As filed with the Securities and Exchange Commission on May 15, 1996
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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THE BETHLEHEM CORPORATION
(Name of Small Business Issuer in its Charter)
Pennsylvania 3443 24-0525900
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification No.)
Organization)
25th and Lennox Streets
Easton, Pennsylvania 18045
(610) 258-7111
(Address and Telephone Number of Principal Executive Offices)
Alan H. Silverstein
President
25th and Lennox Streets
Easton, Pennsylvania 18045
(610) 258-7111
(Name, Address and Telephone Number of Agent For Service)
---------------
Copy to:
David J. Adler, Esq.
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
(212) 753-7200
(212) 755-1467 (telecopier)
Approximate date of proposed sale to the public: As soon as practicable after
this registration statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=================================================================================================================================
Proposed
Maximum Proposed
Offering Maximum
Number of Shares Price Per Aggregate Amount of
Title of Each Class of Securities to be Registered to be Registered Share Offering Price Registration Fee
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<S> <C> <C> <C> <C>
Common Stock, no par value........................... 1,356,964 $1.9906 $2,701,173 $931.44
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Subscription Rights.................................. 1,356,964 N/A N/A N/A (2)
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Total................................................ $931.44
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933, as amended, based on 70%
of the average of the high and low price of $2.84375 for such shares on the
American Stock Exchange on May 15, 1996.
(2) Pursuant to Rule 457(g), no registration fee is payable with respect to the
Subscription Rights because the Rights are being registered in the same
registration statement as the securities to be offered pursuant thereto.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a) may determine.
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<PAGE>
The Bethlehem Corporation
<TABLE>
<CAPTION>
CROSS REFERENCE SHEET
ITEM NUMBER AND HEADING IN
FORM SB-2 REGISTRATION STATEMENT CAPTION OR LOCATION IN PROSPECTUS
<S> <C>
1. Front of Registration Statement and Outside Front
Cover of Prospectus............................................... Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus..................................................... Inside Front and Outside Back Cover
Pages of Prospectus; Available
Information
3. Summary Information and Risk Factors.............................. Prospectus Summary; Risk Factors
4. Use of Proceeds................................................... Use of Proceeds
5. Determination of Offering Price................................... Determination of Subscription Price
6. Dilution.......................................................... Dilution
7. Selling Security Holders.......................................... *
8. Plan of Distribution.............................................. Outside Front Cover Page of
Prospectus; The Rights Offering;
Subscription Agent; Information
Agent
9. Legal Proceedings................................................. Business of the Company
10. Directors, Executive Officers, Promoters
and Control Persons............................................... Management
11. Security Ownership of Certain Beneficial
Owners and Management............................................. Principal Shareholders; Shares
Eligible for Future Sale
12. Description of Securities......................................... Description of Capital Stock
13. Interests of Named Experts and Counsel............................ Legal Matters; Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities....................................................... Indemnification For Securities Act
Liabilities
15. Organization Within Last Five Years............................... *
16. Description of Business........................................... Capitalization; Selected Consolidated
Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business of the Company
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
17. Management's Discussion and Analysis or
Plan of Operation................................................. Management's Discussion and
Analysis of Financial Condition and
Results of Operations
18. Description of Property........................................... Business of the Company
19. Certain Relationships and Related Transactions.................... Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters............................................... Price Range of Common Stock and
Dividend Policy
21. Executive Compensation............................................ Management
22. Financial Statements.............................................. Consolidated Financial Statements
23. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure............................ *
</TABLE>
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* Not applicable
ii
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED MAY 15, 1996
1,356,964 Shares
The Bethlehem Corporation
Common Stock
--------------------
The Bethlehem Corporation, a Pennsylvania corporation (the "Company"), is
distributing to holders of record of shares of its Common Stock, no par value
(the "Common Stock"), transferable subscription rights (the "Rights") to
subscribe for and purchase additional shares of Common Stock for a price of
$______ per share (the "Subscription Price"). Such shareholders will receive
seven Rights for every 10 shares of Common Stock held by them as of the close of
business on __________, 1996 [the effective date of the Registration Statement
of which this Prospectus forms a part] (the "Record Date"). No fractional Rights
or cash in lieu thereof will be distributed or paid by the Company. The number
of Rights distributed by the Company to each record holder of Common Stock
(each, a "Holder") will be rounded up to the nearest whole Right. Rights holders
may purchase one share of Common Stock for each whole Right held. Each Right
also carries the right to subscribe (the "Oversubscription Privilege") at the
Subscription Price for shares of Common Stock that are not otherwise purchased
pursuant to the exercise of Rights. See "The Rights Offering--Subscription
Privileges--Oversubscription Privilege." The Rights will be evidenced by
transferable certificates. Once a holder has exercised any Rights, such exercise
may not be revoked. There can be no assurance that the Company will receive any
proceeds from the exercise of the Rights.
The Rights will expire at 5:00 p.m., New York City time, on ________, 1996
[30 calendar days after the Record Date] (the "Expiration Date"). Shareholders
who do not exercise or sell their Rights will relinquish the value inherent in
the Rights. Accordingly, shareholders are strongly urged to consider the
exercise or sale of their Rights. See "Risk Factors--Dilution."
At April 30, 1996, Universal Process Equipment, Inc. ("UPE"), owned
directly 381,600 shares of Common Stock, representing approximately 20% of the
outstanding Common Stock. UPE will receive 267,120 Rights in respect of the
shares of Common Stock it owns, and such Rights represent approximately 20% of
the total Rights to be distributed. UPE has informed the Company that it intends
to exercise the Rights it receives for an aggregate subscription price of
$___________. UPE has also informed the Company that it does not intend to
exercise the Oversubscription Privilege or to acquire Rights through open market
purchases, the exercise of options or otherwise. As a result of the ownership of
27% of the outstanding Common Stock by UPE and its affiliates and the options to
purchase Common Stock that UPE and its affiliates hold, UPE has, and after the
Rights Offering will have, effective control of the Company. In addition,
certain officers and directors of the Company unaffiliated with UPE have
expressed their intent to exercise up to _________ of the Rights they receive,
including Rights received in respect of Common Stock acquired upon the exercise
of options prior to the Record Date. See "Rights Offering--Intent of UPE and
Certain Officers and Directors."
The principal market for the Common Stock is The American Stock Exchange,
Inc. ("AMEX"). It is anticipated that the Rights will trade on the AMEX under
the symbol "[BETR]." There can be no assurance, however, that a market for the
Rights will develop. Rights may also be sold in over-the-counter and private
<PAGE>
sales transactions. Orders to sell Rights must be received by the Subscription
Agent (as hereinafter defined) not later than ____ a.m. on __________, 1996, if
a holder wishes to sell Rights through the Subscription Agent. On May 14, 1996,
the last day on which trade prices were reported prior to the public
announcement of the Rights Offering, the closing sale price of the Common Stock
on the AMEX was $_____ per share. On May 8, 1996, the closing sale price of the
Common Stock on the AMEX was $2.375 per share.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-----------------
SHAREHOLDERS WHO DO NOT EXERCISE THEIR RIGHTS IN
FULL WILL EXPERIENCE DILUTION IN THEIR RELATIVE
PERCENTAGE OWNERSHIP IN THE COMPANY UPON ISSUANCE
OF THE COMMON STOCK TO SHAREHOLDERS EXERCISING THEIR RIGHTS.
-----------------
BEFORE MAKING AN INVESTMENT DECISION, POTENTIAL INVESTORS
SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH IN "RISK FACTORS"
IMMEDIATELY FOLLOWING THE PROSPECTUS SUMMARY.
<TABLE>
<CAPTION>
Underwriting Discounts Proceeds to the
Price to Public and Commissions Company(1)
---------------------- ----------------------------- --------------------------
<S> <C> <C> <C>
Per Share......... $____________ N/A $__________
Total $____________ N/A $__________
</TABLE>
(1) After deduction of estimated expenses of $__________ payable by the
Company, including registration fees, listing fees, legal and
accounting fees, subscription and information agent fees, printing
expenses and other miscellaneous fees and expenses.
-----------------
The date of this Prospectus is ________, 1996.
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<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 and at the Regional Offices of the
Commission located at 7 World Trade Center, 13th Floor, New York, New York 10048
and 500 West Madison Street, Chicago, Illinois 60661. Copies of such material
can be obtained upon written request addressed to the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington D.C. 20549, at
prescribed rates. The Company's Common Stock is listed on the AMEX and such
reports, proxy statements and other information can also be inspected at the
offices of the AMEX, 86 Trinity Place, New York, New York 10006.
The Company has filed with the Commission a Registration Statement on
Form SB-2 (together with any amendments thereto, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the shares of Common Stock issuable upon exercise of the Rights. This
Prospectus does not contain all of the information set forth in the Registration
Statement. Such additional information may be obtained from the Commission's
principal office in Washington, D.C. Statements contained in this Prospectus or
in any document incorporated in this Prospectus by reference as to the contents
of any contract or other document referred to herein or therein are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement or such other document, each such statement being qualified in all
respects by such reference.
-3-
<PAGE>
PROSPECTUS SUMMARY
The following material is qualified in its entirety by the more
detailed information and financial statements and related notes appearing
elsewhere in this Prospectus and in the documents incorporated in this
Prospectus. Unless otherwise indicated, the information contained in this
Prospectus does not give effect to the issuance subsequent to the Record Date of
350,000 shares of Common Stock to UPE in consideration for an ownership interest
in certain resale inventory. See "Certain Transactions."
The Company
The Company was founded in 1856 as a foundry and machine shop and
incorporated in 1888. The Company designs, manufactures, sells and services a
product line of capital equipment used to process materials for a variety of
industrial applications. Its proprietary products include the Porcupine
Processor(R), the Thermal Disc(R) Processor, the Tower Filter Press, drum dryers
and flakers, tubular dryers, and calciners. In addition, the Company operates a
production facility that fabricates, machines and assembles equipment to
customers' specifications. The Company has developed expertise in the areas of
thermal processing systems, environmental systems, filtration, specialty
machining, and fabrication and the rebuilding and remanufacture of specialty
process equipment. In addition, the Company, through Bethlehem Advanced
Materials Corporation ("BAM"), a wholly-owned subsidiary formed in September
1995 to acquire certain assets of the American Furnace Division of Third
Millennium Products, Inc., designs and manufactures high-temperature furnaces
for sale and for its own use and processes specialty carbon, graphite and
ceramic materials for semiconductors and aerospace applications.
The Company's principal executive offices are located at 25th and
Lennox Streets, Easton, Pennsylvania 18045.
Summary Financial and Operating Data
(In thousands, except per share and weighted average
share data)
<TABLE>
<CAPTION>
Fiscal Five Fiscal NINE MONTHS ENDED
Year Months Year ---------------------------
Ended Ended Ended
December 31, May 31, May 31, February 28, February 29,
1993 1994(1) 1995 1995 1996
------------ ---------- --------- ------------ -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales $8,368 $2,898 $14,541 $10,877 $12,375
Gross profit (loss) (489) (205) 2,581 1,837 2,771
Income (loss) from operations before
provision for income taxes (3,493) (930) 231 144 217
Net income (loss) (3,403) (931) 230 144 217
Earnings (loss) per common and common
equivalent share
Primary $(2.13) $(.49) $.08 $.056 $.073
Assuming full dilution (2.13) (.49) .08 .050 .071
Weighted average number of common
and common equivalent shares outstanding
Primary 1,595,929 1,888,520 2,946,423 2,581,530 2,984,280
Fully diluted 1,595,929 1,888,520 3,026,762 2,903,745 3,039,430
</TABLE>
-4-
<PAGE>
AT FEBRUARY 29, 1996
--------------------
ACTUAL AS ADJUSTED(2)
------ --------------
Balance Sheet Data: (Unaudited)
Current assets $8,270
Total assets 11,700
Current liabilities 8,855
Long-term liabilities 4,501
Total liabilities 13,356
Stockholders' equity (deficiency) (1,656)
- ---------------
(1) In April 1994, the Company changed its fiscal year-end from December 31 to
May 31 for both financial reporting and income tax purposes.
(2) Gives effect to (a) the sale by the Company of 1,356,964 shares of Common
Stock upon exercise of Rights offered hereby and (b) the application of the
estimated net proceeds therefrom at an assumed Subscription Price of $ per
share.
The Rights Offering
Rights................... Each Holder of Common Stock will receive seven
transferable Rights for every 10 shares of Common
Stock held of record on __________, 1996 [the
effective date of the Registration Statement of which
this Prospectus forms a part] (the "Record Date").
The number of Rights distributed by the Company to
each Holder will be rounded up to the nearest whole
Right. An aggregate of approximately 1,356,964 Rights
will be distributed pursuant to the Rights Offering.
Each Right will be exercisable for one share of
Common Stock. An aggregate of approximately 1,356,964
shares of Common Stock (the "Underlying Shares") will
be sold upon exercise of the Rights, assuming
exercise of all Rights. The distribution of the
Rights and sale of Underlying Shares is referred to
herein as the "Rights Offering." See "The Rights
Offering--The Rights."
Basic Subscription
Privilege.............. Rights holders are entitled to purchase for the
Subscription Price one share of Common Stock for each
whole Right held (the "Basic Subscription
Privilege"). See "The Rights Offering--Subscription
Privileges--Basic Subscription Privilege."
Oversubscription
Privilege.............. Each holder of Rights who elects to exercise in full
the Basic Subscription Privilege may also subscribe
at the Subscription Price for additional underlying
Shares available as a result of unexercised Rights,
if any (the "Oversubscription Privilege"). If an
insufficient number of Underlying Shares is available
to satisfy fully all elections to exercise the
Oversubscription Privilege, the available Underlying
Shares will be prorated among holders who exercise
their Oversubscription Privilege based on the
respective numbers of Rights exercised by such
holders pursuant to the Basic Subscription Privilege.
See "The Rights Offering--Subscription Privileges--
Oversubscription Privilege."
Subscription Price....... $_________ in cash per share of Common Stock
subscribed for pursuant to the Basic Subscription
Privilege or the Oversubscription Privilege.
-5-
<PAGE>
Shares of Common Stock
Outstanding after
Rights Offering........ Approximately 3,295,484 shares, based on the number
of shares outstanding on April 30, 1996 and assuming
exercise of all Rights.
Intent of UPE
and Certain Officers
and Directors.......... UPE has informed the Company that it intends to
exercise the 267,120 Rights it will receive in
respect of the shares of Common Stock currently owned
by UPE for an aggregate subscription price of
$________ and that it does not intend to exercise the
Oversubscription Privilege or to acquire Rights
through open market purchases, the exercise of
options or otherwise. Certain directors and officers
of the Company not affiliated with UPE have expressed
their intent to exercise up to __________ of the
Rights, including Rights they receive in respect of
Common Stock to be acquired upon exercise of options
prior to the Record Date. See "Rights
Offering--Intent of UPE and Certain Officers and
Directors."
Transferability
of Rights.............. The Rights are transferable, and it is anticipated
that they will trade on the AMEX under the symbol
"[BETR]." No assurance can be given, however, that a
market for the Rights will develop or, that if such a
market develops, how long it will continue. The
Subscription Agent will endeavor to sell Rights for
holders who deliver a Subscription Certificate with
the instruction for sale properly executed to the
Subscription Agent prior to _____ a.m., New York City
time, on _________, 1996. See "The Rights
Offering--Method of Transferring Rights."
Record Date.............. _____________, 1996.
Expiration Date.......... _____________, 1996, at 5:00 p.m., New York City time
[30 calendar days after the Record Date].
Procedure for
Exercising Rights...... Basic Subscription Privileges and Oversubscription
Privileges may be exercised by properly completing
and signing the Subscription Certificate evidencing
the Rights (a "Subscription Certificate") and
forwarding such Subscription Certificate (or
following the Guaranteed Delivery Procedures), with
payment of the Subscription Price for each Underlying
Share subscribed for pursuant to the Basic
Subscription Privilege and the Oversubscription
Privilege, to the Subscription Agent on or prior to
the Expiration Date. Any Rights holder subscribing
for an aggregate of more than 25,000 Underlying
Shares pursuant to the Oversubscription Privilege
prior to the Expiration Date shall not be required to
deliver payment for such number of Underlying Shares
in excess of 25,000 until the Expiration Date. The
Company, in its sole discretion, may determine to
waive payment for such number of Underlying Shares in
excess of 25,000 subscribed for pursuant to the
Oversubscription Privilege until after the Expiration
Date and after all prorations and adjustments
contemplated by the terms of the Rights Offering have
been effected. If the mail is used to forward
Subscription Certificates, it is recommended that
insured, registered mail be used. No interest will be
paid on funds delivered in payment of the
Subscription Price.
-6-
<PAGE>
Once a holder of Rights has exercised the Basic
Subscription Privilege or the Oversubscription
Privilege, such exercise may not be revoked. See "The
Rights Offering--Exercise of Rights."
Procedure for Exercising
Rights by Foreign
and Certain Other
Shareholders........... Subscription Certificates will not be mailed to
Holders of Common Stock whose addresses are outside
the United States or who have an APO or FPO address,
but will be held by the Subscription Agent for their
account. To exercise such Rights, such a Holder must
notify the Subscription Agent prior to _____ a.m.,
New York City time, on ___________, 1996, and must
establish to the satisfaction of the Subscription
Agent, that such exercise is permitted under
applicable law. If such a Holder does not notify the
Subscription Agent and provide acceptable
instructions to the Subscription Agent by such time,
such Rights will be sold, if feasible, and the net
proceeds, if any, remitted to such Holder. See "The
Rights Offering--Foreign and Certain Other
Shareholders."
Persons Holding Shares,
or Wishing to
Exercise Rights,
Through Others......... Persons holding shares of Common Stock and receiving
the Rights distributable with respect thereto,
through a broker, dealer, commercial bank, trust
company or other nominee, as well as persons holding
certificates of Common Stock personally who would
prefer to have such institutions effect transactions
relating to the Rights on their behalf, should
contact the appropriate institution or nominee and
request it to effect the transactions for them. See
"The Rights Offering--Exercise of Rights."
Issuance of Common
Stock.................. Certificates representing shares of Common Stock
purchased pursuant to the Basic Subscription
Privilege will be delivered to subscribers as soon as
practicable after the corresponding Rights have been
validly exercised and full payment for shares has
been received and cleared. For shares purchased
pursuant to the Oversubscription Privilege, delivery
of certificates will occur as soon as practicable
after the Expiration Date and after all prorations
and adjustments contemplated by the terms of the
Rights Offering have been effected. See "The Rights
Offering--Subscription Privileges."
Use of Proceeds.......... The net cash proceeds received by the Company from
the sale of the shares of Common Stock offered
hereby, after payment of fees and expenses, would be
approximately $___________ million, assuming full
exercise of the Rights. The Rights Offering is,
however, not conditioned upon any minimum level of
exercise of the Rights, and there can be no assurance
that the Company will raise any proceeds from the
Rights Offering. UPE has, however, informed the
Company that it intends to exercise the Rights it
receives for an aggregate subscription price of
$____________ and certain officers and directors of
the Company not affiliated with UPE have expressed
their intent to exercise Rights for an aggregate
subscription price of up to $_______.
-7-
<PAGE>
The Company expects that such proceeds will be used
primarily, and in the following order of priority,
(i) to expand the operations of the Company's wholly
owned subsidiary, BAM, (ii) to renovate the Company's
laboratory and laboratory equipment and to purchase a
management information system/network, and (iii) for
working capital and general corporate purposes. See
"The Company--Strategy" and "Use of Proceeds."
Subscription Agent....... American Stock Transfer & Trust Company. See
"Subscription Agent."
Information Agent........ See "Information Agent."
Risk Factors............. There are substantial risks in connection with this
offering that should be considered by prospective
purchasers. See "Risk Factors."
-8-
<PAGE>
RISK FACTORS
Each prospective purchaser should carefully examine all of the
information contained in this Prospectus and should give particular
consideration to the following risk factors:
OPERATING LOSSES; FINANCIAL CONDITION
The Company has incurred losses from operations in the past and may
incur such losses in the future. For the five-month transition period ended May
31, 1994 and for the year ended December 31, 1993, such losses aggregated
$930,870 and $3,403,184, respectively.
At May 31, 1995, the Company had a deficit in net tangible book value
of $2,675,728, a deficit in stockholders' equity of $2,027,159 and negative
working capital of $1,576,442. See "Selected Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DILUTION
Holders who do not exercise their Rights will experience a decrease in
their proportionate interest in the equity ownership and voting power of the
Company. The sale of the Rights may not compensate a holder for all or any part
of any reduction in the market value of such shareholder's Common Stock
resulting from the Rights Offering. Shareholders who do not exercise or sell
their Rights will relinquish any value inherent in the Rights. Accordingly,
holders are strongly urged to consider the exercise or sale of their Rights.
At February 29, 1996, there was a deficit in net tangible book value
per share of Common Stock of $1.48. The Subscription Price per share of Common
Stock is $____________. Accordingly, the purchasers of the Common Stock in the
Rights Offering will experience immediate and substantial dilution. See
"Dilution."
If all of the Rights were to be exercised, the result would be an
increase of 1,356,964 shares in the number of shares of Common Stock
outstanding.
DIVIDEND POLICY AND RESTRICTIONS
The Company does not anticipate that it will pay cash dividends in the
foreseeable future. The payment of dividends by the Company will depend upon its
earnings and financial condition and such other factors as the Board of
Directors may consider relevant. The Company currently plans to retain any
earnings to provide for the development and growth of the Company. In addition,
certain debt facilities of the Company impose restrictions on the payment of
cash dividends. See "Price Range of Common Stock and Dividend Policy."
INDEFINITE AMOUNT AND USE OF PROCEEDS
The net cash proceeds from the Rights Offering after payment of fees
and expenses would be approximately $_________ million, assuming full exercise
of all Rights. The Rights Offering is, however, not conditioned upon any minimum
level of exercise of the Rights. Consequently, there can be no assurance that
the Company will raise any proceeds from the Rights Offering.
The Company expects that such proceeds will be used in the following
order of priority, (i) to expand the operations of BAM, (ii) to renovate the
Company's laboratory and laboratory equipment and to purchase a management
information system/network, and (iii) for working capital and general corporate
purposes. Although the proceeds from the Rights Offering will be utilized as
described above, the amount of net proceeds of the Rights Offering is uncertain.
In the event that all of the Rights are not exercised, the amount of such net
proceeds available for working capital will be reduced. Pending their
utilization for other corporate purposes,
-9-
<PAGE>
the Company expects to invest the proceeds from the Rights Offering primarily in
Treasury obligations, money market instruments and other similar securities and
in bank deposits. See "Use of Proceeds."
PROPRIETARY RIGHTS
The Company depends upon its proprietary technology. It relies
principally upon trade secret and copyright law to protect its proprietary
technology and owns no patents that are material to its business. The Company
regularly enters into confidentiality agreements with its employees, customers
and potential customers and limits access to and distribution of its trade
secrets and other proprietary information. There can be no assurance that these
measures will be adequate to prevent misappropriation of its technology or that
the Company's competitors will not independently develop technologies that are
substantially equivalent or superior to the Company's technology. In addition,
the laws of some foreign countries do not protect the Company's proprietary
rights to the same extent as the laws of the United States. The Company also is
subject to the risk of adverse claims and litigation alleging infringement of
intellectual property rights. See "Business of the Company--Patents and
Trademarks."
EXISTENCE OF SHORT-TERM CONTRACTS RESULTING IN LACK OF ASSURED MARKET
Currently, the major portion of the Company's sales are made under
short-term or one-time contracts for the Company's capital equipment or
high-temperature furnaces, which contracts are not subject to renewal. Although
this may afford the Company flexibility in responding to changing market
conditions, a market for the Company's products and services under such
contracts is not assured. As a result, one or more short-term or one-time
contracts may constitute a high percentage of the Company's total net sales for
any particular quarter or fiscal year. The inability of the Company to obtain
such contracts in the future would likely have a material adverse effect on the
Company's business.
The Company's largest contract accounted for 33% of the Company's net
sales for the nine months ended February 29, 1996 and its four largest customers
during the year ended May 31, 1995 accounted for 17%, 13%, 12% and 12% of the
Company's net sales. See "Business of the Company--Customers; Existence of
Short-Term Contracts."
HIGHLY COMPETITIVE INDUSTRY; IMPACT OF TECHNOLOGICAL CHANGE
The Company engages in various aspects of the capital equipment and
materials processing industries and certain of the businesses in which it
engages are in highly competitive sectors of these industries. In addition, as a
result of technological, regulatory and other legal developments, the Company
faces the risk of new or increased competition in virtually all businesses in
which it engages. The Company's continued success will depend in large part upon
its ability to develop and introduce on a timely and cost-effective basis new
processes and applications that keep pace with legal and technological
developments and address increasingly sophisticated customer requirements. There
can be no assurance that the Company will be successful in identifying,
developing and marketing applications and process enhancements, that the Company
will not experience difficulties that could delay or prevent the successful
development, introduction and marketing of product or process enhancements or
new products, applications or processes, or that its products, applications or
processes will adequately meet the requirements of the marketplace and achieve
market acceptance. See "Business of the Company."
ENVIRONMENTAL CONSIDERATIONS
The Company is subject to certain environmental standards imposed by
Federal, state and local environmental laws and regulations. The Company may be
required to expend in the future significant amounts for installation of
environmental control facilities, remediation of environmental conditions and
other similar
-10-
<PAGE>
matters. The costs of complying with such stringent environmental standards may
cause the Company to be competitively disadvantaged vis-a-vis foreign
competitors who may be subject to less stringent standards. In particular, the
operations at the Company's Knoxville, Tennessee plant utilize incineration and
scrubbing of various exhaust streams, designed to comply with applicable laws
and regulations. The plant produces air emissions that are regulated and
permitted by Knox County, Tennessee, Department of Air Pollution Control (the
"DOAPC"). Management believes that the plant is currently in compliance with the
conditions of its permit. The Company has applied to the DOAPC for additional
permits necessary to expand its operations. There can be no assurance that these
permits will be granted. The Company believes that compliance by its operations
with applicable environmental regulations will not have a material effect upon
the Company's future capital expenditure requirements, results of operations or
competitive position. There can be no assurance, however, as to the effect of
future changes in federal, state and county environmental laws or regulations on
the Company's results of operations or financial condition. See "The Business of
the Company--Environmental Impact and Regulation."
