AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 4, 1996
REGISTRATION NO. 333-3875
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------------------------------------
AMENDMENT NO. 2
TO
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 (Primary (I.R.S.
Other Standard Employer
Jurisdiction Industrial Identification
of Classification No.)
Incorporation Code
or Number)
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. | |
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
CROSS REFERENCE SHEET
ITEM NUMBER AND HEADING IN
FORM SB-2 REGISTRATION STATEMENT CAPTION OR LOCATION IN
-------------------------------- ----------------------
PROSPECTUS
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
<PAGE>
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..................................... *
- ----------
* 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 OCTOBER 4, 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"). Rights will not be
issued with respect to shares of Common Stock issuable upon exercise of
outstanding options or warrants, whether or not presently exercisable or "in the
money ." The Subscription Price represents a 30% discount from the closing price
of the Common Stock on the American Stock Exchange, Inc. (the "AMEX") 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
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. The consummation of the
Rights Offering is not dependent upon the receipt by the Company of any minimum
amount of proceeds of exercise of Rights. There can be no assurance that the
Company will receive any such proceeds.
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 September 16, 1996, Universal Process Equipment, Inc. ("UPE"), owned
381,600 shares of Common Stock and Jan P. Gale and Ronald Gale, who are both
directors of the Company, and directors, officers and principal shareholders of
UPE held collectively 142,000 shares of outstanding Common Stock and, in
addition, UPE and the Gales held options and warrants to purchase an aggregate
of an additional 1,821,000 shares of Common Stock. Assuming all of such options
and warrants had been exercised at such date, UPE and the Gales would have
beneficially owned approximately 62% of the outstanding Common Stock. See "Risk
Factors--Control by Principal Shareholder." 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 does not intend to exercise the Oversubscription Privilege or to
acquire Rights through open market purchases, the exercise of options or
otherwise. However, UPE has informed the Company that it intends to exercise the
Rights it receives for an aggregate subscription price of $-----------. In
addition, the Board of Directors has authorized the issuance of an additional
350,000 shares
<PAGE>
of Common Stock to UPE after the Record Date and assuming that (i) such shares
of Common Stock are issued, (ii) all other Holders exercise their Rights, and
(iii) the options and warrants held by UPE and its officers, directors and
affiliates are exercised subsequent to the Record Date, UPE and the Gales will
beneficially own 54.2% of the outstanding Common Stock . As a result 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 285,000 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 Company expects that the net proceeds of exercise of the Rights will be
used primarily, and in the following order of priority, (i) to repay short term
borrowing advanced for inventory, laboratory renovation and computer equipment
($250,000), (ii) to expand the operations of the Company ($500,000), (iii) to
invest in inventory for the Company's heat transfer, filtration and high
temperature furnace product lines ($550,000), (iv) to renovate the Company's
laboratory and laboratory equipment and to purchase a management information
system/network ($200,000), and (v) for working capital and general corporate
purposes (remainder). In the event that all of the Rights are not exercised, the
amount of such net proceeds available for working capital and general corporate
purposes will be reduced and, if necessary, the amount available to renovate the
Company's laboratory and laboratory equipment, to purchase a management
information system network and to invest in inventory will be reduced. See "The
Company--Strategy" and "Use of Proceeds."
The principal market for the Common Stock is the 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 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 $2.875 per share. On
September 16, 1996, the closing sale price of the Common Stock on the AMEX was
$2.00 per share.
-----------------
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
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<PAGE>
SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH IN "RISK FACTORS"
IMMEDIATELY FOLLOWING THE PROSPECTUS SUMMARY.
Underwriting
Price to Discounts and Proceeds to
Public Commissions the Company(1)
------------- ------------------- -----------------
Per Share......... $ [ ] N/A $ [ ]
Total $ [ ] N/A $ [ ]
- ----------
(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.
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<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. See "Business
of the Company--General."
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)
FISCAL YEAR FISCAL YEAR
ENDED MAY ENDED MAY
31, 1996 31, 1995
---------------------- ----------------------
OPERATING DATA:
Net sales $ 18,078 $ 14,541
Gross profit $ 4,867 $ 2,581
Income from
operations before
provision for income
taxes 501 106
Net income 465 105
Earnings per common and
common equivalent share
Primary $ .14 $ .04
Assuming full dilution .14 .03
Weighted average number
of common
and common equivalent
shares outstanding
Primary 3,219,517 2,946,423
Fully diluted 3,259,686 3,026,762
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<PAGE>
AT MAY 31, 1996
---------------
ACTUAL AS ADJUSTED(1)
------ --------------
BALANCE SHEET DATA:
Current assets $ 8,846
Total assets 14,299
Current liabilities 8,669
Long-term liabilities 6,954
Total liabilities 15,623
Stockholders' equity (1,324)
(deficiency)
- ----------
(1) 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. See "The
Rights Offering--The Rights."
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<PAGE>
Shares of Common Stock
Outstanding after
Rights Offering Approximately 3,295,484 shares, based on the number
of shares outstanding on September 16, 1996 and
assuming exercise of all Rights. See "Risk
Factors--Dilution."
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. Officers and Directors and
other persons or entities who may be deemed
affiliates of the Company may only sell their Rights
in accordance with the restrictions and requirements
of Rule 144 under the Securities Act, other than the
two-year holding period requirement of Rule 144. See
"The Rights Offering- -Method of Transferring
Rights."
Record Date.............. -------------, 1996. See "The Rights Offering--The
Rights."
Expiration Date -------------, 1996, at 5:00 p.m., New York City time
[30 calendar days after the Record Date]. See "The
Rights Offering--The Rights."
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. 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.
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<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."
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 the receipt by the
Company of any minimum amount of proceeds of exercise
of 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 $-------.
The Company expects that the net proceeds of exercise
of the Rights will be used primarily, and in the
following order of priority, (i) to repay short term
borrowings advanced for inventory, laboratory
renovation and computer equipment ($250,000), (ii) to
expand the operations of the Company ($500,000),
(iii) to invest in inventory for the Company's heat
transfer, filtration and high temperature furnace
product lines ($550,000), (iv) to renovate the
Company's laboratory and laboratory equipment and to
purchase a management information system/network
($200,000), and (v) for working capital and general
corporate purposes (remainder). In the event that all
of the Rights are not exercised, the amount of such
net proceeds available for working capital and
general corporate purposes will be reduced and, if
necessary, the amount available to renovate the
Company's laboratory and laboratory equipment, to
purchase a management information system network and
to invest in inventory will be reduced. See "The
Company-- Strategy" and "Use of Proceeds."
Subscription Agent American Stock Transfer & Trust Company. See
"Subscription Agent."
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<PAGE>
Information Agent Morrow & Company. See "Information Agent."
Risk Factors............. There are substantial risks in connection with this
offering that should be considered by prospective
purchasers including, but not limited to the
following: i) the Company has incurred losses from
operations in the past and may incur such losses in
the future; (ii) the Company has a substantial
deficit in net tangible book value and a substantial
deficit in stockholders' equity ; (iii) purchasers of
Common Stock in the Rights Offering will experience
substantial and immediate dilution, and (iv) the
Company does not anticipate paying cash dividends on
its Common Stock in the foreseeable future. See "Risk
Factors."
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<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
While the Company had net income for each of the fiscal year ends May
31, 1995 and May 31, 1996 the Company has incurred losses from operations in the
past and may incur such losses in the future.
In addition, at May 31, 1995, the Company had a deficit in net tangible
book value of $2,700,728, a deficit in stockholders' equity of $2,152,159 and a
deficit in working capital of $1,576,442. At May 31, 1996, the Company had a
deficit in net tangible book value of $2,080,406 and a deficit in stockholders'
equity of $1,324,185. In addition, the Company had working capital at May 31,
1996 of only $176,439. 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; such decrease in equity ownership and voting power will be
proportionate to the number of Rights actually exercised by other holders. 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 May 31, 1996, there was a deficit in net tangible book value per
share of Common Stock of $1.07. 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."
UPE has informed the Company that it intends to exercise the Rights it
receives in the Rights Offering which will result in the issuance of at least
267,120 additional shares of Common Stock. Such Rights represent approximately
20% of the total Rights to be distributed.
On the Record Date, there were 1,938,532 shares of Common Stock issued
of which 1,938,520 were outstanding. If all of the Rights were to be exercised,
there would be an increase of 1,356,964 shares in the number of shares of Common
Stock outstanding, resulting in a total of 3,295,484 shares of Common Stock
outstanding after consummation of the Rights Offering.
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
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<PAGE>
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 the receipt
by the Company of any minimum amount of proceeds from the exercise of Rights.
Consequently, there can be no assurance that the Company will raise any such
proceeds.
