, California Advanced Materials Leased
------------------------------------------------------------------------------------
Fremont, California Semiconductor Leased
------------------------------------------------------------------------------------
Glenrothes, Scotland Advanced Materials Owned
------------------------------------------------------------------------------------
Golden, Colorado (5 Advanced Materials, Semiconductor Four owned, one leased
facilities)
------------------------------------------------------------------------------------
Grand Junction, Colorado Advanced Materials Owned
------------------------------------------------------------------------------------
Hillsboro, Oregon Advanced Materials, Semiconductor Owned
------------------------------------------------------------------------------------
Kyungbook, South Korea Semiconductor Owned
------------------------------------------------------------------------------------
Lawrence, Pennsylvania Advanced Materials Leased
------------------------------------------------------------------------------------
Livermore, California (5 Semiconductor All leased
facilities)
------------------------------------------------------------------------------------
Newark, California Semiconductor Owned
------------------------------------------------------------------------------------
Norman, Oklahoma Advanced Materials, Semiconductor Owned
------------------------------------------------------------------------------------
Oak Ridge, Tennessee (3 Advanced Materials, Semiconductor Two owned, one leased
facilities)
------------------------------------------------------------------------------------
Odessa, Texas Advanced Materials Owned
------------------------------------------------------------------------------------
Oklahoma City, Oklahoma Advanced Materials One owned, one leased
(2 facilities)
------------------------------------------------------------------------------------
Red Deer, Alberta, Advanced Materials Leased
Canada
</TABLE>
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<PAGE>
We believe we have sufficient capacity to meet current needs. However, from
time to time we have experienced capacity constraints in the semiconductor
capital equipment market due to our increased orders in this market. We intend
to increase capacity, either by expanding current facilities or acquiring
additional capacity in this market. We believe that we have adequate financial
resources to address our production capacity issues.
Employees
As of March 31, 2000, we had approximately 3,650 employees, of which 3,399
were full-time employees and 250 were temporary employees. We employed 162
persons in administration, 158 in engineering and research and development,
2,923 in operations and 156 in sales, including technical sales personnel.
None of our employees is subject to a collective bargaining agreement. We
believe our employee relations are good.
Backlog
As of March 31, 2000, we had backlog orders of approximately $142.5 million,
compared with $79.5 million as of March 31, 1999. Approximately $78.0 million
of the backlog at March 31, 2000 had been shipped as of May 31, 2000. Our
customers may place annual orders with shipments scheduled over a twelve-month
period. Backlog orders may be higher for certain industrial product segments
due to longer time periods between order and delivery dates under purchase
orders. Sales are not seasonal but can be sensitive to overall economic
conditions that affect markets that use our components and assemblies. Because
the orders that constitute our backlog may be cancelled or delayed at any time
without penalty, backlog is not necessarily indicative of past or future
operating results.
Environmental Matters
Our operations are subject to federal, state and local environmental, health
and safety laws and regulations and, in a few instances, foreign laws, that
regulate health and safety matters and the discharge of materials into air,
land and water, and govern the handling and disposal of solid and hazardous
wastes. We believe we are in substantial compliance with applicable
environmental and health and safety laws and regulations and do not believe
that the cost of compliance with these laws and regulations will have a
material effect on our capital expenditures, earnings or competitive position.
The site of one of our former subsidiaries was the subject of a Colorado
state compliance order for cleanup of soil and ground water contamination which
occurred prior to the time we purchased and subsequently sold the subsidiary.
Although we do not believe we are responsible for the contamination or the
cleanup, we agreed to join a consortium of former owners of the site to jointly
share in the cost of the cleanup We will be responsible for 10% of any
remediation costs greater than $500,000 up to $3.0 million and 15% of any
remediation costs in excess of $3.0 million. While we do not have a firm
estimate of the total potential cleanup costs, based on information we have
received to date, we do not believe that the total remediation costs will be
significantly in excess of $1.0 million, in which instance our proportionate
share of the remediation costs would be approximately $50,000. As such, we do
not believe this matter will have a material adverse effect on our financial
condition or results of operations.
We have received a Unilateral Administrative Order issued by the
Environmental Protection Agency relating to the Rocky Flats Industrial Park
Site and are participating with the Rocky Flats Industrial Park group to
perform an Engineering Evaluation/Cost Analysis on the property, including
investigation and sampling. The Environmental Protection Agency has not
selected a remedy but we do not expect the costs to exceed the amounts we have
reserved for this purpose.
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We have been notified that some of our facilities may be or have been named
as potentially responsible parties under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 or similar state laws with
respect to the remediation of certain sites where hazardous substances have
been released into the environment. We cannot predict with certainty the total
costs of remediation, our share of the total costs, the extent to which
contributions will be available from other parties, the amount of time
necessary to complete the remediation, or the availability of insurance.
However, based on our investigations, we believe that any liability with
respect to these sites would not have a material effect on our financial
condition or our results of operations.
In addition, we have received demands or requests for information relating
to alleged contamination of various properties which we currently own or
formerly owned, or to which we allegedly shipped waste. In our opinion, none of
these claims will result in liability that would materially affect our
financial position or results of operations.
Legal Proceedings
In the ordinary course of business, we are subject to various pending
claims, lawsuits and contingent liabilities. In each of these cases, we are
vigorously defending ourselves. We do not believe that the outcome of these
matters will have a material adverse effect on our financial condition or
results of operations.
On August 12, 1999, six current and former employees sued one of our
subsidiaries in the U.S. District Court for the Eastern District of Arkansas
claiming gender discrimination, sexual harassment and retaliation. These legal
proceedings were filed as two separate claims. Five of the plaintiffs are
seeking class certification, which we are resisting based on the distinctions
among their respective claims. The first claim was dismissed in our favor on
motion for summary judgment. We believe the remaining case is largely without
merit; however, we do not have sufficient information to determine the ultimate
outcome or any potential liability related to these claims.
Specific information regarding environmental legal proceedings is discussed
under the caption "Environmental Matters."
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MANAGEMENT
Directors, Executive Officers and Other Officers
Our directors, executive officers and other officers and their ages as of
May 31, 2000 are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Directors and Executive
Officers
Joseph Coors, Jr. (1)... 58 Chairman and Chief Executive Officer
John K. Coors (1)....... 43 President and Director
Derek C. Johnson........ 39 Executive Vice President of Sales and Marketing and Operations
Katherine A. Resler..... 40 General Counsel and Secretary
Joseph G. Warren, Jr.... 54 Chief Financial Officer and Treasurer
David A. Coulter (2)
(3).................... 52 Director
John E. Glancy (2)...... 54 Director
John Markle, III (3)
(4).................... 44 Director
Donald E. Miller (1)
(2).................... 69 Director
Kimberly S. Patmore
(4).................... 43 Director
Robert L. Smialek (3)
(4).................... 56 Director
Other Officers
Jeffrey C. Brines....... 42 Vice President of Accounting
Janet D. Comerford...... 42 Vice President of Human Resources
Dean A. Rulis........... 53 Vice President of Acquisitions and Technology
</TABLE>
--------
(1) Member of the Executive Committee
(2) Member of the Compensation Committee
(3) Member of the Corporate Governance Committee
(4) Member of the Audit Committee
Directors and Executive Officers
All of the officers identified above serve at the discretion of our board of
directors. Joseph Coors, Jr. and John K. Coors are brothers and are nephews of
William K. Coors, who serves as a Director Emeritus. As Director Emeritus,
William K. Coors provides advice and consulting services to the board of
directors but is not deemed a true director and, therefore, does not have
voting rights. The following are brief biographies of the directors, executive
officers and other officers identified above.
Joseph Coors, Jr. has been our Chairman since 1989, and our Chief Executive
Officer since March 1997. Mr. Coors was our President from 1997 to October 1998
and from 1985 to 1993. From 1992 to 1999 he served as President of Graphic
Packaging. Mr. Coors served as Executive Vice President of Adolph Coors Company
from 1991 to 1992. He is currently a director of Hecla Mining Company and
Chairman of the Air Force Memorial Foundation. Mr. Coors holds a B.S. in
applied mathematics from the University of North Carolina.
John K. Coors has been our President since October 1998 and our director
since January 2000. Mr. Coors was the Chief Executive Officer of Golden Genesis
Company, a former publicly traded subsidiary of Graphic Packaging and a
distributor and integrator of remote solar power applications, from January
1997 to October 1998; and President of Golden Photon, Inc., a manufacturer and
developer of photovoltaic solar modules, from July 1992 to October 1998. From
January to July 1992, he served as Vice President and Plant Manager of Coors
Brewing Company's Memphis, Tennessee brewery. Mr. Coors received a B.S. in
chemical engineering from the Colorado School of Mines, an M.S. in biochemistry
from the University of Texas at Austin and a Doctorate in Engineering from
Technical University of Munich.
Derek C. Johnson has been our Executive Vice President of Sales and
Marketing and Operations since August 1999. Mr. Johnson was Vice President of
Sales and Marketing from October 1998 to August 1999,
38
<PAGE>
Vice President of Golden Operations from 1997 to 1998 and Manager of
Manufacturing for Golden Operations from 1992 to 1997. Mr. Johnson received a
Higher National Diploma in electrical engineering from the KirkCaldy Technical
College of Scotland and an M.B.A. from the University of Denver.
Katherine A. Resler has been our General Counsel and Secretary since
September 1999. Ms. Resler was Counsel for Graphic Packaging from 1998 until
December 1999, its Director of Executive Compensation from 1995 until December
1999 and its Assistant Secretary from 1992 until December 1999. Ms. Resler
received a B.S. and an M.B.A. from Colorado State University, and a J.D. from
the University of Denver.
Joseph G. Warren, Jr. has been our Chief Financial Officer and Treasurer
since August 1999. Mr. Warren was Vice President of Finance, Chief Financial
Officer, Secretary and Treasurer of White Electronics & Designs, Inc., a
semiconductor manufacturer, from 1995 to July 1999. From 1994 to 1995 he served
as Vice President and Chief Financial Officer of Axxess Technologies, Inc., a
manufacturer of key duplicating machines, and from 1993 to 1994 he served as
Secretary, Treasurer and Vice President of Golden Technologies Company, Inc., a
wholly owned subsidiary of Graphic Packaging. From 1992 to 1993, Mr. Warren was
President of Coors Ceramicon Designs, Ltd., our subsidiary, and from 1985 to
1992 was our Vice President. Mr. Warren received a B.S. in accounting from
Arizona State University.
David A. Coulter has been our director since February 2000. Mr. Coulter has
been a Partner of the Beacon Group, an investment firm, since September 1999.
From November 1998 to September 1999, Mr. Coulter engaged in investment
activities and provided consulting and research services in electronic fund
transfer technology. He was the Chairman of BankAmerica Corporation and Bank of
America NT & SA from May 1996 through October 1998, Chief Executive Officer
from January to May 1996 and President from August 1995 to January 1996. From
1976 to January 1996, he held various positions with Bank of America in World
Banking, Treasury and Corporate Planning. Mr. Coulter currently serves as a
director of Pacific Gas and Electric Company. Mr. Coulter received a B.A. in
mathematics and an M.A. in industrial manufacturing from Carnegie Mellon
University.
John E. Glancy has been our director since January 2000. Dr. Glancy has been
Corporate Executive Vice President and Manager of Science Applications
International Corp., or SAIC, since 1978. SAIC provides professional and
technical services and products in high technology areas to government and the
private sector. He was employed by General Atomic Company, a manufacturer of
nuclear reactors, and the U.S. Atomic Energy Commission prior to 1978. Dr.
Glancy is also a director of SAIC and Network Solutions, Inc. Dr. Glancy has a
B.S. in physics from the University of Pittsburgh, an M.S. in nuclear
engineering and a Ph.D in applied physics from Cornell.
John Markle, III has been our director since January 2000. Mr. Markle was
the Senior Vice President of Strategy and Chief Information Officer for Rental
Services Corporation from 1997 to January 2000. From 1987 to 1997, he was the
President of Center Rental and Sales.
Donald E. Miller has been our director since January 2000. Mr. Miller was
Vice Chairman of The Gates Corporation from 1994 to August 1996 at which time
he retired. Mr. Miller served as President and Chief Operating Officer of The
Gates Corporation from 1986 to 1994 and President of Gates Rubber Company from
1982 to 1993. He currently serves as a director of Lennox Industries, Inc.,
Sentry Insurance Company and Chateau Communities, Inc. Mr. Miller has a B.S. in
metallurgical engineering from the Colorado School of Mines.
Kimberly S. Patmore has been our director since January 2000. Ms. Patmore
has been the Chief Financial Officer for First Data Corporation since February
2000. From 1992 to February 2000, Ms. Patmore served as Chief Financial Officer
for various divisions of First Data Corporation. Ms. Patmore served as a Senior
Manager for entrepreneurial services at Ernst & Young from 1981 to 1992. Ms.
Patmore has a B.A. from the University of Toledo.
39
<PAGE>
Robert L. Smialek has been our director since January 2000. Mr. Smialek was
the President and Chief Executive Officer of Insilco Corporation from 1993
until July 1999 at which time he retired. Mr. Smialek was the President and
Chief Operating Officer of the Temperature and Appliance Controls Group of
Siebe plc from October 1992 to May 1993. He serves as a director of General
Cable Corporation. He received a B.S., M.S. and a Ph.D. from Case Western
Reserve University.
Other Officers
Jeffrey C. Brines has been our Vice President of Accounting since February
2000. Mr. Brines was the Vice President and Chief Financial Officer of Golden
Genesis Company from 1997 to 1999 and served as Plant Manager of Golden Photon,
Inc. from 1994 to 1996. He received a B.B.A. and an M.B.A. from Regis
University.
Janet D. Comerford has been our Vice President of Human Resources and
Environmental Health and Safety since October 1998. Ms. Comerford was our
Regional Human Resources Manager from 1997 to 1998, served as Manager of
Administration from 1994 to 1997 and was a Production Manager from 1991 to
1994. Ms. Comerford received a B.B.A. from the University of Arizona.
Dean A. Rulis has been our Vice President of Acquisitions and Technology
since 1998. He was President and General Manager of Wilbanks International,
Inc., our wholly-owned subsidiary, from 1997 to 1998; and President of Golden
Technologies Company, Inc. from 1992 to 1997. Mr. Rulis received a B.S. in
mechanical engineering from Purdue University.
Directors' Terms
In accordance with our Bylaws, our board currently consists of eight
directors. Our Certificate of Incorporation provides for our board of directors
to be divided into three classes as of the first annual meeting of
stockholders. The full slate of directors will stand for election at the first
annual meeting of stockholders, to be held in 2001, and at that time will be
nominated to serve for terms of one, two and three years (Classes I, II and
III, respectively). Stockholders will elect one class, consisting of
approximately one third of the directors to serve for three-year terms at each
succeeding annual meeting. Our Certificate of Incorporation limits the number
of directors to 11 and the actual number of directors may be fixed by or in the
manner provided in the Bylaws.
Committees of Our Board
Our board of directors has four standing committees: Audit, Compensation,
Corporate Governance and Executive.
Audit Committee. Our Audit Committee reviews the scope and results of our
audit by our independent accountants, recommends the appointment of our
independent accountants, reviews the adequacy of our systems of internal
control and accounting policies and procedures, including compliance with our
ethics policy, and directs and supervises investigations into matters within
the scope of its duties.
Compensation Committee. Our Compensation Committee reviews and recommends to
the board of directors compensation of management personnel, executive
incentive and benefit plans, and general employee benefits.
Corporate Governance Committee. Our Corporate Governance Committee develops
operating guidelines for the board of directors, considers and recommends
nominees for election as directors, and reviews and evaluates the performance
of the board of directors.
40
<PAGE>
Executive Committee. Our Executive Committee exercises all of the authority
of the board of directors when the board of directors is not in session, except
as provided in our Certificate of Incorporation, Bylaws and applicable law.
Compensation of Directors
Employee directors do not receive additional compensation for serving as our
directors. Each of our non-employee directors receives an annual retainer of
$28,000, 50% of which is paid in shares of our common stock. The balance of the
retainer is paid in cash unless the non-employee director elects to take all or
a portion of it in our common stock.
In addition, each non-employee director receives a grant of 5,000 non-
qualified stock options upon initial election to the board of directors and
will be eligible to receive 3,000 non-qualified stock options upon election by
stockholders to his or her three-year term. The options, with an exercise price
equal to 100% of market value on the date of grant, will vest 100% at the end
of one year and will expire, if unexercised, ten years from the date of grant.
No additional amounts are paid to directors for committee meetings.
Directors are reimbursed for expenses incurred while attending board of
directors or committee meetings and in connection with any other business of
ours. In addition, we have purchased accidental death and dismemberment
insurance for the non-employee directors.
Compensation Committee Interlocks and Insider Participation
None of the members of the Compensation Committee of the board of directors
is our officer or employee. None of our executive officers serves as a member
of the board of directors or compensation committee of any entity that has one
or more executive officers serving on our board of directors or compensation
committee.
41
<PAGE>
Summary Compensation Table
The following table sets forth all compensation awarded to, earned by or
paid to our Chief Executive Officer and our four other most highly compensated
executive officers whose annual salary and bonus exceeded $100,000 for services
rendered in all capacities to us during the past three years. We sometimes
refer to these officers in this prospectus as the named executive officers.
<TABLE>
<CAPTION>
Long-Term
Compensation/Awards
-----------------------
Annual Compensation
------------------------------------ Restricted Securities
Other Annual Stock Underlying All other
Salary Bonus Compensation Award(s) Options/SARs Compensation
Name and Position ($) ($)(1) ($)(2) ($)(3) (#) ($)(4)
----------------- ------ -------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Joseph Coors, Jr. (5)... 1999 $510,000 $200,000 162,000 $14,018
Chairman and Chief 1998 485,000 305,550 34,875 12,705
Executive Officer 1997 460,000 479,780 $3,236 8,438 8,659
John K. Coors........... 1999 247,499 198,000 6,267 74,250 3,040
President 1998 (6)
1997
Derek C. Johnson........ 1999 195,554 146,520 239 32,344 2,159
Executive Vice
President 1998 163,269 105,000 5,124 4,500 173
of Sales and Marketing 1997 144,546 150,000 5,625 1,445
and Operations
Katherine A. Resler..... 1999 52,000(7) 60,000(8) 27,563 3,449
General Counsel and 1998
Secretary 1997
Joseph G. Warren, Jr.... 1999 92,308(7) 91,000(8) 759 28,125 87,383(9)
Chief Financial Officer 1998
and Treasurer 1997
</TABLE>
--------
(1) Bonuses shown were the total bonuses paid for each year and were paid 100%
in cash.