CONTROL BY PRINCIPAL SHAREHOLDER
The holders of Common Stock are entitled to one vote per share of
common stock held on all matters, including the election of directors. UPE, of
which Jan P. Gale and Ronald H. Gale, both directors of the Company, are
directors, officers and principal shareholders, controls approximately 27% of
the total votes of all outstanding shares of Common Stock. By reason of its
exercise of Rights, UPE will continue to control at least 24% of the total votes
of all outstanding shares of Common Stock after the Rights Offering. UPE and
Messrs. Gale also hold options to purchase an aggregate of 1,820,334 shares of
Common Stock. In addition, the Board of Directors has agreed to issue subsequent
to the Record Date 350,000 shares of Common Stock to UPE in consideration for an
ownership interest in certain resale inventory. See "Principal Shareholders" and
"Certain Transactions." Such a concentration of effective control could serve to
perpetuate current management and could make the Company less attractive to
potential acquirors.
UNCERTAIN MARKET FOR RIGHTS
It is anticipated that the Rights will trade on the AMEX. No assurance
can be given, however, as to whether a market for the Rights will develop or,
that if one does develop, how long it will continue. Further, no assurance can
be given as to the prices at which the Rights will trade from time to time in
relation to the Common Stock. Moreover, because the Rights are new securities,
the trading market, if any, for the Rights may be volatile. There also can be no
assurance that the shares of Common Stock issuable upon exercise of the Rights
will trade at or above the Subscription Price. See "The Rights of Offering."
OTHER MARKET CONSIDERATIONS
There can be no assurance that the market price of the Common Stock
will not decline during the period the Rights are outstanding or that, following
the issuance of the Rights and the sale of the Underlying Shares upon exercise
of Rights, a subscribing Rights holder will be able to sell shares purchased in
the Rights Offering at a price equal to or greater than the Subscription Price.
Once a holder of Rights has exercised the Basic Subscription Privilege or the
Oversubscription Privilege, such exercise may not be revoked. Moreover, until
certificates are delivered, subscribing Rights holders may not be able to sell
the shares of Common Stock that they have purchased in the Rights Offering.
Certificates representing shares of Common Stock purchased pursuant to the Basic
Subscription Privilege will be delivered as soon as practicable after the
corresponding Rights have been validly exercised and full payment for the shares
has been received and cleared. For shares purchased pursuant to the
Oversubscription Privilege, delivery of certificates will occur as soon as
practicable after the Expiration Date and after all prorations and adjustments
contemplated by the terms of the Rights Offering have been effected. See "Price
Range of Common Stock and Dividend Policy."
-11-
<PAGE>
No interest will be paid to Rights holders on funds delivered to the
Subscription Agent pursuant to the exercise of Rights pending delivery of
Underlying Shares.
AUTHORIZATION AND DISCRETIONARY ISSUANCE OF PREFERRED STOCK
The Company's Amended and Restated Articles of Incorporation authorizes
the issuance of up to 5,000,000 shares of "blank check" preferred stock with
such designations, rights, and preferences as may be determined from time to
time by the Board of Directors. Accordingly, the Board of Directors is
empowered, without stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting, or other rights that could adversely affect the
voting power or other rights of the holders of the Company's Common Stock. In
the event of issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying, or preventing a change in
control of the Company. Although the Company has no present intention to issue
any shares of its preferred stock, there can be no assurance that the Company
will not do so in the future. See "Description of Capital Stock."
DILUTIVE EFFECT OF OUTSTANDING WARRANTS AND OPTIONS; REGISTRATION RIGHTS
The Company presently has outstanding options and warrants to purchase
an aggregate of 2,748,000 shares of Common Stock at prices ranging from $.333 to
$3.150 per share. All of the foregoing securities represent the right to acquire
Common Stock of the Company during various periods of time and at various
prices. Holders of these securities are given the opportunity to profit from a
rise in the market price of the Common Stock and are likely to exercise its
securities at a time when the Company would be able to obtain additional equity
capital on more favorable terms. The exercise of outstanding options and
warrants will likely have a dilutive effect on the Company's stockholders and
may have an adverse effect on the market price of the Common Stock.
In addition, certain notice, anti-dilution and piggyback registration
rights may be triggered by the Rights Offering under certain warrants, options,
agreements and stock option plans of the Company. See "Description of Capital
Stock."
PENNSYLVANIA ANTITAKEOVER LAWS
Various provisions of the Pennsylvania Business Corporation Law (the
"BCL"), under which the Company was organized, generally make "hostile"
takeovers of Pennsylvania corporations more difficult by granting certain rights
to non-interested shareholders in certain "change of control" situations
permitting such shareholders to demand payment from a 20% controlling
shareholder of the "fair value" of such demanding shareholders' shares in cash.
Such provisions may make more difficult the removal of management. In addition,
such provisions may be perceived by certain investors, such as institutions, as
making the Company's securities less attractive investment. The Company did not
elect, within the prescribed time period of the statute, to "opt-out" of these
provisions. See "Description of Capital Stock."
CAPITALIZATION
The following table sets forth the capitalization of the Company at
February 29, 1996 and as adjusted to reflect the sale by the Company of
1,356,964 shares of the Common Stock offered hereby at an assumed Subscription
Price of $_____ per share. This table should be read in conjunction with the
Consolidated Financial Statements, including the Notes thereto, included
elsewhere in this Prospectus.
-12-
<PAGE>
<TABLE>
<CAPTION>
February 29, 1996
-------------------------------
ACTUAL AS ADJUSTED
(Unaudited)
<S> <C>
Current maturities of long-term debt................................... $ 1,285,000
=========
Long-term debt - net of current maturities............................. 3,285,000
---------
Stockholders' Equity:
Preferred stock - authorized, 5,000,000 shares without par value; none
issued or outstanding...................................... 0
Common stock - authorized, 20,000,000 shares without par value, stated
value of $.50 per share; issued 1,938,532 shares........... 969,000
Additional paid-in capital........................................... 4,724,000
Accumulated deficit.................................................. (7,349,000)
Less treasury stock, at cost, 12 shares.............................. 0
-----------
Total Stockholders' Equity (Deficiency).......................... (1,656,000)
-----------
Total Capitalization................................................... $1,629,000
==========
</TABLE>
USE OF PROCEEDS
The net cash proceeds from the Rights Offering after payment of fees
and expenses would be approximately $_______ million, assuming full exercise of
all Rights. The Rights Offering is, however, not conditioned upon any minimum
level of exercise of the Rights, and there can be no assurance that the Company
will raise any proceeds from the Rights Offering. UPE, however, has informed the
Company that it intends to exercise the Rights it receives for an aggregate
subscription price of $__________ and certain officers and directors of the
Company not affiliated with UPE have expressed their intent to exercise the
Rights they receive for an aggregate subscription price of up to
$______________.
The net proceeds, if any, from the Rights Offering will be applied in
the following order of priority: (i) to expand the operations of BAM ($500,000),
(ii) to renovate the Company's laboratory and laboratory equipment and to
purchase a management information system/network ($250,000), and (iii) for
working capital and general corporate purposes ($1,450,000). Although the
proceeds from the Rights Offering will be utilized as described above, the
amount of net proceeds of the Rights Offering is uncertain. In the event that
all of the Rights are not exercised, the amount of such net proceeds available
for working capital will be reduced. Pending their utilization for other
corporate purposes, the Company expects to invest the proceeds from the Rights
Offering primarily in Treasury obligations, money market instruments and other
similar securities and in bank deposits. See "The Company--Strategy".
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is traded on AMEX under the symbol "BET". The
following table sets forth the high and low sales prices for the Common Stock,
for the periods indicated, as reported by the AMEX.
LOW ($) HIGH ($)
------- --------
1993 FISCAL YEAR
First Quarter 1.0000 1.5000
Second Quarter .5000 1.1250
Third Quarter .3125 .6250
Fourth Quarter .5000 1.5625
-13-
<PAGE>
LOW ($) HIGH ($)
------- --------
1994 TRANSITION PERIOD
(from 01/01/94 to 5/31/94) .7500 1.0625
1995 FISCAL YEAR
First Quarter .7500 1.5000
Second Quarter .8125 1.4375
Third Quarter .7500 5.6250
Fourth Quarter 2.0000 3.4375
1996 FISCAL YEAR
First Quarter 1.8750 3.7250
Second Quarter 2.5000 3.9375
Third Quarter 2.0000 3.0000
As of April 30, 1996, there were approximately 945 holders of record of
the Company's Common Stock.
The Company did not declare any cash dividend on its Common Stock
during fiscal 1993, the 1994 transition period, or the 1995 fiscal year and has
not declared any dividend during the 1996 year to date. A $1.5 million five year
first mortgage loan from Sterling Commercial Capital, Inc., First Wall Street
SBIC, L.P., and Interequity Capital Partners, L.P. imposes certain limitations
on the Company with respect to the payment of cash dividends. In addition, a
three year $5 million maximum line of credit and term loan facility from the CIT
Group/Credit Finance, Inc., contains certain restrictions on the payment of cash
dividends. The Company does not anticipate that it will pay cash dividends in
the foreseeable future. The payment of dividends by the Company will depend upon
its earnings and financial condition and such other factors as the Board of
Directors may consider relevant. The Company currently plans to retain any
earnings to provide for the development and growth of the Company.
DILUTION
At February 29, 1996, there was a deficit in net tangible book value of
approximately $2,864,000 million, or $1.48 per share. See "Consolidated
Financial Statements." The deficit in net tangible book value per share
represents the amount of total tangible assets (total assets less intangible
assets) less total liabilities, divided by the number of shares of Common Stock
outstanding. After giving effect to the sale by the Company of the 1,356,964
shares of Common Stock offered hereby (assuming full exercise of the Rights) and
after deducting the estimated offering expenses, the pro forma net tangible book
value of the Company as of at February 29, 1996 would have been approximately
$_______, or $____ per share, representing an immediate and substantial dilution
of $____ per share or ___% in respect of shares of Common Stock purchased
pursuant to this Rights Offering. The following table illustrates this per share
dilution:
Subscription Price $______
Deficit in net tangible book value per share
before offering.................................... ($1.48)
Increase per share attributable to shareholders
exercising Rights.................................. ______
-14-
<PAGE>
Pro forma net tangible book value
per share after offering........................... $______
Dilution to shareholders exercising Rights(1)........ $______
======
- -------------------
(1) Dilution is determined by subtracting the deficit in pro forma net
tangible book value per share from the Subscription Price paid by an
investor for a share of Common Stock in the Rights Offering.
The foregoing assumes no exercise of the options issued to employees of
the Company under its stock option plan or the exercise of outstanding warrants.
At April 30, 1996, options and warrants to purchase an aggregate of 2,748,000
shares of Common Stock were outstanding with a weighted average exercise price
of $1.118 per share.
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto
included elsewhere herein. The consolidated financial statement data as of and
for the fiscal year ended December 31, 1993, the five months ended May 31, 1994
and the fiscal year ended May 31, 1995 are derived from the audited Consolidated
Financial Statements, and the consolidated financial statement data as of and
for the nine months ended February 28, 1995 and February 29, 1996 are derived
from the unaudited Consolidated Financial Statements, included elsewhere in this
Prospectus and should be read in conjunction with those Consolidated Financial
Statements and the Notes thereto. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Nine Months Ended
Fiscal Year Five Months Fiscal Year ----------------------------
Ended Ended Ended
December 31, May 31, May 31, February 28, February 29,
1993 1994(1) 1995 1995 1996
------------ ----------- ----------- ------------- ------------
(Unaudited)
(In thousands, except per share and weighted average share data)
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales................................ $8,368 $2,898 $14,541 $10,877 $12,375
Cost of goods sold....................... 8,857 3,103 11,959 9,040 9,604
------ ------ ------- ----- -----
Gross profit (loss)...................... (489) (205) 2,581 1,837 2,771
Selling and administrative expenses...... 1,119 635 2,232 1,529 2,212
Other income/(expenses) - net............ (1,885) (90) (118) (164) (342)
------- --------- ------ -----
Income (loss) from operations before
provision income taxes................. (3,493) (930) 231 144 217
(Provision) benefit for income taxes... 90 (1) (1) 0 0
------ ------- --------- ----- -----
Net income (loss)...................... (3,403) (931) 230 144 217
Earnings (loss) per common and common
equivalent share
Primary.............................. $(2.13) $(.49) $.08 $.056 $.073
Assuming full dilution............... (2.13) (.49) .08 .050 .071
Weighted average number of common and
common equivalent shares outstanding
Primary................................ 1,595,929 1,888,520 2,946,423 2,581,530 2,984,280
Fully diluted.......................... 1,595,929 1,888,520 3,026,762 2,903,745 3,039,430
</TABLE>
-15-
<PAGE>
<TABLE>
<CAPTION>
At
---------------------------------------------
February 28, February 29,
May 31, 1995 1995 1996
------------ ----------- ------------
(In thousands)
(Unaudited)
Balance Sheet Data:
<S> <C> <C> <C>
Current assets........................... $5,017 $3,846 $8,270
Total assets............................. 7,669 6,605 11,700
Current liabilities...................... 6,593 5,379 8,855
Long-term liabilities.................... 3,103 3,397 4,501
Total liabilities........................ 9,696 8,776 13,356
Stockholders' equity (deficiency)........ (2,027) (2,171) (1,656)
</TABLE>
-16-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
These comments are presented in a format which first compares fiscal
year ending December 31, 1993 (a twelve month period) with fiscal year ending
May 31, 1995 (also a twelve month period) and second, compares the first five
months of the fiscal year ending December 31, 1993 (January through May) with
the five month transition period ending May 31, 1994 and compares the three
months and nine months ended February 29, 1996 to the three months and nine
months ended February 28, 1995.
FISCAL YEAR ENDED MAY 31, 1995 COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 1993.
Revenues of $14,541,000 for the fiscal year ended May 31, 1995
represent an increase of 74% over the fiscal year ended December 31, 1993 level
of $8,368,000. The principal factors for the increase in revenues were (1)
increased sales in the Company's proprietary product lines due to worldwide
expansion in the chemical process industry (2) initiation of a sales and
marketing plan and (3) resolution of litigation which allowed management to
direct its time and attention to sales and operations.
Gross profit equaled $2,581,000 for the fiscal year ended May 31, 1995
compared to a gross loss of $489,000 for the fiscal year ended December 31,
1993. The increased gross profit was primarily attributable to (1) increased
sales in the Company's proprietary product lines which produce higher profit
margins than historically experienced in the Specialty Heavy Machining and
Fabrication Services unit, (2) increased manufacturing hours due to increased
sales volume which had a positive impact on manufacturing overhead absorption,
(3) decreased manufacturing expenses mainly due to reduced health care expenses
and (4) management's implementation of a timely method of reviewing and revising
all major quotations, cost estimates and work in process.
In addition to the above, the Company successfully negotiated a new
labor contract with The Bethlehem Employees Association. The current labor
agreement became effective on July 23, 1994 and expires on July 22, 1997 . Under
the terms of the Company's new labor agreement, the existing pension plans were
frozen as of December 31, 1994, i.e. no new employees will be entering the
pension plans. The Company intends to fund the pension plans over a projected
eight to ten year period until they are fully funded. The new labor agreement
also allowed the Company to reduce its annual expense for health care and
retiree health care considerably.
On January 1, 1995, the Company established two 401K plans for all
employees. The Company contributes a base amount annually which matches 25% of
employee contributions up to 6% of salary and also agreed to consider
contributions of additional funds as profits permit.
One major factor that affected the gross loss in fiscal year ended
December 31, 1993 was that the Company elected to restate the value of its
inventory to reflect its current net realizable value. This resulted in a
write-down of the Company's inventory in the amount of $436,000.
Backlog as of May 31, 1995 was $3,443,000 compared to backlog at
December 31, 1993 of $5,113,000. Seventy percent of the total new orders
received by the Company in fiscal year ended May 31, 1995 were shipped in fiscal
1995. This is the main reason for the decrease in backlog at May 31, 1995
compared to December 31, 1993. New orders received by the Company were
$11,519,000 for fiscal 1995 compared to new orders of $6,352,000 for fiscal
1993; including related parties orders of $2,015,000 and $43,000 respectively.
-17-
<PAGE>
The Company reported operating income of $349,000 for the fiscal year
ended May 31, 1995 as compared to operating loss of $1,608,000 for the fiscal
year ended December 31, 1993. Selling and Administrative expenses increased for
the year ended May 31, 1995 to $2,232,000 (15% of net revenues) as compared to
$1,119,000 (13% of net revenues) for the fiscal year ended December 31, 1993.
The implementation of the Company's sales and marketing programs called for an
increased sales force as well as increased advertising expenditures to expand
entry into potential foreign markets and support product sales. Reflected in
administrative expenses for the period ended December 31, 1993 was a one-time
favorable settlement the Company reached with an outside law firm in the amount
of $552,000 which reduced the amount of administrative expense for the year. The
Company anticipates that additional selling and administrative expenses will be
required to maintain its competitive position, including expanded domestic and
international sales activities and expects that expenses will remain stable as a
percentage of net revenues.
Other expenses equaled $118,000 for the year ended May 31, 1995
compared to $1,885,000 for the year ended December 31, 1993. The Company
recorded expense during 1993 in the amount of $1,395,000 relating to the
settlement of the lawsuit brought against the Company by the Harrisburg
Authority, as well as expenses relating to the settlement of other lawsuits in
the amount of $295,000. These occurrences were major contributing factors to the
net loss for fiscal year ended December 31, 1993. Net income for the year ended
May 31, 1995 equaled $230,000 as compared to a net loss of $3,403,000 for the
year ended December 31, 1993.
In summary, the Company has produced an improvement in the results of
operation due to the following factors:
- Increased sales and marketing efforts on an international basis;
- Leadership of a new management team; - Reduction of overhead in
manufacturing operations;
- Increased production efficiency; and
- Sales to and joint marketing efforts with UPE, the Company's major
shareholder.
The Company is pursuing entry into a new business segment, the
purchasing and selling of used process and environmental equipment. The Company
will utilize the available expertise and resources of UPE in achieving this
goal.
FIVE MONTHS ENDED MAY 31, 1994 AS COMPARED TO FIVE MONTHS ENDED MAY 31, 1993.
(ALL REFERENCES TO FIVE MONTHS ENDED MAY 31, 1993 ARE UNAUDITED).
Net revenues of $2,898,000 for the five months of 1994 represents a
decrease of $82,000 over the 1993 level of $2,980,000. The gross loss for the
five months of 1994 equaled $205,000 compared to a gross loss for the same
period in 1993 of $152,000. The gross loss in both years was attributable to
losses recorded on major contracts.
Backlog as of May 31, 1994 was $6,502,000 as compared to a backlog of
$6,511,000 on May 31, 1993. Orders received for the five months of 1994 equaled
$4,380,000 compared to $2,361,000 for the same period in 1993.
A change in management combined with worldwide growth in the chemical
process industry were the main factors for the increased orders recorded in the
year ended May 31, 1994.
Selling and Administrative expenses decreased from $747,000 for the
five months of 1993 to $635,000 for the five months in 1994. The decreases were
attributable to decreased retiree health costs which also reduced post
retirement health expenses.
-18-
<PAGE>
The net loss for the five months of 1994 equaled $931,000 compared to
the net loss of $980,000 for the same period in 1993. The net loss was due to
losses incurred on percentage of completion contracts which were placed in prior
periods.
The Company elected to change its fiscal year from December 31 to May
31 in order to better track the Company's business activity. The "fresh start"
accounting was consistent with changes in the management and business focus of
the Company.
THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 29, 1996
COMPARED TO THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 28, 1995 (UNAUDITED)
Sales of $5,503,000 for the third quarter fiscal 1996 represent an
increase of $1,623,000 over the third quarter 1995 level of $3,880,000. Gross
profit for the third quarter fiscal 1996 was $1,192,000, compared to gross
profit of $576,000 for the same period last year. Sales of $12,375,000 for the
nine month period ending February 1996 represents an increase of $1,498,000 over
the nine month period ending February 1995 level of $10,877,000. Gross profit
for the nine month period ending February 1996 equalled $2,771,000 or 22% of
sales compared to gross profit of $1,837,000 or 17% of sales for the same period
in 1995. Increased sales and gross profits in both the Company's industrial and
process sales divisions were due to the booking of several major long term
contracts with higher profit margins than historically experienced in these
divisions.
The operating profit for the third quarter fiscal 1996 equalled
$355,000 compared to $58,000 for the same period last year. Operating profit
equalled $559,000 for the nine month period ending February 1996 compared to
operating profit of $308,000 for the same period last year. Selling and
administrative expenses increased from $518,000 or 13% of sales for the third
quarter fiscal 1995 to $837,000 or 15% of sales for the third quarter fiscal
1996. Selling and administrative expenses increased from $1,529,000 or 14% of
sales for the nine month period ending February 1995 to $2,212,000 or 18% of
sales for the same period in 1996. The primary factors for the increase in
selling and administrative expenses were: 1) additional sales and administrative
personnel; 2) increased advertising expenditures; and 3) increased travel
expenses. These resources are needed to continue the Company's entry into the
international market as well as to pursue sales and purchases of used process
and environmental equipment.
Other expenses equalled $227,000 compared to other expenses of $34,000
for the same period in fiscal 1995. Net income for the third quarter of fiscal
1996 equalled $128,000, compared to net income of $24,000 for the same period in
fiscal 1995. Other expenses were $342,000 for the nine month period ending
February 1996, compared to other expenses of $164,000 for the same period last
year. Increased interest expense combined with the amortization of financing
fees from the loans secured by the Company in the first quarter of fiscal 1996
were the main factors for the increase in other expenses. Net income for the
nine month period ending February 1996 equalled $217,000 compared to $144,000
for the same period in fiscal 1995.
Backlog was $9,093,000 at February 29, 1996 compared to backlog of
$4,758,000 at February 28, 1995. Orders received for the third quarter of fiscal
1996 equalled $3,594,000 compared to orders received for the third quarter of
fiscal 1995 of $2,101,000.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flow provided by operations increased to $909,000 for fiscal
year ended May 31, 1995 compared to $207,000 for the year ended December 31,
1993, an increase of $702,000 due to additional sales.
Progress billings by the Company in connection with orders received and
anticipated during the first half of fiscal 1996 are expected to have a positive
impact on the Company's cash flow.
-19-
<PAGE>
On July 14, 1995, the Company prepaid its note payable to G.E. Capital
and paid relevant closing costs with proceeds from advances against a $6.5
million total credit facility available from a group of lenders as follows:
(1) A $1.5 million five year first mortgage loan from Sterling
Commercial Capital, Inc., First Wall Street SBIC, L.P., and Interequity
Capital Partners, L.P. The loan is collateralized by a first mortgage
lien on real estate owned by the Company and a second lien on all other
Company owned assets. The loan will bear interest at 14.25% per annum.
The outstanding principal and interest will be payable in 59
consecutive equal monthly payments calculated to fully amortize over a
15 year period with a final payment of all then outstanding principal
and interest. The loan agreement contains a number of covenants which
among other things will require the Company to maintain specified
levels of net worth and working capital and will impose certain
limitations on the Company with respect to (I) the incurrence of
additional indebtedness; (II) the incurrence of additional liens; (III)
the payment of cash dividends and (IV) mergers and investments. UPE
agreed to provide a limited guarantee for up to $350,000 of the
mortgage payable and subordinate all of its outstanding receivables or
other extensions of credit due from the Company to the mortgage. The
Company granted warrants to the three-party lending group to purchase
up to 40,000 shares (2.12%) of the Company's stock. The purpose of this
loan was to pay off the existing mortgage loan.
(2) A three year $5 million maximum line of credit and term loan
facility from The CIT Group/Credit Finance, Inc., secured by a third
lien position (behind the three party lending group referenced above
and the Harrisburg Authority) on Company owned real estate and a first
lien on substantially all other owned assets of the Company. This
credit facility includes: (a) an $800,000 term loan requiring $13,333
monthly principal payments plus interest at prime rate (Chemical Bank,
New York) plus 3% and (b) advances against a percentage of eligible
inventory not to exceed $4,000,000 in the aggregate. Initial proceeds
of this credit facility were used to fund working capital. The amount
outstanding as of February 29, 1996 was $706,667 on the term loan and
$1,424,800 on the secured credit line. Additional advances will be for
the purpose of acquiring eligible inventory. The loan agreement
contains certain restrictions among other things on the making of
investments, loans and capital expenditures, on borrowings, on the sale
of assets and on the payment of dividends. The loan agreement contains
customary events of default including material misrepresentations,
payment defaults and default in the performance of other covenants. An
additional condition of the loan agreement is that UPE will purchase
all of the Company's used resale inventory in the event of default. The
term of the agreement is for three years and automatically renewable
for successive terms of two years thereafter unless terminated by
either party at the end of the initial or any renewal term.
Notwithstanding the foregoing, the agreement shall terminate
automatically upon termination or non-renewal of The CIT Group/Credit
Finance Inc.'s financing agreements with UPE. The Company granted
warrants to The CIT Group/Credit Finance, Inc. to purchase 50,000
(2.65%) shares of the Company's stock.
By securing this new funding, the Company has expanded working capital,
made available additional capital for inventory acquisition and increased
liquidity.
Capital expenditures were $133,000 during fiscal 1995 versus $32,000 in
1993. The Company expects to fund the majority of capital expenditures through
cash flow generated through operations and to utilize third party financing when
cost effective or appropriate.
Management believes that any inflationary increase arising from the
Company's raw material costs and certain overhead expenses have generally been
reflected in pricing to its customers.
Net cash used for operating activities was $1,794,000 for the first
nine months of fiscal 1996 compared to net cash provided by operating activities
for the first nine months of fiscal 1995 of $707,000. The
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Company's purchase of approximately $600,000 in used equipment inventory coupled
with increased accounts receivable accounted for the cash used for operating
activities.