The Company expects that such proceeds will be used in the following
order of priority, (i) to repay short term borrowing advanced for inventory,
laboratory renovation and computer equipment, (ii) to expand the operations of
the Company, (iii) to invest in inventory for the Company's heat transfer,
filtration and high temperature furnace product lines, (iv) to renovate the
Company's laboratory and laboratory equipment and to purchase a management
information system/network, and (v) 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 and general corporate purposes will be
reduced and, if necessary, the amount available for renovation of the Company's
laboratory and laboratory equipment, to purchase a management information
system/network and to invest in inventory 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 "Use
of Proceeds."
LOSSES ON MAJOR CONTRACTS
Historically, the Company recorded losses on certain major contracts.
These losses primarily resulted because the Company undertook major contracts on
a fixed price basis and therefore had to absorb any cost overruns if the Company
could not demonstrate that the original order had been changed or modified while
production or fabrication was in process. During the fiscal year ended May 31,
1995, management implemented procedures to become more selective in the type of
project undertaken, the product orientation and the terms of sale, thereby more
closely monitoring and controlling profit margins on major contracts. In
addition, the Company's management introduced new procedures so that it could
more effectively monitor the status of major contracts and demonstrate changes
or modifications in orders while production or fabrication is in process. No
losses on major contracts were recorded in fiscal years 1995 and 1996. However,
there can be no assurance that such new policies will continue to be successful
and, accordingly, the Company may record losses on certain major contracts in
the future.
A major contract to a Canadian company was completed in fiscal 1996
resulting in an account receivable in the amount of $575,000. In May 1996, this
customer sought protection under the Canadian Bankruptcy & Insolvency Act. The
Company has a security interest in the equipment it sold to the customer related
to this account receivable. In addition, UPE, a supplier of certain equipment
which was sold to this customer by the Company, has agreed to a chargeback equal
to one-half of the loss on this bad debt. The Company has included in its
allowance for doubtful accounts one-half of the difference between the accounts
receivable balance and the cost of the equipment expected to be recovered. It is
possible that the actual loss on this receivable may exceed the amount received
by the Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Fiscal Year Ended May 31, 1996 Compared to Fiscal
Year Ended May 31, 1995."
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
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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. The Company is not presently engaged in any
litigation or aware of any potential litigation concerning its proprietary
technology. 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 customer, Eastman Chemical, accounted for 30% of
the Company's net sales for fiscal year ended May 31, 1996 . The Company
anticipates that Eastman Chemical will also be a significant customer for the
fiscal year ending May 31, 1997. During fiscal year ended May 31, 1995, the
Company's four largest customers accounted for 17%, 13%, 12% and 12% of the
Company's revenues. General Dynamics accounted for 13% of the Company's revenues
in fiscal 1995 and 5% of the Company's revenues in fiscal 1996. Universal
Process Equipment, Inc. accounted for 17% of the Company's revenues in fiscal
1995 and 5% of the Company's revenues in fiscal 1996. Caswan Environmental
Services, Ltd. accounted for 12% of the Company's revenues in fiscal 1995 and 2%
of the Company's revenues in fiscal 1996. New Jersey Chemical Co. accounted for
12% of the Company's revenues for fiscal 1995 and 2% of the Company's revenues
in fiscal 1996.
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. While to date, the Company's research and development efforts
have been limited, the Company's future 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 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
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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. Historically, environmental liabilities have not had a
material effect upon the Company's capital expenditure requirements, results of
operations or competitive position and 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.
The Company unilaterally "opted in" to a group settlement in U.S. VS.
CHARLES CHRIN, ET AL. ("Charles Chrin"). The proposed consent decree is
undergoing final draft revisions and will be submitted for court approval after
a hearing. The Company paid in a total of $55,000 toward the group settlement in
exchange for a covenant not to sue by the United States pursuant to Section
107(a) of the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, or Section 7003 of the Resource Conservation and Recovery Act of
1976. Apart from Charles Chrin, the Company has not received, nor is it aware of
any threatened submission of, any "potentially responsible party" or similar
notices under federal, state or local environmental laws. See "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 on all matters, including the election of directors. As of
September 16, 1996, UPE held 381,600 shares of Common Stock, or 19.7% of the
total votes of all outstanding Common Stock and Jan P. Gale and Ronald Gale, who
are both directors of the Company and directors, officers and principal
shareholders of UPE held collectively 142,000 shares of outstanding Common
Stock, or 7.3% of the total votes of all outstanding Common Stock. Accordingly,
as of September 16, 1996, UPE and the Messrs. Gale in the aggregate held 523,600
shares of Common Stock, or 27% of the total votes of all outstanding Common
Stock. In addition, UPE held options and warrants to purchase 1,800,000 shares
of Common Stock and the Messrs. Gale held options to purchase an aggregate of
21,000 shares of Common Stock. If all of such options and warrants are
exercised, UPE and the Gales would beneficially own 62% of the outstanding
Common Stock . By reason of the exercise of Rights by UPE, UPE and the Gales
will continue to control at least 19.7% and 4.3%, respectively, of the total
votes of all outstanding shares of Common Stock after the Rights Offering and
assuming that UPE and Messrs. Gales exercise all of their outstanding options
and warrants after the Record Date, UPE and the Gales will, in the aggregate,
beneficially own 51% of the outstanding shares of Common Stock after the Rights
Offering, assuming the exercise of all Rights. 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 , which consists of used heat transfer equipment owned by UPE.
Assuming (i) these shares of Common Stock are issued, (ii) UPE and the Gales
exercise all of their outstanding options and warrants after the Record Date and
(iii) all Rights are exercised, UPE and Messrs. Gale will beneficially own at
least 54.2% of the outstanding Common Stock after the Rights Offering. See
"Principal Shareholders" and "Certain Transactions." Such a concentration of
effective control could serve to perpetuate current management, make it
difficult for unaffiliated shareholders to influence the Company's actions and
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. The Company is not aware of
any broker-dealer that intends to make a market for the Rights. Further, no
assurance
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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."
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. Some of such
warrants and options contain anti-dilution provisions which may be triggered by
the Rights Offering resulting in further dilution of the Company's Stockholders.
See "Dilution" and "Description of Capital Stock."
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<PAGE>
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 May
31, 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.
MAY 31, 1996
--------------------------------
ACTUAL AS ADJUSTED
------ -----------
Current maturities of long-term debt....... $ 307,000
Long-term debt - net of current
maturities................................. 4,594,000
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.............. 4,933,000
Accumulated deficit...................... (7,226,000)
Less treasury stock, at cost, 12
shares................................... 0
Total Stockholders' Equity ----------
(Deficiency)......................... (1,324,000)
----------
Total Capitalization.......................
$3,270,000
==========
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. However, the Rights Offering is not conditioned upon the receipt by
the Company of any minimum amount of proceeds of exercise of Rights and there
can be no assurance that the Company will receive any such proceeds. 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 repay short term borrowings with an interest
rate of 11.25% advanced by CIT which has been used for inventory, laboratory
renovation and computer equipment ($250,000), (ii) to expand the operations of
the Company ($500,000), (iii) to invest in inventory for the Company's heat
transfer, filtration and high
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temperature furnace product lines ($550,000); (iv) to renovate the Company's
laboratory and laboratory equipment and to purchase a management information
system/network ($200,000), and (v) for working capital and general corporate
purposes (remainder). Although the proceeds from the Rights Offering will be
utilized as described above, the amount of net proceeds of the Rights Offering
is uncertain. In the event that all of the Rights are not exercised, the amount
of such net proceeds available for working capital and general corporate
purposes will be reduced and, if necessary, the amount available to renovate the
Company's laboratory and laboratory equipment, to purchase a management
information system/network and to invest in inventory will be reduced. Pending
their utilization for other corporate purposes, the Company expects to invest
the net proceeds from the Rights Offering primarily in Treasury obligations,
money market instruments and other similar securities and in bank deposits. See
"The Company--Strategy."
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is traded on AMEX under the symbol "BET." The
following table sets forth the high and low sales prices for the Common Stock,
for the periods indicated, as reported by the AMEX.
LOW ($) HIGH ($)
------- --------
1995 FISCAL YEAR
- ----------------
First Quarter .75 1.50
Second Quarter .81 1.44
Third Quarter .75 5.63
Fourth Quarter 2.00 3.44
1996 FISCAL YEAR
- ----------------
First Quarter 1.88 3.73
Second Quarter 2.50 3.94
Third Quarter 2.00 3.00
Fourth Quarter 1.75 3.31
1997 FISCAL YEAR
- ----------------
First Quarter 1.81 2.75
Second Quarter (thru October 1, 1996) 1.94 2.34
As of September 16, 1996 , there were approximately 934 holders of
record of the Company's Common Stock.
The Company did not declare any cash dividends on its Common Stock
during fiscal 1995 or fiscal 1996. 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. (collectively, "Sterling") 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. ("CIT"), 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 May 31, 1996, there was a deficit in net tangible book value of
approximately $2,080,406, or $1.07 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
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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 May 31, 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...................... ($1.07)
Increase per share
attributable to shareholders
exercising Rights.................... ______
Pro forma net tangible book
value
per share after offering............. $______
Dilution to shareholders
exercising Rights(1)................... $______
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(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 May 31, 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.