(2) Amounts shown are reimbursements during the year for taxes.
(3) Stock units were granted on October 1, 1994 in an amount approximately
equal to our liability as of January 1, 1994 for the benefit due certain
named executives under salary continuation agreements. The stock units
replace our cash liability and tie the eligible named executive's post-
retirement benefit to stock value. The stock units are payable in full upon
retirement at age 60 or after. The stock units are 50% vested at age 50
with 10 years of service, and the remaining 50% vests in 5% increments
between ages 51 and 60. The number of stock units granted, the percentage
vested at year end 1999 and the market value as of March 31, 2000,
respectively, were: Joseph Coors, Jr.--36,018 units, 90% vested, valued at
$1,449,725 and John K. Coors--10,213 units, 0% vested, valued at $411,073.
(4) Other Compensation includes the value of term life insurance benefiting the
executive and the employer's contribution to the 401(k) plan, respectively,
as follows: Joseph Coors, Jr. $10,018 and $4,000; John K. Coors $1,440 and
$1,600; Derek C. Johnson $459 and $1,700; Katherine A. Resler $0 and
$3,449; and Joseph G. Warren, Jr. $1,460 and $923.
(5) Joseph Coors, Jr. was President and Chief Executive Officer of Graphic
Packaging during 1997, 1998 and 1999, and all amounts shown were paid by
Graphic Packaging.
(6) Mr. Coors was elected President as of October 1998. His total annual salary
and bonus for 1998 did not exceed $100,000.
(7) Ms. Resler and Mr. Warren were elected our officers and became our
employees as of September 1999 and August 1999, respectively. The salary
amounts include actual amounts paid during 1999 and are based on an annual
salary of $156,000 for Ms. Resler and $240,000 for Mr. Warren.
(8) In addition to the annual cash bonus described in footnote (1) above, this
amount also includes a one-time bonus of $25,000 as a result of Ms.
Resler's and Mr. Warren's election as our officer.
(9) Other Compensation includes a one-time allowance for moving expenses of
$85,000.
42
<PAGE>
Option/SAR Grants in Last Year
The following table provides information regarding grants of options to
purchase shares of Graphic Packaging common stock made during 1999, which were
converted to our options as of the spin-off. The exercise price for each of our
converted options was based on the respective relative fair market values of
the Graphic Packaging common stock price of $10.69 before the spin-off and our
common stock's price of $19.00 after the spin-off. Our converted options were
originally granted at the fair market value of Graphic Packaging common stock
on the grant date, and have the same terms and conditions as the original
Graphic Packaging options, including the expiration date as specified in the
table. All options vest in the event of a change in control. The option price
may be paid in cash, by surrendering shares owned for more than six months, or
through irrevocable instructions to a broker to deduct the option price from
the proceeds of the sale of stock.
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or Grant Date
Options/SARs Employees in Base Price Expiration Present Value
Name Granted (#)(1) Yr. ($/Sh) Date ($)(2)
---- -------------- ------------ ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Joseph Coors, Jr. ...... 162,000 31.9% $24.44 2/09/09 $2,280,960
John K. Coors........... 64,969 24.44 2/09/09 914,764
9,281 22.11 8/31/09 118,147
-------
74,250 14.6%
Derek C. Johnson........ 27,000 24.44 2/09/09 380,160
5,344 22.11 8/31/09 68,029
-------
32,344 6.4%
Katherine A. Resler..... 17,719 24.44 2/09/09 249,484
9,844 22.11 8/31/09 125,314
-------
27,563 5.4%
Joseph G. Warren, Jr. .. 28,125 5.5% 22.11 8/31/09 358,031
</TABLE>
--------
(1) The number of options granted during 1999 was based on three times the
number of options normally granted on an annual basis, and therefore,
optionees are not eligible for another annual grant until 2002. The options
vest 100% upon the fifth anniversary of the grant date but vesting is
accelerated if certain stock price criteria have been met. These options
are 100% vested and are exercisable until the tenth anniversary of the
grant date.
(2) Values indicated are an estimate based on the Black-Scholes option pricing
model using the following assumptions: (a) 30.8% stock price volatility
based on the average stock price volatility of the companies included in
the S&P Manufacturing (Diversified/Industrials) Index; (b) 6.66% risk-free
rate of return for the February 1999 grants and 6.65% risk-free rate of
return for the August 1999 grants; (c) zero dividend yield; (d) anticipated
exercising at the end of the option term; and (e) no adjustment for non-
transferability or risk of forfeiture. The actual value realized will be
determined by the excess of the stock price over the exercise price on the
date the option is exercised. There is no certainty the actual value
realized will be at or near the value estimated by the Black-Scholes option
pricing model.
43
<PAGE>
Aggregated Option/SAR Exercises in Last Year and Year-End Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised In-the-
Shares Underlying Unexercised Money Options/SARs at
Acquired Value Options/SARs at 12/31/99 (#) 12/31/99 ($)(1)
On Exercise Realized -------------------------------- ----------------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- -------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Joseph Coors, Jr. ...... -- -- 366,656 188,063 -- --
John K. Coors........... -- -- 29,432 91,126 -- --
Derek C. Johnson........ -- -- 6,375 37,219 -- --
Katherine A. Resler..... -- -- 2,250 29,252 -- --
Joseph G. Warren, Jr. .. -- -- -- 28,125 -- --
</TABLE>
--------
(1) Value of unexercised options equals market value of the shares, $18.00,
underlying in-the-money options at January 3, 2000, less the exercise
price, times the number of in-the-money options outstanding.
Retirement Plan
The board of directors of Graphic Packaging approved the spin-off of the
assets and liabilities of the Graphic Packaging Retirement Plan attributable to
our current and former employees and the current and former employees of our
subsidiaries into a separate retirement plan, effective August 31, 1999. Our
retirement plan's assets are held in trust. The provisions of our retirement
plan are substantially the same as the provisions applicable to our portion of
the Graphic Packaging Retirement Plan and are administered by an administrative
committee appointed by our board of directors.
The retirement benefit is generally based on length of service and average
monthly compensation. In calculating compensation we have taken into account
the total base compensation, including commissions, overtime pay and amounts
deferred by the employee under our plans pursuant to Sections 125 and 401(k) of
the Internal Revenue Code of 1986, as amended, but excluding profit sharing pay
and cash bonuses. Average monthly compensation is determined by using the
average of the highest 36 consecutive months out of the last ten years,
including years with Graphic Packaging and its subsidiaries and Adolph Coors
Company and its subsidiaries.
The normal annual retirement benefit equals 1.25% of average annual
compensation times years of service (maximum of 25 years), plus 0.5% of average
annual compensation in excess of covered compensation times years of service
(maximum of 25 years), plus 0.5% of average annual compensation times years of
service in excess of 25 years, plus, beginning in 1996, the sum of 1.5% of
bonus pay for each plan year (not to exceed 25% of base pay). Covered
compensation is generally based on an average of the Social Security taxable
wage bases in effect during the 35 years ending with the calendar year in which
the employee's social security retirement age occurs. Years of service includes
years of service with Graphic Packaging and its subsidiaries (and Adolph Coors
Company and its subsidiaries with respect to certain employees).
Unreduced normal retirement benefits are payable under the Retirement Plan
at (1) age 65, regardless of years of service or (2) any time after age 60
provided age plus years of vesting service total at least 90. The benefit
accrued under the pension formula set forth above is in the form of a straight
life annuity. An employee with at least ten years of vesting service who
retires prior to normal retirement date is eligible for a retirement benefit,
at reduced rates, provided the employee is at least age 55.
The following table sets forth annual retirement benefits for representative
years of service and average annual compensation as of December 31, 1999. The
amounts shown in the table were calculated without taking into account an
amount for covered compensation; accordingly, the benefits shown would be
subject to a reduction to reflect the payment of Social Security benefits.
Furthermore, the amounts shown in the table were calculated without adding any
amounts related to the portion of the formula which adds, beginning in 1996,
the sum of 1.5% of bonus pay for each plan year (not to exceed 25% of base
pay). This portion of the formula is not based on average annual compensation.
44
<PAGE>
The maximum permissible benefit under ERISA from the qualified Retirement
Plan for 1999 was $130,000. In addition, the maximum compensation for 1999 that
may be used in determining benefits from the qualified Retirement Plan is
$160,000. Our Executive Deferred Compensation Plan provides for the benefits
that are not payable from the Retirement Plan because of these two limitations.
The amounts shown in this table include the benefits payable under the
Executive Deferred Compensation Plan because of these two limitations.
Pension Plan
<TABLE>
<CAPTION>
Years of Service
--------------------------------------------------------------------
Remuneration(1) 15 20 25 30 35
--------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000 $ 32,813 $ 43,750 $ 54,688 $ 65,625 $ 68,750
150,000 39,375 52,500 65,625 78,750 82,500
175,000 45,938 61,250 76,563 91,875 96,250
200,000 52,500 70,000 87,500 105,000 110,000
225,000 59,063 78,750 98,438 118,125 123,750
250,000 65,625 87,500 109,375 131,250 137,500
275,000 72,188 96,250 120,313 144,375 151,250
300,000 78,750 105,000 131,250 157,500 165,000
325,000 85,313 113,750 142,188 170,625 178,750
350,000 91,875 122,500 153,125 183,750 192,500
375,000 98,438 131,250 164,063 196,875 206,250
400,000 105,000 140,000 175,000 210,000 220,000
425,000 111,563 148,750 185,938 223,125 233,750
450,000 118,125 157,500 196,875 236,250 247,500
475,000 124,688 166,250 207,813 249,375 261,250
500,000 131,250 175,000 218,750 262,500 275,000
525,000 137,813 183,750 229,688 275,625 288,750
550,000 144,375 192,500 240,625 288,750 302,500
575,000 150,938 201,250 251,563 301,875 316,250
</TABLE>
--------
(1) As of year-end 1999, average annual compensation covered by our Retirement
Plan, which is equal to the highest average salary amount over a
consecutive 36 month period in the last 10 years, and credited years of
service, including previous compensation and years of service with our
subsidiaries, Graphic Packaging and its subsidiaries and Adolph Coors
Company and its subsidiaries, for the named executives are as follows:
Joseph Coors, Jr.--$466,808 and 22 years; John K. Coors--$174,152 and 20
years; Derek C. Johnson--$125,600 and 14 years; Katherine A. Resler--
$89,983 and 8 years and Joseph G. Warren, Jr.--$152,000 and 18 years.
Executive Incentive Compensation
Stock Option and Incentive Plan
We have adopted the Stock Option and Incentive Plan which allows us to issue
stock options, stock appreciation rights, restricted stock, restricted stock
units, deferred stock awards, unrestricted stock awards, performance stock
awards, dividend equivalent rights, performance awards and annual incentive
awards. Under this plan, awards may be granted to our employees and directors
and to anyone else whose participation in the plan is determined to be in our
best interest. We reserved 2,194,699 shares of common stock for issuance under
this plan. Stock options intended to qualify as incentive stock options under
the Internal Revenue Code of 1986, as well as options that do not qualify as
incentive stock options, may be granted under this plan. The exercise price of
each option is determined by the compensation committee but may not be less
than 100% of the fair market value of our common stock on the date of grant,
unless the stock options are granted in lieu of cash compensation forfeited by
the participant, in which case the exercise price will be discounted by the
amount of cash compensation surrendered. Our board of directors has delegated
authority to its compensation committee to take all actions and make all
determinations necessary or appropriate under this plan, including the grant of
awards consistent with the terms of the plan.
45
<PAGE>
Executive Deferred Compensation Plan
We have adopted the Executive Deferred Compensation Plan which provides for
the deferral of up to 100% of an eligible employee's bonus and annual salary.
The amounts deferred are first invested as a contribution to our 401(k) plan
until the maximum elective contribution permitted by the 401(k) plan is met.
Additional amounts may also be deferred in investments established by the
board. Eligible employees must elect to participate in this plan at least 30
days prior to the commencement of the year in which the compensation to be
deferred is earned. An election to defer earnings must be made for a period of
no less that 24 months from the date the amount would otherwise have been paid.
Payments of deferred earnings may be made in a lump sum or in pro-rata annual
installments for a period not to exceed ten years from the date the
participant's employment is terminated. This plan also provides for the payment
of a benefit if the pension payable to the participant from our retirement plan
is limited by either Internal Revenue Code Section 415 or 410(a)(17). To the
extent a benefit is provided to the participant under this plan because of
limits imposed by Code Section 401(a)(17), it will be reduced by the amount of
the participant's Section 415 benefit.
Employee Stock Purchase Plan
We have adopted the Employee Stock Purchase Plan which allows our employees
to purchase shares of our common stock. Our plan is intended to qualify under
Section 423 of the Internal Revenue Code. Our compensation committee, as plan
administrator, has full authority to adopt administrative rules and procedures
and to interpret the provisions of this plan. All of our full-time employees
are eligible to participate provided they have been employed at least three
months prior to the initial offering period in which they participate. Under
the plan, shares will be purchased through payroll deductions accumulated
during a series of offering periods which are currently six months in duration
but may be changed by the compensation committee. The price of each share of
common stock purchased under the plan will be determined by the committee, but
will not be less than 85% of the fair market value of the stock: (1) on the
first trading day of the offering period, or (2) on the last trading day of the
offering period. We have reserved 500,000 shares of our common stock for
issuance under this plan.
Employment Contracts, Termination of Employment, Salary Continuation and
Change-in-Control Arrangements
We have employment contracts with all of our named executive officers for a
three-year period. Under the contracts, the executives receive their annual
salary as indicated in the Summary Compensation Table and a $25,000 signing
bonus and are eligible to participate in our Stock Option and Incentive Plan.
Upon termination; the executive receives:
. nothing if terminated for cause;
. the greater of the remaining term of the agreement or one year's
salary if termination is not for cause, but two years salary if
termination is due to a Change of Control (as defined in our Stock
Option and Incentive Plan); and
. a gross up amount if certain excise tax payments are triggered.
Compensation received by our named executive officers upon retirement
includes normal retirement benefits and, for our Chief Executive Officer and
President, a number of shares of stock granted under salary continuation
agreements. The shares are payable in full upon retirement at age 60 or after.
Additionally, the shares are 50% vested at age 50 with 10 years of service and
the remaining 50% vest in 5% increments between ages 51 and 60.
In the case of a Change of Control, our compensation plans will be affected
as follows:
. under the Stock Option and Incentive Plan, all outstanding options
will become exercisable in full, all stock units will become payable
in full and prorated bonuses will be calculated and paid, if earned;
46
<PAGE>
. under the Executive Deferred Compensation Plan, distributions of
deferred amounts will be made in a lump sum within 90 days after the
Change of Control; and
. under the salary continuation agreements, stock units vest 100%
without regard to the executive's age or service.
The definition of "Change of Control" for these purposes is as follows:
. if beneficial ownership of 50% or more of either the outstanding
shares of our common stock or the combined voting power of our voting
stock is acquired by persons or entities not related to us without
consent of our current board;
. upon the election of individuals constituting a majority of our board
who were either not members prior to their election or not recommended
to the stockholders by our board;
. upon a merger, consolidation or sale of all or substantially all of
our assets, where upon (a) at least 50% of the outstanding shares of
our common stock and of the combined voting power of voting securities
are not held in the same proportion, and by the same persons as the
beneficial owners prior to such event, (b) at least 35% of our common
stock is held by a person that did not hold such amount prior to the
event, and (c) a majority of our current board did not survive the
event; or
. upon approval by our stockholders of our complete liquidation or
dissolution.
47
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In the past, we have engaged in various transactions with Graphic Packaging.
These transactions, which included Graphic Packaging's financial support of us,
ceased at the time of the spin-off. We have entered into contracts with Graphic
Packaging that govern certain relationships between us and Graphic Packaging,
including the Distribution Agreement, under which the spin-off was effected,
and the agreements described below. We believe that these agreements contain
fair market provisions and are on terms comparable to those that would have
been reached in arm's-length negotiations had the parties been unaffiliated at
the time of the negotiations.
The Distribution Agreement and the other agreements described below are
included as exhibits to our registration statement on Form S-1 of which this
prospectus is a part.
Tax Sharing Agreement
We and our subsidiaries, and Graphic Packaging and its subsidiaries, are
parties to a tax sharing agreement that defines the parties' rights and
obligations with respect to deficiencies and refunds of federal, state and
other taxes relating to our business for tax years prior to the spin-off and
with respect to certain of our tax attributes after the spin-off. In general,
Graphic Packaging is responsible for filing federal and state tax returns and
paying the associated taxes for periods through the date of our spin-off. We
will reimburse Graphic Packaging for the portion of such taxes relating to our
business. We are responsible for filing returns and paying taxes related to our
business for periods beginning on or after the date of our spin-off. We have
agreed with Graphic Packaging to cooperate with each other and to share
information in preparing such tax returns and in dealing with other tax
matters.
The tax sharing agreement is also designed to preserve the status of the
spin-off as a tax-free distribution. In connection with the spin-off, Graphic
Packaging obtained a private letter ruling from the Internal Revenue Service to
the effect that the spin-off was tax-free to Graphic Packaging and its
shareholders. In connection with the private letter ruling and the tax sharing
agreement, we and Graphic Packaging have agreed to abstain from certain actions
for a two year period after the spin-off (described below), and we have agreed
to incur additional indebtedness to finance acquisitions in the year after the
spin-off. Since the date of the spin-off a variety of factors have changed,
both within our company and in the markets we serve, that may make it
impractical for us to complete such acquisitions. However, we believe that the
spin-off will continue to qualify for tax-free treatment. We currently plan to
apply to the Internal Revenue Service for a supplemental private letter ruling
to reflect these changed conditions. We have agreed to indemnify Graphic
Packaging for any damages that are a result of our actions causing the spin-off
to become a taxable transaction.