Capital expenditures were $534,000 for the first nine months of fiscal
1996 versus $111,000 for the first nine months of fiscal 1995. The majority of
the Company's cash used for investing activities was expended on acquisition
costs and capital equipment for materials processing at BAM, the Company's
wholly owned subsidiary in Knoxville, Tennessee.
Cash provided by financing activities equalled $2,244,000 for the first
nine months of fiscal 1996 compared to cash used for financing activities for
the same period last year in the amount of $588,000. On July 14, 1995, the
Company prepaid its note payable to G.E. Capital and paid relevant closing costs
with proceeds from advances against a $6.5 million total credit facility
available from a group of lenders.
The Company believes that cash generated from existing business, new
orders and sales of used equipment, together with the net proceeds of the Rights
Offering, will be sufficient to meet operating requirements through the fiscal
year ending May 31, 1997. In the event that the Company's operations were to
expand significantly or the Company were to desire to make further acquisitions,
further external sources of financing would be required. While the Company
believes that such financing would be available to it, there can be no assurance
in this regard.
DETERMINATION OF SUBSCRIPTION PRICE
The Company's objective in establishing the Subscription Price was the
realization of the desired proceeds from the Rights Offering while providing
holders of the Company's Common Stock with the opportunity to make an additional
investment in the Company and to avoid involuntary dilution of their
proportionate ownership interest in the Company. In establishing the
Subscription Price, the Board of Directors considered such factors as the
intended use of proceeds of the Rights Offering, alternative financing sources
available to the Company, market prices of the Common Stock over the preceding
two-year period, the general condition of the securities markets and pricings in
offerings that the Board considered similar to the Rights Offering. The Board's
determination does not constitute a recommendation to shareholders as to the
advisability of selling or exercising Rights in the Rights Offering.
THE RIGHTS OFFERING
THE RIGHTS
The Company is distributing transferable Rights at no cost to the
record holders ("Holders") of outstanding shares of Common Stock as of
____________, 1996 [the effective date of the Registration Statement of which
this Prospectus forms a part] (the "Record Date"). The Company will distribute
seven Rights for every 10 shares of Common Stock held on the Record Date. No
fractional Rights or cash in lieu thereof will be distributed or paid by the
Company. The number of Rights distributed by the Company to each Holder will be
rounded up to the nearest whole Right. The Rights will be evidenced by
transferable subscription certificates (the "Subscription Certificates") and
each such Right entitles the holder thereof to subscribe for one share of Common
Stock.
The Subscription Price of $______ per share of Common Stock represents
a discount of 30% from the closing price of $_______ for the Common Stock as
quoted on the AMEX on _________, 1996, the date of the commencement of the
Rights Offering. There can be no assurance that the Common Stock will trade at
prices above the Subscription Price. See "Risk Factors--Uncertain Market for
Rights."
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The issuance by the Company of shares of Common Stock pursuant to the
Rights Offering is not conditioned upon the subscription of any minimum number
of shares of Common Stock by holders of the Rights, and no assurance can be
given that the Company will receive any proceeds from the Rights Offering. UPE
however, has, informed the Company that it intends to exercise the Rights it
receives for an aggregate subscription price of $__________ and that it does not
intend to exercise the Oversubscription Privilege or to purchase any additional
Rights through open market purchases or otherwise. In addition, certain officers
and directors of the Company not affiliated with UPE have expressed their intent
to exercise up to ____________ of the Rights, including Rights they receive in
respect of Common Stock to be acquired upon exercise of options prior to the
Record Date.
BEFORE EXERCISING OR SELLING ANY RIGHTS, POTENTIAL INVESTORS ARE URGED
TO READ CAREFULLY THE INFORMATION SET FORTH UNDER "RISK FACTORS."
EXPIRATION DATE
The Rights will expire at 5:00 p.m., New York City time, on May ___,
1996 [30 calendar days after the Record Date] (the "Expiration Date"). After
such time, unexercised Rights will be null and void. The Company will not be
obligated to honor any purported exercise of Rights received by the Subscription
Agent after 5:00 p.m., New York City time, on the Expiration Date, regardless of
when the documents relating to such exercise were sent, except pursuant to the
Guaranteed Delivery Procedures described below.
SUBSCRIPTION PRIVILEGES
BASIC SUBSCRIPTION PRIVILEGE. Each whole Right will entitle the holder
thereof to receive, upon payment of the Subscription Price, one share of Common
Stock (the "Basic Subscription Privilege"). Certificates representing shares of
Common Stock purchased pursuant to the Basic Subscription Privilege will be
delivered to subscribers as soon as practicable after the corresponding Rights
have been validly exercised and full payment for shares has been received and
cleared.
OVERSUBSCRIPTION PRIVILEGE. Subject to the allocation described below,
each Right also carries the right to subscribe at the Subscription Price for
additional shares of Common Stock (the "Oversubscription Privilege") up to the
amount offered hereby. All beneficial Holders who exercise the Basic
Subscription Privilege in full will be entitled to exercise the Oversubscription
Privilege.
Underlying Shares will be available for purchase pursuant to the
Oversubscription Privilege only to the extent that any Underlying Shares are not
subscribed for through the Basic Subscription Privilege. If the Underlying
Shares not subscribed for through the Basic Subscription Privilege (the "Excess
Shares") are not sufficient to satisfy all subscriptions pursuant to the
Oversubscription Privilege, the Excess Shares will be allocated pro rata
(subject to the elimination of fractional shares) among those holders of Rights
exercising the Oversubscription Privilege, in proportion, not to the number of
shares requested pursuant to the Oversubscription Privilege, but to the number
of shares each beneficial holder exercising the Oversubscription Privilege has
purchased pursuant to the Basic Subscription Privilege; provided, however, that
if such pro rata allocation results in any Rights holder being allocated a
greater number of Excess Shares than such holder subscribed for pursuant to the
exercise of such holder's Oversubscription Privilege, then such holder will be
allocated only such number of Excess Shares as such holder subscribed for and
the remaining Excess Shares will be allocated among all other holders exercising
the Oversubscription Privilege. Certificates representing shares of Common Stock
purchased pursuant to the Oversubscription Privilege will be delivered to
subscribers as soon as practicable after the Expiration Date and after all
prorations and adjustments contemplated by the terms of the Rights Offering have
been effected.
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Banks, brokers and other nominee holders of Rights who exercise the
Basic Subscription Privilege and the Oversubscription Privilege on behalf of
beneficial owners of Rights will be required to certify to the Subscription
Agent and the Company, in connection with the exercise of the Oversubscription
Privilege, as to the aggregate number of Rights that have been exercised and the
number of Underlying Shares that are being subscribed for pursuant to the
Oversubscription Privilege by each beneficial owner of Rights on whose behalf
such nominee holder is acting.
EXERCISE OF RIGHTS
Rights may be exercised by delivering to American Stock Transfer &
Trust Company (the "Subscription Agent"), at or prior to 5:00 p.m., New York
City time, on the Expiration Date, the properly completed and executed
Subscription Certificate evidencing such Rights with any signatures required to
be guaranteed so guaranteed, together with payment in full of the Subscription
Price for each Underlying Share subscribed for pursuant to the Basic
Subscription Privilege and the Oversubscription Privilege. Any Rights holder
subscribing for an aggregate of more than 25,000 Underlying Shares pursuant to
the Oversubscription Privilege prior to the Expiration Date shall not be
required to deliver payment for such number of Underlying Shares in excess of
25,000 until the Expiration Date. The Company, in its sole discretion, may
determine to waive payment for such excess number of Underlying Shares until
after the Expiration Date and after all prorations and adjustments contemplated
by the terms of the Rights Offering have been effected. All payments must be by
(a) check or bank draft drawn upon a U.S. bank or postal or express money order
payable to The American Stock Transfer Trust Company, as Subscription Agent, or
(b) by wire transfer of same-day funds, in which case please contact the
Subscription Agent at ______________ for such information. Payments will be
deemed to have been received by the Subscription Agent only upon (i) clearance
of any uncertified check, (ii) receipt by the Subscription Agent of any
certified check or bank draft upon a U.S. bank or of any postal or express money
order or (iii) receipt of good funds in the Subscription Agent's account
designated above. If paying by uncertified personal check, please note that the
funds paid thereby may take at least five business days to clear. Accordingly,
holders of Rights who wish to pay the Subscription Price by means of uncertified
personal check are urged to make payment sufficiently in advance of the
Expiration Date to ensure that such payment is received and clears by such date
and are urged to consider payment by means of certified or cashier's check,
money order or wire transfer of funds.
The address to which the Subscription Certificates and payment of the
Subscription Price or, if applicable, the Notice of Guaranteed Delivery, should
be delivered by mail, by hand or by overnight carrier is:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Attention:________________
Telephone Number:________________
If a Rights holder wishes to exercise Rights, but time will not permit
such holder to cause the Subscription Certificate or Subscription Certificates
evidencing such Rights to reach the Subscription Agent on or prior to the
Expiration Date, such Rights may nevertheless be exercised if all of the
following conditions (the "Guaranteed Delivery Procedures") are met:
(i) such holder has caused payment in full
of the Subscription Price for each Underlying Share
being subscribed for pursuant to the Basic
Subscription Privilege and the Oversubscription
Privilege (subject to the right of the Company to
waive advance payment in respect of the
Oversubscription
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Privilege as described above) to be received (in the
manner set forth above) by the Subscription Agent on
or prior to the Expiration Date;
(ii) the Subscription Agent receives, on or
prior to the Expiration Date, a guarantee notice
("Notice of Guaranteed Delivery"), substantially in
the form provided in the instructions (the
"instructions") distributed with the Subscription
Certificates, from a member firm of a registered
national securities exchange or a member of the
National Association of Securities Dealers, Inc.
("NASD"), or from a commercial bank or trust company
having an office or correspondent in the United
States or from a bank, stockbroker, savings and loan
association or credit union with membership in an
approved signature guarantee medallion program,
pursuant to Rule 17Ad-15 of the Exchange Act (each,
an "Eligible Institution"), stating the name of the
exercising Rights holder, the number of Rights
represented by the Subscription Certificate or
Subscription Certificates held by such exercising
Rights holder, the number of Underlying Shares being
subscribed for pursuant to the Basic Subscription
Privilege and the number of Underlying Shares, if
any, being subscribed for pursuant to the
Oversubscription Privilege, and guaranteeing the
delivery to the Subscription Agent of any
Subscription Certificate evidencing such Rights
within three AMEX trading days following the
Expiration Date; and
(iii) the properly completed Subscription
Certificate evidencing the Rights being exercised,
with any signatures required to be guaranteed so
guaranteed, is received by the Subscription Agent
within three AMEX trading days following the
Expiration Date. The Notice of Guaranteed Delivery
may be delivered to the Subscription Agent in the
same manner as Subscription Certificates at the
address set forth above, or may be transmitted to
the Subscription Agent by facsimile transmission
(Facsimile no. ___________. Additional copies of the
form of Notice of Guaranteed Delivery are available
upon request from the Information Agent whose
address and telephone numbers are set forth under
"Information Agent."
Funds received in payment of the Subscription Price for Excess Shares
subscribed for pursuant to the Oversubscription Privilege will be held in a
segregated account pending issuance of such Excess Shares. If a Rights holder
exercising the Oversubscription Privilege is allocated less than all of the
shares of Common Stock which such holder subscribed for pursuant to the
Oversubscription Privilege, the excess funds paid by such holder in respect of
the Subscription Price for shares not issued shall be returned by mail without
interest or deduction as soon as practicable after the Expiration Date and after
all prorations and adjustments contemplated by the terms of the Rights Offering
have been effected.
Unless a Subscription Certificate (i) provides that the shares of
Common Stock to be issued pursuant to the exercise of Rights represented thereby
are to be delivered to the record holder of such Rights or (ii) is submitted for
the account of an Eligible Institution, signatures on such Subscription
Certificate must be guaranteed by an Eligible Institution or other eligible
guarantor institution that is a member of or a participant in a medallion
guarantee program acceptable to the Subscription Agent.
Holders who hold shares of Common Stock for the account of others, such
as brokers, trustees or depositories for securities, should notify the
respective beneficial owners of such shares as soon as possible to ascertain
such beneficial owners' intentions and to obtain instructions with respect to
the Rights. If the beneficial owner so instructs, the record holder of such
Rights should complete Subscription Certificates and
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submit them to the Subscription Agent with the proper payment. In addition,
beneficial owners of Common Stock or Rights held through a record holder should
contact the holder and request the holder to effect transactions in accordance
with such beneficial owner's instructions.
The instructions accompanying the Subscription Certificates should be
read carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES TO
THE COMPANY.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK OF
THE RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES
AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO
THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO 5:00 P.M., NEW YORK
CITY TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE
AT LEAST FIVE BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED TO PAY, OR ARRANGE
FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE
TRANSFER OF FUNDS.
All questions concerning the timeliness, validity, form and eligibility
of any exercise of Rights will be determined by the Company, whose
determinations will be final and binding. The Company in its sole discretion may
waive any defect or irregularity, or permit a defect or irregularity to be
corrected within such time as it may determine, or reject the purported exercise
of any Right. Subscriptions will not be deemed to have been received or accepted
until all irregularities have been waived or cured within such time as the
Company determines in its sole discretion. Neither the Company, nor the
Subscription Agent, nor the Information Agent will be under any duty to give
notification of any defect or irregularity in connection with the submission of
Subscription Certificates or incur any liability for failure to give such
notification.
Any questions or requests for assistance concerning the method of
exercising Rights or requests for additional copies of this Prospectus, the
Instructions or the Notice of Guaranteed Delivery should be directed to the
Information Agent whose address and telephone number are set forth under
"Information Agent."
NO REVOCATION
ONCE A HOLDER OF RIGHTS HAS EXERCISED THE BASIC SUBSCRIPTION PRIVILEGE
AND/OR THE OVERSUBSCRIPTION PRIVILEGE, SUCH EXERCISE MAY NOT BE REVOKED.
METHOD OF TRANSFERRING RIGHTS
Rights may be purchased or sold through usual investment channels,
including banks and brokers. It is anticipated that the Rights will be traded on
the AMEX under the symbol "[BETR]". Rights also may be sold in over-the-counter
and private sales transactions. No assurance can be given, however, that a
market for the Rights will develop or, that if such a market develops, as to how
long it will continue.
The Rights evidenced by a single Subscription Certificate may be
transferred in whole by endorsing the Subscription Certificate for transfer in
accordance with the instructions accompanying the Subscription Certificate. A
portion of the Rights evidenced by a single Subscription Certificate (but not
fractional Rights) may be transferred by delivering to the Subscription Agent a
Subscription Certificate properly endorsed for transfer, with instructions to
register such portion of the Rights evidenced thereby in the name of the
transferee (and to issue a new Subscription Certificate to the transferee
evidencing such transferred Rights). In such event,
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a new Subscription Certificate evidencing the balance of the Rights will be
issued to the Rights holder or, if the Rights holder so instructs, to an
additional transferee.
The Rights evidenced by a Subscription Certificate also may be sold, in
whole or in part, through the Subscription Agent by delivering to the
Subscription Agent such Subscription Certificate properly executed for sale by
the Subscription Agent. If only a portion of the Rights evidenced by a single
Subscription Certificate are to be sold by the Subscription Agent, such
Subscription Certificate must be accompanied by instructions setting forth the
action to be taken with respect to the Rights that are not to be sold. If the
Rights can be sold, sales of such Rights will be deemed to have been effected at
the weighted average price received by the Subscription Agent on the day such
Rights are sold, less any applicable brokerage commissions, taxes and other
direct expenses of sale. Promptly following the settlement of such sale, the
Subscription Agent will send the Rights holder a check for the net proceeds
(after deduction of any applicable brokerage commissions, taxes and other direct
expenses of the sale) from the sale of any Rights sold. The Company will pay the
fees charged by the Subscription Agent for effecting such sales. Orders to sell
Rights must be received by the Subscription Agent prior to _____ a.m., New York
City time, on ______________, 1996 and the Subscription Agent's obligation to
execute orders is subject to its ability to find buyers.
Holders wishing to transfer all or a portion of their Rights (but not
fractional Rights) should allow a sufficient amount of time prior to the
Expiration Date for (i) the transfer instructions to be received and processed
by the Subscription Agent, (ii) a new Subscription Certificate to be issued and
transmitted to the transferee or transferees with respect to transferred Rights,
and to the transferor with respect to retained Rights, if any, and (iii) the
Rights evidenced by such new Subscription Certificates to be exercised or sold
by the recipients thereof. Neither the Company, nor the Subscription Agent, nor
the Information Agent shall have any liability to a transferee or transferor of
Rights if Subscription Certificates are not received in time for exercise or
sale prior to the Expiration Date.
Except for the fees charged by the Subscription Agent (which will be
paid by the Company as described above), all commissions, fees and other
expenses (including brokerage commissions and transfer taxes) incurred in
connection with the purchase, sale or exercise of Rights will be for the account
of the transferor of the Rights, and none of such commissions, fees or expenses
will be paid by the Company or the Subscription Agent.
PROCEDURES FOR BOOK ENTRY TRANSFER FACILITY PARTICIPANTS
The Company anticipates that the Rights will be eligible for transfer
through, and that the exercise of the Basic Subscription Privilege (but not the
Oversubscription Privilege) may be effected through, the facilities of the
Depository Trust Company, Midwest Securities Trust Company and Philadelphia
Depository Trust Company (collectively, the "Book Entry Facilities"; Rights
exercised through any such facility are referred to as "Book Entry Exercised
Rights"). The holder of a Book Entry Exercised Right may exercise the
Oversubscription Privilege in respect of such Book Entry Exercised Right by
properly executing and delivering to the Subscription Agent, at or prior to 5:00
p.m., New York City time, on the Expiration Date, a Nominee Holder
Oversubscription Form, together with payment of the Subscription Price for the
number of Underlying Shares for which the Oversubscription Privilege is to be
exercised. Any Rights holder subscribing for an aggregate of more than 25,000
Underlying Shares pursuant to the Oversubscription Privilege prior to the
Expiration Date shall not be required to deliver payment for such number of
Underlying Shares in excess of 25,000 until the Expiration Date. The Company, in
its sole discretion, may determine to waive payment for such excess number of
Underlying Shares until after the Expiration Date and after all prorations and
adjustments contemplated by the terms of the Rights Offering have been effected.
Copies of the Nominee Holder Oversubscription Form may be obtained from the
Subscription Agent.
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EFFECT OF RIGHTS OFFERING ON OTHER SECURITIES
AND STOCK OPTIONS OF THE COMPANY AND COMPANY PLANS
The number of shares covered by certain stock options and the option
prices thereunder and by certain warrants and the exercise price thereof are
subject to adjustment in accordance with the provisions thereof. The Company's
stock option plan or, in certain cases, the stock option agreements evidencing
awards made thereunder, require the Compensation Committee of the Board of
Directors (the "Committee") and such warrants require the Board of Directors to
make appropriate adjustments to the outstanding options or other awards in the
event of any split-ups, stock dividends, recapitalizations, mergers,
consolidations, combinations, exchanges of shares and the like (each an
"adjustment event"). The Committee and the Board, whose determination shall be
conclusive, has discretion to determine the nature and extent of the adjustments
to be made in order to make the outstanding options or warrants, immediately
after such adjustment event, equivalent to such options warrants awards
immediately prior to such adjustment event.
The Committee and the Board will meet to determine whether the Rights
Offering is an adjustment event and if so, what adjustment to make.
INTENT OF UPE AND CERTAIN OFFICERS AND DIRECTORS
UPE will receive 276,120 Rights in respect of the shares of Common
Stock it owns, and such Rights represent approximately 20% of the total Rights
to be distributed. UPE has informed the Company that it intends to exercise the
Rights it receives for an aggregate subscription price of $___________ and that
it does not intend to exercise the Oversubscription Privilege or to acquire any
additional Rights through open market purchases, the exercise of options or
otherwise. Certain directors and officers of the Company unaffiliated with UPE
have expressed their intent to exercise up to _______ Rights they receive,
including Rights they receive in respect of Common Stock to be acquired upon
exercise of options prior to the Record Date.
FOREIGN AND CERTAIN OTHER SHAREHOLDERS
Subscription Certificates will not be mailed to Holders whose addresses
are outside the United States or who have an APO or FPO address, but will be
held by the Subscription Agent for their account. To exercise such Rights, such
a Holder must notify the Subscription Agent on or prior to _____ a.m., York City
time, on _______________, 1996, and must establish to the satisfaction of the
Subscription Agent that such exercise is permitted under applicable law. If such
a Holder does not notify the Subscription Agent and provide acceptable
instructions to the Subscription Agent by such time, such Rights represented
thereby will be sold, if feasible, and the net proceeds, if any, remitted to
such Holder. If the Rights can be sold, sales of such Rights will be deemed to
have been effected at the weighted average price received by the Subscription
Agent on the day such Rights are sold, less any applicable brokerage
commissions, taxes and other expenses.
OTHER MATTERS
The Rights Offering is not being made in any state or other
jurisdiction in which it is unlawful to do so, nor is the Company selling or
accepting any offers to purchase any shares of Common Stock from Rights holders
who are residents of any such state or other jurisdiction. The Company may delay
the commencement of the Rights Offering in certain states or other jurisdictions
in order to comply with the securities law requirements of such states or other
jurisdictions. It is not anticipated that there will be any changes in the terms
of the Rights Offering. The Company, if it so determines in its sole discretion,
may decline to make modifications to the terms of the Rights Offering requested
by certain states or other jurisdictions, in which event Rights holders resident
in those states or jurisdictions will not be eligible to participate in the
Rights Offering.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary describes certain United States federal income
tax considerations applicable to U.S. Holders who hold Common Stock as a capital
asset and who receive Rights in respect of such Common Stock in Rights Offering.
This summary is based upon laws, regulations, rulings and decisions currently in
effect. This summary does not discuss all aspects of federal income taxation
that may be relevant to a particular investor or to certain types of investors
subject to special treatment under the federal income tax laws (for example,
banks, dealers in securities, life insurance companies, tax exempt organizations
and foreign taxpayers), nor does it discuss any aspect of state, local or
foreign tax laws.
ISSUANCE OF THE RIGHTS
Holders of Common Stock will not recognize taxable income in connection
with the receipt or exercise of the Rights.
BASIS AND HOLDING PERIOD OF THE RIGHTS
Except as provided in the following sentence, the basis of the Rights
received by a shareholder as a distribution with respect to such shareholder's
Common Stock will be zero. If either (i) the fair market value of the Rights on
the date of commencement of the Rights Offering (the "Commencement Date") is 15%
or more of the fair market value (on the Commencement Date) of the Common Stock
with respect to which they are received or (ii) the shareholder elects, in his
or her federal income tax return for the taxable year in which the Rights are
received, to allocate part of the basis of such Common Stock to the Rights, then
upon exercise or transfer of the Rights, the shareholder's basis in such Common
Stock will be allocated between the Common Stock and the Rights in proportion to
the fair market values of each on the Commencement Date. The holding period of a
shareholder with respect to the Rights received as a distribution on such
shareholder's Common Stock will include the shareholder's holding period for the
Common Stock with respect to which the Rights were issued.
TRANSFER OF THE RIGHTS
A shareholder who sells Rights received in the Rights Offering prior to
exercise will recognize gain or loss equal to the difference between the sale
proceeds and such shareholder's basis (if any) in the Rights sold. Such gain or
loss will be long-term capital gain or loss if such shareholder's holding period
in the Rights (as discussed above) exceeds one year. The excess of net long-term
capital gains over net short-term capital losses is taxed at a lower rate than
ordinary income for certain non-corporate taxpayers. The distinction between
capital gain or loss and ordinary income is also relevant for purposes of, among
other things, limitations on the deductibility of capital losses.
LAPSE OF THE RIGHTS
Shareholders who allow the Rights received by them in the Rights
Offering to lapse will not recognize any gain or loss, and no adjustment will be
made to the basis of the Common Stock, if any, owned by such holders of the
Rights.
EXERCISE OF THE RIGHTS; BASIS AND HOLDING PERIOD OF COMMON STOCK
Holders of Rights will not recognize any gain or loss upon the exercise
of such Rights. The basis of the Common Stock acquired through exercise of the
Rights will be equal to the sum of the Subscription Price therefor and the
Rights holder's basis in such Rights (if any) as described above. The holding
period for the Common Stock acquired through exercise of the Rights will begin
on the date the Rights are exercised.
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THE FOREGOING SUMMARY IS INCLUDED FOR GENERAL INFORMATION ONLY.
ACCORDINGLY, EACH SHAREHOLDER IS URGED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE RIGHTS OFFERING ON HIS OR
HER OWN PARTICULAR TAX SITUATION, INCLUDING THE APPLICATION AND EFFECT OF STATE
AND LOCAL INCOME AND OTHER TAX LAWS.
BUSINESS OF THE COMPANY
GENERAL
The Company was founded in 1856 as a foundry and machine shop and
incorporated in 1888. The Company designs, manufactures, sells and services a
product line of capital equipment used to process materials for a variety of
industrial applications. Its proprietary products include the Porcupine
Processor(R), the Thermal Disc(R) Processor, the Tower Filter Press, drum dryers
and flakers, tubular dryers, and calciners. In addition, the Company operates a
production facility that fabricates, machines and assembles equipment to
customers' specifications. The Company has developed expertise in the areas of
thermal processing systems, environmental systems, filtration, specialty
machining, and fabrication and the rebuilding and remanufacture of specialty
process equipment. In addition, the Company, through BAM, a wholly-owned
subsidiary formed in September 1995 to acquire certain assets of the American
Furnace Division of Third Millennium Products, Inc., designs and manufactures
high-temperature furnaces for sale and for its own use and processes specialty
carbon, graphite and ceramic materials for semiconductors and aerospace
applications.