As of September 16, 1996, the closing sale price of the Company's
Common Stock was $2.00 per share. As of such date, there was a total of
1,623,334 options and warrants which were presently exercisable and "in the
money ." The exercise prices of such options and warrants ranged from $.33 to
$1.87. In addition, the exercise price of warrants to purchase an aggregate of
1,540,000 shares of Common Stock, at exercise prices ranging from $.33 to $1.87
will be adjusted by this Rights Offering, due to the anti-dilution provisions of
such warrants. As a result, there will be dilution to the Shareholders
exercising Rights of $-- per share relating to the exercise of such options and
warrants and the anti-dilution provisions contained therein. Certain warrant
holders also have "piggyback" registration rights which either do not apply to
this Rights Offering or have been waived by such holders. See "Description of
Capital Stock."
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial statement data as of and
for the fiscal years ended May 31, 1996 and May 31, 1995 are derived from the
audited 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."
FISCAL YEAR FISCAL YEAR
ENDED ENDED
MAY 31, MAY 31,
1996 1995
---------- ----------
OPERATING DATA:
Net sales 18,078 14,541
Cost of goods sold 13,211 11,959
---------- ----------
Gross profit (loss) 4,867 2,581
Selling and
administrative
expenses 3,829 2,357
Other income/(expenses) -
net (537) (118)
----------
Income (loss) from operations
before provision
for income taxes 501 106
(Provision) for
income taxes (36) (1)
---------- ----------
Net income (loss) 465 105
Earnings (loss)
per common and
common equivalent
share
Primary $ .14 $ .04
Assuming full
dilution .14 .03
Weighted average
number of common
and common
equivalent shares
outstanding
Primary 3,219,517 2,946,423
Fully diluted 3,259,686 3,026,762
At
May 31,
1996
--------
BALANCE SHEET DATA:
Current assets........................... 8,846
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Total assets............................. 14,299
Current liabilities...................... 8,669
Long-term liabilities.................... 6,954
Total liabilities........................ 15,623
Stockholders' equity
(deficiency)............................. (1,324)
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPANY OVERVIEW
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.
Four of the Company's five main business units, namely the Heat
Transfer Process Equipment Unit, the Environmental Systems Unit, the Filtration
Process Equipment Unit and the Specialty Heavy Machining and Fabrication
Services Unit each serve several billion dollar worldwide markets. The Company
expects the future size of each of these markets to remain in the billions of
dollars. However, the Company's ability to sell its products is limited by its
marketing and manufacturing ability. To the extent that the Company's marketing
and manufacturing capability increase, the Company's ability to exploit
opportunities in these markets should improve. The market size serviced by the
Company's fifth main business unit, the Rebuild/Remanufactures Equipment Unit,
is considerably more limited . The Company expects the future size of this
market to vary in relation to factors influencing cost of capital such as
interest rates, export/import duties, manufacturing capacity and utilization.
The Company would characterize the markets for each of its business
units as follows:
(1) HEAT TRANSFER AND FILTRATION UNITS
/ / Markets are relatively concentrated in mature
industries such as chemicals, plastics, foods,
pharmaceuticals, refineries, waste treatment and
mining and minerals.
/ / Technology barrier is medium.
/ / Competition is worldwide, except that there are
certain prohibitions against foreign companies in
Japan.
(2) ENVIRONMENTAL SYSTEMS UNIT
/ / Markets are concentrated.
/ / Technology barrier is low.
/ / Competition is domestic in North America and
Western Europe.
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(3) SPECIALTY HEAVY MACHINING AND FABRICATION SERVICES
UNIT
/ / Market is highly concentrated.
/ / Technology barrier is low.
/ / Competition is domestic and often regional.
(4) REBUILD/REMANUFACTURE UNIT
/ / Market is diffuse.
/ / Technology barrier is low.
/ / Competition is domestic.
The Company's customer concentration has historically been limited to
segments such as military, chemical process, power generating or ferrous and
nonferrous producers. More recently, the Company has sought to broaden its
customer base to include customers in such markets as environmental and mining
and precious metals. The Company has also added new products such as high
temperature furnaces through BAM which services newer growth markets such as the
semiconductor industry. To the degree the Company is able to add to and
diversify its products and the markets it serves, the Company will insulate
itself from potential volatility due to declines in any particular market served
by the Company's products.
Historically, the sale of the Company's products has primarily been
limited to North America and Europe. The Company has sought to increase its
international sales because it believes demand and opportunity for its products
are increasing in direct proportion to the development of process industries
such as chemical, food and pharmaceutical in countries outside of the North
American and Western European markets. The Company's ability to compete in
certain countries, particularly Japan, is restricted by trade laws in such
countries. Further, the Company's ability to sell its products internationally
is limited by its marketing and manufacturing ability. The Company estimates
that approximately $500,000 for new inventory and $150,000 for additional sales
and marketing expenditures is required to support international market expansion
and sales growth. The Company enjoys access to customers through the worldwide
customer base of UPE, and occasionally utilizes UPE's network of company owned
offices and personnel around the world. The only cost incurred for the
utilization of UPE's offices and personnel is the payment of a commission on
actual sales originated. The Company believes this relationship will help the
Company increase its sales. The Company does not believe, however, that the
termination of this relationship , which is not anticipated, would have a
significant material adverse effect on the Company's results of operations.
The Company's capital equipment products and technologies were
developed throughout the 20th century. Historically, the Company's products life
cycles have been relatively long term. There can be no assurance, however, that
such products will continue to be viable in the future. The Company has over the
past eighteen months introduced a new product, the Tower Filter Press, and
acquired a new product line, high temperature furnaces through BAM. The Company
continues to evaluate other products and companies that have the potential to
complement the Company's existing products and business. More recently, the
Company has begun to purchase and sell used process and environmental equipment
as an adjunct to its new equipment capabilities and its rebuild capabilities.
The Company has been able to enter this market in the last year through
financing obtained from CIT . The Company has also utilized UPE's expertise to
advise it on certain purchases and UPE and the Company have jointly purchased
certain pieces of equipment. The Company believes this venture could improve its
financial condition and results of operations. The Company believes
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this business activity complements its other activities and permits it to serve
customers who either cannot afford the cost or lead time for new equipment .
In the future, the Company intends to continue to enhance existing
products and explore new opportunities and the possibility of strategic
partnerships with existing and new customers. The Company will also seek to
develop joint ventures with several of its customers to develop new processes.
There can be no assurance, however, that the Company will be able to
successfully implement any of these strategies or that, if implemented, these
strategies will improve the Company's financial position or results of
operations.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED MAY, 31 1996 COMPARED TO FISCAL YEAR ENDED MAY 31, 1995
Revenues of $18,078,000 for the fiscal year ended May 31, 1996
represent an increase of 24% over the fiscal year ended May 31, 1995 level of
$14,541,000. The principal reason for the increase in revenues was an increase
in sales due to expansion in the chemical process industry . Several major
contracts in the Company's proprietary equipment line, part of the Heat Transfer
Process Unit and in the Specialty Heavy Machining and Fabrication Services Unit
were awarded during this period.
The Company's largest customer in the Heat Transfer Process Unit
accounted for 30% of the Company's net sales in fiscal 1996. Other major
contracts awarded were with Fortune 500 companies.
Export sales for the fiscal year ended May 31, 1996 equaled $953,000
(5% of revenue) compared to $4,687,000 (32% of revenue) for the year ended May
31, 1995. In fiscal 1996 export sales were to Israel, Indonesia, Japan, Finland,
United Kingdom and Canada. The largest total for a single country was $236,000
for Israel. In fiscal 1995 export sales were to Indonesia, Canada, Korea and
Netherlands with the bulk of such sales coming from single sales of $2,030,500
and $1,780,920 in Canada and Indonesia, respectively. Also, current backlog
which is composed of orders received in fiscal 1996 includes approximately
$4,000,000 in sales to the Netherlands and Indonesia. All sales were in U.S,
dollars, therefore, currency fluctuations did not affect the transactions.
Gross profit equaled $4,867,000 (27% of revenues) for the fiscal year
ended May 31, 1996 compared to a gross profit of $2,581,000 (18% of revenues)
for the fiscal year ended May 31, 1995. The increased gross profit was primarily
attributable to increased sales in the Company's proprietary product lines which
produced higher profit margins than had been historically experienced in these
lines. These higher margins were a result of the implementation of a timely
method of reviewing and revising all major quotations, cost estimates and work
in process.
Backlog as of May 31, 1996 was $10,464,000 compared to backlog at May
31, 1995 of $3,443,000. New orders received by the Company were $25,099,000 for
fiscal 1996 compared to new orders of $11,519,000 for fiscal 1995, including new
orders from related parties of $994,000 and $2,015,000 respectively.