As noted above, we have agreed that we will refrain from engaging in certain
transactions during the two-year period following the spin-off unless we first
provide Graphic Packaging with a ruling from the Internal Revenue Service or an
opinion of tax counsel acceptable to Graphic Packaging that the transaction
will not adversely affect the tax-free characterization of the spin-off. The
transactions subject to these restrictions, which are not expected to
materially affect our operating flexibility, consist of our liquidation, merger
or consolidation, our redemption of certain amounts of our stock, sales of
assets out of the ordinary course of business, discontinuance of certain
businesses and certain issuances of our common stock. By its terms, the tax
sharing agreement terminates when the statutes of limitations under applicable
tax laws expire.
Transitional Services and Other Agreements
In the past, Graphic Packaging and we provided services for each other such
as insurance administration, joint purchasing and telecommunications services.
We and our respective subsidiaries will enter into one or more transitional
service agreements, for up to one year following the date of our spin-off, with
Graphic Packaging to provide services by the parties, if necessary. These
agreements, individually or collectively, would not be material to our
business.
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We have agreed with Graphic Packaging to enter or cause our respective
subsidiaries to enter into a joint defense agreement in the event both Graphic
Packaging and we may be involved in litigation, and have entered into an
environmental responsibility agreement allocating responsibility for
environmental liabilities if they are incurred. We have agreed with Graphic
Packaging to give each other notice and to cooperate with respect to any such
environmental matter and have agreed to indemnify each other for our respective
environmental practices under the environmental responsibility agreement. Any
joint defense agreement would provide for management of the proceeding and
allocation of related costs, liabilities and recoveries. The stated terms of
any joint defense agreement that may be entered into would typically be tied to
the duration of the litigation that is the subject matter of the agreement.
Loans to Management
We loaned $100,000 to Joseph G. Warren, Jr. in August 1999 in connection
with his relocation from Phoenix, Arizona to Golden, Colorado as a result of
his becoming our chief financial officer. The interest-free loan enabled Mr.
Warren to purchase a home in Colorado prior to the sale of his former home in
Arizona. Mr. Warren repaid the entire amount in October 1999.
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PRINCIPAL STOCKHOLDERS
The following table lists beneficial ownership of our common stock as of
June 1, 2000 by owners of more than 5% of our common stock that are known to
us, each of the directors, each of the named executive officers and all our
directors and executive officers as a group. Except as otherwise indicated, the
beneficial owner has sole voting and investment power.
<TABLE>
<CAPTION>
Percentage of Common
Stock Beneficially
Number of Owned
Shares -----------------------
Beneficially Before the After the
Name Owned Offering(1) Offering(1)
---- ------------ ----------- -----------
<S> <C> <C> <C>
Adolph Coors, Jr. Trust................ 700,000 9.7% 7.6%
(William K. Coors, Jeffrey H. Coors,
J. Brad Coors, Peter H. Coors and
Melissa E. Coors, co-trustees with
shared voting and investment power)
(2)
Grover C. Coors Trust.................. 681,753 9.5% 7.4%
(William K. Coors, Jeffrey H. Coors,
John K. Coors, and Joseph Coors, Jr.,
co-trustees with shared voting and
investment power) (2)
May Kistler Coors Trust................ 431,663 6.0% 4.7%
(William K. Coors, Jeffrey H. Coors,
Joseph Coors, Jr. and Peter H. Coors,
co-trustees with shared voting and
investment power) (2)
Herman F. Coors Trust.................. 358,750 5.0% 3.9%
(William K. Coors, Jeffrey H. Coors,
Joseph Coors, Jr. and Peter H. Coors,
co-trustees with shared voting and
investment power) (2)
Jeffrey H. Coors (3) (4)............... 455,516 6.3% 5.0%
Peter H. Coors (2) (5)................. 433,931 6.0% 4.7%
William K. Coors (2) (6)............... 463,271 6.4% 5.0%
Joseph Coors, Jr. (7) (8).............. 964,179 13.4% 10.5%
John K. Coors (9)...................... 103,617 1.4% 1.1%
David A. Coulter....................... 656 * *
John E. Glancy......................... 3,875 * *
John Markle, III....................... 875 * *
Donald E. Miller....................... 875 * *
Kimberly S. Patmore.................... 875 * *
Robert L. Smialek...................... 1,875 * *
Derek C. Johnson (10).................. 44,254 * *
Katherine A. Resler (11)............... 30,509 * *
Joseph G. Warren, Jr. (12)............. 28,125 * *
All directors and executive officers as
a group
(11 persons) (13)..................... 1,179,715 16.4% 12.8%
</TABLE>
--------
* Holds less than 1% of our common stock.
(1) Applicable percentage ownership is based on 7,183,058 shares of common
stock outstanding as of June 1, 2000 and 9,183,058 shares outstanding
immediately following the completion of this offering (assuming no
exercise of the underwriters' over-allotment option and no exercise of
options after June 1, 2000). Beneficial ownership of shares is determined
in accordance with the rules of the Securities and Exchange Commission and
generally includes shares as to which a person holds sole or shared voting
or investment power. Shares of common stock subject to option that are
presently exercisable or exercisable within 60 days of June 1, 2000 are
deemed to be beneficially owned by the person holding such options for the
purpose of computing the percentage ownership of such person but are not
treated as outstanding for the purpose of computing the percentage
ownership of any other person.
(2) Adolph Coors Company, Golden, Colorado 80401.
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(3) Graphic Packaging International Corporation, 4455 Table Mountain Drive,
Golden, Colorado 80403.
(4) Includes 431,663 shares held by Jeffrey H. Coors as trustee of the May
Kistler Coors Trust, as to which he shares voting and investment power
with William K. Coors, Joseph Coors, Jr. and Peter H. Coors as co-
trustees.
(5) Includes 431,663 shares held by Peter H. Coors as trustee of the May
Kistler Coors Trust, as to which he shares voting and investment power
with William K. Coors, Joseph Coors, Jr. and Jeffrey H. Coors as co-
trustees.
(6) Includes 431,663 shares held by William K. Coors as trustee of the May
Kistler Coors Trust, as to which he shares voting and investment power
with Jeffrey H. Coors, Joseph Coors, Jr. and Peter H. Coors as co-
trustees.
(7) CoorsTek, Inc., 16000 Table Mountain Parkway, Golden, Colorado 80403.
(8) Includes 431,663 shares held by Joseph Coors, Jr. as trustee of the May
Kistler Coors Trust, as to which he shares voting and investment power
with William K. Coors, Jeffrey H. Coors and Peter H. Coors, as co-
trustees. Does not include 1,013 shares of our common stock unissued until
the earlier of retirement or death, disability or termination of
employment; or 36,018 shares of common stock unissued until retirement.
Includes 507,461 shares of our common stock issuable pursuant to options
that are currently exercisable or will be exercisable within 60 days.
(9) Does not include 10,213 shares of our common stock unissued until
retirement. Includes 102,173 shares of our common stock issuable pursuant
to options that are currently exercisable or will be exercisable within 60
days.
(10) Includes 42,094 shares of our common stock issuable pursuant to options
that are currently exercisable or will be exercisable within 60 days.
(11) Includes 30,376 shares of our common stock issuable pursuant to options
that are currently exercisable or will be exercisable within 60 days.
(12) Includes 28,125 shares of our common stock issuable pursuant to options
that are currently exercisable or will be exercisable within 60 days.
(13) Includes 710,229 shares of our common stock issuable pursuant to options
that are currently exercisable or will be exercisable within 60 days.
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DESCRIPTION OF CAPITAL STOCK
Authorized Shares
Under our Certificate of Incorporation, our authorized capital stock
consists of 100,000,000 shares of common stock, par value $0.01 per share, and
20,000,000 shares of preferred stock, $0.01 par value per share. 7,183,058
shares of our common stock and no shares of our preferred stock were issued and
outstanding as of June 1, 2000.
Common Stock
Holders of our common stock are entitled to one vote for each share held on
all matters voted on by stockholders. Holders of our common stock do not have
cumulative voting rights in the election of directors. The first annual meeting
of stockholders is expected to be held during 2001.
All outstanding shares of our common stock are fully paid and nonassessable.
Holders of our common stock do not have any subscription, redemption or
conversion privileges.
Under the Delaware General Corporation Law, we may pay dividends out of
"surplus" (as determined in accordance with the Delaware General Corporation
Law) or, if there is no surplus, out of net profits for the fiscal year in
which the dividends are declared and/or the preceding fiscal year (subject to
certain restrictions). Subject to the preferences or other rights of any of our
preferred stock that may be issued from time to time, holders of our common
stock are entitled to participate ratably in dividends on the common stock as
declared by the board of directors. Our dividend policy will be established by
our board of directors from time to time. Subject to legal and contractual
restrictions, our board's decisions regarding dividends will be based on all
considerations that in its business judgment are relevant at the time,
including past and projected earnings, cash flows, economic, business and
securities market conditions and anticipated developments concerning our
business and operations. We do not currently intend to pay dividends on our
common stock, and we are prohibited from doing so under our credit facility.
Holders of our common stock are entitled to share ratably in all assets
available for distribution to stockholders in the event of our liquidation or
dissolution, subject to distribution of the preferential amount, if any, to be
distributed to holders of preferred stock.
Preferred Stock
Our Certificate of Incorporation authorizes our board, without any vote or
action by the holders of common stock, to issue preferred stock from time to
time in one or more series. Our board is authorized to determine the number of
shares and to fix the powers, designations, preferences and relative,
participating, optional or other special rights of any series of preferred
stock. Issuances of our preferred stock would be subject to the applicable
rules of the Nasdaq National Market or other organizations on which our stock
is then quoted or listed. Depending upon the terms of preferred stock
established by our board of directors, any or all series of preferred stock
could have preference over our common stock with respect to dividends and other
distributions and upon our liquidation. If any shares of preferred stock are
issued with voting powers, or if additional shares of common stock are issued,
the voting power of the outstanding common stock would be diluted.
We believe that the availability of preferred stock will provide increased
flexibility to facilitate possible future financings and acquisitions and to
meet other corporate needs that might arise.
Transfer Agent and Registrar
Norwest Bank Minnesota, N.A. is the transfer agent and registrar for our
common stock.
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Anti-takeover Effects of Certain Provisions
Our Certificate of Incorporation and Bylaws, the Delaware General
Corporation Law and the Stockholder Rights Plan, described below, contain
provisions that may discourage or delay the acquisition of control of us by
means of a tender offer, open market purchases, a proxy contest or otherwise.
Purposes of Provisions
The relevant provisions of our Certificate of Incorporation and Bylaws are
intended to discourage certain types of transactions that may involve an actual
or threatened change of control of and to encourage any person who might seek
to acquire control of us to negotiate with our board. We believe that generally
the interests of the stockholders would be served best if any change in control
results from negotiations with our board of the proposed terms, such as the
price to be paid, the form of consideration and the anticipated tax effects of
the transaction. However, to the extent that these provisions do discourage
takeover attempts, they could make it more difficult to accomplish transactions
that are opposed by the incumbent board and could deprive stockholders of
opportunities to realize takeover premiums for their shares or other advantages
that large accumulations of stock would provide.
The description below is a summary only. We encourage you to read our
Certificate of Incorporation, our Bylaws and our Stockholder Rights Plan filed
as exhibits to the registration statement of which this prospectus is a part.
Delaware Section 203
Section 203 of the Delaware General Corporation Law provides that, subject
to certain exceptions, a corporation shall not engage in any "business
combination" with any "interested stockholder" for a three-year period
following the time that such stockholder becomes an interested stockholder
unless:
. prior to such time, the board of directors of the corporation approved
either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder;
. upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding certain shares); or
. on or subsequent to such time, the business combination is approved by
the board of directors of the corporation and by the affirmative vote
of at least 66-2/3% of the outstanding voting stock which is not owned
by the interested stockholder.
Section 203 generally defines an "interested stockholder" to include:
. any person that is the owner of 15% or more of the outstanding voting
stock of the corporation, or is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting
stock of the corporation at any time within three years immediately
prior to the relevant date; and
. the affiliates and associates of any such person.
Section 203 generally defines a "business combination" to include:
. mergers and sales or other dispositions of 10% or more of the assets
of the corporation with or to an interested stockholder;
. certain transactions resulting in the issuance or transfer to the
interested stockholder of any stock of the corporation or its
subsidiaries;
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. certain transactions which would result in increasing the
proportionate share of the stock of the corporation or its
subsidiaries owned by the interested stockholder; and
. receipt by the interested stockholder of the benefit (except
proportionately as a stockholder) of any loans, advances, guarantees,
pledges or other financial benefits.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year period, although the
certificate of incorporation or stockholder-adopted bylaws may exclude a
corporation from the restrictions imposed thereunder. Neither our Certificate
nor our Bylaws exclude us from the restrictions imposed under Section 203. It
is anticipated that the provisions of Section 203 may encourage companies
interested in acquiring us to negotiate in advance with our board of directors
since the stockholder approval requirement would be avoided if our board
approves, prior to the time the acquirer becomes an interested stockholder,
either the business combination or the transaction that results in the acquirer
becoming an interested stockholder.
Classification of our Board
Commencing at the first annual meeting of our stockholders to be held in
2001, the total number of directors will be divided into three classes, with
each class containing one-third of the total, as near as may be. The terms of
directors will expire as follows:
. the term of the first class will expire at the annual meeting of
stockholders held in 2002;
. the term of directors in the second class will expire at the annual
meeting of stockholders held in 2003; and
. the term of directors in the third class will expire at the annual
meeting of stockholders held in 2004.
Upon the expiration of the initial staggered terms, directors shall be elected
for terms of three years to succeed those whose terms expire. Of the initial
directors, the first class will consist of three persons, the second class will
consist of three persons and the third class will consist of two persons. The
structure of the classified board is intended to promote continuity and
stability of our management and policies because a majority of the directors
serving at any given time will have prior experience as our directors.
The classification of directors could make it more difficult for
stockholders to quickly change the composition of our board. At least two
annual meetings of stockholders, instead of one, generally would be required to
effect a change in the majority of our board.
Number of Directors; Removal; Vacancies
Our Certificate of Incorporation provides that the number of directors shall
not exceed 11. Our board of directors is currently comprised of eight persons.
The exact number of directors is set in accordance with our Bylaws by
resolution from time to time of two-thirds of the directors then in office.
Interim vacancies on our board, or vacancies created by an increase in the
number of directors, may be filled by a majority of the directors then in
office. A director appointed to fill a vacancy will hold office for the
remainder of the term of the class of director in which the vacancy occurred or
the new directorship was created.
Directors may be removed for cause only by a class vote of the holders of
two-thirds of the stockholders entitled to vote thereon. This provision, in
conjunction with the provisions of our Certificate of Incorporation authorizing
our board to fill vacant directorships, would prevent stockholders holding less
than two-thirds of the voting stock from removing incumbent directors and
filling the resulting vacancies with their own nominees.
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<PAGE>
Stockholder Action
Our Certificate of Incorporation requires all stockholder action to be taken
at an annual or special meeting of stockholders and prohibits stockholder
action by written consent, unless the action is by unanimous consent. Our
Certificate of Incorporation and Bylaws also provide that special meetings of
stockholders may be called by our board of directors, our Chairperson or our
President.
The provisions prohibiting stockholder action by consent resolution except
by unanimous consent and, not permitting any stockholder or group thereof to
call a special meeting may have the effect of delaying consideration of a
stockholder proposal until the next annual meeting of the stockholders unless a
special meeting is called by our board of directors, our Chairperson or our
President.
Stockholder Proposals
Our Bylaws establish an advance notice procedure for nominations (other than
by or at the direction of our board) of candidates for election as directors
at, and for proposals to be brought before, an annual meeting of stockholders.
Subject to any other applicable requirements, only such nominations may be
considered and such business may be conducted at an annual meeting as have been
brought before the meeting by or at the direction of our board or by a
stockholder who has given to our Secretary timely written notice, in proper
form, of the same.
To be timely, notice of nominations or other business to be brought before
an annual meeting must be received by our Secretary not less than 90 days nor
more than 120 days prior to the anniversary of the preceding year's annual
meeting. For the purposes of our first annual meeting held after 2000, the
anniversary date shall be deemed to be May 15, 2001.
Each notice must set forth:
. the identity (including name and address) of the stockholder or
stockholders who intend to make the nomination or proposal;
. the class and number of shares of common stock and preferred stock
owned directly or indirectly by such stockholder;
. representation that the stockholder is a holder of record of our stock
entitled to vote at the meeting and intends to appear in person or by
proxy at the meeting to propose the business or nomination; and
. a representation whether the stockholder or the beneficial owner, if
any, intends or is part of a group which intends:
-- to deliver a proxy statement and/or form of proxy to holders of
at least the percentage of our capital stock required to
approve the proposal or elect the nominee, or
-- otherwise to solicit proxies from stockholders in support of
the proposal or nomination,
-- in the case of a stockholder proposal:
-- a brief description of the business desired to be brought
before the meeting,
-- the text of the proposal (including the text of any
resolutions proposed for consideration and in the event
that the business includes a proposal to amend our
Bylaws, the language of the proposed amendment),
-- the reasons for conducting such business at the meeting,
and
-- any material interest of such stockholder in the proposed
business, if any, and
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-- in the case of a nomination for election of a director:
-- all information regarding the nominee proposed by the
stockholder that would be required to be included in a
proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission, and
-- the consent of the nominee to be named in a proxy
statement as a candidate for election and to serve as a
director if elected.
We may require any proposed nominee to furnish such other information as it
may reasonably require to determine the eligibility of such proposed nominee to
serve as a director.