CAPITAL EQUIPMENT, MACHINING AND FABRICATION
The Company's customers for its capital equipment, sales and machining
and fabrication services include the primary ferrous and non-ferrous metals
industries, cement and ship building companies, refineries, chemical, food,
pharmaceutical and petrochemical firms. Its products include the Porcupine
Processor(R), the Thermal Disc(R) Processor, the Tower Filter Press, filtration
equipment, drum dryers and flakers, tubular dryers, calciners, vapor recovery
systems and boilers. The Porcupine Processor(R) dries, heats or cools various
chemicals, solids, or slurries. It reduces operating and installation costs and
provides a free-flowing end product. The Company has recently introduced a new
product in filtration equipment--the Tower Filter Press. The Tower Filter Press
filters a wide range of slurries, operating automatically and uses a
programmable logic control system. The Company operates a production facility
that includes a full service laboratory equipped to test a broad range of
materials and processes for filtration and thermal processing applications. The
Company also has thermal processing and filtration pilot units available for use
at customer sites for test processing. In conjunction with sales of capital
equipment, the Company provides engineering and design services and conducts an
aftermarket business consisting primarily of remanufacture, repair,
refurbishment and equipment upgrade services and spare parts sales. The Company
markets its products through an international sales network covering markets in
North and South America, Asia and Europe.
The Company serves these markets through five main business units:
o The Heat Transfer Process Equipment unit markets core technology
equipment, which includes dryers, coolers, and flakers, and which are
fabricated to specific customer needs. The Porcupine Processor(R), an
indirectly heated dryer developed by the Company, is an example of this
unit's products. Some of the markets for these products include the
chemical, plastics, food, pharmaceuticals, refineries, waste treatment
and mining industries. These industries use the Company's equipment to
recover valuable solvents from chemical intermediates or final
products.
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<PAGE>
o The Environmental Systems unit markets Thermal Desorption Systems for
sale and rental. These systems, which usually include a Porcupine
Processor(R), are used for treating both hazardous and nonhazardous
sludges and contaminated soil. The market for these systems is
currently driven by environmental regulations and is expected to grow.
o The Filtration Process Equipment unit designs, manufactures and markets
coarse to fine filtration systems used in solid/liquid separation. The
target markets are fine and specialty chemicals, mining, food, precious
metal recovery and pharmaceutical. The Tower Filter Press is an example
of this unit's products.
o The Specialty Heavy Machining and Fabrication Services unit provides
high quality heavy equipment machining and fabrication services to the
U.S. Government, heavy industry, including ferrous and nonferrous
producers, the aggregates industry and suppliers of specialty heavy
equipment that serve those industries.
o The Rebuild/Remanufacture Equipment unit upgrades used equipment and
remanufactures a broad range of process equipment. This unit markets
these products based on two primary advantages: reduced capital
expenditure and shorter lead time on delivery to the pharmaceutical,
chemical and environmental remediation industries..
BETHLEHEM ADVANCED MATERIALS CORPORATION (BAM)
BAM designs and manufactures specialty high-temperature furnaces that
are used for the processing and manufacturing of a wide variety of advanced
materials, such as carbon and graphite fiber, carbon graphite composites, carbon
and graphite structures, ceramic powders and ceramic composites. In addition,
BAM processes specialty carbon, graphite and ceramic materials for semiconductor
and aerospace, primarily for use in commercial aircraft braking systems
applications. BAM is also involved in commercial process and product development
of advanced materials.
BAM is engaged in three primary lines of business involving high
temperature furnaces and the processing of advanced specialty materials:
o Furnace Manufacturing--design/engineering, manufacturing and
installation of specialty high temperature furnace systems.
o Toll Processing--contract heat treating and thermal processing of
specialty materials.
o Commercial Product and Process Development--utilization of the
Company's own furnaces, technology and expertise to commercialize new
applications and products for its own use and in conjunction with
customers in order to enhance their processes and applications.
BAM designs and manufactures custom high-temperature furnace systems
for customer sales and for its own use at the Company's Knoxville, Tennessee
facility. BAM's furnaces typically have custom design components, such as
continuous and batch loading systems, parallel plate heating systems and
advanced temperature control features. Management believes that, as such, BAM's
furnaces have the potential to provide added value to its customers, which may
result in higher product yield, more throughput due to more efficient heating
and cooling cycles and enhanced energy savings. A BAM furnace is designed in
accordance with an individual customer's materials processing requirements,
rather than according to fixed designs, and with a view to minimizing the need
for the customer to modify its process in order to match the furnace design.
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<PAGE>
In addition to selling furnaces to customers, BAM uses its furnaces to
provide toll firing services for its customers. Customers of BAM, whether a
furnace purchaser or on a tolling basis, are typically manufacturers of carbon
graphite structures, composites, powders and fibers, as well as manufacturers of
non- oxide ceramics, such as silicon carbide or silicon nitride or other
advanced ceramic structures.
Composite materials are suited to a diverse range of applications based
on their distinctive combination of physical and chemical properties. Carbon
fiber composites are attractive because of their specific properties, including
high strength, low weight, stiffness, resistance to corrosion, resistance to
fatigue, capacity to dissipate heat and electrical conductivity. In order to
process these carbon and carbon graphite products, a typical customer will
utilize a multi-step process to convert precursor materials such as petroleum
pitch, coal tar pitch, and acrylic materials, such as polyacrylonitrile ("PAN"),
into carbon fibers. All of these carbon precursors require thermal processing in
furnaces for oxidation, stabilization and carbonization.
Overall, aerospace applications are the largest users of carbon fibers
and other advanced materials. However, the semiconductor industry, which uses
many materials requiring purified carbon, ceramic, and other advanced material
structures, also provides a potentially significant and high growth market for
these products. BAM currently serves specialty markets which include
carbonization and graphitization of carbon aircraft brakes, halogen purification
of semiconductor grade graphite materials as well as special ceramic coating
systems for semiconductor processing.
Carbonization of Aircraft Brakes. Carbon-carbon, which consists of
carbon fibers fused in a carbon matrix, is used in aircraft brakes because its
utility is enhanced by high heat and friction. Whereas other brake materials
such as metal soften under rising temperatures, carbon-carbon grows stronger.
Composites such as carbon-carbon combine the inertness of carbon and the
strength of carbon fiber and are replacing steel and metal linings as the
friction braking material of choice for large commercial aircraft. There is a
growing replacement market for composite brakes with the retirement of older
aircraft utilizing metal brakes and their replacement by newer model aircraft,
which utilize carbon-carbon brakes. Composite brake pads wear out and must be
replaced at regular intervals, on the average about once a year and typically at
intervals of 759 to 2,000 landings depending upon aircraft type, size and use.
As the relative proportion of newer aircraft to older aircraft increases, the
demand for carbon-carbon brakes appears to be increasing proportionately.
Currently, industry figures show that carbon-carbon brakes have about 25 percent
of the commercial market and could double that amount to match metal by the year
2000. By way of example, the new Boeing 777 aircraft relies on carbon- carbon
brakes. BAM has built and currently operates for a customer a furnace for
carbonization of carbon- carbon brake materials for several aircraft programs
including the Boeing 777.
Purification of Semiconductor Quality Graphite. The heart of the
semiconductor industry revolves around the production of the silicon wafer. The
wafers are "grown" from a melted pool of silicon that is held in a graphite
crucible. As minute impurities cause significant degradation of the silicon
quality, it is imperative that the graphite crucible have fewer than 10 parts
per million total impurity. The manner in which this is accomplished is to
subject the graphite crucible to a purge of halogen gas while heating to a
temperature near 2,000(degree)C. The Company's furnaces are utilized during this
purification step.
STRATEGY
The Company's business strategy is to continue the technological
development and marketing of its core capital equipment products and, at the
same time, to expand on the manufacture and marketing of specialty high
temperature furnace systems, toll processing services for the advanced materials
markets and the commercialization of new products and processes in advanced
materials by BAM.
The Company intends to strengthen its position in markets inside and
outside the United States to reduce the manufacturing costs of its products and
to pursue new sales opportunities as they develop, in new,
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<PAGE>
rebuilt and used equipment. In addition, the Company intends to identify and
evaluate opportunities to extend current market applications, identify new
potential applications and establish plans for developing such applications for
high temperature furnaces.
As part of its efforts to expand its current range of market
applications, the Company is engaged in exploring strategic partnerships with
specific customers to use Company technology and expertise in the areas of
semiconductor purification and the carbonization of PAN for use in aircraft
brakes.
CUSTOMERS; EXISTENCE OF SHORT-TERM CONTRACTS
The Company's principal customers for its capital equipment are
domestic and foreign manufacturers of chemicals, pharmaceuticals, foods,
plastics and petrochemicals and environmental remediation firms. The Company's
principal customers for its high temperature furnaces and related tolling
services are domestic and foreign manufacturers of carbon and graphite
structures, fiber powder and shapes, silicon carbide powder and shapes, silicon
nitride shapes and other advanced ceramic composite structures.
Currently, the major portion of the Company's sales are made under
short-term or one-time contracts for the Company's capital equipment or
high-temperature furnaces, which contracts are not subject to renewal. Although
this may afford the Company flexibility in responding to changing market
conditions, a market for the Company's products and services under such
contracts is not assured. As a result, one or more short-term or one-time
contracts may constitute a high percentage of the Company's total net sales for
any particular quarter or fiscal year. The inability of the Company to obtain
such contracts in the future could have a material adverse effect on the
Company's business.
The Company's largest contract accounted for 33% of the Company's net
sales for the nine months ended February 29, 1996 and its four largest customers
during the year ended May 31, 1995 accounted for 17%, 13%, 12% and 12% of the
Company's net sales. The Company's active customers for capital equipment
include Eastman Chemical, Mallinckrodt, Vulcan Chemicals, PPG Industries, Great
Lakes Chemical and Cargill. Sales to related parties were equal to 17% of total
sales in fiscal 1995. The Company's active customers for high temperature
furnaces and tolling services are Allied Signal, Mitsubishi Chemical, Norton
Industrial Ceramic/Saint Gobain, UCAR Carbon, Hughes Missile Systems and
Manufacturing Sciences Corporation. Purchases by any single customer vary
significantly from year to year according to such customer's capital equipment
needs. The composition of the Company's customers may also vary from year to
year.
SALES AND MARKETING
The Company markets its products to customers in North and South
America, Asia and Europe, primarily by a direct sales and support staff based at
its facilities in Easton, Pennsylvania for its capital equipment products and
services and Knoxville, Tennessee for its high temperature furnace products and
tolling services. The Company also relies on product sales representatives in
some regions of North America and in certain geographic areas outside the United
States, sales are made by independent representatives who are assisted and
supported by Company employees.
BACKLOG
As of April 30, 1996, the Company had a backlog of orders (excluding
orders to BAM) of $9,409,000. The Company had a backlog of $3,443,000 and
$6,502,000 at May 31, 1995 and 1994, respectively. As of April 30, 1996, the
backlog of orders to BAM was $1,089,000.
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<PAGE>
RAW MATERIALS
The basic raw materials used in the Company's products are steel plate,
bars and castings and in addition, in the high temperature furnace business,
graphite, and copper. Raw materials are available from a number of sources on
comparable terms. The Company is not dependent on any supplier that cannot be
replaced in the normal course of business. Principal suppliers to the Company at
fiscal year end May 1995 were: Washington Steel, Universal Process Equipment
(see "Certain Transactions"), Bush Miller, Thypin Steel, Ryerson Steel and, in
connection with the high temperature furnace business, UCAR, Hajoka, and Graybar
Electric.
DEVELOPMENT OF LITHIUM-ION RECHARGEABLE BATTERIES
BAM executed a License Agreement on December 20, 1995 (the "License
Agreement" with Sandia Corporation ("Sandia"), a multi-program laboratory
operated by a subsidiary of Lockheed Martin Corp. for the U.S. Department of
Energy. With main facilities in Albuquerque, New Mexico and Livermore,
California, Sandia has major research and development responsibilities in
national defense, energy, environmental technologies and economic
competitiveness. Under the License Agreement, the Company has acquired a limited
exclusive license to make, use and sell a formula developed by Sandia for carbon
powder impregnated with lithium ions to be used to make anodes for use in
lithium ion rechargeable batteries. Under the License Agreement, BAM has
exclusive rights in two fields: computers and camcorders. If the process proves
commercially feasible, consumer electronics, aerospace and defense applications
could all potentially use the technology to create longer lasting, less
expensive, safer, lighter batteries, particularly for use in power-hungry
applications such as laptop computers, cellular telephones, camcorders and
cordless power tools. The Company is currently endeavoring to produce along with
Sandia scientists the first scale-up of the product to commercial quantities.
Sandia developed the product at its facilities and has been able to produce only
laboratory quantities to date. There can be no assurance that this product will
prove commercially feasible.
PATENTS AND TRADEMARKS
The Company depends upon its proprietary technology and expertise. The
Company relies principally upon trade secret and copyright law to protect its
proprietary technology and owns no patents which are material to its business.
The Company regularly enters into confidentiality agreements with its employees,
consultants, customers and potential customers and limits access to and
distribution of its trade secrets and other proprietary information. There can
be no assurance that these measures will be adequate to prevent misappropriation
of its technology or that the Company's competitors have not and will not
independently develop technologies that are substantially equivalent or superior
to the Company's technology.
COMPETITION
The Company's products are sold in highly competitive worldwide
markets. A number of companies compete directly with the Company in the
chemical, pharmaceutical, food, plastic and petrochemical processing markets and
the Company competes with various other furnace manufacturers and toll
processors. Numerous competitors of varying sizes compete with the Company in
one or more of its product lines and its Specialty Heavy Machining and
Fabrication Services unit. A number of the Company's competitors are divisions
or subsidiaries of larger companies with significantly greater financial,
marketing, managerial and other resources than those of the Company. The Company
believes that the principal competitive factors affecting its core proprietary
equipment business are price, performance, delivery, breadth of product line,
product availability, experience and customer support. The Company believes that
the principal areas of competition for its high temperature furnace sales
segment are price, quality, delivery, skill and experience in developing
specialized equipment aimed at a customer's specific materials requirement. The
Company believes that the principal areas
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<PAGE>
of competition for its toll processing operations are the ability to reliably
meet the customer's quality specification and program requirements, including
volume and price considerations.
The Company's direct competitors that manufacture high temperature
furnaces include Consarc, Seico Warwick, Chuga Ru, Ipsen GMBH, AVS, FCT,
Fujidempa, Abar Ipsen Harper Electric Furnace Co. and Textron. The Company's
competitors in providing toll processing services include Zoltek Companies, Inc.
There can be no assurance that developments by existing or future
competitors will not render the Company's products or technologies
noncompetitive or that the Company will be able to keep pace with new
technological developments. In addition, the Company's customers could decide to
vertically integrate their operations and perform for themselves some or all of
the functions performed by the Company.
EMPLOYEES
As of April 30, 1996, the Company had 156 full-time employees,
including 18 employees of BAM. Of these, 46 are engaged in manufacturing and
technical services, 13 in marketing and sales and 18 in administrative
functions.
The production employees at the Easton, Pennsylvania facility (79
persons) are represented by their own bargaining unit called The Bethlehem
Corporation Employees Association. A three-year labor contract was ratified with
this Association on July 23, 1994 and expires on July 22, 1997. The employees at
the Knoxville, Tennessee facility are not represented by any collective
bargaining organization. The Company believes that its relations with its
employees are good.
ENVIRONMENTAL IMPACT AND REGULATION
The operations at the Company's Knoxville, Tennessee plant utilize fume
destruction and scrubbing of various exhaust streams, designed to comply with
applicable laws and regulations. The plant produces air emissions that are
regulated and permitted by Knox County, Tennessee, Department of Air Pollution
Control (the "DOAPC"). Management believes that the plant is currently in
compliance with its permit and the conditions set forth therein. The Company has
applied to the DOAPC for additional permits necessary to expand its operations
to allow increased carbon processing, chlorine purification and the operation of
a second afterburner. These permits are currently pending with the DOAPC.
The Company believes that compliance by its operations with applicable
environmental regulations will not have a material effect upon the Company's
future capital expenditure requirements, results of operations or competitive
position. There can be no assurance, however, as to the effect of future changes
in federal, state and county environmental laws or regulations on the Company's
results of operations or financial condition.
GOVERNMENT REGULATION
The Company is not aware of a need for government approval of any
principal products. Existing governmental regulations do not have a significant
effect on the business of the Company. In addition, government regulations that
are probable of enactment are not anticipated to have any material effect.
PROPERTIES
The Company operates from two properties, one in Easton, Pennsylvania
and one in Knoxville, Tennessee.
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<PAGE>
The Company owns a complex on 29 acres consisting of four major heavy
manufacturing buildings, a laboratory, a two-story office building,
miscellaneous storage and service buildings and a one-story office building
located near the City of Easton in Palmer Township, Northampton County,
Pennsylvania. The facility is a totally integrated production facility,
conducting engineering, fabrication, forming, machining, assembly, heat
treating, finishing and testing. The machine and assembly floor area is 100,000
square feet and is serviced by a 70 ton lifting capacity crane. Complete
shipping facilities are available by truck with easy access to major interstate
systems. The Company is currently in the process of completing plans for
renovation of its one-story office building and laboratory and upgrading roofs
on several of its manufacturing buildings. Once that renovation is complete,
management believes that its Easton facilities will be in satisfactory condition
and adequate for its present operations.
As of April 30, 1996, the Company's Easton facilities were subject to a
first mortgage loan, a second lien created as a result of a legal settlement,
and a third lien securing a line of credit and term loan facility.
BAM leases a 33,600 square foot manufacturing and office building in
Knoxville, Tennessee for capital equipment manufacturing, toll processing and
related administrative services and marketing. The facility is equipped with
several furnace systems with capabilities of firing in excess of 3000(degree)C.
It is located in an industrial park with excellent access to major interstate
highways and a modern airport. The lease expires September 30, 2000, unless two
options, each for an additional three-year term, are exercised by BAM. The
Knoxville lease has a monthly base rent of $8,317.46. The Company believes this
facility is suitable and adequate for its present operations there. The Company
is a guarantor of payment on this lease.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings, nor to
the knowledge of the Company, are any material legal proceedings threatened.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table and paragraphs below identify the directors and
executive officers of the Company and set forth their ages, positions with the
Company and their principal occupations during the preceding five years:
NAME AGE POSITION(S)
---- --- -----------
Salvatore J. Zizza 50 Chairman of the Board
Alan H. Silverstein 47 President, Chief Executive Officer
and Director
Antoinette L. Martin 38 Vice President and Chief Financial and
Chief Accounting Officer
Anthony Chiarella 47 Vice President of Manufacturing
Clarence T. Lind 59 Vice President of Sales, Marketing
& Technology
Linda J. Wright 46 Vice President of Administration
Harold Bogatz 57 Director and Secretary
Ronald H. Gale 45 Director
93041.9 - 05/14/96
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<PAGE>
NAME AGE POSITION(S)
---- --- -----------
Jan P. Gale 41 Director
James L. Leuthe 54 Director
O. Karl Dieckman 82 Director
B. Ord Houston 82 Director
Robert F. Bacigalupo 65 Honorary Director
SALVATORE J. ZIZZA has served as Chairman of the Board of the Company
since December 1995. Mr. Zizza is also Chairman of The Lehigh Group, a public
company that is listed on the New York Stock Exchange, which has a subsidiary
engaged in the distribution of electrical products and until 1991 included major
interior construction, asbestos abatement and heavy equipment manufacturing.
ALAN H. SILVERSTEIN has served as President and Chief Executive Officer
of the Company since December 1995. Mr. Silverstein served as President and
Chief Operating Officer of the Company from February 1994 to November 1995. From
1991 to present, Mr. Silverstein has served as President of Earth Environmental
Services, Inc., a presently inactive solid waste remediation firm and developer
of solid waste co- generation projects. From July 1992 to February 1994, Mr.
Silverstein served as President of Universal Envirogenics, Inc., a rebuilder of
industrial gas plants.
ANTOINETTE L. MARTIN has served as Vice President and Chief Financial
Officer of the Company since October 1994. Ms. Martin served as Acting Treasurer
of the Company from January to September 1994; Accounting Manager of the Company
from June 1988 to February 1992 and Controller of the Company since February
1992.
ANTHONY CHIARELLA has served as Vice President of Manufacturing of the
Company since October 1994. Mr. Chiarella served as Plant Manager of the Company
from January 1994 to September 1994 and was consultant to the Company from
November to December 1993. Formerly, Mr. Chiarella was employed by DeDietrich
USA Inc., from June 1987 to September 1993 as operations manager, plant manager
and Vice President of Operations.
CLARENCE T. LIND has served as Vice President of Sales, Marketing and
Technology of the Company since December 1995. Mr. Lind served as manager of
sales and marketing of the Company from June to December 1995. Formerly, Mr.
Lind was employed by Hull Corporation from 1986 to 1995 as Vice President of
Sales and Marketing.
LINDA J. WRIGHT has served as Vice President of Administration of the
Company since December 1995. Ms. Wright served as an executive of the Company
with responsibility for administration and acquisitions from June 1995 to
December 1995. Formerly, Ms. Wright was employed by Ryan McGinn, Inc., a
Washington, D.C. public affairs firm, from 1991 to June 1995 as Vice President
and by Bankstar, NA as President and CEO from 1988 to 1990.
HAROLD BOGATZ has served as Director of the Company since December
1995. Mr. Bogatz has been principally employed as Vice President and General
Counsel of UPE since 1987.
RONALD H. GALE has served as Director of the Company since 1990. Mr.
Gale has been principally employed as President and Chief Executive Officer of
UPE, an international supplier of complete process plants
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<PAGE>
and equipment and manufacturer of new equipment in the United States and Europe,
since 1978. Ronald H. Gale and Jan P. Gale are brothers.
JAN P. GALE has served as Director of the Company since 1991. Mr. Gale
has been principally employed since 1978 as Vice President of UPE. Ronald H.
Gale and Jan P. Gale are brothers.
JAMES L. LEUTHE served as Chairman of the Board of Directors from 1977
until 1995; President and Chief Executive Officer of the Company from February
1979 to November 1983; Chief Executive Officer from November 1983 to December
1995, and has served as Director since 1976. Mr. Leuthe has served as Chairman
of the Board of First Lehigh Corporation, a bank holding company, since 1982.
O. KARL DIECKMANN has served as Director of the Company since 1960.
Formerly, Mr. Dieckmann was an investment manager and consultant, and has been
retired for longer than the past five years.
B. ORD HOUSTON has served as Director of the Company since 1976 and
served as Secretary of the Company from June 1983 until 1995. Mr. Houston has
been retired for longer than the last five years. Previously, Mr. Houston held
various positions with the Company since 1966, most recently as Executive Vice
President.
ROBERT F. BACIGALUPO served as a Director of the Company from 1984 to
1995. Following his resignation as Director, the Executive Committee of the
Board of Directors designated Mr. Bacigalupo Honorary Director in recognition of
his many years of service as a director. Mr. Bacigalupo will serve in such
capacity as an advisor to the Board of Directors. He has been the owner of West
Town Mortuary, a funeral home, since 1949 and a director of Maywood Proviso
State Bank since 1953.
COMPENSATION OF DIRECTORS
Directors are not compensated for their services as a director but are
entitled to reimbursement of expenses incurred in connection with their
attendance at all meetings.
The Company maintains the Directors Option Plan for directors. Under
the Directors Option Plan: (i) each person who was a director of the Company on
March 21, 1991 received an option for 10,000 shares under the Directors Option
Plan and (ii) each individual who became a director of the Company after March
21, 1991 and prior to December 12, 1995 was granted an option for 10,000 shares.
The exercise price of each option granted under the Directors Option Plan is the
greater of $3.15 per share or 100% of the fair market value of a share of the
Company's Common Stock on the date the option is granted. No option granted
under the Directors Option Plan may be exercised during the six months after its
grant; thereafter, the option becomes exercisable in full. Options are not
assignable. No option may be exercised after six years from the date of grant.
EXECUTIVE COMPENSATION TABLE
The following table summarizes the compensation paid or accrued by the
Company for services rendered during the years ended December 31, 1992 and 1993,
during the five-month transition period ended May 31, 1994 and during the fiscal
year ended May 31, 1995 to the Company's Chief Executive Officer and to each of
the Company's executive officers whose total salary and bonus exceeded $100,000
during the fiscal year ended May 31, 1995 (the "Named Executive Officers").
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Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
-------------------------------------- ------------------------------
Name and Other Annual Stock Option All Other
Principal Position Year Salary Bonus Compensation(s) Awards Compensation(1)
- --------------------- -------- -------- --------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
James L. Leuthe 1995 -- -- -- -- $672
Chairman and Chief 1994(3) -- -- -- -- 280
Executive Officer(2) 1993 -- -- -- -- 672
1992 $2,616 -- $8,387(4) -- 672
Alan H. Silverstein 1995 110,000 30,000 5,472(4) 250,000 11,925
President and Chief 1994(3) 36,667 - 1,824(4) 10,000 224
Executive Officer(5)
</TABLE>
(1) Represents life insurance premiums paid by the Company.
(2) Mr. Leuthe was not compensated for his services during the Company's
fiscal year ended December 31, 1993, the transition period ended May
31, 1994 or the fiscal year ended May 31, 1995. Mr. Leuthe resigned as
Chairman of the Board and Chief Executive Officer on December 12, 1995.
(3) Includes compensation received during the transition period January 1
to May 31, 1994.
(4) Includes lease and insurance costs paid by the Company with respect to
use of an automobile.
(5) Mr. Silverstein was elected President and Chief Operating Officer of
the Company in February 1994. Prior to that time, Mr. Silverstein
served as a consultant to the Company. Mr. Silverstein was appointed
Chief Executive Officer of the Company on December 12, 1995.
EMPLOYMENT AND OTHER AGREEMENTS
Mr. Alan Silverstein, President and Chief Executive Officer of the
Company is employed pursuant to an agreement (the "Employment Agreement") dated
February 1, 1994. The Employment Agreement provides for a five year term, with
automatic renewal for successive terms of two years, subject to a mutual right,
exercisable within 120 days prior to the expiration of any term, not to renew
the Employment Agreement. The salary paid to Mr. Silverstein for the first year
under the Employment Agreement is $110,000, increasing to $165,000 in the fifth
year. Mr. Silverstein is entitled to a quarterly bonus based on the earnings of
the Company, with a minimum guaranteed bonus for the first 18 months of $30,000.