The Company reported operating income of $1,038,000 for the fiscal year
ended May 31, 1996 as compared to operating income of $224,000 for the fiscal
year ended May 31, 1995. Selling and Administrative expenses increased for the
year ended May 31, 1996 to $3,829,000 (21% of net revenues) as compared to
$2,357,000 (16% of net revenues) for the fiscal year ended May 31, 1995. The
implementation of the Company's sales and marketing programs called for an
increased sales force as well as increased advertising, travel and marketing
expenditures to expand entry into potential foreign markets and support product
sales. The increase in administrative expense was due to increased salary
expense for both
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management and support staff combined with increases in financing costs, legal
and professional fees. Included in administrative expense are certain non
recurring expenses of approximately $300,000 associated with the asset
acquisition made by BAM and other miscellaneous administrative expenses.
Approximately $250,000 of prior year's pension obligation is also classified as
administrative expense. The Company recorded additional bad debt reserve because
one of its customers sought protection under the Canadian Bankruptcy and
Insolvency Act. The Company has a security interest in the equipment it sold to
the customer related to this account receivable. In addition, UPE, a supplier of
certain equipment which was sold to this customer by the Company, has agreed to
a chargeback equal to one-half of the loss on this bad debt. The Company has
included in its allowance for doubtful accounts one half of the difference
between the accounts receivable balance and the cost of the equipment expected
to be recovered. It is possible that the actual loss on this receivable may
exceed the amount received by the Company. In addition, the Company has
submitted a proposal on behalf of itself and several other companies to
restructure the Canadian entity pursuant to a Plan of Management under the
Canadian Business Corporation Act. If the proposal is accepted, the Company may
convert all or a portion of its receivable into equity in the Canadian entity.
See "Risk Factors - - Losses on Major Contracts."
Other expenses equaled $536,000 for the year ended May 31, 1996
compared to $118,000 for the year ended May 31, 1995. The increase in other
expenses was primarily the result of increased interest expenses incurred on a
restructured real estate mortgage loan and the secured term loan and line of
credit obtained in July, 1995. Net income for the year ended May 31, 1996
equaled $465,000 as compared to net income of $105,000 for the year ended May
31, 1995. During the year ended May 31, 1996, the management of the Company
concluded that certain legal fees totalling $125,000 capitalized during the year
ended May 31, 1995 would have been more appropriately accounted for had they
been expensed. Accordingly, the financial statements for the year ended May 31,
1995 have been restated to recognize these legal fees totalling $125,000 as an
expense.
The Company has begun to purchase and sell used process equipment as an
adjunct to its new equipment and rebuild capabilities. The Company has been able
to enter this market in the last year through the additional sources of
financing obtained from CIT. The Company has utilized UPE's expertise in this
area to advise it on certain purchases and has purchased certain pieces of
equipment jointly with UPE. The Company believes this venture could positively
impact revenues, profits and cash flow because used equipment sales generally do
not require significant labor costs. As a result, the Company can recover its
investment in the equipment more quickly.
In summary, the Company's results of operations have improved due to
the following factors:
- Increased domestic sales and marketing efforts;
- Expansion of the senior management team;
- Increased production efficiency; and
- Joint marketing efforts with UPE, the Company's major
shareholder.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 1996 the Company had working capital of $176,439. Net cash
used for operating activities was $1,889,000 for fiscal 1996 compared to net
cash provided by operating activities for fiscal 1995 of $784,000.
During the fiscal year ended May 31, 1996, the Company's accounts
receivable, inventory and accounts payable increased. The increased accounts
receivable in fiscal 1996 was due to increased sales volume. The increased
inventory in fiscal 1996 was due to increased sales volume which resulted in
increased production in the Company's new equipment product lines and the
Company's ability to purchase equipment through
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additional financing obtained from CIT. Inventory consists of finished goods,
raw materials and work in process. Finished goods inventory consists of new and
used processing equipment that the Company is marketing and is in the business
of selling as an adjunct to its new equipment and rebuild capabilities. This
equipment is valued at the lower of cost or market value. It is anticipated that
approximately 42% of the Company's finished goods inventory will not sell within
one year. That portion of the inventory is classified as a non current asset.
Historically, this type of equipment has maintained market value. However, no
estimate can be made of the possible loss should the Company be unable to sell
this inventory. The Company believes that the related reserves were adequate at
May 31, 1996.
The significant increase in accounts payable is due to the
increased sales volume which required major material purchases. In addition,
accounts payable at May 31, 1996 include those of BAM which was formed in
September 1995 and acquired the assets of the American Furnace Division of Third
Millennium Products in November 1995. Currently the Company is delinquent with
respect to certain accounts payable. In some instances the Company has
negotiated new payment terms. If the Company's working capital position does not
improve, the Company's delinquencies with its accounts payable could adversely
effect the Company's future ability to structure favorable terms in the purchase
of materials and services.
Cash provided by financing activities equalled $2,629,000 for the
fiscal year ended May 31, 1996 compared to cash used for financing activities
for the fiscal year ended May 31, 1995 in the amount of $613,000. 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 as follows:
(1) A $1.5 million five year first mortgage loan from Sterling . 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 bears interest at 14.25% per annum. The outstanding
principal and interest is 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. As of
August 30, 1996, the amount outstanding under the loan was
$1,469,035. 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 of the
Company's Common 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 CIT , 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 August 30, 1996 was $627,000 on the term loan and $1,702,000
on the secured credit line. As of
August 30, 1996, the interest rate on both the term loan and the
secured credit line was 11.25%. 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
<PAGE>
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 CIT's
financing agreements with UPE. The Company granted warrants to CIT
to purchase 50,000 shares of the Company's Common Stock.
By securing this funding, the Company expanded working capital, made
available additional capital for inventory acquisition and increased liquidity.
A total advance in the amount of $250,000 was made under the
existing secured line of credit loan facility with CIT at an interest rate of
11.25% in August and September of 1996 to fund inventory, laboratory renovation
and computer equipment, such amount will be repaid from the proceeds of this
Rights Offering.
From time to time in the ordinary course of business, UPE advances
funds to the Company to enable the Company to meet certain temporary cash
requirements. These advances are repaid from operations. During May 1996, the
Company received a $310,000 advance from UPE. This advance was repaid in June
and August 1996. In August 1996, $250,000 was advanced to the Company by UPE. As
of September 16, 1996, this advance remains outstanding.
Capital expenditures were $659,000 during fiscal 1996 versus
$133,000 in fiscal 1995. The increase in capital expenditures was due primarily
to the acquisition and construction of high temperature furnaces for toll
processing and renovations to existing manufacturing and office buildings. The
Company's current commitment for capital expenditures is less than $50,000. If
the Company receives sufficient net proceeds from this Rights Offering, the
Company intends to continue to renovate its one-story office building and
laboratory and upgrade roofs on several of its manufacturing facilities. See
"Business --Properties." The Company also intends to purchase laboratory
equipment and a management information system/network. Additional capital
expenditures will be dependent upon whether the Company engages in significant
expansion opportunities.
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. There can be no
assurance that any additional financing, if required, will have a material
adverse effect on the operations of the Company.
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 OPERATING LOSS CARRYFORWARD
At May 31, 1996 the Company had approximately $4.7 million of
unused federal net operating losses and $119,000 of unused federal investment
and research tax credit carryforwards. The Company has determined that the
Rights Offering will not effect a change of control of the Company, which would
result in material limitations on the use of such carryforwards to offset future
taxable income.
FORWARD LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act, and Section 21E of the
Exchange Act which are intended to be covered by the safe harbors
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created thereby. Although the Company believes that the assumptions underlying
the forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward-looking statements included in this Prospectus will prove to be
accurate. Factors that could cause actual results to differ from the results
discussed in the forward-looking statements include, but not limited to, those
discussed in "Risk Factors." In light of the significant uncertainties inherent
in the forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the objectives and plans of the Company will be achieved.
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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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
non- hazardous 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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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. BAM has built
and currently operates for a customer a furnace for carbonization of
carbon-carbon brake materials for several aircraft programs .
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, 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.
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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 customer, Eastman Chemical, accounted for 30%
of the Company's net sales for fiscal year ended May 31, 1996 . The Company
anticipates that Eastman Chemical will also be a significant customer for the
fiscal year ending May 31, 1997. During fiscal year ended May 31, 1995, the
Company four largest customers accounted for 17%, 13%, 12% and 12% of the
Company's revenues. General Dynamics accounted for 13% of the Company's revenues
in fiscal 1995 and 5% of the Company's revenues in fiscal 1996. Universal
Process Equipment, Inc. accounted for 17% of the Company's revenues in fiscal
1995 and 5% of the Company's revenues in fiscal 1996. Caswan Environmental
Services, Ltd. accounted for 12% of the Company's revenues in fiscal 1995 and 2%
of the Company's revenues in fiscal 1996. New Jersey Chemical Co. accounted for
12% of the Company's revenues for fiscal 1995 and 2% of the Company's revenues
in fiscal 1996.