The chairperson of the meeting at which the directors are to be elected or
at which the stockholder action is to be taken shall have the power and duty:
. to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed in accordance with
these procedures; and
. if any proposed nomination or business was not made or proposed in
compliance with these procedures, to declare that the nomination shall
be disregarded or that the proposed business shall not be transacted.
These provisions are intended to facilitate planning for the conduct of our
annual meeting of stockholders and to provide time for proposals to be
evaluated fully. They may have the effect of precluding a nomination or the
conduct of business at a particular meeting if the proper procedures are not
followed and may deter a potential acquirer from conducting a solicitation of
proxies to elect its own slate of directors or otherwise attempting to obtain
control, even if the conduct of such solicitation or such attempt might be
beneficial to the stockholders.
Acquisition Proposals
In determining whether an acquisition proposal is in our long-term best
interests and our stockholders, our Certificate of Incorporation provides that
our board may consider the effect of both an acquisition proposal and a
potential acquisition on our creditors, customers and employees and on the
community in general, the risks of non-consummation of an acquisition proposal,
the identity, prior background and other business experiences of the person or
entity making an acquisition proposal, and both our business plan and the
business plan of the person or entity making an acquisition proposal and their
respective effects on stockholder interests.
Stockholder Vote for Amendment of our Certificate of Incorporation and Bylaws
Under Delaware law, amendments to a corporation's certificate of
incorporation require a resolution of the board of directors and the approval
of the holders of a majority of the outstanding shares entitled to vote and, in
certain cases, of a majority of the outstanding shares of each class entitled
to vote, voting separately as a class. Delaware law also permits a
corporation's certificate of incorporation to require a greater vote than the
vote otherwise required for any corporate action. Our Certificate of
Incorporation requires the concurrence of the holders of at least two-thirds of
our voting stock, voting together as a single class, to amend or repeal, or
adopt any provision inconsistent with, the anti-takeover provisions of our
Certificate of Incorporation discussed above. Our Certificate of Incorporation
also provides that our Bylaws may be amended or repealed by an affirmative vote
of two-thirds of the directors then in office or by an affirmative vote of two-
thirds of the stockholders entitled to vote thereon. These supermajority vote
requirements are intended to prevent a stockholder with a majority of our
common stock from avoiding the requirements of these provisions by simply
amending them.
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Other Provisions of our Certificate of Incorporation
Our Certificate of Incorporation authorizes our board of directors to take
such action as it may determine to be reasonably necessary or desirable to
encourage any person or entity to enter into negotiations with our board and
our management respecting any transaction that may result in a change of
control and to contest or oppose any such transaction that our board determines
to be unfair, abusive or otherwise undesirable to us or our stockholders,
business, customers, employees or other constituencies. This provision
specifically permits our board to adopt plans or to issue securities (including
common stock or preferred stock, rights or debt securities), which, among other
things, may be exchangeable or convertible into cash or other securities on
such terms as our board determines, may provide for differential and unequal
treatment of different holders or classes of holders and may contain
restrictions that preclude or limit the entitlement, exercise or transfer of
such securities by a person who, after their creation, acquires a certain
percentage of our voting stock. This provision is intended, in part, to give
our board greater bargaining power to negotiate on behalf of stockholders in
the event of a takeover proposal. It may, however, discourage or make more
difficult a hostile takeover or acquisition of control and could deprive our
stockholders of possible opportunities to realize premiums for their shares and
reduce the risk to management that it might be displaced by a takeover.
Preferred Stock and Additional Common Stock
Our board's authority to issue shares of common stock and preferred stock
and to fix by resolution the terms and conditions of each series of preferred
stock may either impede or facilitate the completion of a merger, tender offer
or other takeover attempt. For example, the issuance of new shares might impede
a business combination if the terms of those shares include series voting
rights that would enable the holder to block business combinations or the
issuance of new shares might facilitate a business combination if those shares
have general voting rights sufficient to cause an applicable percentage vote
requirement to be satisfied. Our board of directors will make any determination
regarding issuance of additional shares based on its judgment as to the best
interest of our stockholders, customers, employees or other constituencies.
Stockholder Rights Plan
We have adopted a Stockholder Rights Plan and have issued, for each share of
our common stock, one preferred share purchase right, or a Right. Each Right
will entitle the registered holder to purchase from us one one-thousandth of a
share of our Series A junior participating preferred stock at an exercise price
of $38.00, subject to adjustment. The description and terms of the Rights are
set forth in our Stockholder Rights Agreement with Norwest Bank, N.A.
Initially, the Rights will be attached to all certificates representing
shares of our common stock then outstanding. The Rights will separate from our
common stock and a distribution of Rights certificates will occur upon the
earlier to occur of:
. ten days following a public announcement that a person or group of
affiliated or associated persons, or an acquiring person, obtained the
right to acquire, beneficial ownership of 15% or more of the
outstanding shares of common stock, on the stock acquisition date; or
. ten business days following the commencement of a tender offer or
exchange offer the consummation of which would result in the
beneficial ownership by a person of 15% or more of the outstanding
shares of common stock.
The earlier of such dates is referred to as the Distribution Date.
Until the Distribution Date:
. the Rights will be evidenced by the common stock certificates; no
separate certificates evidencing the Rights will be distributed; and
the Rights will be transferred only with the common stock
certificates; and
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. the surrender for transfer of any certificates of common stock
outstanding will also constitute the transfer of the Rights associated
with the common stock represented by such certificate.
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on January 1, 2010, unless we redeem or exchange at an
earlier date as described below. The Rights will not be exercisable by a holder
in any jurisdiction where the requisite qualification to the issuance to such
holder, or the exercise by such holder, of the Rights has not been obtained or
is not obtainable.
As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights will be mailed to holders of record of our
common stock as of the close of business on the Distribution Date and,
thereafter, the separate Rights certificates alone will evidence the Rights.
Except as otherwise determined by our board, only shares of common stock issued
prior to the Distribution Date will be issued with Rights.
If a person or group becomes an acquiring person (except pursuant to an
offer for all outstanding shares of common stock that the independent directors
determine to be fair to and otherwise in our best interests and the best
interests of our stockholders), each holder of a Right will, after the end of a
redemption period referred to below, have the right to receive, upon exercise,
common stock (or, in certain circumstances, cash, property or other securities
that we issue) having a value equal to two times the exercise price of the
Right. Notwithstanding any of the foregoing, all Rights that are, or (under
certain circumstances specified in the Rights Agreement) were, beneficially
owned by any acquiring person will be null and void. However, Rights are not
exercisable following the occurrence of the events set forth above until such
time as the Rights are no longer redeemable by us as set forth below.
For example, at a purchase price of $38.00 per Right, each Right not owned
by an acquiring person (or by certain related parties) following an event set
forth in the preceding paragraph would entitle its holder to purchase $76.00
worth of common stock (or other consideration, as noted above) for $38.00.
Assuming that the common stock had a per share value of $19.00 at such time,
the holder of each valid Right would be entitled to purchase four shares of
common stock for $38.00.
If, at any time following the stock acquisition date:
. we are acquired in a merger or other business combination transaction
in which we are not the surviving corporation (other than a merger
which follows an offer for all outstanding shares of common stock that
the independent directors determine to be fair to and otherwise in our
best interests and in the best interest of our stockholders); or
. 50% or more of our assets or earning power is sold or transferred,
each holder of a Right (except Rights that previously have been voided as set
forth above) shall, after the expiration of the redemption period referred to
below, have the right to receive, upon exercise, common stock of the acquiring
company having a value equal to two times the purchase price of the Right
(e.g., common stock of the acquiring company having a value of $76.00 for the
$38.00 purchase price).
At any time after a person or group becomes an acquiring person, our board
may exchange the Rights (other than Rights owned by such acquiring person that
have become void), in whole or in part, at an exchange ratio of one share of
common stock per Right (subject to adjustment).
The purchase price payable, and the number of one one-thousandth of a share
of our junior preferred stock or other securities or property issuable, upon
exercise of the Rights, is subject to adjustment from time to time to prevent
dilution:
. in the event of a stock dividend on, or a subdivision, combination or
reclassification of our junior preferred stock;
. upon the grant to holders of our junior preferred stock of certain
rights or warrants to subscribe for our junior preferred stock or
convertible securities at less than the current market price of our
junior preferred stock; or
58
<PAGE>
. upon the distribution to holders of our junior preferred stock of
evidences of indebtedness or assets (other than regular quarterly cash
dividends and dividends payable in our junior preferred stock) or of
subscription rights or warrants (other than those referred to above).
With certain exceptions, no adjustment in the purchase price will be
required until cumulative adjustments require an adjustment of at least 1% in
such purchase price. No fractional shares will be issued (other than fractions
of Junior Preferred that are integral multiples of one one-thousandth of a
share of Junior Preferred, which may at our election be evidenced by depositary
receipts) and in lieu thereof, an adjustment in cash will be made based on the
market price of our junior preferred stock on the last trading date prior to
the date of exercise.
We do not have authority to redeem shares of our junior preferred stock.
Each share of Junior Preferred will be entitled, when, as and if declared, to a
minimum preferential quarterly dividend payment of the greater of:
. $0.01 per share; or
. 1,000 times the aggregate per share amount of all cash dividends, and
1,000 times the aggregate per share amount (payable in kind) of all
non cash dividends or other distributions other than a dividend
payable in shares of common stock.
Upon any of our liquidation (voluntary or otherwise), dissolution or winding
up, no distribution shall be made to the holders of shares of our capital stock
ranking junior to our junior preferred stock unless, prior thereto, the holders
of shares of Junior Preferred shall have received $38.00 per share, plus any
unpaid dividends and distributions payable thereon, whether or not declared, to
the date of such payment.
Following the payment of the preferred dividend on our junior preferred
stock, no additional distributions shall be made to the holders of Junior
Preferred unless, prior thereto, the common stockholders shall have received an
amount per share equal to the quotient obtained by dividing the preferred
dividend on our junior preferred stock Liquidation Preference by 1,000.
Each share of junior preferred shall entitle the holder thereof to 1,000
votes on all matters submitted to a vote of our common stockholders. In the
event of any merger, consolidation or other transaction in which outstanding
shares of our common stock are converted or exchanged, each share of our junior
preferred stock will be entitled to receive 1,000 times the amount received per
share of common stock. These rights, and the rights described in the preceding
two paragraphs, are protected by customary antidilution provisions.
In general, our board may cause us to redeem the Rights in whole, but not in
part, at any time during the period commencing on January 1, 2000, and ending
on the tenth day following the Stock Acquisition Date, as such period may be
extended or shortened by our board at a price of $0.001 per Right (payable in
cash, common stock or other consideration deemed appropriate by the board).
After the period for redemption has expired, our right of redemption may be
reinstated if an acquiring person reduces his beneficial ownership to 10% or
less of the outstanding shares of common stock in a transaction or series of
transactions not involving us and there are no other Acquiring Persons.
Immediately upon the action of our board ordering redemption of the Rights, the
Rights will terminate and the only right of the holders of Rights will be to
receive the $0.001 redemption price.
Until a Right is exercised, the holder thereof, only as a Right holder, will
have no rights as do our stockholders, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be subject to federal taxation to our stockholders or to us, our stockholders
may, depending
59
<PAGE>
upon the circumstances, recognize taxable income in the event that the Rights
become exercisable for our common stock (or other consideration) or for common
stock of the acquiring company as set forth above.
Other than those provisions relating to the principal economic terms of the
Rights, any of the provisions of the Rights Agreement may be amended by our
board prior to the Distribution Date. After the Distribution Date, the
provisions of the Rights Agreement may be amended by our board in order to cure
any ambiguity, defect or inconsistency or to make changes which do not
adversely affect the interests of holders of Rights (excluding the interests of
any acquiring person), or to shorten or lengthen any time period under the
Rights Agreement. However, no amendment to adjust the time period governing
redemption may be made at such time as the Rights are not redeemable.
A copy of the Rights Agreement is filed as an Exhibit to our registration
statement. This summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement,
as the same may be amended from time to time. In the event that the Rights
become exercisable, we will register the shares of our junior preferred stock
for which the Rights may be exercised, in accordance with applicable law.
Liability and Indemnification of our Officers and Directors
Elimination of Liability in Certain Circumstances
Our Certificate of Incorporation eliminates the personal liability of our
directors to us and our stockholders for monetary damages for breach of
fiduciary duty, except in the instances described below. Our Certificate of
Incorporation also provides that if Delaware law is amended to further
eliminate or limit the liability of directors, then the liability of a director
will be so eliminated or limited to the fullest extent permitted by the amended
law, without further stockholder action.
Directors remain liable for:
. breaches of their duty of loyalty to us and our stockholders;
. acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of laws;
. transactions from which a director derives improper personal benefit;
and
. for unlawful distributions, under a provision of the Delaware General
Corporation Law that makes directors personally liable and which
expressly sets forth a negligence standard with respect to such
liability.
The provisions that eliminate liability as described above will apply to our
officers if they are our directors and are acting in their capacity as
directors and will not apply to officers who are not directors.
Indemnification and Insurance
The Delaware General Corporation Law contains provisions permitting and, in
some situations, requiring Delaware corporations to provide indemnification to
their officers and directors for losses and litigation expense incurred in
connection with their service to the corporation in those capacities. Our
Certificate of Incorporation and Bylaws contain provisions that require us to
indemnify our directors and officers to the fullest extent permitted by law.
Indemnification includes advancement of reasonable expenses in certain
circumstances.
The Delaware General Corporation Law permits indemnification of a director
of a Delaware corporation, in the case of a third party action, if the
director:
. conducted himself or herself in good faith;
60
<PAGE>
. reasonably believed that:
-- in the case of conduct in his or her official capacity, his or
her conduct was in the corporation's best interest; or
-- in all other cases, his or her conduct was at least not opposed
to the corporation's best interest; and
. in the case of any criminal proceeding, had no reasonable cause to
believe that his or her conduct was unlawful.
The Delaware General Corporation Law further provides for mandatory
indemnification of directors and officers who are wholly successful on the
merits or otherwise in litigation. The Delaware statute limits the
indemnification that a corporation may provide to its directors in a derivative
action in which the director is held liable to the corporation, or in any
proceeding in which the director is held liable on the basis of his or her
improper receipt of a personal benefit.
In addition, the Delaware General Corporation Law and our Bylaws authorize
us to purchase insurance for our directors and officers insuring them against
certain risks as to which we may be unable lawfully to indemnify them. We
intend to maintain insurance coverage for our officers and directors as well as
insurance coverage to reimburse us for potential costs of our corporate
indemnification of officers and directors. We may enter into agreements with
our directors providing contractually for indemnification consistent with our
Certificate of Incorporation and Bylaws.
Our Bylaws also provide with respect to officers and directors covered by
insurance and indemnity:
. that the rights conferred on the covered officers and directors
thereby are not exclusive of any other rights which the officer or
director may have or thereafter acquire under any statute, provision
of our Certificate of Incorporation, our Bylaws, agreement, vote of
stockholders or disinterested directors, or otherwise;
. that our obligation, if any, to indemnify or to advance expenses to
any covered officer or director who was or is serving at our request
as a director, officer, employee or agent of another company,
partnership, joint venture, trust, enterprise or nonprofit entity will
be reduced by any amount that the covered officer or director may
collect as indemnification or advancement of expenses from such other
company, partnership, joint venture, trust, enterprise or nonprofit
entity; and
. that any repeal or modification of the relevant provisions of our
Bylaws will not adversely affect any right or protection thereunder of
any covered officer or director in respect of any act or omission
occurring prior to the time of such repeal or modification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted for directors and officers and controlling persons
pursuant to the foregoing provisions, we have 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.
61
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
The market price of our common stock could decline as a result of sales of a
large number of shares of our common stock in the market after this offering,
or the perception that such sales could occur. Such sales also might make it
more difficult for us to sell equity securities in the future at a time and
price that we deem appropriate. After this offering, 9,183,058 shares of common
stock will be outstanding based on total shares outstanding as of June 1, 2000.
Of such shares, 2,000,000 shares of common stock sold in this offering are
freely tradable, unless such shares are purchased by "affiliates" as that term
is defined in Rule 144 under the Securities Act. These shares may be sold in
the public market only if they are registered or if they qualify for an
exemption from registration, such as Rule 144 under the Securities Act, which
is summarized below. These remaining shares are eligible for sale in the public
market as follows:
<TABLE>
<CAPTION>
Number of
Shares Date
--------- ----
<S> <C>
168,768 At various times after , 2000 (91st day
after the date of the prospectus covering this
public offering) (subject, in some cases, to
volume limitations) (lock-up and Rule 144)
3,159,144 At various times after , 2001 (181st day
after the date of the prospectus covering this
public offering) (subject, in some cases, to
volume limitations, vesting and exceptions as
described below) (lock-up and Rule 144)
</TABLE>
Lock-Up Agreements
All of our officers and directors who hold our stock, and several of our
securityholders who beneficially own in the aggregate 2,277,708 shares of our
common stock based on their holdings as of May 31, 2000, have agreed not to
offer to sell, contract to sell or otherwise sell, dispose of, loan, pledge or
grant any rights with respect to any shares of common stock or any options or
warrants to purchase any shares of common stock, or any securities convertible
into or exchangeable for shares of common stock owned as of the date of this
prospectus or thereafter acquired directly by those holders or with respect to
which they have or hereafter acquire the power of disposition, for a period of
180 days after the date of this prospectus, subject to specified exceptions,
and holders of warrants to purchase an aggregate of 168,768 shares of common
stock have agreed not to do so for a period of 90 days after the date of this
prospectus, without the prior written consent of FleetBoston Robertson Stephens
Inc. However, FleetBoston Robertson Stephens Inc. may, in its sole discretion
and at any time or from time to time, without notice, release all or any
portion of the securities subject to lock-up agreements. Additionally,
FleetBoston Robertson Stephens Inc. granted an exception to three of our
executive officers to transfer or dispose of an aggregate of 39,261 shares of
our common stock underlying option grants that, according to their terms,
expire before the 181st day following this offering.