The Company and Salvatore J. Zizza, Chairman of the Board of the
Company, are parties to an agreement under which Mr. Zizza renders certain
financial advisory services, including those relating to proposed mergers and
acquisitions and equity and debt financing, and relations with the financial
community and investors. Mr. Zizza receives compensation in the amount of
$60,000 per annum.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors and persons who own more than 10%
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Commission. Officers, directors and
greater then 10% shareholders are required by the Commission's regulations to
furnish the Company with copies of all Section 16(a) forms they file.
The Form 3 Initial Statement of Beneficial Ownership of Securities for
each of Anthony Chiarella and Antoinette L. Martin was filed late. Both Mr.
Chiarella and Ms. Martin became Reporting Persons on September 29, 1994 and the
Form 3 for each of them was filed on January 10, 1996.
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One Form 4 Statement of Change in Beneficial Ownership of Securities
for Alan H. Silverstein relating to the grant of options to purchase 10,000
shares to Mr. Silverstein pursuant to the Directors Stock Option Plan was filed
late. Mr. Silverstein was granted the options on April 12, 1994 and the Form 4
was filed on January 10, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning options granted
during the fiscal year ended May 31, 1995 to the Named Executive Officers.
<TABLE>
<CAPTION>
Number of
Securities Percentage of Total Per Share
Underlying Options Granted to Exercise
Name Options Granted Employees Price Expiration Date
- ----------------------------- ----------------- -------------------- ------------- ----------------------
<S> <C> <C> <C> <C>
Alan H. Silverstein 250,000 100.0% $0.9375 December 29, 2004
</TABLE>
AGGREGATED FISCAL YEAR-END OPTIONS
The following table sets forth certain information regarding
unexercised stock options held by each of the Named Executive Officers as of May
31, 1995. No stock options were exercised by any such officer during the fiscal
year ended May 31, 1995.
Aggregated Fiscal Year-End Option Values
Number of Value of Unexercised in-
Unexercised Options the-Money Options at
at May 31, 1995 May 31, 1995 ($)
Exercisable/ Exercisable/
NAME Unexercisable Unexercisable
- ---- --------------------- ------------------------
James L. Leuthe 10,000/0 0/0
Alan H. Silverstein 10,000/250,000 0/296,875
LONG-TERM INCENTIVE AND PENSION PLANS
The Company does not have any long-term incentive or defined benefit
pension plans in which directors or executive officers participate.
STOCK OPTION PLANS
1989 EQUITY INCENTIVE OPTION PLAN
The Company's 1989 Equity Incentive Plan (the "1989 Equity Incentive
Plan") provides for the granting of non-qualified and incentive stock options
for up to 150,000 shares of the Common Stock (or the number and kind of shares
of stock or other securities which are substituted for those shares or to which
those shares are adjusted by reason of a reclassification, recapitalization,
merger, consolidation, reorganization, issuance of warrants or rights, stock
dividend, stock split or reverse stock split, combination or exchange of shares,
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<PAGE>
repurchase of shares, change in corporate structure or otherwise) to certain
employees and consultants (together, the "Employees") of the Company and its
subsidiaries. Incentive options are intended to qualify as options described in
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). The
Equity Incentive Plan is administered by the Board of Directors or a committee
thereof. All Employees, as identified by the Board of Directors, are eligible to
participate in the Equity Incentive Plan. The Board of Directors discontinued
the grants of options under the Equity Incentive Plan upon adoption of the 1994
Stock Option Plan (as defined below). As of the date hereof, options to purchase
an aggregate of 25,000 shares of Common Stock were still exercisable pursuant to
the Equity Incentive Plan.
DIRECTORS OPTION PLAN
Pursuant to the Company's Directors Option Plan (the "Directors Option
Plan"), options may be granted to directors and consultants of the Company or
any subsidiary of the Company. As of February 29, 1996, options to purchase
100,000 shares of Common Stock were outstanding under the Directors Option Plan
and no options had been exercised. The Directors Option Plan is administered by
a committee of outside directors appointed by the Board of Directors (the
"Committee"). The Committee has the power to interpret the Directors Option
Plan, the options granted thereunder and to adopt rules for the administration,
interpretation and application of the Directors Option Plan as are consistent
therewith and to interpret, amend or revoke any such rules. The Committee does
not have any discretion to determine who will be granted options or to determine
the number of options, the exercise price of options or the timing of the grant
of options to be granted to any Director. Members of the Committee shall not
receive any compensation for their services as members, but all expenses and
liabilities they incur in connection with the administration of the Directors
Option Plan shall be borne by the Company.
Each director as of March 21, 1991 and each person who became a
director after March 21, 1991 and before December 12, 1995 was granted an option
to purchase 10,000 shares of Common Stock at an exercise price of $3.15 per
share. No option is exercisable in whole or in part during the six months after
the option is granted. Each Option shall terminate upon the expiration of six
years from the date the Option was granted; except that, a Director's Option
shall terminate immediately if said Director is removed from the Board (A) by
action of the shareholders of the Company or the Board in accordance with the
Company's By-laws or applicable law, (B) by a court of competent jurisdiction,
or (C) by operation of law, in any such case where "cause" is the express reason
for such removal.
1994 STOCK OPTION PLAN
The Company's 1994 Stock Option Plan (the "1994 Stock Option Plan")
provides for the granting of non-qualified and incentive stock options and stock
appreciation rights for up to 400,000 shares of the Common Stock (or the number
and kind of shares of stock or other securities which are substituted for those
shares or to which those shares are adjusted by reason of a reclassification,
recapitalization, merger, consolidation, reorganization, issuance of warrants or
rights, stock dividend, stock split or reverse stock split, combination or
exchange of shares, repurchase of shares, change in corporate structure or
otherwise) to certain officers, non-employee directors and key employees
(collectively, the "Key Employees") of the Company and its subsidiaries whose
substantial contributions are essential to the continued growth and success of
the Company's business. Incentive options are intended to qualify as options
described in Section 422 of the Code. The 1994 Stock Option Plan is administered
by the Committee. All Key Employees, as identified by the Committee, are
eligible to participate in the 1994 Stock Option Plan, subject to the
Committee's discretion to designate Key Employees who are to receive Options. As
of the date hereof, approximately 15 Key Employees are eligible to participate
in the 1994 Stock Option Plan. As of April 1, 1996, Options to purchase an
aggregate of 400,000 shares of Common Stock had been granted to Key Employees of
the Company.
-40-
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of April 30, 1996 by (i)
each person who is known by the Company to be the beneficial owner of more than
5% of the Company's Common Stock, (ii) each Named Executive Officer and each
director and (iii) all directors, and executive officers as a group. Except as
otherwise noted, each person maintains a business address at the Company's
address and has sole voting and investment power over the shares shown as
beneficially owned.
<TABLE>
<CAPTION>
Percent of
Name and Address of Beneficial Owner Shares Owned Beneficially Outstanding Shares
- ----------------------------------------- --------------------------------- ------------------------
<S> <C> <C>
James L. Leuthe 224,098(1) 11.5%
Universal Process 1,831,600(2)(3)(4)(5) 53.7
Equipment, Inc.
P.O. Box 338
Roosevelt, NJ 08555
Alan H. Silverstein 93,334(7) 4.6
Salvatore J. Zizza 3,334(8) *
O. Karl Dieckmann 42,853(6) 2.2
Ronald H. Gale 1,913,767(6)(9) 56.3
Jan Gale 1,911,767(6)(9) 56.2
B. Ord Houston 20,031(6) *
Harold Bogatz 3,334(8) *
Antoinette L. Martin -- *
Anthony Chiarella -- *
Clarence T. Lind 4,000 *
Linda J. Wright -- *
All directors and executive officers as a 2,384,918 67.4%
group (12 persons)
</TABLE>
- ----------------
(1) Of this total, 52,281 shares are owned by Nikki, Inc., a corporation in
which Mr. Leuthe is an officer, director and the sole stockholder,
161,343 shares are owned by Mr. Leuthe, 10,000 shares are purchasable
by Mr. Leuthe upon exercise of options granted under the 1991 Directors
Option Plan and 167 are purchasable upon exercise of options granted
under the 1994 Stock Option Plan. This total does not include 640
shares owned by Mr. Leuthe's children, of which he disclaims beneficial
ownership.
(2) Includes 1,450,000 shares issuable pursuant to an option granted to
Universal Process Equipment, Inc. by the Company on December 22, 1993.
-41-
<PAGE>
(3) According to information provided to the Company by UPE, Ronald H. Gale
and Jan Gale are officers, directors and principal stockholders of UPE,
and may be deemed to beneficially own the shares owned by UPE. In
addition to shares they beneficially own through UPE, (i) Ronald H.
Gale individually owns 72,000 shares of Common Stock and has the right
to purchase 10,000 shares upon the exercise of options granted under
the Directors Option Plan and options to purchase 167 shares granted
pursuant to the 1994 Stock Option Plan and (ii) Jan Gale individually
owns 70,000 shares and has the right to purchase 10,000 shares upon the
exercise of options granted under the 1991 Directors Option Plan and
options to purchase 167 shares granted pursuant to the 1994 Stock
Option Plan.
(4) In addition to the Common Stock currently owned by UPE, the Board of
Directors agreed to issue 350,000 shares of Common Stock to UPE
subsequent to the Record Date in consideration for an ownership
interest in certain resale inventory. These shares will not be issued
prior to the Record Date.
(5) Information obtained from Amendment No. 1 to Schedule 13D which was
filed with the Securities and Exchange Commission on or about December
23, 1993.
(6) Includes 10,000 shares issuable pursuant to options exercisable within
60 days of the date hereof pursuant to the terms of the 1991 Directors
Option Plan and options to purchase 167 shares granted pursuant to the
1994 Stock Option Plan.
(7) Consists of 83,334 shares issuable pursuant to options granted under
the 1994 Stock Option Plan and 10,000 shares issueable pursuant to
options granted under the Directors Option Plan exercisable within 60
days of the date hereof.
(8) Consists of shares issuable pursuant to options exercisable within 60
days of the date hereof pursuant to the terms of the 1994 Stock Option
Plan.
(9) Includes 1,831,600 shares beneficially owned by UPE, in which the
individual is an officer, director and principal shareholder.
CERTAIN TRANSACTIONS
Ronald H. Gale and Jan Gale are directors and stockholders of the
Company and are officers, directors and principal stockholders of UPE, a
corporation which is a stockholder of the Company. UPE and/or Ronald H. Gale
and/or Jan Gale are also majority stockholders or otherwise affiliated with
other companies that engage in transactions with the Company. UPE and related
entities purchased processing equipment manufactured by the Company as well as
utilized the Company's remanufacturing services. The approximate total revenues
derived from sales to UPE and related parties were $368,000 for the nine month
period ended February 1996, $2.4 million for the fiscal year ended May 31, 1995,
$290,000 for the transition period from January to May 1994 and $740,000 for the
fiscal year ended December 31, 1993. The terms of such sales were at least as
favorable to the Company as could have been obtained from unaffiliated third
parties.
On December 22, 1993, UPE was granted 300,000 shares of the Company's
Common Stock and an option to purchase an additional 1,450,000 shares pursuant
to an agreement (the "UPE Agreement") between the Company and UPE. Such stock
was granted in consideration of UPE's (i) services in structuring and
negotiating a settlement agreement among The Harrisburg Authority
("Harrisburg"), the Company and UPE with respect to a judgment in the amount of
$2,127,071 which Harrisburg had obtained against the Company; (ii) payments on
behalf of the Company to Harrisburg under the settlement agreement; (iii)
providing a guaranty of and surety for the Company's full and timely payment to
Harrisburg of $650,000 in specified installments; and (iv) granting to
Harrisburg security interests in certain equipment held for sale by UPE and in a
percentage of the proceeds from the sale of such equipment in the ordinary
course of UPE's business.
Beginning in July, 1993 through January, 1994, Alan H. Silverstein was
retained as a consultant to the Company. In that capacity he played a key
advisory role in the structure and negotiation of the final settlement agreement
with the Harrisburg Authority and the resolution of several other potential
litigation matters. Mr. Silverstein was paid $69,939 in consulting fees and
expenses for services during that time.
-42-
<PAGE>
On March 26, 1996, the Company issued an option to purchase 350,000
shares of Common Stock to UPE. The option is exercisable beginning October 1,
1996 for a period of ten years from the date of the grant at an exercise price
of $1.8125. Such option was issued in consideration of guarantees of new sources
of financing from the CIT Group and Sterling Commercial Capital in July 1995.
The Board of Directors has agreed to issue 350,000 shares of Common
Stock to UPE in consideration for an ownership interest in certain resale
inventory from UPE to the Company. The terms of this transaction are currently
being finalized. These shares will not be issued prior to the Record Date.
DESCRIPTION OF CAPITAL STOCK
The following summary description of the capital stock of the Company
does not purport to be complete and is qualified in its entirety by reference to
the Company's Amended and Restated Articles of Incorporation, a copy of which is
filed as an exhibit to the Registration Statement of which this Prospectus is a
part and Pennsylvania corporate law.
AUTHORIZED AND OUTSTANDING STOCK
The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, no par value and 5,000,000 shares of preferred stock, no par value
("Preferred Stock"). As of April 30, 1996, there were 1,938,520 shares of Common
Stock outstanding and no shares of Preferred Stock were outstanding. In
addition, options and warrants to purchase 2,748,000 shares were outstanding as
of that date.
COMMON STOCK
Subject to the prior rights of any series of Preferred Stock that may
from time to time be authorized and outstanding, holders of Common Stock are
entitled to receive dividends out of funds legally available therefor when, as
and if declared by the Board of Directors and to receive pro rata the net assets
of the Company legally available for distribution upon liquidation or
dissolution. Holders of Common Stock are entitled to one vote for each share of
Common Stock held on each matter submitted to a vote of shareholders, including
the election of directors. All outstanding shares of Common Stock are fully paid
and nonassessable. Neither the Common Stock, nor any other class of securities
of the Company, has any preemptive rights.
PREFERRED STOCK
The Board of Directors has the authority to issue the Preferred Stock
in one or more classes or series and to fix the voting powers, preferences and
relative participating, optional or other special rights, without any further
vote or action by the shareholders. The ability of the Board of Directors to
issue Preferred Stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from acquiring, a majority of the outstanding voting stock of the Company. The
Company has no current plans to issue any of the Preferred Stock.
COMMON STOCK OUTSTANDING AFTER RIGHTS OFFERING
Approximately 1,356,964 shares of Common Stock will be issued in
connection with the Rights Offering assuming exercise of all Rights. Based on
the 1,938,520 shares of Common Stock outstanding as of April 30, 1996 the
issuance of such shares pursuant to the Rights Offering would result (on a pro
forma basis as of such date) in a 70% increase in the amount of outstanding
Common Shares.
-43-
<PAGE>
The outstanding shares of the Common Stock are listed on the AMEX under
the symbol "BET."
WARRANTS AND OPTIONS
In addition to options to purchase Common Stock issued pursuant to the
1989 Equity Incentive Plan, the Directors Stock Option Plan and the 1994 Stock
Option Plan, as of April 30, 1996, there were outstanding warrants and options
to purchase 2,223,000 shares of Common Stock. The warrants and options are
exercisable as follows:
Warrants or Per Share
Options EXERCISABLE PRICE EXPIRATION DATE
- --------------- ----------------- ---------------
450,000 $.3333 11/01/99
1,000,000 .7500 11/01/99
350,000 1.8125 03/25/06
50,000 1.8700 07/14/99
40,000 1.8700 07/12/02
178,000 1.8125 03/25/06
125,000 1.8125 03/25/06
25,000 2.1875 02/20/06
5,000 2.8175 02/20/06
Included in the foregoing are warrants and options issued to members of
the Board of Directors of the Company. An aggregate of 2,223,000 shares of
Common Stock is issuable upon the exercise of such warrants and options, with
exercise prices ranging from $.333 to $2.1875 per share.
REGISTRATION RIGHTS
Following this offering, the holders of 50,000 shares of Common Stock
and the holders of warrants and options to purchase 1,890,000 shares of Common
Stock, upon the exercise of such warrants or options (collectively, the
"Registrable Shares") will have certain "piggy-back" registration rights to
register those shares for sale to the public under the Securities Act. In the
event the Company proposes to register any of its shares of Common Stock under
the Securities Act, the holders of Registrable Shares are entitled to require
the Company to include all or a portion of their Registrable Shares in such
registration.
PENNSYLVANIA ANTITAKEOVER LAWS
Various provisions of the Pennsylvania Business Corporation Law (the
"BCL"), under which the Company was organized, generally make "hostile"
takeovers of Pennsylvania corporation more difficult by granting certain rights
to non-interested shareholders in certain "change of control" situations by
permitting such shareholders to demand payment from a 20% controlling
shareholder of the "fair value" of such demanding shareholders' shares in cash.
Such provisions may make more difficult the removal of management. The BCL also,
in certain circumstances, prohibits mergers and other "business combinations"
between the Company and an "interested shareholder" (or its affiliate) unless,
among other things, (i) either acquisition of such person's
-44-
<PAGE>
20% interest or the business combination is approved by the Company's Board of
Directors prior to the date such "interested shareholder" acquired its 20%
interest or (ii) if, among other requirements, the business combination is
approved by a majority of non-interested shareholders at least three months
after such person acquired 80% of the outstanding voting stock and the
consideration paid to the non-interested shareholders in such a transaction
meets certain minimum conditions.
Effective April 27, 1990, certain additional subchapters to the BCL
were adopted. Generally, these new subchapters make hostile takeovers even more
difficult by providing that under certain circumstances, (i) "control shares"
lose their voting rights until such rights are restored by a majority vote of
all "disinterested shares" and "voting shares," and (ii) "control shares" may be
redeemed by the target corporation within 24 months after the "control share
acquisition" if, among other things, the acquiring person has not timely
requested a shareholder vote on whether the "control shares" should be accorded
voting rights. Further, an anti-greenmail provision provides, among other
things, that any profits earned from any sale of shares within two years before
or 18 months after a person has acquired or expressed the intent to acquire 20%
of the voting shares or an intention to acquire control (a "controlling person")
are recoverable by the corporation if the shares were acquired within two years
before or 18 months after the acquirer became a controlling person.
The additional subchapters, in certain circumstances, also provide for
severance compensation to employees terminated by a new controlling person, as
well as mandatory preservation of certain labor agreements. They also give the
Board of Directors wider discretion in dealing with hostile takeover attempts.
In addition, Section 1721 of the BCL has been amended through the
addition of provisions that entitle the directors of a corporation, in making
decisions concerning takeovers or any other matters, to the extent they deem
appropriate, to consider, among other things, (i) the effects of any proposed
transaction upon any or all groups affected by such action, including, among
others, shareholders, employees, suppliers, customers and creditors, (ii) the
short-term and long-term interest of such corporation, and (iii) the resources,
intent and conduct of the person seeking control.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is
American Stock Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 3,295,484
shares of Common Stock outstanding, assuming exercise in full of the Rights. All
of the 1,356,964 shares offered hereby will be freely tradeable unless acquired
by "affiliates" of the Company as defined in Rule 144 promulgated under the
Securities Act of 1933, as amended (the "Securities Act"). Of the remaining
outstanding shares, 532,500 shares will be "restricted" securities as defined in
Rule 144 and may not be sold unless they are registered under the Securities Act
or are sold pursuant to an exemption from registration, including an exemption
contained in Rule 144. Of such shares ___________ are eligible for sale or will
be eligible for sale within 90 days after the date of this Prospectus.
In general, under Rule 144 as currently in effect, any person (or
persons whose shares are aggregated) who has beneficially owned shares for at
least two years or, except for an affiliate, who beneficially owns shares as to
which a minimum of two years has elapsed since the date of acquisition thereof
from the Company or an affiliate of the Company, is entitled to sell, within any
three-month period, a number of such shares that does not exceed the greater of
1% of the then outstanding shares of the Company's Common Stock or the average
weekly trading volume in the Company's Common Stock during the four calendar
weeks preceding such sale. A person (or persons whose shares are aggregated) who
is not deemed an affiliate of the Company at the time
-45-
<PAGE>
of sale or during the preceding three months and who beneficially owns shares as
to which a minimum of three years has elapsed since the date of acquisition
thereof from the Company or an affiliate of the Company is entitled to sell such
shares under Rule 144 without regard to the limitations described above.
In addition, the holders of 50,000 shares of Common Stock and the
holders of 1,890,000 warrants and options to purchase Common Stock, upon the
exercise of such warrants or options have certain rights to require the Company
to register the sale of such shares under the Securities Act. No assurance can
be given as to the effect, if any, that sales of shares of Common Stock or the
availability of such shares for sale will have on the market prices prevailing
from time to time. Nevertheless, the possibility that substantial amounts of
Common Stock may be sold in the public market may adversely affect prevailing
market prices for the Common Stock and could impair the Company's ability to
raise capital through the sale of its equity securities. See "Description of
Capital Stock--Registration Rights."
SUBSCRIPTION AGENT
The Company has appointed American Stock Transfer & Trust Company as
Subscription Agent for the Rights Offering. The Subscription Agent's address,
which is the address to which the Subscription Certificates and payment of the
Subscription Price (other than wire transfers) should be delivered, as well as
the address to which any Notice of Guaranteed Delivery must be delivered, is:
American Stock Transfer
& Trust Company
40 Wall Street
New York, New York 10005
Telephone: ____________________
Attention: ____________________
The Company will pay the fees and expenses of the Subscription Agent,
and has also agreed to indemnify the Subscription Agent from certain liabilities
in connection with the Rights Offering.
INFORMATION AGENT
The Company has appointed ___________________ as Information Agent for
the Rights Offering. Any questions or requests for additional copies of this
Prospectus, the Instructions or the Notice of Guaranteed Delivery may be
directed to the Information Agent at the telephone number and address below.
The Company will pay the fees and expenses of the Information Agent and
has also agreed to indemnify the Information Agent from certain liabilities in
connection with the Rights Offering.
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<PAGE>
LEGAL MATTERS
The validity of the authorization and issuance of the securities
offered hereby is being passed upon by Olshan Grundman Frome & Rosenzweig LLP,
counsel to the Company.
EXPERTS
The Company's consolidated balance sheets for the year ended May 31,
1995 and the consolidated statements of operations, common shareholders' equity,
and cash flows for the year ended May 31, 1995, the five months ended May 31,
1994 and for the year ended December 31, 1993 included in this Prospectus, have
been incorporated herein in reliance on the report of Sobel & Co. independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Amended and Restated Articles of Incorporation and Bylaws of the
Company provide that the Company may indemnify to the fullest extent permitted
by Pennsylvania law any person whom it may indemnify thereunder, including
directors, officers, employees and agents of the Company.
The Company has also agreed to indemnify each director and executive
officer pursuant to an Indemnification Agreement with each such director and
executive officer from and against any and all expenses, losses, claims, damages
and liability incurred by such director or executive officer for or as a result
of action taken or not taken while such director or executive officer was acting
in his capacity as a director, officer, employee or agent of the Company, to the
fullest extent permitted under Federal and Pennsylvania law.
The Company has obtained a directors and officers insurance and company
reimbursement policy in the amount of $1,000,000. The policy insures directors
and officers against unindemnified loss arising from certain wrongful acts in
their capacities and would reimburse the Company for such loss for which the
Company has lawfully indemnified the directors and officers.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company 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
Company 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 of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
-47-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
The Bethlehem Corporation
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Accountants...................................................................... F-
Consolidated Financial Statements:
Balance Sheets as of May 31, 1995 and February 29, 1996 (unaudited)................................. F-
Statements of Operations for the Fiscal Year Ended
December 31, 1993, the Five Months Ended May 31, 1994, the Fiscal Year Ended
May 31, 1995 and the Nine Months Ended February 29, 1996 (unaudited)......................... F-
Statements of Shareholders' Deficiency for the Fiscal Year Ended
December 31, 1993, the Five Months Ended May 31, 1994, the Fiscal Year Ended
May 31, 1995 (unaudited)..................................................................... F-
Statements of Cash Flows for the Fiscal Year Ended
December 31, 1993, the Five Months Ended May 31, 1994, the Fiscal Year Ended
May 31, 1995 and the Nine Months Ended February 29, 1996 (unaudited)......................... F-
Notes to Financial Statements....................................................................... F-
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders
The Bethlehem Corporation
We have audited the accompanying consolidated balance sheet of The Bethlehem
Corporation and Subsidiaries as of May 31, 1995, and the consolidated statements
of operations, stockholders' equity (deficiency), and cash flows for the year
ended May 31, 1995, the five months ended May 31, 1994 and the year ended
December 31, 1993. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Bethlehem Corporation and Subsidiaries as of May 31, 1995, and the consolidated
results of their operations and their cash flows for the year ended May 31,
1995, the five months ended May 31, 1994 and the year ended December 31, 1993,
in conformity with generally accepted accounting principles.
SOBEL & CO.