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 and 6% of total sales in fiscal 1996. The Company's active customers for
high temperature furnaces and tolling services are Allied Signal, Mitsubishi
Chemical, UCAR Carbon and Hughes Missile Systems . 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.
The margins received on sales by independent representatives exceed
those received on direct sales by Company personnel. The Company's commission
program with respect to such independent representatives varies depending on the
type of product sold and the volume of sales over the course of a year. The
percentage of sales generated from such independents equaled approximately 20%
of total sales for the fiscal year ended May 31, 1995 and the fiscal year ended
May 31, 1996 and it is anticipated that the percentage of sales in the future
will also be approximately 20%.
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BACKLOG
As of May 31, 1996, the Company had a backlog of orders equaling
$10,464,000. The Company had a backlog of $3,443,000 as of May 31, 1995. Orders
comprising current backlog are expected to be filled during the fiscal year
ending May 31, 1997.
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 ended May 31, 1996 were Interstate Steel Supply Co., G.O.
Carlson, Inc., Shenango Industries, Inc., Universal Process Equipment (see
"Certain Transactions"), Bush Miller, Thypin Steel, and, in connection with the
high temperature furnace business, UCAR, Hajoca, and Graybar Electric.
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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 process will
prove commercially feasible or that the Company will derive any revenue from the
License Agreement. In the event that the process described herein does prove to
be commercially feasible, the License Agreement provides for certain royalty fee
payments to be made to Sandia.
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 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, Seco/Warwick, Chugai Ro, Ipsen GMBH, AVS, Inc., FCT,
Fujidempa, Abar Ipsen and Harper International Corp. The Company's competitors
in providing toll processing services include Textron and Zoltek Companies, Inc.
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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 September 16, 1996, the Company had 147 full-time employees,
including 22 employees of BAM. Of these, 121 are engaged in manufacturing and
technical services, 10 in marketing and sales and 16 in administrative
functions.
The production employees at the Easton, Pennsylvania facility (77
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.
The Company unilaterally "opted in" to a group settlement in U.S.
vs. Charles Chrin, et al. ("Charles Chrin"). The proposed consent decree in this
matter is undergoing final draft revisions and will be submitted for court
approval after a hearing. The Company paid in a total of $55,000 toward the
group settlement in exchange for a covenant not to sue by the United States
pursuant to Section 107(a) of the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, or Section 7003 of the Resource
Conservation and Recovery Act of 1976. Apart from Charles Chrin, the Company has
not received, or is aware of any threatened submission of, any "potentially
responsible party" or similar notices under federal, state or local law with
respect to environmental damages. See "Business of the Company--Environmental
Impact and Regulation."
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.
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PROPERTIES
The Company operates from two properties, one in Easton,
Pennsylvania and one in Knoxville, Tennessee.
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 . Once that renovation is complete, management believes that its
Easton facilities will be in satisfactory condition and adequate for its present
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
As of September 16, 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
Commencing in 1990 and continuing through 1996, Federal Boiler
Company ("FBC"), a wholly-owned, inactive subsidiary of the Company, formed in
1986, was named as one of numerous defendants in cases brought in State Court in
Philadelphia County, Pennsylvania. FBC was named as a defendant in fifty-three
lawsuits in which it was sued for asbestos related reasons stemming from boilers
manufactured in the 1940's and 1950's by a previous company known as Federal
Boiler. The Company successfully obtained summary judgments in thirty-seven of
the fifty-three cases, and legal counsel is filing summary judgment motions for
the remaining cases.
The Company's legal counsel believes the courts will grant FBC
summary judgments on these cases on the following grounds:
1. FBC is not the Federal Boiler Company who manufactured the
products in question and therefore does not have any successor
liability.
2. The lawsuits were wrongfully asserted against FBC as FBC did not
manufacture the boilers in question.
3. FBC did not use asbestos in the manufacture of its products.
4. None of the plaintiffs were exposed to FBC's products or, if they
were exposed to an FBC product, the FBC's product legally could
not have caused their injuries.
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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
has not commissioned any report or solicited any person or entity to provide
advice or guidance with respect to the establishment of the Subscription Price.
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."
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 285,000 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
_________, 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
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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.
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. 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 (800) 937-5449 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
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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
Telephone Number: (800) 957-5449
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 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
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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. (718)
236-4588. 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 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
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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, 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.
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.
Officers and Directors and other persons or entities who may be
deemed affiliates of the Company may only sell their Rights in accordance with
the restrictions and requirements of Rule 144 under the Securities Act other
than the two-year holding period requirement.
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.
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In connection with the Offer of Rights, the Company has not engaged
(i) a broker-dealer to solicit the exercise of Rights or (ii) any entity which
will have a "stand by" commitment with respect to the exercise of Rights.
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.
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.
As of September 16, 1996, the closing sale price of the Company's
Common Stock was $2.00 per share. As of such date, there was a total of
1,623,334 options and warrants which were presently exercisable and "in the
money ." The exercise prices of such options and warrants ranged from $.33 to
$1.87. In addition, the exercise price of warrants to purchase an aggregate of
1,540,000 shares of Common Stock, at exercise prices ranging from $.33 to $1.87
will be adjusted by this Rights Offering, due to the anti-dilution provisions of
such warrants. As a result, there will be dilution to the holders of Common
Stock exercising Rights of $ per share. The holders of the Company's warrants
also have "piggy-back" registration rights which do not apply to this Rights
Offering or have been waived by such holders. See "Description of Capital
Stock."
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INTENT OF UPE AND CERTAIN OFFICERS AND DIRECTORS
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 $___________ 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 285,000 Rights they receive,
including Rights they receive in respect of Common Stock to be acquired upon
exercise of options prior to the Record Date.
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. The following summary has been prepared by Olshan Grundman Frome &
Rosenzweig LLP. 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. The Company is not seeking an opinion of counsel with
respect to the federal income tax consequences of the receipt and/or exercise of
the Rights. Holders of Common Stock should consult with their own tax counsel
before they exercise their Rights.
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.
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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.
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.
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:
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
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 48 Vice President of Manufacturing
Clarence T. Lind 59 Vice President of Sales, Marketing & Technology
Linda J. Wright 46 Vice President of Administration
Harold Bogatz 58 Director and Secretary
Ronald H. Gale 45 Director
Jan P. Gale 42 Director
James L. Leuthe 54 Director
O. Karl Dieckman 83 Director
B. Ord Houston 83 Director
Robert F. Bacigalupo 65 Honorary Director
</TABLE>
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<PAGE>
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; Controller of the
Company since February 1992; and Accounting Manager of the Company from June
1988 to 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, an international supplier of complete process plants and
equipment and manufacturer of new equipment in the United States and Europe,
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 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.
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<PAGE>
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.
Salvatore Zizza and Harold Bogatz, who first became directors on
December 12, 1995, were each granted options to purchase 10,000 shares on
December 12, 1995 pursuant to the Company's 1994 Stock Option Plan (the "1994
Stock Option Plan"). Also, Directors, Dieckman, Houston, R. Gale, J. Gale and
Leuthe were granted options to purchase 500 shares on December 12, 1995 pursuant
to the Company's 1994 Stock Option Plan (the "1994 Stock Option Plan"). The
options have an exercise price of $2.875 per share which was the fair market
value of the Company's Common Stock on December 12, 1995. All options granted
under the 1994 Stock Option Plan are exercisable over a three-year period
commencing one year 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 year ended December 1993, during
the five month transition period ended May 31, 1994 and during the fiscal years
ended May 31, 1995 and May 31, 1996 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, 1996 (the "Named
Executive Officers").
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<PAGE>
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>
James L. Leuthe Former 1996 -- -- -- -- $ 672
Chairman and Chief 1995 -- -- -- -- 672
Executive Officer(2) 1994(3) -- -- -- -- 280
1993 -- -- -- -- 672
Alan H. Silverstein 1996 118,655 46,850 7,295(4) -- 11,925
President and Chief 1995 110,000 30,698 5,472(4) -- 11,925
Executive Officer(5) 1994(3) 36,667 -- 1,824(4) 260,000 224
Clarence T. Lind 1996 90,000 26,350 4,369(4) 20,000 672
Vice President
Sales, Marketing and
Technology(6)
</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.
(6) Mr. Lind was elected Vice President of Sales, Marketing and Technology 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 than
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<PAGE>
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.
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, 1996 to the Named Executive
Officers.
<TABLE>
<CAPTION>
Number of
Securities Percentage of Total
Underlying Options Granted to Per Share
Name Options Granted Employees Exercise Price Expiration Date
- --------------------- --------------- -------------------- ------------- ---------------
<S> <C> <C> <C> <C>
Clarence T. Lind 5,000 3.3% $ 2.50 12/21/05
15,000 10.0% $ 2.00 03/27/06
</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, 1996. No stock options were exercised by any such officer during the fiscal
year ended May 31, 1996.