Stock Plan
As of March 31, 2000, options to purchase a total of 1,301,729 shares of
common stock were outstanding, of which 584,728 shares are currently vested.
Shares issued upon the exercise of stock options granted under our stock option
plan will be eligible for resale in the public market from time to time subject
to vesting and, in the case of certain options, the expiration of the lock-up
agreements referred to above.
Warrants
Warrants to purchase 168,768 shares of common stock are outstanding after
this offering. Holders of these warrants have the right, subject to certain
conditions and limitations, to include their shares in certain registration
statements relating to our securities. By exercising their registration rights
and causing a large
62
<PAGE>
number of shares to be registered and sold in the public market, these holders
may cause the price of the common stock to fall. These holders have waived any
registration rights for this offering.
Summary of Rule 144
In general, under Rule 144, as currently in effect, any one of our
affiliates or a person (or persons whose shares are required to be aggregated)
who has beneficially owned shares for at least one year is entitled to sell,
within any three-month period, a number of shares that does not exceed the
greater of (1) 1% of the then outstanding shares of common stock (91,831 shares
immediately after this offering) or (2) the average weekly trading volume in
the common stock during the four calendar weeks preceding the date on which
notice of such sale is filed, subject to certain restrictions. In addition, a
person who is not deemed to have been our affiliate at any time during the 90
days preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least two years, would be entitled to sell such shares under Rule
144(k) without regard to the requirements described above. To the extent that
shares were acquired from one of our affiliates, such person's holding period
for the purpose of effecting a sale under Rule 144 commences on the date of
transfer from the affiliate. Securities issued in reliance on Rule 701 (such as
shares of common stock that may be acquired pursuant to the exercise of certain
options granted prior to this offering) are also restricted securities and may
be sold by stockholders other than our affiliates subject only to the manner of
sale provisions of Rule 144 and by our affiliates under Rule 144 without
compliance with its one-year holding period requirement.
63
<PAGE>
UNDERWRITING
The underwriters named below have severally agreed with us, subject to the
terms and conditions of the underwriting agreement, to purchase from us the
number of shares of common stock set forth opposite their names below at the
public offering price less the underwriting discount set forth on the cover
page of this prospectus. The underwriters are committed to purchase and pay for
all such shares if any are purchased.
<TABLE>
<CAPTION>
Number
Underwriters of Shares
------------ ---------
<S> <C>
FleetBoston Robertson Stephens Inc..............................
CIBC World Markets Corp.........................................
Needham & Company, Inc..........................................
First Security Van Kasper.......................................
Friedman, Billings, Ramsey & Co., Inc...........................
---------
Total......................................................... 2,000,000
=========
</TABLE>
The underwriters have advised us that they propose to offer the shares of
common stock to the public at the public offering price set forth on the cover
page of this prospectus and to certain dealers at that price less a concession
of not in excess of $ per share, of which $ may be reallowed to other
dealers. After this offering, the public offering price, concession and
reallowance to dealers may be reduced by the underwriters. No reduction of this
type will change the amount of proceeds to be received by us as set forth on
the cover page of this prospectus. The common stock is offered by the
underwriters as stated in this prospectus, subject to receipt and acceptance by
them and subject to their right to reject any order in whole or in part.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.
Over-Allotment Option
We have granted to the underwriters an option, exercisable during the 30-day
period after the date of this prospectus, to purchase up to 300,000 additional
shares of common stock to cover over-allotments, if any, at the same price per
share that we will receive for the 2,000,000 shares that the underwriters have
agreed to purchase. If the underwriters exercise their over-allotment option to
purchase any of the additional 300,000 shares of common stock, the underwriters
have severally agreed, subject to specified conditions, to purchase additional
shares approximately in proportion to the amount specified in the table above.
If purchased, these additional shares will be sold by the underwriters on the
same terms as those on which the 2,000,000 shares are being sold. We will be
obligated, under the terms of the option, to sell shares to the underwriters to
the extent the over-allotment option is exercised. The underwriters may
exercise the option only to cover over-allotments made in connection with the
sale of the shares of common stock offered in this offering. If the over-
allotment option is exercised in full, the total public offering price will be
$ , the total underwriting discounts and commissions will be $ and
the total proceeds to us will be $ . We estimate the expenses payable by
us in connection with this offering, other than the underwriting discounts and
commissions referred to above, will be approximately $ .
Indemnity
The underwriting agreement contains covenants of indemnity between the
underwriters and us against certain civil liabilities, including liabilities
under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
64
<PAGE>
Lock-Up Agreements
Each of our officers and directors, and several of our securityholders who
beneficially own in the aggregate 2,277,708 shares of our common stock based on
their holdings as of May 31, 2000, have agreed, during the period of 180 days
after the date of this prospectus, subject to specified exceptions, not to
offer to sell, contract to sell or otherwise sell, dispose of, loan, pledge or
grant any rights with respect to any shares of common stock or any options or
warrants to purchase any shares of common stock, or any securities convertible
into or exchangeable for shares of common stock owned as of the date of this
prospectus or thereafter acquired directly by those holders or with respect to
which they have or hereafter acquire the power of disposition, and holders of
warrants to purchase an aggregate of 168,768 shares of our common stock have
agreed not to do so for a period of 90 days after the date of this prospectus,
without the prior written consent of FleetBoston Robertson Stephens Inc.
However, FleetBoston Robertson Stephens Inc. may, in its sole discretion and at
any time or from time to time, without notice, release all or any portion of
the securities subject to lock-up agreements. Additionally, FleetBoston
Robertson Stephens Inc. granted an exception to three of our executive officers
to transfer or dispose of an aggregate of 39,261 shares of our common stock
underlying option grants that, according to their terms, expire before the
181st day following this offering. Other than this exception, there are
currently no agreements between the representatives and any of our directors,
officers, securityholders or warrantholders providing consent by the
representatives to the sale of shares prior to the expiration of the lock-up
period.
In addition, we have agreed that during the lock-up period we will not,
without the prior written consent of FleetBoston Robertson Stephens Inc.,
subject to certain exceptions, consent to the disposition of any shares held by
stockholders subject to lock-up agreements prior to the expiration of the lock-
up period, or issue, sell, contract to sell or otherwise dispose of any shares
of common stock, any options or warrants to purchase any shares of common stock
or any securities convertible into, exercisable for or exchangeable for shares
of common stock, other than our sale of shares in this offering, the issuance
of shares of common stock upon the exercise of outstanding options and the
grant of options to purchase shares of common stock under existing employee
stock option plans provided that those options do not vest prior to the
expiration of the lock-up period.
Stabilization
The underwriters have advised us that, pursuant to Regulation M under the
Securities Act, some persons participating in this offering may engage in
transactions, including stabilizing bids, syndicate covering transactions or
the imposition of penalty bids, that may have the effect of stabilizing or
maintaining the market price of our common stock at a level above that which
might otherwise prevail in the open market. A "stabilizing bid" is a bid for or
the purchase of the common stock on behalf of the underwriters for the purpose
of fixing or maintaining the price of the common stock. A "syndicate covering
transaction" is the bid for or the purchase of the common stock on behalf of
the underwriters to reduce a short position incurred by the underwriters in
connection with this offering. A "penalty bid" is an arrangement permitting the
underwriters to reclaim the selling concession otherwise accruing to an
underwriter or syndicate member in connection with the offering if the common
stock originally sold by that underwriter or syndicate member is purchased by
the underwriters in a syndicate covering transaction and has therefore not been
effectively placed by the underwriter or syndicate member. The underwriters
have advised us that transactions of these types may be effected on the Nasdaq
National Market or otherwise and, if commenced, may be discontinued at any
time.
Passive Market Making
In connection with this offering and before the commencement of offers or
sales of our common stock, certain underwriters that are qualified market
makers on the Nasdaq National Market may engage in passive market making
transactions in our common stock on the Nasdaq National Market in accordance
with Rule 103 of Regulation M under the Securities Exchange Act of 1934, during
the business day prior to the pricing of the offering. Passive market makers
must comply with applicable volume and price limitations and must be identified
as such. In general, a passive market maker must display its bid at a price not
in excess of the highest independent bid for such security; if all bids are
lowered below the passive market maker's bid, however, such bid must then be
lowered when certain purchase limits are exceeded.
65
<PAGE>
LEGAL MATTERS
Hogan & Hartson L.L.P., Denver, Colorado, will pass upon the validity of the
issuance of the shares being offered. Latham & Watkins, Menlo Park, California,
will act as counsel for the underwriters.
EXPERTS
The consolidated financial statements as of December 31, 1998 and 1999 and
for each of the three years in the period ended December 31, 1999 included in
this prospectus have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
66
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Consolidated Statement of Income and Comprehensive Income.................. F-3
Consolidated Balance Sheet................................................. F-4
Consolidated Statement of Cash Flows....................................... F-5
Consolidated Statement of Stockholders' Equity............................. F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of CoorsTek, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income and comprehensive income, of stockholders'
equity and of cash flows present fairly, in all material respects, the
financial position of CoorsTek, Inc. and its subsidiaries at December 31, 1998
and 1999, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Denver, Colorado
February 17, 2000
F-2
<PAGE>
COORSTEK, INC.
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended December 31, March 31,
--------------------------- -----------------
1997 1998 1999 1999 2000
-------- -------- -------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net sales...................... $304,824 $296,614 $365,061 $76,579 $120,819
Cost of goods sold............. 219,821 222,906 274,398 58,305 93,400
-------- -------- -------- ------- --------
Gross profit................... 85,003 73,708 90,663 18,274 27,419
Selling, general and
administrative expenses....... 41,754 37,758 53,202 9,008 14,449
Asset impairment charges....... -- 11,814 -- -- --
-------- -------- -------- ------- --------
Operating income............... 43,249 24,136 37,461 9,266 12,970
Interest expense, net.......... 68 3,524 4,981 701 4,713
-------- -------- -------- ------- --------
Income before income taxes..... 43,181 20,612 32,480 8,565 8,257
Income tax expense............. 16,192 7,682 12,425 3,355 3,055
-------- -------- -------- ------- --------
Net income..................... 26,989 12,930 20,055 5,210 5,202
-------- -------- -------- ------- --------
Other comprehensive income
(expense):
Minimum pension liability
adjustment, net of tax of
$167.......................... -- (281) -- -- --
Foreign currency translation
adjustments................... 27 (56) 77 (235) (239)
-------- -------- -------- ------- --------
Comprehensive income........... $ 27,016 $ 12,593 $ 20,132 $ 4,975 $ 4,963
======== ======== ======== ======= ========
Net income per share:
Basic........................ $ 3.78 $ 1.81 $ 2.81 $ .73 $ .73
======== ======== ======== ======= ========
Diluted...................... $ 3.78 $ 1.81 $ 2.81 $ .73 $ .72
======== ======== ======== ======= ========
Weighted average shares
outstanding:
Basic........................ 7,142 7,142 7,142 7,142 7,143
======== ======== ======== ======= ========
Diluted...................... 7,142 7,142 7,142 7,142 7,220
======== ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-3
<PAGE>
COORSTEK, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31,
------------------ March 31,
1998 1999 2000
-------- -------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 17,203 $ -- $ 4,645
Accounts receivable, less allowance for
doubtful accounts of $1,839 in 1998, $2,765
in 1999 and $2,817 (unaudited) in 2000...... 39,044 50,318 66,705
Inventories.................................. 56,223 73,015 78,113
Deferred tax assets.......................... 5,819 9,118 10,969
Other assets................................. 4,422 6,483 7,557
-------- -------- --------
Total current assets....................... 122,711 138,934 167,989
Properties, net................................ 131,324 142,898 144,892
Goodwill, less accumulated amortization of
$3,656 in 1998, $5,718 in 1999 and $6,322
(unaudited) in 2000........................... 11,839 39,601 42,687
Other noncurrent assets........................ 12,485 6,057 8,489
-------- -------- --------
Total assets............................... $278,359 $327,490 $364,057
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of debt................... $ -- $ 8,400 $ 9,025
Accounts payable............................. 10,837 15,846 18,918
Accrued salaries and vacation................ 11,794 14,038 10,698
Taxes other than income...................... 2,874 3,959 5,218
Other current liabilities.................... 7,911 13,017 19,508
-------- -------- --------
Total current liabilities.................. 33,416 55,260 63,367
Long-term debt................................. 50,000 191,600 217,267
Accrued postretirement benefits................ 15,327 15,489 15,548
Other long-term liabilities.................... 13,791 5,753 3,464
-------- -------- --------
Total liabilities.......................... 112,534 268,102 299,646
-------- -------- --------
Stockholders' equity:
Common stock, $50 par value, 200,000 shares
authorized, issued and outstanding at
December 31, 1998; $0.01 par value,
100,000,000 shares authorized and 7,141,984
and 7,146,284 (unaudited) shares issued and
outstanding at December 31, 1999 and at
March 31, 2000, respectively................ 10,000 72 72
Paid-in capital.............................. 75,060 57,802 57,862
Paid-in capital--warrants.................... -- 1,600 1,600
Retained earnings............................ 80,928 -- 5,202
Accumulated other comprehensive loss......... (163) (86) (325)
-------- -------- --------
Total stockholders' equity................. 165,825 59,388 64,411
-------- -------- --------
Total liabilities and stockholders'
equity.................................... $278,359 $327,490 $364,057
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-4
<PAGE>
COORSTEK, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended December 31, March 31,
---------------------------- ------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income................. $ 26,989 $ 12,930 $ 20,055 $ 5,210 $ 5,202
Adjustments to reconcile
net income to cash flows
from operating activities:
Depreciation and
amortization............. 18,664 19,977 22,711 5,388 6,004
Asset impairment charges.. -- 11,814 -- -- --
Change in current assets
and current liabilities,
net of effects from
acquisitions:
Accounts receivable...... (5,842) 5,386 (5,027) (5,767) (15,928)
Inventories.............. (3,657) (1,640) (7,321) 1,259 (5,120)
Accounts payable......... 3,899 (5,460) 6,485 6,524 2,884
Other.................... (1,045) (492) 1,497 (1,289) (6,958)
-------- -------- -------- -------- --------
Net cash provided by
(used in) operating
activities............ 39,008 42,515 38,400 11,325 (13,916)
-------- -------- -------- -------- --------
Cash flows from investing
activities:
Additions to properties.... (28,812) (26,890) (14,561) (1,548) (6,907)
Acquisitions, net of cash
acquired.................. (15,781) (915) (58,053) (51,342) (830)
Other...................... (195) 1,520 (1,629) (247) (54)
-------- -------- -------- -------- --------
Net cash used in
investing activities.. (44,788) (26,285) (74,243) (53,137) (7,791)
-------- -------- -------- -------- --------
Cash flows from financing
activities:
Proceeds from issuance of
debt...................... -- -- -- -- 26,292
Issuance of stock.......... -- -- -- -- 60
Net capital contributions
from (to) Parent.......... 5,829 (15) 18,640 27,589 --
-------- -------- -------- -------- --------
Net cash provided by
(used in) financing
activities............ 5,829 (15) 18,640 27,589 26,352
-------- -------- -------- -------- --------
Cash and cash equivalents:
Net increase (decrease) in
cash and cash
equivalents............... 49 16,215 (17,203) (14,223) 4,645
Balance at beginning of
period.................... 939 988 17,203 17,203 --
-------- -------- -------- -------- --------
Balance at end of period... $ 988 $ 17,203 $ -- $ 2,980 $ 4,645
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-5
<PAGE>
COORSTEK, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Paid-in Other
Common Paid-in Capital Retained Comprehensive
Stock Capital Warrants Earnings Income (Loss) Total
------- -------- -------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... $10,000 $112,307 $ -- $ 41,009 $ 147 $ 163,463
Net capital contribution
from Parent............ -- 12,676 -- -- -- 12,676
Net income.............. -- -- -- 26,989 -- 26,989
Cumulative translation
adjustment............. -- -- -- -- 27 27
------- -------- ------ --------- ----- ---------
Balance at December 31,
1997................... 10,000 124,983 -- 67,998 174 203,155
Net capital distribution
to Parent.............. -- (49,923) -- -- -- (49,923)
Net income.............. -- -- -- 12,930 -- 12,930
Minimum pension
liability adjustment... -- -- -- -- (281) (281)
Cumulative translation
adjustment............. -- -- -- -- (56) (56)
------- -------- ------ --------- ----- ---------
Balance at December 31,
1998................... 10,000 75,060 -- 80,928 (163) 165,825
Net income.............. -- -- -- 20,055 -- 20,055
Net capital contribution
from Parent............ -- 3,445 -- -- -- 3,445
Issuance of warrants.... -- -- 1,600 -- -- 1,600
Cumulative translation
adjustment............. -- -- -- -- 77 77
Spin-off
recapitalization....... (9,928) (20,703) -- (100,983) -- (131,614)
------- -------- ------ --------- ----- ---------
Balance at December 31,
1999................... 72 57,802 1,600 -- (86) 59,388
Net income (unaudited).. -- -- -- 5,202 -- 5,202
Issuance of stock
(unaudited)............ -- 60 -- -- -- 60
Cumulative translation
adjustment
(unaudited)............ -- -- -- -- (239) (239)
------- -------- ------ --------- ----- ---------
Balance at March 31,
2000 (unaudited)....... $ 72 $ 57,862 $1,600 $ 5,202 $(325) $ 64,411
======= ======== ====== ========= ===== =========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-6
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. General Information
The accompanying financial statements and notes are based on the separate
historical financial statements of CoorsTek, Inc., which was formerly named
Coors Porcelain Company and operated its business as Coors Ceramics Company
(the "Company" or "CoorsTek"). From 1997 through 1999, CoorsTek was a wholly
owned subsidiary of Graphic Packaging International Corporation, which was
formerly named ACX Technologies, Inc. ("Graphic Packaging" or "Parent"). At the
close of business on December 31, 1999, Graphic Packaging distributed a
dividend to its shareholders of all outstanding shares of CoorsTek common stock
based on a ratio of one share of CoorsTek common stock for every four shares of
Graphic Packaging common stock held.