Certified Public Accountants
Livingston, New Jersey
August 18, 1995
F-2
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MAY 31, 1995
================================================================================
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 150,859
Accounts receivable (Net of allowance for doubtful
accounts of $203,540) 2,178,612
Accounts receivable - related parties 1,028,857
Inventories 1,502,803
Prepaid expenses and other current assets 155,711
-----------
Total Current Assets 5,016,842
-----------
PROPERTY, PLANT AND EQUIPMENT, At cost 8,538,631
Less accumulated depreciation and amortization (6,643,283)
-----------
Property, Plant and Equipment, Net 1,895,348
-----------
OTHER ASSETS:
Intangible pension and deferred compensation plan assets 523,569
Intangibles (net of $-0- of accumulated amortization) 125,000
Deferred financing costs 25,000
Other 83,052
-----------
Total Other Assets 756,621
-----------
$ 7,668,811
===========
================================================================================
See notes to consolidated financial statements. F-3
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BALANCE SHEET (Continued)
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Current maturities of long-term debt $ 636,411
Accounts payable 2,589,023
Accounts payable - related parties 1,365,868
Accrued liabilities 694,142
Contract billings in excess of costs and accumulated
gross profit 348,477
Commissions payable 240,198
Payroll taxes payable 615,261
State income taxes payable 103,904
-----------
Total Current Liabilities 6,593,284
-----------
OTHER LIABILITIES:
Long-term debt, net of current maturities 1,843,793
Deferred compensation and other pension liabilities 1,258,893
-----------
Total Long-Term Liabilities 3,102,686
-----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Preferred stock - authorized, 1,000,000 shares
without par value, none issued or outstanding --
Common stock - authorized, 4,000,000 shares
without par value, stated value of $.50 per share;
1,888,532 shares issued; 1,888,520 shares outstanding 944,266
Additional paid-in capital 4,594,630
Accumulated deficit (7,566,045)
-----------
(2,027,149)
Less - treasury stock, at cost, 12 shares 10
-----------
Total Stockholders' Equity (Deficiency) (2,027,159)
-----------
$ 7,668,811
===========
================================================================================
See notes to consolidated financial statements. F-4
<PAGE>
THE BETHLEHEM CORPORATION - CONSOLIDATED BALANCE SHEET
FEBRUARY 29, 1996
(IN THOUSANDS)
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................................... $ 67
Accounts receivable (Net of allowance for doubtful accounts of $42)............. 5,435
Inventories*.................................................................... 2,602
Prepaid expenses and other current assets....................................... 166
--------
Total Current Assets................................................... 8,270
PROPERTY, PLANT AND EQUIPMENT:
At cost......................................................................... 9,074
Less accumulated depreciation................................................... 6,896
-------
Net Property, Plant and Equipment...................................... 2,178
OTHER ASSETS:
Intangible pension and deferred compensation plan assets........................ 524
Intangibles..................................................................... 684
Other........................................................................... 44
-------
Total Other Assets..................................................... 1,252
TOTAL ASSETS.................................................. $11,700
*Inventories consist of the following:
Finished goods.................................................................. 1,028
Raw materials & components...................................................... 541
Work in process (Net of $196 advanced from customers)........................... 1,056
Less allowance for write down to estimated net realizable value................. (23)
-------
</TABLE>
================================================================================
See accompanying notes to consolidated interim financial statements. F-5
<PAGE>
THE BETHLEHEM CORPORATION - CONSOLIDATED BALANCE SHEET
FEBRUARY 29, 1996
(IN THOUSANDS)
(UNAUDITED)
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt............................................ $ 1,285
Accounts payable................................................................ 5,094
Accrued liabilities............................................................. 1,494
Advances on contracts in excess of costs........................................ 982
Total Current Liabilities.............................................. 8,855
Other Liabilities:
Long-term debt - net of current maturities...................................... 3,285
Deferred compensation and other pension liabilities............................. 1,216
STOCKHOLDERS' EQUITY:
Preferred stock - authorized, 5,000,000 shares without par value; none issued
or outstanding......................................................... 0
Common stock - authorized, 20,000,000 shares without par value, stated
value of $.50 per share; issued 1,938,532 shares....................... 969
Additional paid-in capital...................................................... 4,724
Accumulated deficit............................................................. (7,349)
Less treasury stock, at cost, 12 shares......................................... 0
TOTAL STOCKHOLDERS' EQUITY............................................................... (1,656)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................................... $11,700
</TABLE>
================================================================================
See accompanying notes to consolidated interim financial statements. F-6
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
Year Ended Five Months Year Ended
May 31, Ended December 31,
1995 May 31, 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES $ 14,540,591 $ 2,898,040 $ 8,368,367
COST OF GOODS SOLD 11,959,486 3,102,806 8,857,078
--------------------------------------------------------
GROSS PROFIT (LOSS) 2,581,105 (204,766) (488,711)
--------------------------------------------------------
SELLING AND ADMINISTRATIVE EXPENSES:
Selling 677,055 154,868 287,836
Administrative 1,554,818 480,365 831,269
--------------------------------------------------------
2,231,873 635,233 1,119,105
--------------------------------------------------------
Operating Income (Loss) 349,232 (839,999) (1,607,816)
--------------------------------------------------------
OTHER INCOME (EXPENSES):
Interest expense (253,940) (90,292) (235,714)
Gains on sales of equipment 72,092 -- --
Royalty income - related party 35,500 -- --
Other income - (expense) 19,709 (77) 31,515
Interest income 8,166 668 8,963
Settlement of Harrisburg Authority lawsuit -- -- (1,394,694)
Provision for legal settlements -- -- (295,000)
--------------------------------------------------------
(118,473) (89,701) (1,884,930)
--------------------------------------------------------
Income (loss) from operations before
provision for income taxes 230,759 (929,700) (3,492,746)
(PROVISION) BENEFIT FOR INCOME TAXES (1,105) (1,170) 89,562
--------------------------------------------------------
NET INCOME (LOSS) $ 229,654 $ (930,870) $ (3,403,184)
========================================================
EARNINGS (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE:
Primary $ .08 $ (.49) $ (2.13)
========================================================
Assuming full dilution $ .08 $ (.49) $ (2.13)
========================================================
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES OUTSTANDING
Primary 2,946,423 1,888,520 1,595,929
========================================================
Fully diluted 3,026,762 1,888,520 1,595,929
========================================================
</TABLE>
================================================================================
See notes to consolidated financial statements. F-7
<PAGE>
THE BETHLEHEM CORPORATION - CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED
(IN THOUSANDS)
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
February 29, February 28,
1996 1995
----------- ------------
<S> <C> <C>
NET REVENUES
Cost of Goods Sold............................................... $ 5,503 $ 3,880
Gross Profit..................................................... 4,311 3,304
--------- ----------
1,192 576
Selling and administrative expenses:
Selling.......................................................... 284 162
Administrative................................................... 553 356
--------- ----------
837 518
Operating profit.......................................................... 355 58
Other income/(Expenses):
Interest expense................................................. (167) (61)
Other Income..................................................... (64) 20
Interest Income.................................................. 4 7
------ -----------
(227) (34)
Income from operations before provision for income taxes.................. 128 24
(Provision) Benefit for income taxes...................................... 0 0
NET INCOME................................................................ $ 128 $ 24
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE:
Primary.......................................................... .041 .008
Assuming Full Dilution........................................... .041 .008
WEIGHTED AVERAGE OF COMMON SHARES
OUTSTANDING:
Primary.......................................................... 3,122,635 2,987,881
Fully Diluted.................................................... 3,122,635 2,987,881
</TABLE>
================================================================================
See accompanying notes to consolidated interim financial statements. F-8
<PAGE>
THE BETHLEHEM CORPORATION - CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED
(IN THOUSANDS)
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
February 29, February 28,
1996 1995
----------- ------------
<S> <C> <C>
NET REVENUES
Cost of Goods Sold............................................... $ 12,375 $ 10,877
Gross Profit..................................................... 9,604 9,040
--------- ----------
2,771 1,837
Selling and administrative expenses:
Selling.......................................................... 782 450
Administrative................................................... 1,430 1,079
--------- -----------
2,212 1,529
Operating profit.......................................................... 559 308
Other income/(Expenses):
Interest expense................................................. (287) (193)
Other Income..................................................... (62) 8
Interest Income.................................................. 7 21
--------- ----------
(342) (164)
Income from operations before provision for income taxes.................. 217 144
(Provision) Benefit for income taxes...................................... 0 0
NET INCOME................................................................ $ 217 $ 144
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE:
Primary.......................................................... .073 .056
Assuming Full Dilution........................................... .071 .050
WEIGHTED AVERAGE OF COMMON SHARES
OUTSTANDING:
Primary.......................................................... 2,984,280 2,581,530
Fully Diluted.................................................... 3,039,430 2,903,745
</TABLE>
================================================================================
See accompanying notes to consolidated interim financial statements. F-9
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
================================================================================
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
------------------------- Paid-In Accumulated ----------------------
Shares Amount Capital Equity (Deficit) Shares Amount Total
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 1,588,532 $794,266 $4,519,630 $(3,461,645) 12 $(10) $ 1,852,241
Issuance of Common Stock 300,000 150,000 75,000 - - - 225,000
Net Loss for the Year Ended
December 31, 1993 - - - (3,403,184) - - (3,403,184)
------------------------------------------------------------------------------------------------
Balance at December 31, 1993 1,888,532 944,266 4,594,630 (6,864,829) 12 (10) (1,325,943)
Net Loss for the Five Months
Ended May 31, 1994 - - - (930,870) - - (930,870)
------------------------------------------------------------------------------------------------
Balance at May 31, 1994 1,888,532 944,266 4,594,630 (7,795,699) 12 (10) (2,256,813)
Net Income for the Year Ended
May 31, 1995 - - - 229,654 - - 229,654
------------------------------------------------------------------------------------------------
Balance at May 31, 1995 1,888,532 $944,266 $4,594,630 $(7,566,045) 12 $(10) $(2,027,159)
================================================================================================
</TABLE>
================================================================================
See notes to consolidated financial statements. F-10
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
Year Ended Five Months Year Ended
May 31, Ended December 31,
1995 May 31, 1994 1993
---------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR):
OPERATING ACTIVITIES:
Net income (loss) $ 229,654 $ (930,870) $(3,403,184)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 287,768 116,715 303,029
Gains on sales of equipment (72,092) -- --
Accrued loss on contracts and obsolete inventory
write-offs 88,459 231,950 558,610
Gain on settlement with former legal counsel -- -- (551,784)
Loss on Harrisburg Authority settlement -- -- 1,394,694
(Increase) decrease in assets:
Accounts receivable (640,256) (222,980) 388,610
Accounts receivable - related parties (767,652) (34,493) 675,297
Inventories (426,033) (219,255) 105,578
Prepaid expenses and other current assets (40,622) (2,643) 96,288
Other assets 30,590 361 7,019
Increase (decrease) in liabilities:
Accounts payable 1,301,330 674,935 798,063
Accounts payable - related parties 1,102,321 121,353 (560,885)
Accrued liabilities (54,784) (451,091) 587,858
Billings in excess of costs (772,743) 599,105 (184,301)
Commissions payable (16,790) 165,270 7,053
Payroll taxes payable 601,183 (1,293) 12,944
State income taxes payable 1,897 -- (97,415)
Deferred compensation and pension liabilities 57,009 31,502 69,589
---------------------------------------------------
Net Cash Provided by Operating Activities 909,239 78,566 207,063
---------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (133,385) (23,972) (32,442)
Capitalization of intangible assets (125,000) -- --
Proceeds from the sales of equipment 77,792 -- --
Increase in deferred financing costs (25,000) -- --
Principal receipts on note receivable -- -- 9,052
Net decrease in certificates of deposit -- -- 55,369
---------------------------------------------------
Net Cash Provided by (Used For) Investing Activities (205,593) (23,972) 31,979
---------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt -- 168,000 --
Principal payments on long-term debt (612,912) (231,973) (520,341)
---------------------------------------------------
Net Cash Used for Financing Activities (612,912) (63,973) (520,341)
---------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 90,734 (9,379) (281,299)
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 60,125 69,504 350,803
---------------------------------------------------
CASH AND CASH EQUIVALENTS -
END OF PERIOD $ 150,859 $ 60,125 $ 69,504
===================================================
</TABLE>
================================================================================
See notes to consolidated financial statements. F-11
<PAGE>
THE BETHLEHEM CORPORATION - CONSOLIDATED STATEMENT OF CASH FLOW
NINE MONTHS ENDED
(IN THOUSANDS)
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
February 29, February 28,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows provided by (used for) operating activities.................... $(1,794) $ 707
Cash flows used for investing activities.................................. (534) (111)
Cash flows provided by (used for) financing activities.................... 2,244 (588)
-------- ------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS............................... (84) 8
Cash and cash equivalents, beginning of period............................ 151 60
Cash and cash equivalents, at end of period............................... $ 67 $ 68
</TABLE>
================================================================================
See accompanying notes to consolidated interim financial statements. F-12
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES:
- --------------------------------------------------------------------------------
The following is a summary of the significant accounting policies applied in the
preparation of the accompanying consolidated financial statements:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of The Bethlehem
Corporation and its subsidiaries (the "Company"). All intercompany transactions
and balances have been eliminated.
CHANGE IN FISCAL YEAR:
On January 1, 1994, the Company changed its fiscal year from December 31 to May
31. The Company notified the Internal Revenue Service and the Securities and
Exchange Commission of this change in advance of the May 31, 1994 year-end. As a
result, the period ended May 31, 1994 results in a short period of five months.
REVENUE RECOGNITION:
Profits on long-term contracts are recognized on the percentage-of-completion
method of accounting. Under this method, sales and profits are recorded
throughout the contract term based upon the percentage of costs incurred to date
to total estimated costs of the contract.
Short-term contracts are accounted for using the completed contract method.
Profits on short-term contracts are recorded when a contract is substantially
complete. Generally, a contract is deemed to be substantially complete when it
is shipped to a customer.
Losses on long-term and short-term contracts are recorded at the time the losses
are determined to be probable and can be reasonably estimated.
INVENTORIES:
Inventories are stated at the lower of cost (principally first-in, first-out) or
market. Inventoried costs relating to any applicable contracts are stated at the
actual production cost, including factory overhead incurred to date, reduced by
any applicable progress billings. Inventoried costs are reduced to the lower of
cost or market by charging costs in excess of estimated realizable value to cost
of goods sold.
PROPERTY, PLANT AND EQUIPMENT:
Depreciation, and amortization are provided in amounts sufficient to amortize
the cost of depreciable assets over their estimated useful lives on a
straight-line basis.
The estimated useful lives of the principal classes of assets are as follows:
Buildings 10 to 40 years
Machinery and
equipment 3 to 20 years
EARNINGS (LOSS) PER COMMON SHARE:
The computation of earnings or loss per share in each period is computed by
dividing earnings (loss) by the weighted average number of common shares
outstanding during each period. When dilutive, stock options and warrants are
included as common share equivalents using the treasury stock method. For
primary earnings per share, the Company is using the average market price for
its common stock. For fully diluted earnings per share, the Company is using the
market price at May 31, 1995 because the price was higher than the average.
Because the periods ending May 31, 1994 and December 31, 1993 reflect losses,
the Company did not assume the exercise of any options since this would result
in anti-dilution.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of financial statements, and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
================================================================================
F-13
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES: (Continued)
- --------------------------------------------------------------------------------
INCOME TAXES:
On January 1, 1993, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109 "Accounting for Income Taxes" and changed its method of
accounting for income taxes from the deferred method required under APB 11 to
the asset and liability method required under SFAS No. 109. SFAS No. 109
requires the recognition of deferred tax assets and liabilities for both the
expected future tax impact of differences between the financial statement and
tax basis of assets and liabilities, and for the expected future tax benefit to
be derived from tax loss and tax credit carryforwards. SFAS No. 109 additionally
requires the establishment of a valuation allowance to reflect the likelihood of
realization of deferred tax assets.
Temporary differences result from different book and tax methods of accounting
for contracts, depreciation, and tax deductibility differences related to
accrued bad debts, vacation, payroll, deferred compensation and legal
settlements.
CASH EQUIVALENTS:
The Company considers investments with original maturities of three months or
less to be cash equivalents.
RECLASSIFICATIONS:
Certain reclassifications have been made to the December 31, 1993 financial
statements to conform to the May 31, 1995 presentation.
ENVIRONMENTAL COSTS:
The Company is subject to certain environmental laws and regulations.
Environmental costs that relate to past or present operations are charged to
operations in the year identified.
INTANGIBLES:
The Company capitalized legal fees during the year ended May 31, 1995 related to
securing employment and non-compete agreements from persons formerly employed by
a competitor of the Company. The Company will amortize these costs over the term
of the agreements.
DEFERRED FINANCING COSTS:
The Company capitalized certain costs during the year ended May 31, 1995
relating to new financing which was secured July 1995. The Company will amortize
these costs over the term of the applicable financing.
- --------------------------------------------------------------------------------
NOTE 2 - ACCOUNTS RECEIVABLE:
- --------------------------------------------------------------------------------
Accounts receivable are comprised of the following at May 31, 1995:
Billed (net of allowance
for doubtful accounts of $203,540) $1,320,374
Unbilled 738,720
Retention on contracts 119,518
----------
$2,178,612
==========
Unbilled receivables represent costs incurred plus profits earned in excess of
revenues actually billed to customers. Unbilled receivables result from
differences between the method of financial statement revenue recognition and
the actual billing per the contracts terms. The three most common contract
billing methods are as follows:
1. Actual progress billings based on pre-established milestones,
2. Actual billings based on the Company's agreement with the respective
customer,
3. Billing when the job is shipped (completed contract method).
The accounts receivable retention balances are pursuant to the retention
provisions in long-term contracts and are due and payable to the Company upon
contract completion and/or customer acceptance of merchandise.
================================================================================
F-14
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 3 - INVENTORIES:
- --------------------------------------------------------------------------------
Inventories are comprised of the following at May 31, 1995:
Finished goods $ 438,438
Raw materials
and components 301,945
Work in process 762,420
----------
$1,502,803
==========
At May 31, 1995, the Company's finished goods inventories consist of
approximately twenty items. The Company is in the process of attempting to sell
these items and management believes no loss will be incurred upon the
disposition or sale of the finished goods inventories. While management believes
the Company is carrying the finished goods inventories at net realizable value,
no estimate can be made of a range of possible loss that is reasonably possible
should the Company be unable to sell the finished goods inventories.
Work in process is shown net of progress billings of approximately $140,000 at
May 31, 1995.
The Company provides raw material inventory valuation reserves. The changes in
the reserves amounted to write-downs of approximately $88,000 for the year ended
May 31, 1995, $38,000 for the five months ended May 31, 1994 and $436,000 for
the year ended December 31, 1993.
- --------------------------------------------------------------------------------
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT:
- --------------------------------------------------------------------------------
At May 31, 1995, property, plant and equipment consist of the following:
Land $ 348,250
Buildings 1,170,037
Machinery and equipment 6,971,543
Equipment under capital lease 48,801
----------
8,538,631
Less accumulated depreciation and amortization 6,643,283
----------
$1,895,348
==========
Depreciation and amortization expense is as follows:
<TABLE>
<CAPTION>
FIVE MONTHS YEAR ENDED
YEAR ENDED ENDED DECEMBER
MAY 31, 1995 MAY 31, 1994 31, 1993
------------------------------------------------------------------
<S> <C> <C> <C>
Depreciation of buildings, machinery
and equipment $282,965 $115,074 $282,531
Amortization of equipment
under capital leases 4,803 1,641 20,498
------------------------------------------------------------------
$287,768 $116,715 $303,029
==================================================================
</TABLE>
================================================================================
F-15
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 5 - LAND AND BUILDING HELD FOR SALE:
- --------------------------------------------------------------------------------
For the past two years, the Company attempted to sell an idle office building
with a cost of $361,375 and accumulated depreciation of $158,102. The office
building is located on land with a cost of $25,350. Subsequent to May 31, 1995,
the building was occupied by employees of corporate subsidiaries and other
tenants renting on month to month terms. As a result, the cost of the land and
building have been reclassified to property, plant and equipment.
- --------------------------------------------------------------------------------
NOTE 6 - ACCRUED LIABILITIES:
- --------------------------------------------------------------------------------
At May 31, 1995, accrued liabilities consist of the following:
Salaries and wages $290,983
Current portion of deferred compensation
and pension liabilities 222,607
Postretirement obligation (health insurance) 50,742
Provision for legal settlements 55,000
Other 74,810
--------
$694,142
========
- --------------------------------------------------------------------------------
NOTE 7 - LEASE COMMITMENTS:
- --------------------------------------------------------------------------------
The Company leases certain equipment and automobiles which have been classified
as operating leases for financial statement purposes. The following table
represents expenses under these operating leases for the respective periods:
<TABLE>
<CAPTION>
FIVE MONTHS YEAR ENDED
YEAR ENDED ENDED DECEMBER
MAY 31, 1995 MAY 31, 1994 31, 1993
------------------------------------------------------------------------
<S> <C> <C> <C>
Lease payments $11,154 $7,363 $26,535
========================================================================
</TABLE>
The future minimum lease payments on these operating leases are as follows:
YEAR ENDED MAY 31,
1996 $31,572
1997 23,287
1998 15,525
1999 7,580
2,000 3,790
-------
$81,754
=======
================================================================================
F-16
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 8 - LONG-TERM DEBT:
- --------------------------------------------------------------------------------
At May 31, 1995, long-term debt consists of the following:
Note payable - G.E. Capital (formerly ITT Commercial) $1,439,732
Note payable - Harrisburg Authority 914,288
Note payable - former corporate legal counsel 95,538
Capital lease obligations 30,646
----------
2,480,204
Less current maturities (636,411)
----------
$1,843,793
==========
NOTE PAYABLE - G.E. CAPITAL:
The Company signed a note payable with G.E. Capital (formerly ITT) in May 1990
for $3,750,000 payable over a 60 month term with monthly principal payments of
$62,500, and a final payment due May 25, 1995. Under the agreement, interest is
payable monthly at 2 7/8% over the lender's prime rate but never less than 10.5%
simple interest per annum. Substantially all of the Company's assets are pledged
as collateral for this loan.
On August 29, 1991, the Company modified its loan agreement to repay the
remaining principal balance over a revised 84 month term with monthly principal
payments of $33,482. With the exception of this modification, the provisions of
the original agreement were continued.
At May 31, 1995, the Company was four months delinquent on its payments
according to the loan agreement and in non-compliance of certain restrictive
covenants associated with its term note. However, on July 16, 1995 the Company
secured new financing and repaid the term loan which effectively eliminated the
non-compliance. (See Note 25)
NOTE PAYABLE - FORMER CORPORATE
LEGAL COUNSEL:
The Company's former legal counsel agreed during 1993 to settle obligations owed
to them by the Company for a down payment of $6,518 and a $175,000 non-interest
bearing note from the Company. The Company discounted this obligation using its
incremental borrowing rate of 10.5%. The remaining obligation on the note is
payable in 21 monthly installments of $5,000, which includes principal and
interest, through October 15, 1996. At May 31, 1995, the Company is four months
delinquent on its payments.
NOTE PAYABLE - HARRISBURG AUTHORITY:
As part of a settlement agreement between the Company and The Harrisburg
Authority (see Note 15), the Company executed a $1,200,000 note payable to the
Harrisburg Authority. The Harrisburg Authority has a second lien on the
Company's owned real estate. The note's remaining principal payment provisions
at May 31, 1995 are as follows:
1) Payable in fifty-four equal, consecutive monthly installments of
$7,258, including interest discounted at 10.5% due the first day of
each month and continuing through November 1, 1999.
2) The balance of $603,000 will be paid from 50% of the proceeds from the
sale of certain machinery or equipment included in U.P.E.'s inventory
and certain equipment co-owned by U.P.E. and the Company. U.P.E. is a
related party of the Company and agreed to serve as guarantor and
surety for the Company on this obligation. (See Note 18)
3) The settlement agreement requires principal balances referenced in 1
and 2 above which are unpaid on March 1, 1998 to accrue 3% simple
interest compounded annually through February 28, 1999. Principal
balances unpaid on March 1, 1999 through November 1, 1999 accrue 6%
simple interest compounded annually. On November 1, 1999, all unpaid
balances of principal and accrued interest are due and payable to the
Harrisburg Authority.
At May 31, 1995 long-term debt maturities are as follows:
YEAR ENDED MAY 31,
- ------------------
1996 $ 636,411
1997 496,629
1998 480,554
1999 821,354
2000 45,256
----------
$2,480,204
==========
================================================================================
F-17
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES:
- --------------------------------------------------------------------------------
As of May 31, 1995, the Company had approximate deferred tax liabilities of
$140,000 and approximate deferred tax assets of $1.4 million (assuming federal
tax rates of 15%). However, the Company has recorded a valuation allowance for
the amount by which deferred tax assets exceed deferred tax liabilities and, as
a result, the Company has not recorded any liability or asset for deferred taxes
as of May 31, 1995. For the year ended May 31, 1995, the Company has a loss for
income tax purposes of approximately $80,000. For the five months ended May 31,
1994, the Company had a loss for income tax purposes of approximately $880,000.
For the year ended December 31, 1993, the Company had a loss for income tax
purposes of approximately $1,607,000. The tax expense for the year ended May 31,
1995 and the five months ended May 31, 1994 relates to minimum taxes for the
Company and its' subsidiaries.
The Company recognized an income tax benefit for the year ended December 31,
1993 relating to a favorable settlement which reduced a 1990 tax assessment from
the State of Pennsylvania.
At May 31, 1995, the Company has approximately $5.2 million of unused federal
net operating losses and $120,000 of unused federal investment and research tax
credit carryforwards. If the net operating loss carryforwards remain unused,
they will expire during the years 2004 through 2010. If the investment and
research tax credit carryforwards remain unused, they will expire during the
years ended May 31, 1996 through 2002.
The provision for (benefit from) domestic income tax is as follows:
(IN THOUSANDS)
------------------------------------------
YEAR ENDED FIVE MONTHS YEAR ENDED
MAY 31, 1995 ENDED DECEMBER
MAY 31, 1994 31, 1993
------------------------------------------
Current
Federal $ - $ - $ -
State 1 1 (90)
------------------------------------------
1 1 (90)
------------------------------------------
Deferred
Federal - - -
State - - -
------------------------------------------
- - -
------------------------------------------
Total $ 1 $ 1 $ (90)
==========================================
================================================================================
F-18
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 10 - DEFERRED COMPENSATION PLAN:
- --------------------------------------------------------------------------------
The Company has two unfunded nonqualified deferred compensation plans for
certain employees which provide for 10-15 year payouts of annual retirement
benefits equal to 20% of the pre-retirement salary of employees. The benefits
become fully vested upon the employees' retirement from the Company. The plans
provide for benefits to be paid to beneficiaries of retirees who have passed
away and had unpaid vested benefits at the time of their death. The Company
funds the plans' annual benefit payments with proceeds from life insurance
contracts and operating cash.
PLAN 1:
The "Professional Executive Incentive Plan" is accounted for in accordance with
Accounting Principles Board (APB) Statement No. 12 at May 31, 1995. At May 31,
1995, the Company accrued $143,799 relating to its unfunded obligations. Net
periodic expense (income) related to this deferred compensation plan was as
follows:
YEAR ENDED FIVE MONTHS YEAR ENDED
MAY 31, ENDED DECEMBER
1995 MAY 31, 1994 31, 1993
---------------------------------------------------
$(4,259) $19,414 $ 36,650
===================================================
The unfunded obligations were discounted using the following discount rates:
YEAR ENDED FIVE MONTHS YEAR ENDED
MAY 31, ENDED DECEMBER
1995 MAY 31, 1994 31, 1993
---------------------------------------------------
7% 7% 7%
===================================================
PLAN 2:
The "Retirement Income Security Plan" is a noncontributory plan and covers
eligible plan participants not covered by Plan 1. During the year ended May 31,
1995, the Company notified all active employees covered by this plan that they
will no longer be eligible for the plan. Instead, the Company has agreed to fund
a portion of the employees benefit obligation through a 401(k) plan.