AGGREGATED FISCAL YEAR-END OPTION VALUES
Number of
Unexercised Options at Value of Unexercised in-
May 31, 1996 the-Money Options at
May 31, 19961
Exercisable/
Unexercisable Exercisable/ Unexercisable
Name ------------------------ ----------------------------
- ----
Alan H. Silverstein 260,000/0 405,625/0
Clarence T. Lind 0/20,000 0/8,700
- --------------------
1 On May 31, 1996 the last reported sales price of the Company's Common Stock as
reported by the American Stock Exchange was $2.56 per share.
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<PAGE>
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,
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.
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<PAGE>
1994 STOCK OPTION PLAN
The Company's 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 determined 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. The Committee makes its determination as
to whether an employee is a Key Employee based on such factors as whether such
employee is serving in a managerial capacity and its assessment of the
employee's overall contribution to the Company. As of the date hereof,
approximately 21 Key Employees are eligible to participate in the 1994 Stock
Option Plan. As of May 31, 1996, options to purchase an aggregate of 400,000
shares of Common Stock had been granted to Key Employees of the Company. The
range of exercises prices for the options currently outstanding under the 1994
Stock Option Plan is from $0.9375 to $2.875 .
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of September 16, 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.
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<PAGE>
<TABLE>
<CAPTION>
Percent of
Name and Address of Beneficial Owner Shares Owned Beneficially Outstanding Shares
- ---------------------------------------- --------------------------------- ------------------
<S> <C> <C>
Salvatore J. Zizza 181,334 (1) 8.6
Alan H. Silverstein 260,000 (2) 11.8
O. Karl Dieckmann 42,853 (3) 2.2
Ronald H. Gale 2,263,767 (3)(4)(8)(9) 60.4
Jan Gale 2,261,767 (3)(4)(8)(9) 60.3
B. Ord Houston 20,032 (3) 1.0
Harold Bogatz 3,334 (5) *
James L. Leuthe 348,791(6) 16.8
1620 Pond Road
Allentown, PA 18104
Clarence T. Lind 4,000 *
Robert F. Bacigalupo
2433 South Oakley 150,901(7) 7.7
Chicago, IL 60608
Universal Process 2,181,600(8)(9)(10)(11) 58.4
Equipment, Inc.
P.O. Box 338
Roosevelt, NJ 08555
All directors and executive officers as a 3,204,278 73.5%
group (12 persons)
</TABLE>
- ------------------
(1) Consists of shares issuable upon the exercise of options presently
exercisable or options exercisable within 60 days of September 16, 1996.
(2) Consists of shares issuable upon the exercise of presently exercisable
options or options exercisable within 60 days of September 16, 1996.
(3) Includes 10,167 shares issuable upon the exercise of presently exercisable
options or options exercisable within 60 days of September 16, 1996.
(4) Includes 1,831,600 shares beneficially owned by UPE, in which the
individual is an officer, director and principal shareholder.
(5) 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.
(6) 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 and 135,167 shares are issuable upon the
exercise of presently exercisable options or options exercisable within 60
days of September 16, 1996. This total does not include 640 shares owned by
Mr. Leuthe's children, of which he disclaims beneficial ownership.
(7) Of this total, 140,901 shares are owned by Mr. Bacigalupo and 10,000 shares
are issuable upon the exercise of presently exercisable options or options
exercisable within 60 days of September 16, 1996. This total does not
include 2,331 shares owned by Mr. Bacigalupo's wife, 1,000 shares held in
trust
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<PAGE>
for the benefit of his son and 5,000 shares held in trust for the
benefit of his mother. Mr. Bacigalupo is the trustee of the two trusts, and
he disclaims beneficial ownership of these 8,331 shares.
(8) Includes 1,450,000 shares issuable pursuant to an option granted to UPE by
the Company on December 22, 1993 and 350,000 shares issuable pursuant to an
option granted to UPE by the Company on March 26, 1996.
(9) 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, 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 Director Option Plan and
options to purchase 167 shares granted pursuant to the 1994 Stock Option
Plan . Jan Gale individually owns 70,000 shares and has the right to
purchase 10,000 shares upon the exercise of options granted under the
Director Option Plan and options to purchase 167 shares granted pursuant to
the 1994 Stock Option Plan. Each individual disclaims beneficial ownership
of the shares individually owned by the other.
(10) 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.
(11) Information obtained from Amendment No. 1 to Schedule 13D which was filed
with the Securities and Exchange Commission on or about December 23, 1993.
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 $1,109,000 for the fiscal
year ended May 31, 1996 and $2,450,000 for the fiscal year ended May 31, 1995.
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. The 300,000 shares issued to UPE were valued by the
Company at $.75 per share, or a total of $225,000. Such shares were issued
because it was the belief of UPE and the Company that, without such settlement,
the Company would be forced to declare bankruptcy, particularly since UPE and
the Company did not believe that the Company could receive financing from
another entity. The Company and UPE also considered the cost of a bankruptcy
proceeding and the likelihood that the Company would survive a Chapter 11
proceeding .
The options to purchase 1,450,000 shares were granted in exchange
for payments made by UPE on behalf of the Company to Harrisburg under the
settlement agreement instead of reimbursing UPE in cash. The rates of exchange
are as follows: three (3) shares issued for each $1.00 in payment made by UPE,
up to a total of option to purchase 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 UPE
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<PAGE>
up to a total of options to purchase 1,000,000 additional shares in exchange for
a total of $750,000 in additional payments.
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.
From time to time in the ordinary course of business, UPE advances
funds to the Company to enable the Company to meet certain temporary cash
requirements. These advances are repaid from operations. During May 1996, the
Company received a $310,000 advance from UPE. This advance was repaid in June
and August 1996. In August 1996, $250,000 was advanced to the Company by UPE. As
of September 16, 1996, this advance remains outstanding.
As of June 1, 1996 the Company began a three year profit sharing
arrangement with UPE. This arrangement was agreed upon as consideration for
UPE's role in identifying, introducing, screening and negotiating the
acquisition of the assets of the American Furnace Division of Third Millennium
Products Inc., by BAM and their role in originating, negotiating, developing and
assisting in the marketing of the Tower Filter Press product line. Under this
arrangement which expires in May 1999, UPE is entitled to receive 25% of the net
pre-tax profits of BAM and the Tower Filter Press product line.
The Board of Directors has authorized the issuance of 350,000 shares
of Common Stock to UPE in consideration for a fifty percent interest in certain
resale inventory . The inventory has a retail sales value in excess of
$1,500,000 and consists of filtration, drying and other process equipment. The
specific inventory is currently being catalogued and the Common Stock will be
issued once the cataloguing is completed. The Company will work jointly with UPE
on the marketing and selling of this inventory.
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 of equity and debt financing, and relations with the financial
community and investors. Mr. Zizza receives compensation in the amount of
$60,000.
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 September 16, 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.
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<PAGE>
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 September 16, 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.
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 September 16, 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 2.1875 02/20/06
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<PAGE>
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 AND ANTI-DILUTION 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. The registration rights of the holders of the Registrable Shares
either do not apply to this Rights Offering or have been waived. In addition, in
connection with this Offering the exercise price of warrants to purchase
1,540,000 Registrable Shares held by each of Sterling, CIT and UPE will be
adjusted due to the anti-dilution provisions of such warrants. As a result,
there will be dilution to Shareholders exercising Rights of $ per share relating
to the exercise of such options and the anti-dilution provisions contained
therein.
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 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.
-52-
<PAGE>
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 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
-53-
<PAGE>
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: (800) 937-5449
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 Morrow & Company 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.
Morrow & Company
909 Third Avenue
New York, New York 10022
Telephone: (212) 754-8000
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.
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,
1996 and the consolidated statements of operations, common shareholders' equity,
and cash flows for the year ended May 31, 1996, and for the year ended May 31,
1995 included in this Prospectus, have been incorporated herein in reliance on
the report of Sobel & Co., LLC, Certified Public Accountants, 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
-54-
<PAGE>
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.
-55-
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 1996 AND 1995
INCLUDING REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
F-1
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
CONTENTS
PAGE
Independent Auditors' Report...................................... F-3
CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheet
May 31, 1996................................................F-4 - F-5
Statements of Income
for the Years Ended May 31, 1996 and 1995................... F-6
Statements of Stockholders' Equity (Deficiency)
for the Years Ended May 31, 1996 and 1995................... F-7
Statements of Cash Flows
for the Years Ended May 31, 1996 and 1995................... F-8
Notes to Financial Statements.................................F-9 - F-28
================================================================================
F-2
<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, 1996, and the consolidated statements
of income, stockholders' equity (deficiency), and cash flows for the years ended
May 31, 1996 and 1995. 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, 1996, and the consolidated
results of their operations and their cash flows for the years ended May 31,
1996 and 1995, in conformity with generally accepted accounting principles.
As discussed in Note 24 to the financial statements, an overstatement of
intangibles as of and for the year ended May 31, 1995, was determined by
management of the consolidated company during the year ended May 31, 1996.