Established in 1911, CoorsTek develops, manufactures and sells engineered
solutions for a multitude of industrial and commercial applications that
incorporate advanced materials such as precision-machined metals, technical
ceramics and engineered plastics into components and assemblies.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation: The consolidated financial statements include the
assets, liabilities, results of operations, cash flows and changes in
stockholders' equity of CoorsTek and its wholly owned subsidiaries. All
material intercompany accounts and transactions have been eliminated. CoorsTek
was a wholly owned subsidiary of Graphic Packaging from 1997 through 1999. The
consolidated financial statements have been prepared in conformity with
generally accepted accounting principles, using management's best estimates and
judgments when appropriate.
The consolidated financial statements include allocations of certain charges
from Graphic Packaging for general management, legal, treasury, tax, internal
audit, financial reporting, investor relations, environmental affairs and other
miscellaneous services. Management believes the charges are a reasonable
estimate of the costs that would have been incurred by CoorsTek on a stand-
alone basis.
Unaudited Interim Financial Data: The unaudited interim financial statements
as of March 31, 2000 and for the three months ended March 31, 1999 and March
31, 2000 have been prepared on the same basis as the audited financial
statements and, in the opinion of management, reflect all normal recurring
adjustments necessary to present fairly the financial information set forth
therein, in accordance with generally accepted accounting principles. The
results of operations for the interim periods are not necessarily indicative of
the results to be expected for future periods.
Use of Estimates: The preparation of financial statements in accordance 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 as well as revenues and expenses reported for the periods presented.
Actual results can differ from these estimates.
Cash and Cash Equivalents: CoorsTek defines cash equivalents as highly
liquid investments with original maturities of 90 days or less. The carrying
value of CoorsTek's cash equivalents approximates their fair market value.
Inventories: Inventories are stated at the lower-of-cost or market. Cost is
determined by the first-in, first-out (FIFO) method. The classification of
inventories, in thousands, was as follows:
F-7
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
December 31,
--------------- March 31,
1998 1999 2000
------- ------- -----------
(unaudited)
<S> <C> <C> <C>
Finished......................................... $21,890 $30,856 $33,283
In process....................................... 22,049 27,107 29,670
Raw materials.................................... 12,284 15,052 15,160
------- ------- -------
Total inventories.............................. $56,223 $73,015 $78,113
======= ======= =======
</TABLE>
Properties: Land, buildings, equipment and goodwill are stated at cost.
Depreciation and amortization are recorded principally on a straight-line
method over the estimated useful lives of the asset as follows:
<TABLE>
<C> <S>
Buildings and improvements 10 to 30 years
Machinery and equipment 3 to 30 years
The shortest of the useful life, lease term or 20
Leasehold improvements years
Goodwill The shorter of the useful life or 20 years
</TABLE>
The cost of properties and related accumulated depreciation, in thousands,
consisted of the following:
<TABLE>
<CAPTION>
December 31,
--------------------
1998 1999
--------- ---------
<S> <C> <C>
Land and improvements.................................. $ 6,401 $ 7,724
Buildings.............................................. 65,739 75,244
Machinery and equipment................................ 197,513 233,904
Construction in progress............................... 12,178 13,624
--------- ---------
281,831 330,496
Less: accumulated depreciation......................... (150,507) (187,598)
--------- ---------
Net properties....................................... $ 131,324 $ 142,898
========= =========
</TABLE>
Accelerated depreciation methods are generally used for income tax purposes.
Expenditures for new facilities and improvements that substantially extend the
capacity or useful life of an asset are capitalized. Ordinary repairs and
maintenance are expensed as incurred.
In early 1998, CoorsTek changed the estimated depreciable lives for certain
long-lived assets based on the actual lives exhibited for similar assets. The
effect of this change positively impacted earnings before interest and taxes by
approximately $2.0 million in 1998.
Impairment of Long-Lived Assets and Identifiable Intangibles: CoorsTek
periodically reviews long-lived assets, identifiable intangibles and goodwill
for impairment whenever events or changes in business conditions indicate the
carrying amount of the assets may not be fully recoverable. Measurement of the
impairment loss is based on fair value of the asset, which is generally
determined by the discounting of future estimated cash flows. See Note 4.
Revenue Recognition: Revenues are recognized when finished products are
shipped to customers or services have been rendered.
Concentrations of Credit Risk: Sales to individual customers and industries
potentially subject the Company to concentrations of credit risk. During the
year ended December 31, 1999 and the three months ended March 31, 2000, 22% and
36% (unaudited) of CoorsTek's sales were to one customer and 30% and 44%
(unaudited) of sales were to the semiconductor industry, respectively.
F-8
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Parent Allocations: Selling, general and administrative expense for 1997,
1998 and 1999 includes allocation of $5.0 million, $4.7 million and $5.0
million, respectively, of certain Graphic Packaging corporate expenses for
general management, legal, treasury, tax, internal audit, financial reporting,
investor relations and environmental services. In determining the allocation of
Graphic Packaging corporate costs, CoorsTek performed a review of 1) the
services performed by Graphic Packaging, 2) headcount, facilities and sales
comparisons and 3) management oversight provided to CoorsTek, as well as other
factors.
Long-term debt at December 31, 1999 relates to the note issued to Graphic
Packaging in connection with the spin-off (see Note 10). Long-term debt at
December 31, 1998 consists of intercompany debt transferred from Graphic
Packaging with an annual interest rate of 8%. CoorsTek had no intercompany debt
prior to 1998. Interest expense for the years ended December 31, 1998 and 1999
includes $4.0 million paid to Graphic Packaging in connection with the $50.0
million of debt owed to Graphic Packaging. If intercompany debt had been
transferred from Graphic Packaging in 1997, the debt costs would have been
approximately $4.0 million on debt of $50.0 million. Additionally, interest
income (expense) includes $0.5 million and ($0.9) million earned (paid) from
the participation in Graphic Packaging's cash management system during the
years ended December 31, 1998 and 1999, respectively. No interest income was
earned from participation in Graphic Packaging's cash management system during
1997.
Environmental Expenditures: Environmental expenditures that relate to
current operations are expensed or capitalized as appropriate. Expenditures
that relate to an existing condition caused by past operations, and which do
not contribute to current or future revenue generation, are expensed.
Liabilities are recorded when environmental assessments and/or remedial efforts
are probable and the costs can be reasonably estimated.
Hedging Transactions: CoorsTek from time to time engages in hedging
activities against fluctuations in foreign currency prices. These activities
are immaterial to CoorsTek and are expected to remain so in the future.
Earnings Per Share: Basic net income per share is computed using the
weighted average number of common shares outstanding during the period. Diluted
net income per share is computed using the weighted average number of common
and dilutive common equivalent shares outstanding during the period. Dilutive
common equivalent shares consist primarily of stock options and warrants. Prior
to December 31, 1999, CoorsTek was not a public company and the capital
structure was not indicative of the current structure. As such, earnings per
share for 1997, 1998 and 1999 has been calculated using the actual number of
shares distributed on December 31, 1999.
Following is a reconciliation between basic and diluted earning per share
for the three months ended March 31, 2000 (unaudited) (in thousands, except per
share information):
<TABLE>
<CAPTION>
Three Months Ended
March 31, 2000
-----------------------
Per Share
Income Shares Amount
------ ------ ---------
<S> <C> <C> <C>
Net income--basic EPS................................ $5,202 7,143 $0.73
Effect of common equivalent shares................... 77
-----
Net income--diluted EPS.............................. 7,220 $0.72
=====
</TABLE>
Adoption of New Accounting Standards: Statement of Financial Accounting
Standards (SFAS) No. 133 "Accounting for Derivative Instruments and Hedging
Activities," which establishes accounting and reporting standards for
derivative instruments and for hedging activities was issued in June 1998. This
F-9
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
statement requires the recognition of all derivatives as either assets or
liabilities at fair value in the statement of financial position. This
statement is effective for the year ending December 31, 2001 and is not
expected to have a material effect on CoorsTek's financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," as
amended. SAB 101 summarizes certain of the Securities and Exchange Commission's
views in applying generally accepted accounting principles to revenue
recognition in financial statements. SAB 101 is effective for CoorsTek's
quarter ending June 30, 2000 and is not expected to have a material effect on
CoorsTek's financial statements.
Note 3. Acquisitions
In August 1997, CoorsTek acquired the assets of Tetrafluor, Inc., based in
El Segundo, California, for $15.8 million. Tetrafluor manufactures Teflon(R)
fluoropolymer sealing systems and components for use in aerospace, industrial,
and transportation industries. The acquisition was accounted for under the
purchase method of accounting and goodwill of approximately $10.7 million is
being amortized over 15 years.
On March 1, 1999, CoorsTek acquired all of the outstanding shares of Edwards
Enterprises for approximately $18.0 million. The acquisition has been accounted
for under the purchase method of accounting and goodwill of approximately $4.2
million is being amortized over 20 years. Edwards Enterprises, located in
Newark, California, manufactures precision-machined parts for the semiconductor
industry. The results of operations for Edwards Enterprises are reflected in
the results of consolidated CoorsTek from the date of acquisition.
On March 12, 1999, CoorsTek acquired the net assets of Precision
Technologies for approximately $22.0 million in cash and 300,000 warrants to
receive shares of Graphic Packaging's common stock at an exercise price equal
to the fair market value at the date of close. Pursuant to the spin-off, these
warrants were converted into warrants to purchase 168,768 shares of CoorsTek
common stock at an exercise price of $22.22 per share. The acquisition has been
accounted for under the purchase method of accounting, and goodwill of
approximately $20.2 million is being amortized over 20 years. Precision
Technologies, located in Livermore, California, manufactures precision-machined
parts for the semiconductor, medical and aircraft industries. The results of
operations for Precision are reflected in the results of consolidated CoorsTek
from the date of acquisition.
On December 17, 1999, CoorsTek acquired all of the outstanding shares of Doo
Young Semitek Co., Ltd. for approximately $3.6 million. The name of Doo Young
Semitek Co., Ltd. was subsequently changed to CoorsTek Korea Co., Ltd.
("CoorsTek Korea"). The acquisition has been accounted for under the purchase
method of accounting and goodwill of approximately $2.5 million is being
amortized over 15 years. CoorsTek Korea, located in Kyungbook, South Korea,
manufactures technical ceramic parts for the semiconductor industry.
On March 31, 2000, CoorsTek acquired certain assets and liabilities of
Liberty Machine, Inc. ("Liberty") for approximately $4.0 million. In
conjunction with the transaction, CoorsTek entered into seven-year operating
leases for the manufacturing equipment of Liberty. The acquisition was
accounted for under the purchase method of accounting and goodwill of
approximately $2.9 million is being amortized over 20 years. Liberty,
F-10
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
located in Fremont, California, manufactures metal parts and assemblies for the
semiconductor, aerospace, analytical, and medical industries.
Note 4. Asset Impairment Charges
During 1998, CoorsTek recorded approximately $11.8 million in asset
impairment charges. A $6.2 million charge was taken in March of 1998 in
conjunction with the cancellation of the C-4 technology agreement with IBM.
Changes in the market for C-4 applications extended the time frame for
achieving commercial sales beyond original expectations. This lack of near term
commercial sales opportunities, combined with increasing overhead costs,
prompted CoorsTek to negotiate termination of the agreement with IBM.
Consequently, CoorsTek wrote down the carrying value of fixed assets associated
with this project to their discounted expected future cash flows of zero.
During 1998, CoorsTek disposed of the C-4 fixed assets. The disposition of the
C-4 assets had no additional impact on the operating results of CoorsTek. Prior
to the impairment, these assets were included in the Advanced Materials
segment.
As a result of strong offshore competition in the electronic package market,
CoorsTek recorded a $5.6 million asset impairment charge in September of 1998
at its Chattanooga, Tennessee operation. A review of estimated undiscounted
future cash flows indicated the carrying amount of property, plant and
equipment at Chattanooga may not be recoverable. Accordingly, the fixed assets
were written down to fair value calculated by discounting expected future cash
flows under the asset held for use model. These assets are included in the
Advanced Materials segment.
Note 5. Operating Leases
CoorsTek has leases for a variety of equipment and facilities that expire in
various years. Future minimum lease payments, in thousands, required as of
December 31, 1999, under non-cancelable operating leases with terms exceeding
one year, are as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
2000.............................. $1,167
2001.............................. 521
2002.............................. 421
2003.............................. 362
2004 and thereafter............... 364
------
Total........................... $2,835
======
</TABLE>
Operating lease rentals for warehouse, production, office facilities and
equipment amounted to $1.2 million, $0.9 million and $1.7 million for the years
ended December 31, 1997, 1998 and 1999, respectively.
Note 6. Income Taxes
CoorsTek and its U.S. subsidiaries file consolidated Federal and Colorado
state income tax returns with Graphic Packaging. In addition, CoorsTek files
state income tax returns in various other states. The Federal income tax
sharing agreement with Graphic Packaging substantially approximates a Federal
income tax provision and liability as if CoorsTek was filing on a separate
income tax return basis. Liabilities for Federal and Colorado state income
taxes are payable to Graphic Packaging. CoorsTek directly pays to all other
states in which it files a state tax return. CoorsTek's foreign subsidiaries
file separate returns with the applicable taxing authority.
F-11
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The components of income before income taxes, in thousands, were:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Domestic............................................ $42,933 $20,319 $31,887
Foreign............................................. 248 293 593
------- ------- -------
Total income before taxes......................... $43,181 $20,612 $32,480
======= ======= =======
</TABLE>
The provision for income taxes, in thousands, included the following:
<TABLE>
<CAPTION>
Year Ended December
31,
------------------------
1997 1998 1999
------- ------ -------
<S> <C> <C> <C>
Current provision:
Federal.......................................... $14,889 $9,209 $11,879
State............................................ 2,122 1,764 1,842
Foreign.......................................... 153 81 224
------- ------ -------
Total current tax expense...................... 17,164 11,054 13,945
------- ------ -------
Deferred provision:
Federal.......................................... (898) (3,014) (1,332)
State............................................ (74) (358) (188)
------- ------ -------
Total deferred tax benefit..................... (972) (3,372) (1,520)
------- ------ -------
Total income tax expense........................... $16,192 $7,682 $12,425
======= ====== =======
</TABLE>
Temporary differences, which give rise to a significant portion of deferred
tax assets and liabilities, in thousands, are as follows:
<TABLE>
<CAPTION>
December 31,
----------------
1998 1999
------- -------
<S> <C> <C>
Deferred tax asset arising from:
Depreciation and other property related.................. $ 2,517 $ 106
Pension and employee benefits............................ 12,181 14,145
Inventory................................................ 2,205 3,767
All other................................................ 3,223 3,674
Valuation allowance...................................... (3,386) (3,621)
------- -------
Gross deferred tax assets.............................. 16,740 18,071
------- -------
Deferred tax liabilities arising from:
Depreciation and other property related.................. 7,325 6,034
Pension and employee benefits............................ -- 1,734
All other................................................ 157 6
------- -------
Gross deferred tax liabilities......................... 7,482 7,774
------- -------
Net deferred tax asset..................................... $ 9,258 $10,297
======= =======
</TABLE>
F-12
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The principal differences between the effective income tax rate and the U.S.
statutory federal income tax rate were as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Expected tax rate.......................................... 35.0% 35.0% 35.0%
State income taxes (net of federal benefit)................ 3.5 4.9 3.5
Research tax credits....................................... (1.3) (2.2) 0.0
Nontaxable income.......................................... 0.0 (1.0) (1.5)
Foreign tax expense........................................ 0.0 0.1 0.0
Non-deductible items....................................... 0.3 0.6 0.5
Other--net................................................. 0.0 (0.1) 0.8
---- ---- ----
Effective tax rate......................................... 37.5% 37.3% 38.3%
==== ==== ====
</TABLE>
The Internal Revenue Service (IRS) has completed its examination of Graphic
Packaging's Federal income tax returns through 1995. During 1999, the IRS began
the Federal income tax return review for 1996 through 1998. In the opinion of
management, adequate accruals have been provided for all income tax matters and
related interest.
CoorsTek has not provided for U.S. or additional foreign taxes on $5.7
million of undistributed earnings of its foreign subsidiaries. These
undistributed earnings are considered to be reinvested indefinitely. If such
earnings were repatriated, foreign tax credits should become available under
current law to reduce or eliminate the resulting U.S. income tax liability.
Graphic Packaging, CoorsTek and their respective subsidiaries have executed
a Tax Sharing Agreement that defines the parties' rights and obligations with
respect to deficiencies and refunds of Federal, state and other taxes relating
to the CoorsTek business for tax years prior to the spin-off and with respect
to certain tax attributes of CoorsTek after the spin-off. In general, Graphic
Packaging will be responsible for filing consolidated Federal and combined or
consolidated state tax returns and paying the associated taxes for periods
through the date of the spin-off. CoorsTek will reimburse Graphic Packaging for
the CoorsTek portion of such taxes relating to the CoorsTek business. CoorsTek
is responsible for filing returns and paying taxes related to the CoorsTek
business for periods beginning on or after the distribution date. Graphic
Packaging and CoorsTek will agree to cooperate with each other and to share
information in preparing such tax returns and in dealing with other tax
matters. Graphic Packaging and CoorsTek will be responsible for their own taxes
other than those described above.
The Tax Sharing Agreement is also designed to preserve the status of the
spin-off as a tax-free distribution. In connection with the spin-off, Graphic
Packaging obtained a private letter ruling from the Internal Revenue Service to
the effect that the spin-off was tax-free to Graphic Packaging and its
shareholders. In connection with the private letter ruling and the tax sharing
agreement, CoorsTek and Graphic Packaging have agreed to abstain from certain
actions for a two year period post spin-off (described below) and CoorsTek has
committed to complete certain actions in the post spin-off year. CoorsTek has
agreed to indemnify Graphic Packaging for damages resulting from breaches of
such representations and covenants, if such a breach causes the spin-off to
become a taxable transaction.