During 1993, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 106 which requires deferred compensation agreements to
be accounted for in accordance with FAS No. 87 when these agreements taken
together are equivalent to a postretirement income plan. Accordingly, the
Company changed its method of accounting for these agreements from APB No. 12 to
FAS No. 87 during 1993. Net periodic expense for the "Retirement Income Security
Plan" in accordance with FAS No. 87 is as follows:
FIVE MONTHS YEAR ENDED
YEAR ENDED ENDED DECEMBER
MAY 31, 1995 MAY 31, 1994 31, 1993
--------------------------------------------
Service cost $ 7,126 $ 4,870 $ 36,937
Interest
expense 70,832 30,736 62,266
Transition
obligation
amortization 33,378 13,907 31,152
Prior service
cost and
amortization
of loss (9,490) - -
--------------------------------------------
$101,846 $49,513 $130,355
============================================
Weighted
average
discount rate 8% 8% 7%
============================================
The following table sets forth the funded status and amounts recognized for the
"Retirement Income Security Plan" in the Company's consolidated balance sheet at
May 31, 1995.
<TABLE>
<CAPTION>
Actuarial present value of benefit obligations:
<S> <C>
Accumulated benefit obligation $771,604
==============
Projected benefit obligations $771,604
Plan assets at estimated fair value -
--------------
Excess of projected benefit obligation over plan assets 771,604
Unrecognized prior service cost 104,731
Unrecognized gain 54,127
Unamortized net obligation at adoption which is being amortized over 15 years (420,002)
--------------
Accrued pension expense $510,460
==============
</TABLE>
================================================================================
F-19
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 11 - PENSION AND RETIREMENT PLANS:
- --------------------------------------------------------------------------------
The Company maintains two noncontributory defined benefit retirement plans,
covering substantially all hourly employees subject to a collective bargaining
agreement. The plans require benefits to be paid to eligible employees at
retirement based primarily on years of service and a fixed compensation formula.
The transition obligations are being amortized over a twelve year term for one
plan and a thirty year term for the other plan. The Company funds the plan, at a
minimum, based upon the statutory amounts required under ERISA.
Net periodic pension expense includes the following components:
<TABLE>
<CAPTION>
FIVE MONTHS YEAR ENDED
YEAR ENDED ENDED DECEMBER
MAY 31, 1995 MAY 31, 1994 31, 1993
--------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 17,543 $12,083 $ 39,701
Interest cost on projected benefit obligation 216,629 98,031 218,932
Actual return on plan assets (240,995) 12,428 (258,261)
Amortization of transition obligation 54,901 22,875 54,901
Net amortization of deferred (gain) loss 64,059 (93,615) -
Net amortization of prior service cost
and net gain 11,313 4,412 101,062
--------------------------------------------------------------
$123,450 $56,214 $156,335
==============================================================
Weighted average discount rate assumed
in determining the actuarial present value
of the projected benefit obligation 8% 8% 7.0%
==============================================================
Expected long-term return on plan assets 8% 8% 7.5%
==============================================================
</TABLE>
The following table sets forth the Plan's funded status and amounts recognized
in the Company's consolidated balance sheet for its defined benefit plans. Plan
assets are stated at fair value and are comprised primarily of common stock and
corporate bonds.
MAY 31, 1995
----------------
Actuarial present value of benefit obligations:
Vested benefit obligation $2,860,528
================
Accumulated benefit obligation $2,860,528
================
Projected benefit obligations $2,860,528
Plan assets at estimated fair value 2,295,745
----------------
Excess of projected benefit obligation over plan assets 564,783
Unrecognized net gain and prior service cost 192,109
Unamortized net obligation at adoption (454,534)
----------------
Accrued pension expense $ 302,358
================
401(K) PLAN:
During the year ended May 31, 1995, the Company adopted a 401(k) plan for all
eligible employees. Employees can contribute at their discretion up to 15% of
compensation. The Company matches 25% of the employees contribution to a maximum
of 1 1/4% of compensation. The plan is funded at the end of the calendar year.
At May 31, 1995 approximately $15,000 of employer contributions were due to the
plan.
================================================================================
F-20
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 12 - POSTRETIREMENT BENEFIT PLANS:
- --------------------------------------------------------------------------------
The Company provides certain employees postretirement health care and life
insurance benefits. Postretirement health care and life insurance benefits are
provided to salaried employees who retired prior to August 1, 1992. The Company
provides postretirement health care benefits upon retirement to eligible hourly
employees in accordance with the Company's collective bargaining agreement.
Postretirement life insurance benefits are available to eligible hourly
employees. Employees are eligible for postretirement benefits upon reaching
certain ages or completing certain years of service. The Company does not fund
its future obligations for postretirement benefits in advance.
MEDICAL BENEFITS:
The Company adopted Financial Accounting Standard No. 106 (SFAS No. 106),
"Employers' Accounting for Postretirement Benefits Other Than Pensions", during
1993. SFAS No. 106 requires the accrual of the expected future cost of providing
these benefits during the years the employees render the necessary service. The
Company elected to recognize the transition obligation associated with unfunded
health insurance benefits over a 20-year period. The following table presents
the Company's postretirement medical benefit expense:
FIVE
YEAR MONTHS YEAR
ENDED ENDED ENDED
MAY 31, MAY 31, DECEMBER
1995 1994 31,1993
-------------------------------------------
Service cost $ 5,702 $ 2,376 $ 5,224
Interest cost 83,993 34,005 136,675
Amortization
of transition
obligation 58,295 24,290 91,116
Expected
contributions
from retirees (97,248) (40,520) --
-------------------------------------------
$ 50,742 $ 20,151 $ 233,015
===========================================
Discount rate 7% 7% 7%
===========================================
Medical trend rate 13.5% 13.5% 15%
===========================================
The Company's accumulated postretirement medical benefit obligation at May 31,
1995 is as follows:
Active plan participants $ 125,103
Retirees 1,074,794
-----------
$ 1,199,897
Plan assets -
Accumulated postretirement benefit -----------
obligation in excess of plan assets $ 1,199,897
Unrecognized transition obligation
and net gain 1,149,155
-----------
Accrued medical postretirement liability $ 50,742
===========
The effect of raising health care cost trend rates 1% results in a future annual
liability increase of approximately $23,000.
LIFE INSURANCE:
Term life insurance in the face amount of $3,000 is provided to salaried
retirees. Term life insurance in the face amount of $10,000 is provided to
salaried executive retirees. Salaried employees and executives retired
subsequent to August 1992 are not eligible for these postretirement life
insurance benefits. Term life insurance in face amounts ranging from $1,250 to
$2,500 is provided to retired hourly employees.
The Company's actuary calculated the net present value of unfunded
postretirement life insurance obligations to be provided in the future to
approximately 160 active and retired employees at May 31, 1995. The following
table presents accumulated postretirement life insurance benefit obligations at
May 31, 1995:
Active hourly employees $ 7,883
Inactive hourly & salaried
employees 101,970
----------
$ 109,853
==========
Accumulated postretirement
benefit obligation in excess
of plan assets $ 109,853
Unrecognized transition obligation (98,453)
----------
Accrued life insurance post-
retirement liability $ 11,400
==========
Net periodic postretirement life insurance expense for premiums paid for hourly
and salaried retirees is as follows.
FIVE MONTHS YEAR ENDED
YEAR ENDED ENDED DECEMBER
MAY 31, 1995 MAY 31, 1994 31, 1993
- ----------------------------------------------------------
$2,284 $1,127 $2,400
==========================================================
================================================================================
F-21
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 13 - PREFERRED STOCK:
- --------------------------------------------------------------------------------
The preferred stock is issuable in one or more series. The Board of Directors
has the power to determine for each series the dividend rights, dividend rate,
conversion rights, voting rights, rights and terms of redemption (including
sinking fund provisions), redemption price and any other powers, preferences and
other special rights of the series, and any qualifications, limitations or
restrictions on any of the rights of the series, and the number of shares
constituting the series.
The Company has no specific plans, understandings or arrangements to issue
authorized preferred stock as of May 31, 1995.
- --------------------------------------------------------------------------------
NOTE 14 - EMPLOYEE STOCK OPTIONS:
- --------------------------------------------------------------------------------
PLAN 1:
On June 2, 1989, the Board of Directors of the Company adopted The Bethlehem
Corporation "1989 Equity Incentive Plan" which was approved by the stockholders
on May 11, 1990. The plan provides that the Board of Directors may grant
incentive or nonqualified common stock options to officers, directors,
consultants and employees of the Company for the purchase of up to 150,000
shares of the Company's common stock. Incentive stock options may be granted
only to employees pursuant to the plan and Board established performance
criteria. Options expire one month after employees terminate employment but in
no case later than ten years after the date of grant.
The Company's Board of Directors granted options to officers and key employees
with an exercise price of $2.50 per share. The following table summarizes
certain key points of the plan at:
MAY 31, MAY 31, DEC. 31,
1995 1994 1993
-------------------------------
a) Options outstanding 42,500 47,500 47,500
b) Options available
for granting 107,500 102,500 102,500
c) Persons holding
options 7 8 8
PLAN 2:
During 1991, the "Equity Incentive Plan" for Directors was approved and provides
that each of the Company's directors receive nonqualified stock options to
purchase 10,000 shares of common stock of the Company.
The Company's common shares subject to options under the "Equity Incentive Plan"
(the Plan) may not exceed 130,000 shares in the aggregate and 10,000 shares for
any one director. The Plan provided the following: (i) each director of the
Company on March 21, 1991 receive common stock options for 10,000 shares, and
(ii) each director elected after March 21, 1991 be granted common options for
10,000 shares under the Plan. The exercise price of each option granted under
the Plan shall be the greater of $3.15 per share or 100% of the fair market
value of a share of the Company's common stock on the date the option is
granted. The Plan is not limited in duration. The following table summarizes
certain key points of the plan at:
MAY 31, MAY 31, DEC. 31,
1995 1994 1993
-------------------------------
a) Options outstanding 100,000 100,000 100,000
b) Options available
for granting 30,000 30,000 30,000
c) Directors holding
options 10 10 10
================================================================================
F-22
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 14 - EMPLOYEE STOCK OPTIONS: (Continued)
- --------------------------------------------------------------------------------
PLAN 3:
On November 22, 1993, pursuant to a settlement agreement reached between the
Company, U.P.E. (a related party), and the Harrisburg Authority, the Company
granted stock options to U.P.E., at U.P.E.'s option, the Company will issue
additional shares of common stock to U.P.E. in exchange for payments made by
U.P.E. on behalf of the Company to Harrisburg under the settlement agreement
(see Note 15) instead of reimbursing U.P.E. in cash. U.P.E. may make payments
(without prior approval of the Company) on the outstanding amounts due to
Harrisburg and thereby be entitled to exercise its options or accept
reimbursement for payments it advanced on behalf of the Company. Provided
however, for any such payment made by U.P.E. the Company will not be obligated
to issue more than 1,450,000 shares to U.P.E. for such payments. The ratio of
exchange shall be as follows: three (3) shares issued for each $1.00 in payment
made by U.P.E., up to a total of 450,000 shares in exchange for a total of
$150,000 in payments; and after such total of 450,000 shares has been reached,
two (2) shares issued for each additional $1.50 in payment made by U.P.E., up to
a total of 1,000,000 additional shares in exchange for a total of $750,000 in
additional payments. No options have been exercised by U.P.E. under this plan as
of May 31, 1995.
PLAN 4:
The Board of Directors of the Company approved the "1994 Stock Option Plan"
which is subject to stockholders approval. The Plan provides for the granting of
non-qualified and incentive stock options and stock appreciation rights equal to
the greater of 400,000 shares or 8% of common stock issued and outstanding, to
certain officers, non-employee directors and key employees of the Company and
its subsidiaries. The board of directors may at its discretion determine the key
employees eligible to participate in the plan. At May 31, 1995, the board
determined fifteen employees to be key employees eligible to participate in the
plan and granted 200,000 options to one of these employees. The maximum number
of shares that may be granted to one person pursuant to the Plan is 250,000
shares. The 1994 Stock Option Plan provides that options are to be granted at an
exercise price of at least fair market value at the date of the grant. Options
covered by Plan 4, vest ratably over a three year period, however, if there is a
change in control, the options become fully vested. The Plan provides for
directors of the Company, elected after December 1, 1994 to receive 10,000
options if they do not receive options under Plan 2. Also, continuing directors
of the Company are entitled to options to acquire 500 shares annually. Also, the
aggregate fair market value (determined as of the date an option is granted) of
the shares with respect to which incentive stock options are exercisable by any
single employee during any calendar year cannot exceed $100,000. The options are
nontransferable and the Plan expires December 23, 2004.
- --------------------------------------------------------------------------------
NOTE 15 - LAWSUIT SETTLEMENT - HARRISBURG:
- --------------------------------------------------------------------------------
On November 22, 1993, the Company and Harrisburg Authority settled a lawsuit for
$1,300,000 based upon negotiations between the Company, U.P.E. and the
Harrisburg Authority.
In consideration for U.P.E.'s assistance in the negotiation of the settlement
and for pledging collateral and guaranteeing the promissory note, the Company
issued 300,000 shares of common stock to U.P.E (valued at $225,000) and stock
options to purchase an additional 1,450,000 shares of common stock after
satisfying certain obligations as set forth in Note 14.
- --------------------------------------------------------------------------------
NOTE 16 - LOSS ON CONTRACT IN PROCESS:
- --------------------------------------------------------------------------------
When management determines that a contract will result in a loss, the Company
accrues the loss in full and charges operations at the time the loss is
determined.
The Company accrued losses on contracts in progress for the respective periods
as follows:
YEAR ENDED FIVE MONTHS ENDED YEAR ENDED
MAY 31, 1995 MAY 31, 1994 DEC. 31, 1993
--------------------------------------------------
$ - $195,100 $122,348
==================================================
================================================================================
F-23
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 17 - COMMITMENTS AND CONTINGENCIES:
- --------------------------------------------------------------------------------
A. The Company initiated a lawsuit against two competitors and certain of the
competitors' employees. The suit alleges certain corporate trade secrets
were misappropriated by the competitors. The Company reached a settlement
with one of the competitors and as a result the Company employed certain
key employees of this competitor. The employment is subject to a contract
which includes non-compete agreements. The Company is continuing its'
lawsuit against the remaining competitor, Denver Equipment Company, Inc.
and its successor Svedala Industries, Inc. ("Denver"). The hearing on the
preliminary injunction which began in September 1994 and was continued to
accommodate settlement discussions, resumed and was completed in July 1995
after four additional days of testimony. The matter is currently sub
judice.
Denver also filed an Answer, New Matter and Counterclaim against the
Company in July 1995. The Counterclaim alleges that the Company initiated
and has continued the litigation against Denver for the purpose of
suppressing lawful competition which has resulted in expenses incurred by
Denver of not less than $20,000 and asks the Court for an award in favor of
Denver in an amount not less than $20,000. The Company immediately filed
its Preliminary Objections to the Counterclaim along with a Motion to
Dismiss. Although the Company considers the Counterclaim frivolous, it
intends to fully defend this matter.
B. The Company has a wholly owned subsidiary which is currently inactive that
is named Federal Boiler Company (FBC). FBC was named as a defendant in
fifty-one lawsuits in which it was sued for asbestos related reasons
stemming from FBC's sales of the boilers it manufactured for use in
industry and government. The Company successfully obtained summary
judgements in nineteen of the fifty-one cases, and legal counsel is filing
summary judgement motions for the remaining cases. The judgement motions
are pending as they are not addressed by the court until the cases are
scheduled for court hearings. Numerous other defendants are named in the
remaining cases and any judgements are expected to be spread among those
defendants. The Company's legal counsel believes the courts will grant FBC
summary judgements on these cases on the following grounds:
1. The lawsuits were wrongfully asserted against FBC as FBC did not
manufacture the boilers in question.
2. FBC did not use asbestos in the manufacture of its products.
3. None of the plaintiffs were exposed to FBC's products or, if they were
exposed to an FBC product, then FBC's product legally could not have
caused their injuries.
The Company's legal counsel believes that even if summary judgements are
not granted in favor of the Company, the Company does not appear to be
exposed to a risk of significant damage awards. The Company is uncertain as
to the ultimate outcome of these lawsuits and cannot estimate its'
liability, if any, related to these claims. Accordingly, no provision has
been made for any loss from these lawsuits in the accompanying financial
statements.
C. The Company was one of several defendants, in litigation instituted during
1993 by John Irwin, Sr. and Donna Irwin. The plaintiffs sought damages for
alleged personal injuries to Mr. Irwin resulting from an explosion during
maintenance repairs being made by him to a boiler manufactured by the
Company. The plaintiff's allegations made against the Company were based on
theories of product liability and negligence. The Company reached a
settlement with the plaintiff that involved two additional defendants. The
Company's contribution to the settlement was $168,000 and was paid in full.
D. During 1993, the Company settled a claim for $5,000 with OSHA, however the
Company has not paid the settlement amount which is accrued at May 31,
1995.
E. The Company is a party to a proposed settlement in United States v. Charles
Chrin et. al. The matter involved an action to obtain site cleanup and
reimbursement of costs at the Industrial Lane Landfill Superfund site. The
Company elected to join the proposed settlement in order to eliminate the
possibility of any future potential liability connected with this site. The
settlement is under review by the court. While the Company does not believe
that it is responsible for any of the problems or costs associated with the
cleanup, it has disposed of waste at the site. The Company accrued $55,000
at May 31, 1995 to provide for the proposed settlement. The Company is
uncertain of its ultimate liability, if any, relating to this case.
F. At May 31, 1995, the Company is not aware of any other pending or
threatened litigation or other environmental claims which have not been
remedied, disclosed or accrued at May 31, 1995.
================================================================================
F-24
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 18 - RELATED PARTY TRANSACTIONS:
- --------------------------------------------------------------------------------
A. A former director of the Company was a partner in a law firm that served as
legal counsel for which $96,000 of legal services was incurred during 1993.
On November 23, 1993 this law firm agreed to accept $181,518 in full
settlement of $734,354 of its outstanding receivables due from the Company
which resulted in an accounts payable and administrative expense decrease
totalling approximately $552,000 during the year ended December 31, 1993.
B. The Company purchases x-ray and related services from a company which is
50% owned by a corporate officer. The Company's approximate purchases are
as follows:
FIVE MONTHS YEAR ENDED
YEAR ENDED ENDED DECEMBER
MAY 31, 1995 MAY 31, 1994 31, 1993
---------------- ----------------- ----------------
$6,000 $800 $26,000
================ ================= ================
C. Ronald Gale and Jan Gale are directors and stockholders of the Company and
are officers, directors and principal stockholders of Universal Process
Equipment (U.P.E.), a corporation which is a stockholder of the Company.
U.P.E. and or Ronald and Jan Gale are also majority stockholders or
otherwise affiliated with other companies that engage in transactions with
the Company.
On December 22, 1993, pursuant to a settlement agreement among the Company,
U.P.E. and the Harrisburg Authority, the Company's Board of Directors
approved the issuance of 300,000 shares of the Company's common stock and
rights to acquire an additional 1,450,000 shares of the Company's common
stock to U.P.E. in exchange for:
1. U.P.E.'s consulting services provided during 1993 in negotiating
and restructuring the Harrisburg Authority's lawsuit settlement,
2. U.P.E. agreeing to the payment of obligations to the Harrisburg
Authority as a secondary guarantor for the Company pursuant to
the Harrisburg settlement agreement,
3. U.P.E. pledging certain of its assets as security for such
settlement agreement, and
4. U.P.E. agreeing to remit part of the proceeds from sales of
certain assets owned jointly with the Company as payments on the
liability to the Harrisburg Authority. During the year ended May
31, 1995, proceeds from sales under this agreement of $47,000
were used to reduce the payable to Harrisburg. U.P.E. did not
exercise its options (see note 14) and the amount is included in
accounts payable - related parties.
On September 9, 1992, the Company and U.P.E. entered into an agreement for
the foreign production of the Company's dryer equipment. This agreement
provides for payment to the Company of fees for design drawings and a
license fee for sales of equipment manufactured in the Eastern Block
countries of Europe. The Company accrued a $35,500 royalty receivable at
May 31, 1995 related to sales of products covered by the agreement.
The related party receivables and payables are included in the accompanying
balance sheet as follows:
MAY 31, 1995
------------
ACCOUNTS ACCOUNTS
RECEIVABLE PAYABLE
(RELATED (RELATED
PARTIES) PARTIES)
-------- --------
a. U.P.E. (Owned by Ronald
& Jan Gale through
Universal Baling &
Processing, Inc.
U.P.E'.s parent) $ 957,902 $1,024,075
b. Universal Envirogenics, Inc.
(U.E.I.) (80% owned by
U.P.E.) 70,955 127,695
c. Universal Industrial
Refrigeration, Inc. (U.I.R.)
(80% owned by Ronald &
Jan Gale) - 61,306
d. R. Simon Dryers, Ltd.
(Directors are Ronald &
Jan Gale) - 30
e. Employees, Directors and
Other Affiliates - 152,762
-----------------------
$1,028,857 $1,365,868
=======================
================================================================================
F-25
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 18 - RELATED PARTY TRANSACTIONS: (Continued)
- --------------------------------------------------------------------------------
The approximate total revenues derived from related party sales were as follows:
FIVE MONTHS YEAR ENDED
YEAR ENDED ENDED DECEMBER
MAY 31, 1995 MAY 31, 1994 31, 1993
- ------------ -------------- ------------- --------------
U.P.E. $2,450,000 $290,000 $740,000
U.E.I. - - -
U.I.R. - - -
R, Simon
Dryers - - -
-------------------------------------------
$2,450,000 $290,000 $740,000
===========================================
The Company purchases equipment and services from U.P.E. and its
affiliates. These purchases total approximately ten percent of the total
cost of goods sold for the year ended May 31, 1995. In the opinion of
management, purchases from related parties for the five months ended May
31, 1994 and the year ended December 31, 1993 are immaterial.
- --------------------------------------------------------------------------------
NOTE 19 - CONCENTRATION OF CREDIT RISK:
- --------------------------------------------------------------------------------
TRADE ACCOUNTS RECEIVABLE:
The Company is a supplier of equipment for environmental, energy and continuous
processing applications primarily in the United States. In addition, the Company
also provides subcontracting services for United States military equipment with
two general contractors. In connection with these activities, the Company grants
credit to its customers. At May 31, 1995, the Company's accounts receivable
(excluding related parties) include a concentration of seven customer balances
which represent 43% of the accounts receivable outstanding (excluding related
parties).
CASH AND CASH EQUIVALENTS:
The cash balances in banks exceed federally insured limits at times during the
year.
- --------------------------------------------------------------------------------
NOTE 20 - EMPLOYMENT CONTRACTS:
- --------------------------------------------------------------------------------
The Company entered into employment contracts with several members of its
management team resulting in future purchase commitments for services as
follows:
YEAR ENDED MAY 31,
1996 $439,583
1997 253,750
1998 155,000
1999 110,000
--------
$958,333
========
- --------------------------------------------------------------------------------
NOTE 21 - MAJOR CUSTOMERS AND EXPORT SALES:
- --------------------------------------------------------------------------------
The Company's four largest customers (excluding related parties) during the year
ended May 31, 1995 accounted for 13%, 12 %, 12% and 6% of the net sales.
The Company's four largest customers (excluding related parties) during the five
months ended May 31, 1994 accounted for 26%, 16%, 8% and 6% of sales.
The Company's four largest customers (excluding related parties) during the year
ended December 31, 1993 accounted for 15%, 14%, 13% and 11% of the net sales.
The Company's export sales by geographic area were as follows:
<TABLE>
<CAPTION>
FIVE MONTHS YEAR ENDED
YEAR ENDED ENDED DECEMBER
GEOGRAPHIC AREA MAY 31, 1995 MAY 31, 1994 31, 1993
--------------- ------------------------------------------------------------
<S> <C> <C> <C>
Asia $2,620,040 $ - $ 5,534
Canada 2,030,500 - 12,631
Europe 36,888 - 115,868
Africa - - 5,562
South America - 100,000 8,576
------------------------------------------------------------
$4,687,428 $100,000 $148,171
============================================================
</TABLE>
================================================================================
F-26
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 22 - GOING CONCERN:
- --------------------------------------------------------------------------------
As reflected in the accompanying financial statements, the Company has a working
capital deficiency of approximately $1.6 million and assets exceed liabilities
by approximately $2 million at May 31, 1995. In addition, at May 31, 1995, the
Company was four months delinquent on its term loan with a commercial lender and
in violation of certain restrictive covenants. Furthermore, prior to the year
ended May 31, 1995, the Company experienced several years of recurring losses
from operations. These factors indicate that the Company may be unable to
continue as a going concern.
On July 16, 1995, the Company obtained new financing that replaced its term loan
with G.E. Capital and provided immediate additional financing of approximately
$1.2 million plus the ability to borrow additional amounts up to $2.8 million if
the Company achieves a sufficient collateral base. During the year ended May 31,
1995, the Company initiated an intensive marketing and sales program which has
increased sales orders for all sales divisions and generated net income for the
year. In addition, Management's 1996 forecast indicates positive trends for
sales, earnings and cash flows.
In view of the matters discussed above, Management believes that recent actions
and actions presently being taken provide the opportunity to continue as a going
concern.