Accordingly, the financial statements for the year ended May 31, 1995 have been
restated to reflect the correction of this overstatement.
SOBEL & CO., LLC
Certified Public Accountants
Livingston, New Jersey
September 4, 1996
================================================================================
F-3
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MAY 31, 1996
================================================================================
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 18,976
Accounts receivable (Net of allowance for doubtful
accounts of $124,950) 2,650,819
Accounts receivable - related parties 1,695,050
Costs and accumulated gross profit in excess of billings
on long-term contracts 1,269,655
Inventories 3,089,407
Prepaid expenses and other current assets 121,647
-----------------
Total Current Assets 8,845,554
-----------------
PROPERTY, PLANT AND EQUIPMENT, at cost 9,319,480
Less accumulated depreciation and amortization (6,977,215)
-----------------
Property, Plant and Equipment, Net 2,342,265
-----------------
OTHER ASSETS:
Goodwill (net of $9,935 of accumulated amortization) 387,459
Deferred financing costs 195,809
Inventories, net of current 2,203,142
Intangible pension and deferred compensation plan assets 172,953
Other 151,523
-----------------
Total Other Assets 3,110,886
-----------------
$14,298,705
=================
================================================================================
See notes to consolidated financial statements. F-4
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Continued)
MAY 31, 1996
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Current maturities of long-term debt $ 307,389
Accounts payable 4,361,421
Accounts payable - related parties 2,194,500
Accrued liabilities 635,385
Contract billings in excess of costs and accumulated gros
profit on long-term contracts 310,506
Advances on short term contracts 238,377
Commissions payable 176,961
Payroll and state income taxes payable 134,576
Note payable - related party 310,000
--------------
Total Current Liabilities 8,669,115
--------------
OTHER LIABILITIES:
Accounts payable - long-term 1,360,225
Long-term debt, net of current maturities 4,593,764
Deferred compensation and other pension liabilities 999,786
--------------
Total Long-Term Liabilities 6,953,775
--------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Preferred stock - authorized, 5,000,000 shares
without par value, none issued or outstanding -
Common stock - authorized, 20,000,000 shares
without par value, stated value of $.50 per share;
1,938,532 shares issued; 1,938,520 shares outstanding 969,266
Additional paid-in capital 4,932,176
Accumulated deficit (7,225,617)
--------------
(1,324,175)
Less - treasury stock, at cost, 12 shares 10
--------------
Total Stockholders' Equity (Deficiency) (1,324,185)
--------------
$14,298,705
==============
================================================================================
See notes to consolidated financial statements. F-5
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
================================================================================
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1996 1995
------------ ------------
<S> <C> <C>
NET SALES $ 18,077,726 $ 14,540,591
COST OF GOODS SOLD 13,211,211 11,959,486
------------ ------------
GROSS PROFIT 5,111,988 2,581,105
------------ ------------
SELLING AND ADMINISTRATIVE EXPENSES:
Selling 1,270,253 677,055
Administrative 2,558,470 1,679,818
------------ ------------
3,828,723 2,356,873
------------ ------------
Income from Operations Before Other
Income (Expenses) and Income Taxes 1,037,792 224,232
------------ ------------
OTHER INCOME (EXPENSES):
Interest expense (530,470) (253,940)
Gains on sales of equipment -- 72,092
Royalty income - related party -- 35,500
Other (15,671) 19,709
Interest income 9,780 8,166
------------ ------------
(536,361) (118,473)
------------ ------------
Income before provision for income taxes 501,431 105,759
PROVISION FOR INCOME TAXES 36,000 1,105
------------ ------------
NET INCOME $ 465,431 $ 104,654
============ ============
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE:
Primary $ .14 $ .04
============ ============
Assuming full dilution $ .14 $ .03
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES OUTSTANDING
Primary 3,219,517 2,946,423
============ ============
Fully diluted 3,259,686 3,026,762
============ ============
</TABLE>
================================================================================
See notes to consolidated financial statements. F-6
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS 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 May 31, 1994 1,888,532 $ 944,266 $ 4,594,628 $(7,795,702) 12 $ (10) $(2,256,818)
Net Income for the Year Ended
May 31, 1995 -- -- -- 104,654 -- -- 104,654
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at May 31, 1995 1,888,532 944,266 4,594,628 (7,691,048) 12 (10) (2,152,164)
Net Income for the Year Ended
May 31, 1996 -- -- -- 465,431 -- -- 465,431
Issuance of Common Stock 50,000 25,000 129,000 -- -- -- 154,000
Receipt of Used Equipment
Inventory from Related Party -- -- 208,548 -- -- -- 208,548
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at May 31, 1996 1,938,532 $ 969,266 $ 4,932,176 $(7,225,617) 12 $ (10) $(1,324,185)
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
================================================================================
See notes to consolidated financial statements. F-7
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1996 1995
------------------------- ---------------------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR):
OPERATING ACTIVITIES:
Net income $ 465,431 $104,654
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Depreciation and amortization 385,953 287,768
Gains on sales of equipment - (72,092)
Accrued loss on contracts and obsolete inventory write-offs 67,451 88,459
(Increase) decrease in assets:
Accounts receivable (1,181,640) (640,256)
Accounts receivable - related parties (666,193) (767,652)
Inventories (3,508,649) (426,033)
Prepaid expenses and other current assets 34,064 (40,622)
Costs and accumulated gross profit in excess of billings (530,935) -
Other assets (68,471) 30,590
Increase (decrease) in liabilities:
Accounts payable 2,855,972 1,301,330
Accounts payable - related parties 812,597 1,102,321
Accrued liabilities (58,757) (54,784)
Billings in excess of costs and accumulated gross profit (37,971) (772,743)
Advances on contracts 98,377 -
Commissions payable (63,237) (16,790)
Payroll and state income taxes payable (584,589) 603,080
Deferred compensation and pension liabilities 91,509 57,009
------------------------- ---------------------
Net Cash Provided by (Used for)Operating Activities (1,889,088) 784,239
------------------------- ---------------------
INVESTING ACTIVITIES:
Purchase and construction of property, plant and equipment (659,260) (133,385)
Proceeds from the sales of equipment - 77,792
Increase in deferred financing costs (212,895) (25,000)
------------------------- ---------------------
Net Cash Used for Investing Activities (872,155) (80,593)
------------------------- ---------------------
FINANCING ACTIVITIES:
Borrowings on line of credit 13,646,842 -
Repayments on line of credit (11,886,383) -
Proceeds from issuance of long-term debt 860,268 -
Principal payments on long-term debt (301,367) (612,912)
Proceeds from notes payable - related party 310,000 -
------------------------- ---------------------
Net Cash Provided by(Used for) Financing Activities 2,629,360 (612,912)
------------------------- ---------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (131,883) 90,734
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 150,859 60,125
------------------------- ---------------------
CASH AND CASH EQUIVALENTS -
END OF PERIOD $ 18,976 $150,859
========================= =====================
</TABLE>
================================================================================
See notes to consolidated financial statements. F-8
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- --------------------------------------------------------------------------------
DESCRIPTION OF BUSINESS:
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, 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 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 wholly-owned subsidiaries (the "Company"). All significant
intercompany transactions and balances have been eliminated in consolidation.
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. Profit on short-term contracts are
recognized on 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 or when it
is ready for shipment to a customer. Progress billings applicable to their
contracts have been recorded as advances on contracts on the accompanying
balance sheet.
Losses on long-term and short-term construction contracts are recorded at the
time the losses are determined to be probable and can be reasonably estimated.
Changes in job performance, job conditions, and estimated profitability may
result in revisions to costs and income, which are recognized in the period in
which the revisions are determined. For long term contracts the accumulated
gross profit, changes in estimated job profitability resulting from job
performance, job conditions, contract penalty provisions, claims, change orders,
and settlements, are accounted for as changes in estimates in the current
period.
The asset, "Costs and accumulated gross profit in excess of billings,"
represents revenues recognized in excess of amounts billed on long term
contracts. The liability "Contract billings in excess of costs and accumulated
gross profit" represents billings in excess of revenues recognized on long term
contracts.
Revenues from sales of new or used equipment is recorded when the product is
shipped.
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
The Company utilizes the allowance method for determining bad debts based upon
management's evaluation of outstanding receivables. Where a bad debt is secured
by a collateral interest in equipment sold to the customer, the allowance is
equal to the difference between the amount due from the customer and the cost or
net realizable value of the collateral, which ever is less.
INVENTORIES:
Inventories are stated at the lower of cost (principally first-in, first-out) or
market. Inventoried costs relating to any contracts accounted for under the
completed contract method are stated at the actual production cost, including
factory overhead incurred to date. Inventoried costs are reduced to the lower of
cost or market by charging costs in excess of estimated net realizable value to
cost of goods sold.
================================================================================
F-9
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT POLICIES: (Continued)
- --------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are recorded at cost. The cost of self-constructed
assets include material, direct labor and overhead expenses. Betterments and
extraordinary repairs that extend the useful life or functionality of an asset
are capitalized, other repairs and maintenane charges are expensed as incurred.