As noted above, CoorsTek has agreed that it will refrain from engaging in
certain transactions during the two-year period following the spin-off unless
it first provides Graphic Packaging with a ruling from the Internal Revenue
Service or an opinion of tax counsel acceptable to Graphic Packaging that the
transaction will not adversely affect the tax-free nature of the spin-off. The
transactions subject to these restrictions, which are not
F-13
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
expected to materially affect CoorsTek's operating flexibility, consist of
liquidations, mergers or consolidations of CoorsTek, redemptions by CoorsTek of
certain amounts of its stock, sales of assets out of the ordinary course of
business, discontinuance of certain businesses and certain issuances of
CoorsTek's common stock. By its terms, the Tax Sharing Agreement will terminate
when the statutes of limitations under applicable tax laws expire.
Note 7. Stock Compensation
Graphic Packaging has an equity incentive plan that provided for the
granting of nonqualified stock options and incentive stock options to certain
key employees of CoorsTek prior to the spin-off. The equity incentive plan also
provided for the granting of restricted stock, bonus shares, stock units and
offers to officers of Graphic Packaging to purchase stock. Generally, options
outstanding under Graphic Packaging's equity incentive plan were subject to the
following terms: (1) grant price equal to 100% of the fair value of the stock
on the date of grant; (2) ratable vesting over a three year service period; and
(3) maximum term of ten years from the date of grant.
On December 31, 1999 in conjunction with the spin-off, those CoorsTek
employees who had Graphic Packaging vested and unvested stock options were
granted substitute CoorsTek stock options which were equal in value to the
original Graphic Packaging options granted. CoorsTek did not incur any
compensation charges for the grant of these substitute options because 1) the
aggregate intrinsic value of the options did not change, 2) the ratio of the
exercise price per option to the market value per share did not change and 3)
the vesting provisions and option period of the original grant did not change.
Stock option transactions for the years ended December 31, 1997, 1998 and
1999 and for the three months ended March 31, 2000 were as follows (shares in
thousands):
<TABLE>
<CAPTION>
Shares Weighted Weighted
Covered by Average Options Average
Options Exercise Price Exercisable Exercise Price
---------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Outstanding at December
31, 1996............... 495 $28.02
Granted................. 74 $38.53
Exercised............... (5) $24.94
Expired or forfeited.... (8) $29.89
-----
Outstanding at December
31, 1997............... 556 $29.42 367 $27.04
Granted................. 125 $39.06
Exercised............... (6) $24.31
Expired or forfeited.... -- --
-----
Outstanding at December
31, 1998............... 675 $31.25 482 $28.64
Granted................. 509 $23.48
Exercised............... -- --
Expired or forfeited.... (38) $31.48
-----
Outstanding at December
31, 1999............... 1,146 $27.79 567 $29.78
Granted (unaudited)..... 187 $20.21
Exercised (unaudited)... (3) $22.24
Expired or forfeited
(unaudited)............ (28) $26.91
-----
Outstanding at March 31,
2000 (unaudited)....... 1,302 $26.74 585 $30.44
=====
</TABLE>
In 1997 and 1998, shares available for future grant were pursuant to Graphic
Packaging's equity incentive plan. At December 31, 1999 and March 31, 2000
there were 1,000,000 and 840,883 (unaudited) options available for grant under
the plan, respectively.
F-14
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1999 (shares in thousands):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------------------------------------
Weighted Weighted Weighted
Range of Number Average Remaining Average Number Average
Exercise Prices of Shares Contractual Life Exercise Price of Shares Exercise Price
--------------- --------- ----------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$17.11
to
$24.33 309 4.8 years $21.32 189 $22.08
$24.44 384 9.1 years $24.44 -- --
$26.44
to
$34.44 321 5.0 years $31.95 316 $31.91
$35.67
to
$48.11 132 7.9 years $42.72 62 $42.40
----- ---
$17.11
to
$48.11 1,146 6.7 years $27.79 567 $29.78
===== ===
</TABLE>
The following table summarizes information about stock options outstanding
and exercisable at March 31, 2000 (unaudited) (shares in thousands):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------------------------------------
Weighted Weighted Weighted
Range of Number Average Remaining Average Number Average
Exercise Prices of Shares Contractual Life Exercise Price of Shares Exercise Price
--------------- --------- ----------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$17.11
to
$24.33 469 6.9 years $20.57 166 $21.79
$24.44 382 8.9 years $24.44 15 $24.44
$26.44
to
$32.89 249 4.4 years $31.25 249 $31.25
$34.22
to
$48.11 202 7.1 years $39.83 155 $38.96
----- ---
$17.11
to
$48.11 1,302 7.0 years $26.74 585 $30.44
===== ===
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock-based compensation plans.
Accordingly, no compensation expense has been recognized for its Stock Option
and Incentive Plan and Employee Stock Purchase Plan. If the Company had elected
to recognize compensation cost based on the fair value of the stock options at
grant date as allowed by SFAS No. 123, "Accounting for Stock-Based
Compensation," compensation expense, net of income tax, of $0.4 million, $0.8
million and $1.0 million would have been recorded for 1997, 1998, and 1999,
respectively. Proforma net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Net income (in thousands):
As reported...................................... $26,989 $12,930 $20,055
Pro forma........................................ 26,625 12,120 19,043
Earnings per share:
As reported...................................... $ 3.78 $ 1.81 $ 2.81
Pro forma........................................ 3.73 1.70 2.67
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions: (1)
dividend yield of 0%; (2) expected volatility of 23.2% in 1997, 28.1% in 1998
and 31.0% in 1999; (3) risk-free interest rate ranging from 5.4% to 5.5% in
1997, 4.8% to 4.9% in 1998 and 5.7% to 6.7% in 1999; and (4) expected life of 3
to 9.86 years in 1997, 3 to 8.57 years in 1998 and 3 to 9.11 years in 1999. The
weighted average per share fair value of options granted during 1997, 1998, and
1999 was $38.53, $39.06, and $23.48, respectively.
F-15
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 8. Retirement and Other Postretirement Benefit Plans
Pension Plan: CoorsTek provides a defined benefit retirement plan for
substantially all of its employees. CoorsTek manages the plan including plan
assets, which consist primarily of equity and interest-bearing investments.
Benefits are based on years of service and average base compensation levels
over a period of years. The Company's funding policy is to contribute annually
not less than the ERISA minimum funding requirements nor more than the maximum
amount that can be deducted for Federal income tax purposes.
Retiree Medical Plan: In addition to receiving pension benefits, CoorsTek
employees may participate in a medical plan, which provides health care and
life insurance benefits to eligible retirees and their dependents. Eligible
employees may receive these benefits after reaching age 55 with 10 years of
service. Prior to reaching age 65, eligible retirees may receive certain health
care benefits substantially similar to those available to active employees. The
amount the retiree pays is based on age and service at the time of retirement.
These plans are not funded.
401(k) Plan: Eligible employees of CoorsTek may participate in CoorsTek's
401(k) plan in which employees can contribute up to 18% of annual eligible
compensation subject to certain regulatory and plan limitations. The Company
matches 50% of the first 2% of the employees' contributions. Expense related to
the 401(k) match was $0.7 million in 1997, 1998 and 1999.
F-16
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following tables set forth the estimated change in benefit obligation,
change in plan assets, funded status, net periodic benefit cost and other
information applicable to the CoorsTek, Inc. Retirement Plan and retiree
medical coverage. Information for 1998 is based on the estimated allocations
from Graphic Packaging for the respective plan assets and liabilities. All
information, except interest rates, is in thousands.
<TABLE>
<CAPTION>
Pension
Benefits Other Benefits
---------------- ------------------
1998 1999 1998 1999
------- ------- -------- --------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of
year.............................. $90,267 $97,815 $ 12,357 $ 13,162
Service cost....................... 2,290 2,407 338 341
Interest cost...................... 6,439 7,000 892 833
Actuarial loss (gain).............. 1,890 (5,393) (3) (738)
Benefits paid...................... (3,071) (4,535) (422) (318)
------- ------- -------- --------
Benefit obligation at end of year.. 97,815 97,294 13,162 13,280
------- ------- -------- --------
Change in plan assets:
Fair value of plan assets at
beginning of year................. 79,404 77,229 -- --
Actual return on plan assets....... 630 17,056 -- --
Company contributions.............. -- 7,291 -- --
Benefits paid...................... (2,805) (4,535) -- --
------- ------- -------- --------
Fair value of plan assets at end of
year.............................. 77,229 97,041 -- --
------- ------- -------- --------
Funded status........................ (20,586) (253) (13,162) (13,280)
Unrecognized actuarial loss (gain)... 11,794 (5,139) (1,929) (2,175)
Unrecognized prior service cost...... 4,070 3,659 (793) (594)
------- ------- -------- --------
Accrued benefit cost................. $(4,722) $(1,733) $(15,884) $(16,049)
======= ======= ======== ========
Amounts recognized in the
Consolidated Balance Sheet consist
of:
Accrued benefit liability.......... $(9,738) $(1,733) $(15,884) $(16,049)
Intangible asset................... 4,568 -- -- --
Accumulated other comprehensive
income............................ 448 -- -- --
------- ------- -------- --------
Net amount recognized.............. $(4,722) $(1,733) $(15,884) $(16,049)
======= ======= ======== ========
Weighted average assumptions at year
end:
Discount rate...................... 6.80% 6.80% 6.80% 6.80%
Expected return on plan assets..... 9.75% 9.75%
Rate of compensation increase...... 4.30% 4.30%
</TABLE>
It is the Company's policy to amortize unrecognized gains and losses in
excess of 10% of the larger of plan assets and the projected benefit obligation
(PBO) over the expected service of active employees (12-15 years). However, in
cases where the accrued benefit liability exceeds the actual unfunded liability
by more than 20% of the PBO, the amortization is reduced to 5 years.
For measurement purposes, a 7.5% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1999. The rate was assumed
to decrease by 0.5% per annum to 4.25% and remain at that level thereafter.
F-17
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
-------------------------- -------------------
1997 1998 1999 1997 1998 1999
------- ------- -------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Components of net
periodic benefit cost
Service cost........... $ 1,968 $ 2,290 $ 2,407 $ 248 $ 338 $ 341
Interest cost.......... 4,470 6,439 7,000 763 892 832
Actual return on plan
assets................ (8,595) (843) (17,056) -- -- --
Amortization of prior
service costs......... 306 651 644 (104) (198) (689)
Recognized actuarial
loss (gain)........... 4,879 (6,082) 10,445 (90) (481) --
------- ------- -------- ----- ----- -----
Net periodic benefit
cost.................. $ 3,028 $ 2,455 $ 3,440 $ 817 $ 551 $ 484
======= ======= ======== ===== ===== =====
</TABLE>
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one percentage point change in
assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1% Point 1% Point
Increase Decrease
-------- --------
<S> <C> <C>
Effect on total of services and interest cost
components............................................. $297 $276
Effect on postretirement benefit obligation............. 903 849
</TABLE>
Note 9: Supplemental Cash Flow Information:
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended December 31, March 31,
----------------------- -------------
1997 1998 1999 1999 2000
------- ------- ------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Total interest costs................... $ 224 $ 4,125 $ 5,066 $ 716 $ 4,713
Interest capitalized................... 114 -- -- -- --
Interest expensed...................... 110 4,125 5,066 716 4,713
Interest paid.......................... 24 4,000 4,975 708 2,193
Income taxes paid...................... 16,950 11,882 12,576 -- 2,761
</TABLE>
Noncash investing activities: See description of noncash investing
activities with Graphic Packaging in Note 10.
Note 10. Related Party Transactions
From 1997 to 1999, CoorsTek, as Graphic Packaging's wholly-owned subsidiary,
engaged in several related party transactions with Graphic Packaging and its
subsidiaries. These included, but were not limited to, participation in Graphic
Packaging's cash management system, benefiting from administrative services
provided by Graphic Packaging, intercompany debt allocations, payments of
dividends, miscellaneous asset and liability transfers between the entities as
well as miscellaneous capital contributions of other forms between the
entities. The average amount due to Graphic Packaging, during 1997, 1998 and
1999 was $0, $45.8 million and $87.5 million, respectively. At December 31,
1997, 1998 and 1999 the Company owed Graphic Packaging $0, $50.0 million and
$200.0 million, respectively.
On December 31, 1999, CoorsTek issued to Graphic Packaging a $200.0 million,
8.9%, note, which was subsequently paid on January 4, 2000. This note was for
the payment of a $131.6 million dividend and $68.4
F-18
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
million of intercompany obligations. For 1997 and 1998, dividends paid to
Graphic Packaging totaled $38,000 and $0, respectively. Net capital
contributions from Graphic Packaging, in thousands, consisted of:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1997 1998 1999
------- -------- ------
<S> <C> <C> <C>
Assets transferred from Parent.................... $ 6,846 $ 13 $3,445
Bonuses paid in common stock of Parent............ 177 79 --
Transfer of liability to Parent................... (176) -- --
Transfer of long-term debt from Parent............ -- (50,000) --
Capital contribution to Parent.................... -- (15) --
Capital contribution from Parent.................. 5,829 -- --
------- -------- ------
Total net capital contributions................. $12,676 $(49,923) $3,445
======= ======== ======
</TABLE>
Note 11. Indebtedness
In December 1999, CoorsTek negotiated a $270 million Credit Facility, which
consists of a $95 million revolver and an $85 million Senior Term A facility,
both maturing in five years, and a $90 million Senior Term B facility maturing
in seven years (the "Credit Facility"). The Credit Facility is collaterallized
by the accounts receivable and inventory of the Company. Currently, the
interest rate on the revolver and Senior Term A is LIBOR plus 2% and the
interest rate on the Senior Term B is LIBOR plus 2.75%. The interest rate
spreads on the Credit Facility vary based upon the financial performance of the
Company.
There were no amounts outstanding under the Credit Facility as of December
31, 1999. The amount due under the Credit Facility was $226.3 million
(unaudited) as of March 31, 2000. The required principal payments of the Term A
and Term B of the Credit Facility are as follows, in thousands:
<TABLE>
<CAPTION>
Year Term A Term B Total
---- ------- ------- --------
<S> <C> <C> <C>
2000................................................ $ 7,500 $ 900 $ 8,400
2001................................................ 10,000 900 10,900
2002................................................ 15,000 900 15,900
2003................................................ 25,000 900 25,900
2004................................................ 27,500 900 28,400
2005................................................ -- 900 900
2006................................................ -- 84,600 84,600
------- ------- --------
Total............................................. $85,000 $90,000 $175,000
======= ======= ========
</TABLE>
Note 12. Commitments and Contingencies
CoorsTek is self-insured for certain insurable risks consisting primarily of
employee health insurance programs and workers' compensation. Certain stop-loss
and excess insurance policies are also maintained to reduce overall risk. In
addition, CoorsTek maintains insurance policies to protect against loss related
to property, business interruption and general liability risks.
CoorsTek is named as a defendant in various actions and proceedings arising
in the normal course of business, including claims by current or former
employees relating to employment or termination. Although the eventual outcome
of the various lawsuits cannot be predicted, it is management's opinion that
these suits will not result in liabilities to such extent that they would
materially affect CoorsTek's financial position or results of operations.
F-19
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A facility formerly owned by CoorsTek, Coors Components, Inc. ("CCI"), was
the subject of a Colorado State compliance order for cleanup of soil and ground
water contamination from a subsequent owner. The contamination is believed to
have occurred prior to CoorsTek's ownership of CCI and there are possible off-
site sources of contamination. CoorsTek sold CCI in November 1987. Although
CoorsTek does not believe it is responsible for the contamination or the
cleanup, the parties agreed to a remediation plan. CoorsTek is responsible for
10% of the remediation costs in excess of $500,000 and 15% of any remediation
costs in excess of $3.0 million.
CoorsTek has received a Unilateral Administration Order issued by the EPA
relating to the Rocky Flats Industrial Park Site, and is participating with the
Rocky Flats group to perform an Engineering Evaluation/Cost Analysis on the
property. There is no estimate of potential clean up costs, but management does
not believe it will be material.
Some of CoorsTek's facilities have been notified that they may be
potentially responsible parties ("PRPs") under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA") or similar state
laws with respect to the remediation of certain sites where hazardous
substances have been released into the environment. CoorsTek cannot predict
with certainty the total costs of remediation, its share of the total costs,
the extent to which contributions will be available from other parties, the
amount of time necessary to complete the remediation or the availability of
insurance. However, based on investigations to date, CoorsTek believes that any
liability with respect to these sites would not be material to the financial
condition and results of operations of CoorsTek. There can be no certainty,
however, that CoorsTek will not be named as a PRP at additional sites or be
subject to other environmental matters in the future or that the costs
associated with those additional sites or matters would not be material.
CoorsTek is a guarantor on industrial development bonds of CCI, a former
subsidiary that was sold in November 1987. The buyer of CCI assumed the
liability at the time of purchase. The terms require annual principal and
interest payments and a balloon payment of $2.2 million in May 2000. In the
event of default by the buyer, CoorsTek would assume the liability. The buyer
has made all payments to date in a timely manner and management does not
believe CoorsTek is at risk for payment of the bonds as of December 31, 1999.
The outstanding balance as of December 31, 1997, 1998 and 1999 was $3.0
million, $2.4 million and $2.2 million, respectively.
On August 12, 1999, five current and former employees sued one of CoorsTek's
subsidiaries in the U.S. District Court for the Eastern District of Arkansas
claiming gender discrimination, sexual harassment and retaliation. The
plaintiffs are seeking class certification, which the Company is resisting
based on the distinctions among their respective claims. CoorsTek's preliminary
evaluation indicates the case is largely without merit, however, sufficient
information is not available to determine the ultimate outcome or any potential
liability related to these claims.
Note 13. Segment Information
Prior to 1999, the Company operated as a single segment that consisted
primarily of advanced ceramic products. In 1999, the Company acquired Edwards
Enterprises and Precision Technologies (see Note 3). These companies
manufacture precision-machined parts primarily for the semiconductor industry.