- --------------------------------------------------------------------------------
NOTE 23 - CASH FLOW STATEMENT DISCLOSURES:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIVE MONTHS YEAR ENDED
YEAR ENDED ENDED DECEMBER
MAY 31, 1995 MAY 31, 1994 31, 1993
-------------------------------------------------------
<S> <C> <C> <C>
A. Cash paid for interest $256,285 $86,448 $ 237,618
=======================================================
B. Cash paid for income taxes $ - $ - $ 7,853
=======================================================
C. Non Cash Financing Activities:
1. Equipment capitalized with
corresponding increase to long-term
debt; capital leases $ 33,009 $ - $ -
=======================================================
2. Net present value of long-term debt
issued in connection with lawsuit
settlement to Harrisburg Authority $ - $ - $1,169,694
=======================================================
3. Common stock issued to U.P.E. in
exchange for consulting services
related to the reduced lawsuit
settlement amount $ - $ - $ 225,000
=======================================================
4. Net present value of long-term debt
issued in connection with reduction of
liability due to former legal counsel $ - $ - $ 157,060
=======================================================
</TABLE>
================================================================================
F-27
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 24 - SUBSEQUENT EVENTS:
- --------------------------------------------------------------------------------
A. LONG-TERM DEBT:
On July 14, 1995, the Company prepaid its note payable to G.E. Capital and
paid relevant closing costs with proceeds from advances against a $6.5
million total credit facility available from a group of lenders as follows:
1. A $1.5 million five year first mortgage loan (the mortgage) from
Sterling Commercial Capital, Inc., First Wall Street SBIC, L.P., and
Interequity Capital Partners, L.P. The mortgage is payable in fifty-nine
equal monthly principal installments of $20,229 plus interest at 14.25%
commencing September 1, 1995 with a final principal balloon payment due
August 1, 2000. The loan is collateralized by a first mortgage lien on real
estate owned by the Company and substantially all other company owned
assets, subject only to a first lien on the assets (excluding real estate)
in favor of CIT Group/Credit Finance, Inc. All debts owed by the Company to
the directors and executive officers are subordinated to the repayment of
the loan. U.P.E., Inc. agreed to:
a. Provide a limited guarantee for up to $350,000 of the mortgage
payable.
b. Subordinate all of its outstanding receivables or other
extensions of credit due from the Company to the mortgage.
The Company granted warrants to the three-party lending group to purchase
up to 40,000 shares (2.12%) of the Company's stock at $1.87 per share.
2. A five year, $5 million maximum line of credit including an $800,000
term loan from CIT Group/Credit Finance, Inc. secured by a third lien
position (behind the three party lending group referenced above and the
Harrisburg Sewerage Authority Judgement) on company owned real estate and a
first lien on substantially all other owned assets of the Company. In
addition, U.P.E. has agreed to purchase certain of the Company's used
equipment inventory in the event the Company defaults on the loan or
certain other specified events occur. The line of credit is for three years
and is automatically renewed for an additional two years so long as it is
not terminated by either party. The line of credit includes:
a. An $800,000 term loan requiring $13,333 monthly principal plus
interest at prime plus 3% from August 1, 1995 through July 1,
2000.
b. Advances against a percentage of eligible inventory (liquidation
value) not to exceed $4,000,000 in the aggregate. At the closing
of the loan, the Company had the availability to obtain
approximately $480,000 of advances in excess of the $800,000 term
loan.
c. Advances against other eligible collateral not to exceed the
unused balance of the line of credit.
The Company granted warrants to the CIT Group/Credit Finance, Inc. to
purchase 50,000 (2.65%) shares of the Company's stock at $1.87 per share.
B. OPERATING LEASES:
Subsequent to year-end, the Company entered into various operating leases.
Future minimum payments on these leases are as follows:
YEAR ENDED MAY 31,
------------------
1996 $18,584
1997 22,766
1998 7,356
1999 5,880
2000 5,880
Thereafter 1,470
-------
$61,936
=======
================================================================================
F-28
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 26 - PRIOR PERIOD ADJUSTMENTS:
- --------------------------------------------------------------------------------
The previously issued, unaudited five months ended May 31, 1994 statements of
operations and cash flows and stockholders' deficiency were revised due to
corrections of errors. The errors consisted of, the May 31, 1994 inventory being
overstated by approximately $195,000 and the pension and deferred compensation
liabilities being overstated by approximately $245,000.
The accompanying financial statements reflect the correction of the errors
which, when considered together, reduce the previously reported net loss for the
five months ended May 31, 1994 by approximately $58,000 ($.03 per share).
- --------------------------------------------------------------------------------
NOTE 27 - PENDING ACQUISITION:
- --------------------------------------------------------------------------------
The Company signed a letter of intent on May 24, 1995 to purchase the assets of
an operating division of Third Millennium Products, Inc., known as American
Furnace. The terms and conditions of that acquisition are currently in
negotiation. It is the intention of the Company to go forward with the
acquisition as soon as a satisfactory agreement is reached and appropriate due
diligence is completed. In the opinion of management, the acquisition of the
division does not qualify as a significant subsidiary under the Securities and
Exchange Commission rules.
================================================================================
F-29
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
================================================================================
FINANCIAL STATEMENT PRESENTATION:
1. The consolidated interim financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission with respect to Form
10-QSB. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations, although the Company believes that the disclosures made
herein are adequate to make the information not misleading. It is suggested
that these interim financial statements be read in conjunction with the
financial statements and the notes thereto included in the Company's latest
annual report on Form 10-KSB.
2. Interim statements are subject to possible adjustments in connection with
the annual audit of the Company's accounts for the full fiscal year 1996.
In the Company's opinion, all adjustments necessary for a fair presentation
of the information shown have been included.
3. The results of operations for the interim periods presented are not
necessarily indicative of the results expected for the year ending May 31,
1996.
4. Inventories, other than inventoried costs relating to long-term contracts,
are valued at the lower of first-in, first-out cost or market. Inventoried
costs relating to long-term contracts are stated at the actual production
cost, including factory overhead, incurred to date reduced by amounts
identified with revenue recognized on units delivered or progress
completed.
5. Net income/(loss) per share was determined on the basis of the weighted
average number of shares of common stock including, when applicable,
dilutive stock options using the treasury stock method.
6. On November 28, 1995 the Company completed its acquisition of certain
assets of the American Furnace division of Third Millennium Products, Inc.
pursuant to the terms of an Asset Purchase Agreement by and among the
Company, Bethlehem Advanced Materials Corporation (a wholly owned
subsidiary of the Company), Third Millennium Products Inc. and North
American Advanced Materials Corporation. Pursuant to the agreement, the
Company purchased certain Accounts
================================================================================
F-30
<PAGE>
Receivable, Customer Contracts, Machinery and Equipment and Goodwill. The
purchase price was $420,000 which comprised the issuance of 50,000 shares
of the Company's Common Stock valued at approximately $3.00 per share and
the assumption of certain liabilities.
The business combination is being accounted for utilizing the purchase
method of accounting. Goodwill will be amortized over twenty (20) years.
Results of operations of the acquired enterprise are included in the
accompanying statements of operations as of November 28, 1995.
7. On July 14, 1995, the Company prepaid its note payable to G.E. Capital and
paid relevant closing costs with proceeds from advances against $6.5
million total credit facility available from a group of lenders as follows:
(1) A $1.5 million five year first mortgage loan from Sterling Commercial
Capital, Inc., First Wall Street SBIC, L.P., and Interequity Capital
Partners, L.P. The loan is collateralized by a first mortgage lien on
real estate owned by the Company and a second lien on all other
Company owned assets. The loan will bear interest at 14.25% per annum.
The outstanding principal and interest will be payable in 59
consecutive equal monthly payments calculated to fully amortize over a
15 year period with a final payment of all then outstanding principal
and interest. The loan agreement contains a number of covenants which
among other things will require the Company to maintain specified
levels of net worth and working capital and will impose certain
limitations on the Company with respect to (I) the incurrence of
additional indebtedness; (II) the incurrence of additional liens;
(III) the payment of cash dividends and (IV) mergers and investments.
Universal Process Equipment ("UPE") agreed to provide a limited
guarantee for up to $350,000 of the mortgage payable and subordinate
all of its outstanding receivable or other extensions of credit due
from the Company to the mortgage. The Company granted warrants to the
three-party lending group to purchase up to 40,000 shares (2.12%) of
the Company's stock.
(2) A three year $5 million maximum line of credit and term loan facility
from The CIT Group/Credit Finance, Inc., secured by a third lien
position (behind the three party lending group referenced above and
the Harrisburg Authority) on Company owned real estate and a first
lien on substantially all other owned assets of the Company. This
credit facility includes: (a) an $800,000 term loan requiring $13,333
monthly principal
================================================================================
F-30
<PAGE>
payments plus interest at prime rate (Chemical Bank, New York) plus 3%
and (b) advances against a percentage of eligible inventory not to
exceed $4 million in the aggregate. The amount outstanding as of
February 29, 1996 is $706,667 on the term loan and $1,424,801 on the
secured credit line. The loan agreement contains certain restrictions
among other things on the making of investments, loans and capital
expenditures, on borrowings, on the sale of assets and on the payment
of dividends. An additional condition of the loan agreements is that
UPE will purchase all of the Company's used resale inventory in the
event of default. The term of the agreements is for three years and
automatically renewable for successive terms of two years thereafter
unless terminated by either party at the end of the initial or renewal
term. UPE, in a separate financing agreement, on its own behalf,
arranged for financing with The CIT Group/Credit Finance, Inc. In the
event that UPE's separate financing agreement is terminated then the
Company's term loan line of credit will automatically terminate. The
Company granted warrants to The CIT Group/Credit Finance, Inc. to
purchase 50,000 (2.65%) shares of the Company's stock at $1.87 per
share.
8. Related Party Transactions - UPE, a 20% stockholder of the Company whose
officers, directors and principal stockholders, Ronald and Jan Gale, are
also stockholders and directors of the Company, engaged in various
transactions during the nine month period ended February 29, 1996. The
Company's sales to UPE were $368,000 for the nine month period ended
February 29, 1996.
At February 29, 1996, the Company's accounts receivable with UPE equalled
approximately $956,000 and the Company's accounts payable with UPE equalled
approximately $1,381,000.
================================================================================
F-31
<PAGE>
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company, the Selling
Shareholders or the Underwriters. This Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy to any person in any jurisdiction
in which such offer or solicitation would be unlawful or to any person to whom
it is unlawful. Neither the delivery of this Prospectus nor any offer or sale
made hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of the Company or that information contained
herein is correct as of any time subsequent to the date hereof.
TABLE OF CONTENTS
PAGE
Available Information................................
Prospectus Summary...................................
Risk Factors.........................................
Capitalization ......................................
Use of Proceeds......................................
Price Range of Common Stock and Dividend
Policy.............................................
Dilution.............................................
Selected Consolidated Financial Data.................
Management's Discussion and Analysis of
Financial Condition and Results of Operations .....
Determination of Subscription Price..................
The Rights Offering..................................
Certain Federal Income Tax Consequences..............
Business of the Company..............................
Management...........................................
Principal Shareholders...............................
Certain Transactions.................................
Description of Capital Stock.........................
Shares Eligible for Future Sale......................
Subscription Agent...................................
Information Agent....................................
Legal Matters........................................
Experts..............................................
Indemnification for Securities Act Liabilities.......
Index to Financial Statements........................ F-1
-----------------------
1,356,964 Shares
THE BETHLEHEM CORPORATION
Common Stock
PROSPECTUS
_____________, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to Sections 1741 and 1742 of the Business Corporation
Law of the Commonwealth of Pennsylvania, which provide for indemnification of
directors and officers in certain circumstances. In addition, Article 25 of the
Bylaws of The Bethlehem Corporation provides as follows:
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS
SECTION 25.1 The Corporation shall indemnify any director or officer,
and may indemnify any other employee or agent, who was or is a party to, or is
threatened to be made a party to, or who is called as a witness in connection
with, any threatened, pending, or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, including an action by or in
the right of the Corporation, by reason of the fact that he is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another domestic or foreign corporation, for profit or not-for-profit,
partnership, joint venture, trust or other enterprise, against expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement,
actually and reasonably incurred by him in connection with such action, suit or
proceeding unless the act or failure to act giving rise to the claim for
indemnification is determined by a court to have constituted willful misconduct
or recklessness.
SECTION 25.2. The indemnification and advancement of expenses provided
by, or granted pursuant to, this Article 25 shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any Bylaw, agreement, contract, vote of shareholders or
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office. It is the policy of the
Corporation that indemnification of, and advancement of expenses to, directors
and officers of the Corporation shall be made to the fullest extent permitted by
law. To this end, the provisions of this Article 25 shall be deemed to have been
amended for the benefit of directors and officers of the Corporation effective
immediately upon any modification of the BCL or any modification, or adoption of
any other law that expands or enlarges the power or obligation of corporations
organized under the BCL to indemnify, or advance expenses to, directors and
officers of corporations.
SECTION 25.3. The Corporation shall pay expenses incurred by an officer
or director, and may pay expenses incurred by any other employee or agent, in
defending an action, or proceeding referred to in this Article 25 in advance of
the final disposition of such action or proceeding upon receipt of an
undertaking by or on behalf of such person to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
Corporation.
SECTION 25.4. The indemnification and advancement of expenses provided
by, or granted pursuant to, this Article 25 shall, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such person.
SECTION 25.5. The Corporation shall have the authority to create a fund
of any nature, which may, but need not, be under the control of a trustee, or
otherwise secure or insure in any manner, its indemnification obligations,
whether arising under these Bylaws or otherwise. This authority shall include,
without limitation, the authority to: (a) deposit funds in trust or in escrow;
(b) establish any form of self-insurance; (c) secure its indemnity obligation by
grant of a security interest, mortgage or other lien on the assets of the
Corporation; or (d) establish a letter of credit, guaranty or surety arrangement
for the
II-1
<PAGE>
benefit of such persons in connection with the anticipated indemnification or
advancement of expenses contemplated by this Article 25. The provisions of this
Article 25 shall not be deemed to preclude the indemnification of, or
advancement of expenses to, any person who is not specified in Section 25.1 of
this Article 25 but whom the Corporation has the power or obligation to
indemnify, or to advance expenses for, under the provisions of the BCL or
otherwise. The authority granted by this Section 25.5 shall be exercised by the
Board of Directors of the Corporation.
SECTION 25.6. The Corporation shall have the authority to enter into a
separate indemnification agreement with any officer, director, employee or agent
of the Corporation or any subsidiary providing for such indemnification of such
person as the Board of Directors shall determine up to the fullest extent
permitted by law.
SECTION 25.7. As soon as practicable after receipt by any person
specified in Section 25.1 of this Article 25 of notice of the commencement of
any action, suit or proceeding specified in Section 25.1 of this Article 25,
such person shall, if a claim with respect thereto may be made against the
Corporation under Article 25 of these Bylaws, notify the Corporation in writing
of the commencement or threat thereof; however, the omission so to notify the
Corporation shall not relieve the Corporation from any liability under Article
25 of these Bylaws unless the Corporation shall have been prejudiced thereby or
from any other liability which it may have to such person other than under
Article 25 of these Bylaws. With respect to any such action as to which such
person notifies the Corporation of the commencement or threat thereof, the
Corporation may participate therein at its own expense and, except as otherwise
provided herein, to the extent that it desires, the Corporation, jointly with
any other indemnifying party similarly notified, shall be entitled to assume the
defense thereof, with counsel selected by the Corporation to the reasonable
satisfaction of such person. After notice from the Corporation to such person of
its election to assume the defense thereof, the Corporation shall not be liable
to such person under Article 25 of these Bylaws for any legal or other expenses
subsequently incurred by such person in connection with the defense thereof
other than as otherwise provided herein. Such person shall have the right to
employ his own counsel in such action, but the fees and expenses of such counsel
incurred after notice from the Corporation of its assumption of the defense
thereof shall be at the expense of such person unless: (a) the employment of
counsel by such person shall have been authorized by the Corporation; (b) such
person shall have reasonably concluded that there may be a conflict of interest
between the Corporation and such person in the conduct of the defense of such
proceeding; or (c) the Corporation shall not in fact have employed counsel to
assume the defense of such action. The Corporation shall not be entitled to
assume the defense of any proceeding brought by or on behalf of the Corporation
or as to which such person shall have reasonably concluded that there may be a
conflict of interest. If indemnification under Article 25 of these Bylaws or
advancement of expenses are not paid or made by the Corporation, or on its
behalf, within 90 days after a written claim for indemnification or a request
for an advancement of expenses has been received by the Corporation, such person
may, at any time thereafter, bring suit against the Corporation to recover the
unpaid amount of the claim or the advancement of expenses. The right to
indemnification and advancements of expenses provided hereunder shall be
enforceable by such person in any court of competent jurisdiction. The burden of
proving that indemnification is not appropriate shall be on the Corporation.
Expenses reasonably incurred by such person in connection with successfully
establishing the right to indemnification or advancement of expenses, in whole
or in part, shall also be indemnified by the Corporation.
SECTION 25.8. The Corporation shall 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 Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another domestic or
foreign corporation for profit or not-for-profit, partnership, joint venture,
trust or other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article 25.
II-2
<PAGE>
SECTION 25.9. Notwithstanding any other provisions of these Bylaws, the
approval of shareholders shall be required to amend, repeal or adopt any
provision as part of these Bylaws that is inconsistent with the purpose or
intent of this Article 25, and, if any such action shall be taken, it shall
become effective only on a prospective basis from and after the date of such
shareholder approval. The provisions of this Article 25 were adopted by the
shareholders of the Corporation on May 29, 1987.
For the undertaking with respect to indemnification, see Item 28
herein.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated costs and expenses to be
borne by the Company in connection with the offering described in the
Registration Statement, other than underwriting commissions and discounts.
SEC Registration Fee.......................................... $931.44
AMEX Listing Fee*.............................................
Legal Fees and Expenses*......................................
Accounting Fees and Expenses*.................................
Printing and Engraving Expenses*..............................
Blue Sky Fees and Expenses*...................................
Transfer Agent's and Registrar's Fees*........................
Information Agent Fees*.......................................
Miscellaneous Expenses*.......................................
Total*................................................ $
==============
- ---------------
* To be provided by amendment
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the following securities were sold by the
Company without registration under the Securities Act of 1933, as amended (the
"Act"). In every case the securities were sold by the Company in reliance upon
the exemption provided by Section 4(2) of the Act and no discounts or
commissions were paid.
(i) On December 22, 1993, UPE was issued 300,000 shares of Common Stock
pursuant to the UPE Agreement and in consideration of certain services rendered
by UPE for the Company.
(ii) On October 9, 1995, Albert Sidney Bowers III and Gary W. Scott, Trustee
were issued 12,500 and 37,500 shares of Common Stock, respectively, in
connection with the acquisition by the Company of certain assets of the American
Furnace Division of Third-Millennium Products, Inc.
ITEM 27. EXHIBITS
3(i)
Amended And Restated Articles of Incorporation approved at the December
12, 1995 Annual Meeting of the Registrant*
II-3
<PAGE>
3(ii) Amended and Restated Bylaws approved at the December 12, 1995 Annual
Meeting of the Registrant (incorporated by reference to Exhibit 3(ii)
to the Registrant's 10-QSB for the quarterly period ended November 30,
1995 (the "November 1995 10-QSB"))
5 Opinion of Olshan Grundman Frome & Rosenzweig LLP as to the legality of
the securities being registered*
10(a) 1994 Stock Option Plan of the Registrant as amended (incorporated by
reference to Exhibit 10(a) to the Registrant's November 1995 10-QSB)
10(b) Equity Incentive Plan for Directors of the Registrant as amended
(incorporated by reference to Exhibit 10(b) to the Registrant's
November 1995 10-QSB)
10(c) Agreement, dated July 23, 1994, between the Registrant and The
Bethlehem Corporation Employees Association*
10(d) Net Commercial Lease Contract, dated January 30, 1996, by and between
Knoxville Industrial Group, Ltd., Bethlehem Advanced Materials
Corporation, The Stanfield York Company and the Registrant*
11 Statement Re Computation of Per Share Earnings
21 Subsidiaries of the Registrant*
23(a) Consent of Sobel & Co.
23(b) Consent of Olshan Grundman Frome & Rosenzweig LLP (included in Exhibit
5)*
24 Power of Attorney (included in the signature page to the Registration
Statement).
99(a) Form of Subscription Certificate.*
99(b) Form of Instructions for Subscription Certificates. *
99(c) Form of Notice of Guaranteed Delivery.*
99(d) Form of Subscription Agency Agreement*
99(e) Form of Information Agency Agreement*
- -----------------------------
* To be supplied by amendment
ITEM 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange
II-4
<PAGE>
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
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 small business issuer 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 of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned small business issuer will:
(1) For determining any liability under the Securities Act, treat 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 as part of this registration statement as of the time the
Commission declared it effective.
(2) For determining any liability under the Securities Act, treat
each post-effective amendment that contains a form of prospectus
as a new registration statement for the securities offered in the
registration statement, and the offering of the securities at
that time as the initial bona fide offering of those securities.
II-5
<PAGE>
SIGNATURES
In accordance with 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 of filing on Form SB-2 and has caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Easton, Pennsylvania, on the 15th day of May, 1996.
THE BETHLEHEM CORPORATION
By: /S/ ALAN H. SILVERSTEIN
-------------------------
Name: Alan H. Silverstein
Title: President, Director
and Chief Executive
Officer
POWER OF ATTORNEY
Know All Men By These Presents, that each person whose signature
appears below constitutes and appoints Alan H. Silverstein, Salvatore J. Zizza
and Antoinette L. Martin, and each one of them individually, his true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for him and in his name, place and stead, in any and all capacities to sign any
and all amendments (including post-effective amendments) to this registration
statement and to file the same with the Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed on May 15, 1996 by the following persons in the
capacities and on the dates indicated.
NAME TITLE
---- -----
/S/ ALAN H. SILVERSTEIN
- --------------------------- President, Director and Chief
Alan H. Silverstein Executive Officer (Principal
Executive Officer)
/S/ ANTOINETTE L. MARTIN
- --------------------------- Chief Financial Officer (Principal
Antoinette L. Martin Financial Officer and Principal
Accounting Officer)
/S/ SALVATORE J. ZIZZA Chairman of the Board
- ---------------------------
Salvatore J. Zizza
/S/ RONALD H. GALE Director
- ---------------------------
Ronald H. Gale
II-6
<PAGE>
NAME TITLE
---- -----
/S/ JAN P. GALE Director
- ----------------------------
Jan P. Gale
/S/ JAMES L. LEUTHE Director
- ----------------------------
James L. Leuthe
/S/ HAROLD BOGATZ Director
- ----------------------------
Harold Bogatz
/S/ B. ORD HOUSTON Director
- ----------------------------
B. Ord Houston
/S/ O. KARL DIECKMAN Director
- ----------------------------
O. Karl Dieckman
II-7
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT PAGE NUMBER
3(i) Amended And Restated Articles of Incorporation approved
at the December 12, 1995 Annual Meeting of the
Registrant*
5 Opinion of Olshan Grundman Frome & Rosenzweig LLP as to
the legality of the securities being registered*
10(c) Agreement, dated July 23, 1994, between the Registrant
and The Bethlehem Corporation Employees Association*
10(d) Net Commercial Lease Contract, dated January 30, 1996,
by and between Knoxville Industrial Group, Ltd.,
Bethlehem Advanced Materials Corporation,
The Stanfield York Company and the Registrant*
11 Statement Re Computation of Per Share Earnings
21 Subsidiaries of the Registrant*
23(a) Consent of Sobel & Co.
23(b) Consent of Olshan Grundman Frome & Rosenzweig LLP
(included in Exhibit 5)*
24 Power of Attorney (included in the signature page to
the Registration Statement).
99(a) Form of Subscription Certificate.*
99(b) Form of Instructions for Subscription Certificates. *
99(c) Form of Notice of Guaranteed Delivery.*
99(d) Form of Subscription Agency Agreement*
99(e) Form of Information Agency Agreement*
- ------------------------
* To be supplied by amendment
II-8
Exhibit 11
The Bethlehem Corp.
Statements Re Computation of Earnings (Loss) Per Share
For the Year Ended December 31, 1993, Five Months ended May 31, 1994
Year ended May 31, 1995, nine months ended February 28, 1995 and nine months
ended February 29, 1996
<TABLE>
<CAPTION>
12/31/93 5/31/94 5/31/95 2/28/95 2/29/96
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Primary Earnings per share:
Net Income (Loss) (3,403,184) (930,870) 229,654 144,000 217,000
---------- ---------- ---------- ---------- ----------
Weighted average number of
common shares outstanding
during the period 1,595,929 1,888,520 1,888,520 1,888,520 1,938,520
Add-Dilutive effect of
outstanding options and
warrants (as determined by
the application of the
treasury stock method) 0 0 1,057,903 693,010 1,045,760
---------- ---------- ---------- ---------- ----------
Weighted average number of
shares used in calculating
net income (loss) per share 1,595,929 1,888,520 2,946,423 2,581,630 2,984,280
Net income (Loss) per share (2.13) (0.49) 0.08 0.056 0.073
========== ========== ========== ========== ==========
Fully Diluted Earnings per
share:
Net Income/(Loss) (3,403,184) (930,870) 229,654 144,000 217,000
========== ========== ========== ========== ==========
Weighted average number of
common shares outstanding
during the period 1,595,929 1,888,520 1,888,520 1,888,520 1,938,520
Add-Dilutive effect of
outstanding options and
warrants (as determined by
the application of the
treasury stock method) 0 0 1,138,242 1,016,225 1,100,910
---------- ---------- ---------- ---------- ----------
Weighted average number of
shares used in calculating
net income (loss) per share 1,595,929 1,888,520 3,026,762 2,903,745 3,039,430
Net income (Loss) per share (2.13) (0.49) 0.08 0.05 0.071
========== ========== ========== ========== ==========
</TABLE>
CERTIFIED PUBLIC ACCOUNTANTS
293 EISENHOWER PARKWAY
LIVINGSTON, NEW JERSEY 07039-1711
201-994-9494
FAX: 201-994-1571
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SOBEL & CO.
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form SB-2 of our report dated August 18, 1995 relating
to the consolidated financial statements of The Bethlehem Corporation and
Subsidiaries, which appears in such Prospectus. We also consent to the
references to us under the headings "Experts" in such Prospectus.
/s/ Sobel & Co.
---------------
SOBEL & CO.
Certified Public Accountants
May 14, 1996