As a result of acquiring these companies and the resultant significance of the
semiconductor industry to the Company, the Company changed its internal
reporting to track two segments separately: Semiconductor and Advanced
Materials. The Semiconductor segment produces both ceramic and nonceramic
products that are used in the
F-20
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
semiconductor industry. The Advanced Materials segment produces primarily
ceramic products that are used outside the semiconductor industry.
The accounting policies of the segments are the same as those described in
Note 2 and there are generally no intersegment transactions. The Company
evaluates the performance of its segments and allocates resources to them based
primarily on gross profit.
The table below summarizes information about reportable segments, in
thousands, as of and for the years ended December 31:
<TABLE>
<CAPTION>
Depreciation
Net Gross and Capital
Sales Profit Amortization Assets Expenditures
-------- ------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C>
1997
Semiconductor............... $ 19,199 $ 6,928 $ 1,527 $ 19,279 $ 1,032
Advanced Materials.......... 285,625 78,075 17,137 243,408 27,780
-------- ------- ------- -------- -------
Consolidated total........ $304,824 $85,003 $18,664 $262,687 $28,812
======== ======= ======= ======== =======
1998
Semiconductor............... $ 17,061 $ 4,976 $ 1,337 $ 20,626 $ 1,015
Advanced Materials.......... 279,553 68,732 18,640 257,733 25,875
-------- ------- ------- -------- -------
Consolidated total........ $296,614 $73,708 $19,977 $278,359 $26,890
======== ======= ======= ======== =======
1999
Semiconductor............... $111,099 $31,953 $ 2,494 $ 79,845 $ 4,043
Advanced Materials.......... 253,962 58,710 20,217 247,645 10,518
-------- ------- ------- -------- -------
Consolidated total........ $365,061 $90,663 $22,711 $327,490 $14,561
======== ======= ======= ======== =======
</TABLE>
Information related to CoorsTek's operations by geographic area is presented
below:
Revenue from unaffiliated customers, in thousands:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
U.S............................................... $224,272 $224,295 $304,599
Europe............................................ 41,815 39,338 35,896
Asia.............................................. 23,497 19,975 20,507
Canada............................................ 8,886 8,446 8,995
Other foreign..................................... 8,161 6,696 7,279
Less: discounts and allowances.................... (1,807) (2,136) (12,215)
-------- -------- --------
Total........................................... $304,824 $296,614 $365,061
======== ======== ========
Long-lived assets, in thousands:
<CAPTION>
December 31,
----------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
U.S............................................... $155,796 $151,636 $174,728
Europe............................................ 3,101 3,486 3,705
Asia.............................................. -- -- 4,066
-------- -------- --------
Total........................................... $158,897 $155,122 $182,499
======== ======== ========
</TABLE>
Long-lived assets consist primarily of net property, plant and equipment and
goodwill.
F-21
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The table below summarizes information about reportable segments, in
thousands, for the three months ended March 31 (unaudited):
<TABLE>
<CAPTION>
Net
Sales Gross Profit
-------- ------------
<S> <C> <C>
1999
Semiconductor............................................. $ 13,188 $ 3,840
Advanced Materials........................................ 63,391 14,434
-------- -------
Consolidated total...................................... $ 76,579 $18,274
======== =======
2000
Semiconductor............................................. $ 53,576 $13,680
Advanced Materials........................................ 67,243 13,739
-------- -------
Consolidated total...................................... $120,819 $27,419
======== =======
</TABLE>
Note 14. Quarterly Financial Information (unaudited)
The following summarizes selected quarterly financial information, in
thousands, except for per share data, for the two years ended December 31,
1999.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31 Year
------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
1998
Net sales........................... $80,945 $79,422 $70,023 $66,224 $296,614
Cost of goods sold.................. 60,241 59,258 53,792 49,615 222,906
------- ------- ------- ------- --------
Gross profit........................ 20,704 20,164 16,231 16,609 73,708
Selling, general and administrative
expenses........................... 10,076 9,762 8,690 9,230 37,758
Asset impairment charges............ 6,232 -- 5,582 -- 11,814
------- ------- ------- ------- --------
Operating income.................... 4,396 10,402 1,959 7,379 24,136
Interest expense, net............... 1,055 984 855 630 3,524
------- ------- ------- ------- --------
Income before income taxes.......... 3,341 9,418 1,104 6,749 20,612
Income tax expense.................. 1,229 3,485 403 2,565 7,682
------- ------- ------- ------- --------
Net income.......................... $ 2,112 $ 5,933 $ 701 $ 4,184 $ 12,930
======= ======= ======= ======= ========
Net income per share of common
stock.............................. $ 0.30 $ 0.82 $ 0.10 $ 0.59 $ 1.81
======= ======= ======= ======= ========
Shares outstanding.................. 7,142 7,142 7,142 7,142 7,142
======= ======= ======= ======= ========
<CAPTION>
Three Months Ended
--------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31 Year
------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
1999
Net sales........................... $76,579 $95,411 $94,946 $98,125 $365,061
Cost of goods sold.................. 58,305 71,646 70,504 73,943 274,398
------- ------- ------- ------- --------
Gross profit........................ 18,274 23,765 24,442 24,182 90,663
Selling, general and administrative
expenses........................... 9,008 13,180 13,768 17,246 53,202
------- ------- ------- ------- --------
Operating income.................... 9,266 10,585 10,674 6,936 37,461
Interest expense, net............... 701 1,602 1,328 1,350 4,981
------- ------- ------- ------- --------
Income before income taxes.......... 8,565 8,983 9,346 5,586 32,480
Income tax expense.................. 3,355 3,137 3,609 2,324 12,425
------- ------- ------- ------- --------
Net income.......................... $ 5,210 $ 5,846 $ 5,737 $ 3,262 $ 20,055
======= ======= ======= ======= ========
Net income per share of common
stock.............................. $ 0.73 $ 0.82 $ 0.80 $ 0.46 $ 2.81
======= ======= ======= ======= ========
Shares outstanding.................. 7,142 7,142 7,142 7,142 7,142
======= ======= ======= ======= ========
</TABLE>
F-22
<PAGE>
Inside Back Cover
[Text includes titles "CoorsTek Solutions," "Solutions for Semi Conductor
Manufacturing Equipment," "Design," "Engineering," "Manufacturing" and
"Assembly."]
[Graphic material omitted, including
photographs labeled "Wafer Processing
Components", "Packages," "Laser Components,"
"Clean Room," "Metrology Beams," "Precision
Machining" and "Assembly." ]
<PAGE>
[LOGO OF CoorsTek]
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 22, 2000
[LOGO OF CoorsTek]
2,000,000 Shares
Common Stock
We are offering 2,000,000 shares of our common stock. Our common stock is
traded on the Nasdaq National Market under the symbol "CRTK." The last reported
sale price of our common stock on the Nasdaq National Market on June 21, 2000
was $34.625 per share.
--------------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 5.
--------------
<TABLE>
<CAPTION>
Per Share Total
----------- ---------
<S> <C> <C>
Public Offering Price..................................... $ $
Underwriting Discounts and Commissions.................... $ $
Proceeds, before expenses, to CoorsTek.................... $ $
</TABLE>
The Securities Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
We have granted the underwriters a 30-day option to purchase up to an
additional 300,000 shares of common stock to cover over-allotments. FleetBoston
Robertson Stephens Inc. expects to deliver the shares of common stock to
investors on , 2000.
--------------
Robertson Stephens International
CIBC World Markets
Needham & Company, Inc.
First Security Van Kasper
Friedman Billings Ramsey
The date of this Prospectus is , 2000.
<PAGE>
UNDERWRITING
The underwriters named below have severally agreed with us, subject to the
terms and conditions of the underwriting agreement, to purchase from us the
number of shares of common stock set forth opposite their names below at the
public offering price less the underwriting discount set forth on the cover
page of this prospectus. The underwriters are committed to purchase and pay for
all such shares if any are purchased.
<TABLE>
<CAPTION>
Number
Underwriters of Shares
------------ ---------
<S> <C>
FleetBoston Robertson Stephens International Limited............
CIBC World Markets Corp.........................................
Needham & Company, Inc..........................................
First Security Van Kasper.......................................
Friedman, Billings, Ramsey & Co., Inc...........................
---------
Total......................................................... 2,000,000
=========
</TABLE>
The underwriters have advised us that they propose to offer the shares of
common stock to the public at the public offering price set forth on the cover
page of this prospectus and to certain dealers at that price less a concession
of not in excess of $ per share, of which $ may be reallowed to other
dealers. After this offering, the public offering price, concession and
reallowance to dealers may be reduced by the underwriters. No reduction of this
type will change the amount of proceeds to be received by us as set forth on
the cover page of this prospectus. The common stock is offered by the
underwriters as stated in this prospectus, subject to receipt and acceptance by
them and subject to their right to reject any order in whole or in part.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.
Over-Allotment Option
We have granted to the underwriters an option, exercisable during the 30-day
period after the date of this prospectus, to purchase up to 300,000 additional
shares of common stock to cover over-allotments, if any, at the same price per
share that we will receive for the 2,000,000 shares that the underwriters have
agreed to purchase. If the underwriters exercise their over-allotment option to
purchase any of the additional 300,000 shares of common stock, the underwriters
have severally agreed, subject to specified conditions, to purchase additional
shares approximately in proportion to the amount specified in the table above.
If purchased, these additional shares will be sold by the underwriters on the
same terms as those on which the 2,000,000 shares are being sold. We will be
obligated, under the terms of the option, to sell shares to the underwriters to
the extent the over-allotment option is exercised. The underwriters may
exercise the option only to cover over-allotments made in connection with the
sale of the shares of common stock offered in this offering. If the over-
allotment option is exercised in full, the total public offering price will be
$ , the total underwriting discounts and commissions will be $ and
the total proceeds to us will be $ . We estimate the expenses payable by
us in connection with this offering, other than the underwriting discounts and
commissions referred to above, will be approximately $ .
Indemnity
The underwriting agreement contains covenants of indemnity between the
underwriters and us against certain civil liabilities, including liabilities
under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
64
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table shows the various fees and expenses, other than the
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of the common stock being registered under this registration
statement. All amounts shown are estimates except for the Securities and
Exchange Commission registration fee, the NASD filing fee and the Nasdaq
National Market listing fee.
<TABLE>
<S> <C>
SEC registration fee............................................ $ 18,975.00
NASD filing fee................................................. 7,687.50
Nasdaq National Market listing fee.............................. 2,000.00
Printing and engraving expenses................................. *
Legal fees and expenses......................................... *
Accounting fees and expenses.................................... *
Blue Sky fees and expenses (including legal fees)............... *
Transfer agent and registrar fees and expenses.................. *
Miscellaneous................................................... *
-----------
Total......................................................... $ *
===========
</TABLE>
CoorsTek will bear all expenses shown above.
--------
* To be filed by amendment.
Item 14. Indemnification of Directors and Officers.
The Bylaws of the Registrant provide for the indemnification of the
Registrant's directors and officers to the fullest extent authorized by, and
subject to the conditions set forth in the Delaware General Corporation Law
(the "DGCL"), except that the Registrant will indemnify a director or officer
in connection with a proceeding (or part thereof) initiated by the person only
if the proceeding (or part thereof) was authorized by the Registrant's board of
directors. The indemnification provided under the Bylaws includes the right to
be paid by the Registrant the expenses (including attorneys' fees) for any
proceeding for which indemnification may be had in advance of its final
disposition, provided that the payment of those expenses (including attorneys'
fees) incurred by a director or officer in advance of the final disposition of
a proceeding may be made only upon delivery to the Registrant of an undertaking
by or on behalf of the director or officer to repay all amounts so paid in
advance if it is ultimately determined that the director or officer is not
entitled to be indemnified. Under the Bylaws of the Registrant, if the
Registrant does not pay a claim for indemnification within 60 days after it has
received a written claim, the director or officer may bring an action to
recover the unpaid amount of the claim and, if successful, the director or
officer also will be entitled to be paid the expense of prosecuting the action
to recover these unpaid amounts.
As permitted by the DGCL, the Registrant's Certificate of Incorporation will
provide that directors of the Registrant shall not be liable to the Registrant
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Registrant or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL, relating to unlawful payment of
dividends or unlawful stock purchase or redemption or (iv) for any transaction
from which the director derived an improper personal benefit. As a result of
this provision, the Registrant and its stockholders may be unable to obtain
monetary damages from a director for breach of his or her duty of care.
Under the Bylaws, the Registrant will have the power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Registrant, or is or was serving at the request
II-1
<PAGE>
of the Registrant as a director, officer, employee, partner or agent of another
corporation or of a partnership, joint venture, limited liability company,
trust or other enterprise, against any liability asserted against the person or
incurred by the person in that capacity, or arising out of the person's
fulfilling one of these capacities, and related expenses, whether or not the
Registrant would have the power to indemnify the person against the claim under
the provisions of the DGCL. The Registrant has in force as of January 1, 2000
director and officer liability insurance on behalf of its directors and
officers in the amount of $25.0 million.
Item 15. Recent Sales of Unregistered Securities.
None.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<C> <S>
1.1 Underwriting Agreement*
2.1 Distribution Agreement#
3.1 Certificate of Incorporation of CoorsTek, Inc.+
3.2 Bylaws of CoorsTek, Inc.+
4.1 Rights Agreement#
4.3 Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock#
5.1 Opinion re legality*
10.1 Description of Officers' Life Insurance Program+
10.2 CoorsTek, Inc. Stock Option and Incentive Plan+
10.3 CoorsTek, Inc. Executive Deferred Compensation Plan+
10.4 Tax Sharing Agreement#
10.5 Environmental Responsibility Agreement#
10.6 Master Transition Materials and Services Agreement#
10.7 Amended Salary Continuation Agreement for John K. Coors+
10.8 Amended Salary Continuation Agreement for Joseph Coors, Jr.+
10.9 Employment Agreement for John K. Coors+
10.10 Employment Agreement for Derek C. Johnson+
10.11 Employment Agreement for Joseph Coors, Jr.+
10.12 Employment Agreement for Joseph G. Warren, Jr.+
10.13 Employment Agreement for Katherine A. Resler
10.14 CoorsTek Revolving Credit and Term Loan Agreement++
21.1 List of subsidiaries++
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants
23.2 Consent of Hogan & Hartson L.L.P.*
24.1 Power of Attorney**
</TABLE>
--------
* To be filed by amendment.
** Previously filed.
# Incorporated by reference from amendment number 1 to CoorsTek's registration
statement on Form 10, filed December 2, 1999 (SEC file No. 000-27579).
+ Incorporated by reference from amendment number 2 to CoorsTek's registration
statement on Form 10, filed December 14, 1999 (SEC file No. 000-27579).
++ Incorporated by reference from CoorsTek's report on Form 10-K, filed March
30, 2000 (SEC file No. 000-27579).
(b) Financial Statement Schedules:
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or it is shown in the
consolidated financial statements or notes thereto.
II-2
<PAGE>
Item 17. Undertakings.
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the County of Jefferson, State of Colorado on June 22, 2000.
COORSTEK, INC.
/s/ Joseph Coors, Jr.
By: ______________________________
Joseph Coors, Jr.
Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<C> <S> <C>
/s/ Joseph Coors, Jr. Chairman of the Board of June 22, 2000
________________________________ Directors and Chief
Joseph Coors, Jr. Executive Officer
(Principal Executive
Officer)
* President and Director June 22, 2000
________________________________
John K. Coors
/s/ Joseph G. Warren, Jr. Chief Financial Officer June 22, 2000
________________________________ and Treasurer
Joseph G. Warren, Jr. (Principal Financial
and Accounting Officer)
* Director June 22, 2000
________________________________
David A. Coulter
* Director June 22, 2000
________________________________
John E. Glancy
* Director June 22, 2000
________________________________
John Markle, III
* Director June 22, 2000
________________________________
Donald E. Miller
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S> <C>
* Director June 22, 2000
________________________________
Kimberly S. Patmore
* Director June 22, 2000
________________________________
Robert L. Smialek
*By: /s/ Joseph G. Warren, Jr.
________________________________
Joseph G. Warren, Jr.
Attorney-in-Fact
</TABLE>
II-5
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<C> <S>
1.1 Underwriting Agreement*
2.1 Distribution Agreement#
3.1 Certificate of Incorporation of CoorsTek, Inc.+
3.2 Bylaws of CoorsTek, Inc.+
4.1 Rights Agreement#
4.3 Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock#
5.1 Opinion re legality*
10.1 Description of Officers' Life Insurance Program+
10.2 CoorsTek, Inc. Stock Option and Incentive Plan+
10.3 CoorsTek, Inc. Executive Deferred Compensation Plan+
10.4 Tax Sharing Agreement#
10.5 Environmental Responsibility Agreement#
10.6 Master Transition Materials and Services Agreement#
10.7 Amended Salary Continuation Agreement for John K. Coors+
10.8 Amended Salary Continuation Agreement for Joseph Coors, Jr.+
10.9 Employment Agreement for John K. Coors+
10.10 Employment Agreement for Derek C. Johnson+
10.11 Employment Agreement for Joseph Coors, Jr.+
10.12 Employment Agreement for Joseph G. Warren, Jr.+
10.13 Employment Agreement for Katherine A. Resler
10.14 CoorsTek Revolving Credit and Term Loan Agreement++
21.1 List of subsidiaries++
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants
23.2 Consent of Hogan & Hartson L.L.P.*
24.1 Power of Attorney**
</TABLE>
--------
* To be filed by amendment.
** Previously filed.
# Incorporated by reference from amendment number 1 to CoorsTek's registration
statement on Form 10, filed December 2, 1999 (SEC file No. 000-27579).
+ Incorporated by reference from amendment number 2 to CoorsTek's registration
statement on Form 10, filed December 14, 1999 (SEC file No. 000-27579).
++ Incorporated by reference from CoorsTek's report on Form 10-K, filed March
30, 2000 (SEC file No. 000-27579).