Depreciation and amortization are provided in amounts sufficient to amortize the
cost of depreciable assets over their estiamted useful lives on a straight-line
basis.
The estimated useful lives of the principal classes of assets are as follows:
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
Equipment of capital leases 3 to 5 years
GOODWILL:
The excess of the purchase price over net assets acquired by BAM have been
recorded as goodwill. Goodwill is being amortized on a straight line basis over
a period of twenty years. Amortization was $9,935 and $ 0 for the years ended
May 31, 1996 and 1995, respectively.
DEFERRED FINANCING COSTS:
Costs incurred with the origination of financing have been capitalized and are
being amortized over the term of the related debt. Loan origination costs, which
amount to $237,895 include discount fees, legal fees and brokerage fees. Any
remaining balance in Deferred Financing Costs related to a specific debt is
written off in the period such debt is refinanced or becomes due. Amortization
expenses on the deferred financing costs equalled $46,086 for the year ended May
31, 1996.
RIGHTS OFFERING COSTS:
Professional fees incurred in connection with a Stock Rights Offering being
undertaken by the Company have been capitalized and will be offset against the
proceeds obtained from the offering. If in a period it is determined the Rights
Offering will not be successful, the Company will write-off the capitalized
costs against income in such period.
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
average market price for the year ended May 31, 1996. For the year ended May 31,
1995, the company used the market price at May 31, 1995 because the price was
higher than the average.
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.
INCOME TAXES:
The Company utilizes the asset and liability method of accounting for income
taxes pursuant to 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 primarily 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.
================================================================================
F-10
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
- --------------------------------------------------------------------------------
CASH EQUIVALENTS:
The Company considers investments with original maturities of three months or
less to be cash equivalents.
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.
PROSPECTIVE ACCOUNTING CHANGES:
In 1995, the FASB issued SFAS 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of", which requires the Company
to evaluate the recoverability of long-lived assets, if facts and circumstances
indicate possible impairment. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset would be compared to the
assets carrying amount to determine if a write-down to market value or
discounted cash flow is required.
In 1995, the FASB issued SFAS 123 "Accounting for Stock-Based Compensation",
which describes a method of accounting for stock compensation plans that is
based on the fair value of employee stock options and similar equity
instruments. The method is in contrast to that described in APB 25, which is
based on the intrinsic value of equity instruments. The Company is permitted to
continue using the method of accounting described in APB 25, but is required to
disclose proforma net income and earnings per share, determined as if the fair
value method of FASB 123 had been used to measure compensation cost.
Both of these pronouncements become effective for the Company's financial
statements for fiscal year ending May 31, 1997. The Company believes that the
future adoption of these pronouncements will not have a significant impact on
results of operations or financial position.
RECLASSIFICATION:
Certain items for the year ended May 31, 1995 have been reclassified to conform
with the 1996 presentation.
- --------------------------------------------------------------------------------
NOTE 2 - ACCOUNTS RECEIVABLE:
- --------------------------------------------------------------------------------
Accounts receivable are comprised of the following at May 31, 1996:
Billed (net of allowance
for doubtful accounts of $124,951) 2,118,318
Unbilled receivables 469,171
Retention on contracts 63,330
----------
$2,650,819
==========
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 or equipment is shipped.
Unbilled receivables represent revenues earned on contracts accounted for on the
completed contract method not billed by the Company at May 31, 1996.
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. All of the
retentions are expected to be collected within the next fiscal year.
In May 1996, a customer that owes the Company $575,000 sought protection under
the Canadian Bankruptcy & Insolvency Act. The Company has a security interest in
the equipment it sold to the customer related to this accounts receivable. In
addition, UPE, a related party and the supplier of certain equipment to the
Company sold to this customer, has agreed to a chargeback equal to one half of
the actual loss on this bad debt. The Company has included in its allowance for
doubtful accounts one half of the difference between the accounts receivable
balance and the cost of the equipment expected to be recovered. It is possible
that the actual loss on this receivable may exceed the amounts received by the
Company.
================================================================================
F-11
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 3 - LONG-TERM CONTRACTS:
- --------------------------------------------------------------------------------
At May 31, 1996, costs, estimated earnings, and billings on uncompleted
long-term contracts accounted for on the percentage of completion method are
summarized as follows:
Costs incurred on long term contracts $4,966,732
Estimated earnings 3,175,235
--------------------
8,141,967
Less billings to date (7,182,818)
--------------------
$ 959,149
====================
These amounts are included in the accompanying balance sheet under the following
captions:
Contract costs in excess of billings
and accumulated gross profit on
long term contracts $1,269,655
Billings in excess of costs and
accumulated gross profit on
long term contracts (310,506)
--------------------
$ 959,149
====================
- --------------------------------------------------------------------------------
NOTE 4 - INVENTORIES:
- --------------------------------------------------------------------------------
The components of inventories are comprised of the following at May 31, 1996:
Finished goods $3,531,673
Raw materials and components 169,197
Work in process 1,591,679
----------
5,292,549
Less amount classified as a
long-term asset 2,203,142
----------
$3,089,407
==========
At May 31, 1996, the Company's finished goods inventories consist of new and
used processing equipment for resale. The processing equipment is specialized
with a limited customer base. Based upon management's experience, 40% of the
finished goods inventory will not sell within one year. As a result, the company
has classified as a non-current asset that portion of the inventory that is not
expected to sell within one year. 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.
The Company provides for the write-down of specific raw material and finished
goods inventory to net realizable value. Such write-downs approximated $39,800
and $88,000 for the years ended May 31, 1996 and 1995, respectively. In
addition, for the year ended May 31, 1996 the company has established a reserve
for inventory writedowns of approximatley $64,500. While management believes the
Company is carrying inventories at net realizable value, no estimate can be made
of a range of possible loss should the Company be unable to sell the
inventories.
Work in process consists of costs (including materials, direct labor and
overhead) incurred on equipment in the process of being manufactured for resale
or incurred on short term contracts that are in process and accounted for on the
completed contract method.
================================================================================
F-12
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT:
- --------------------------------------------------------------------------------
At May 31, 1996, property, plant and equipment consist of the following:
Land $ 348,250
Buildings 1,306,827
Machinery and equipment 7,281,151
Equipment under capital lease 108,093
Construction in progress 275,159
----------
9,319,480
Less accumulated depreciation and amortization 6,977,215
---------
Property, plant and equipment, net of accumulated depreciation
$2,342,265
==========
Depreciation and amortization expense on property, plant and equipment is as
follows:
YEAR ENDED MAY 31,
1996 1995
-------------- ---------------
Depreciation of buildings, machinery
and equipment $319,614 $282,965
Amortization of equipment
under capital leases 14,318 4,803
-------------- ---------------
$333,932 $287,768
============== ===============
- --------------------------------------------------------------------------------
NOTE 6 - ACCRUED LIABILITIES:
- --------------------------------------------------------------------------------
At May 31, 1996, accrued liabilities consist of the following:
Salaries and wages $322,769
Current portion of deferred compensation 102,588
Postretirement obligation (health insurance) 24,110
Other 185,918
--------
$635,385
========
================================================================================
F-13
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 7 - LEASE COMMITMENTS:
- --------------------------------------------------------------------------------
The Company leases a manufacturing facility in Knoxville, Tennessee which is
treated as an operating lease. The lease is due to expire on September 30, 2000
with two consecutive three year renewal options. Under the terms of the lease,
the Company's annual rent is $99,810, payable in monthly installments, with 3%
annual increases.
In addition to the base annual rent, the Company is responsible for the payment
of property taxes and other operating expenses.
The Company also 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:
YEAR ENDED MAY 31,
1996 1995
------------------------ ------------------------
Lease Expense $80,810 $ 11,154
======================== ========================
At May 31, 1996, the future minimum lease payments on these operating leases are
as follows:
YEAR ENDED MAY 31,
------------------
1997 $146,914
1998 121,579
1999 113,760
2000 116,996
2001 37,402
--------
$536,651
========
- --------------------------------------------------------------------------------
NOTE 8 - LONG-TERM DEBT:
- --------------------------------------------------------------------------------
At May 31, 1996, long-term debt consists of the following:
Line of credit - CIT $1,760,459
Note payable - Sterling Commercial Capital 1,477,192
Note payable - Harrisburg Authority 857,180
Note payable - CIT 666,667
Capital lease obligations 99,848
Note payable - Former corporate legal counsel 24,357
Note payable - Other 15,450
----------
4,901,153
Less current maturities (307,389)
----------
$4,593,764
==========
================================================================================
F-14
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 8 - LONG-TERM DEBT: (Continued)
- --------------------------------------------------------------------------------
NOTE PAYABLE - G.E. CAPITAL:
On July 16, 1995, the Company prepaid its note payable from G. E. Capital The
Company did not incur any prepayment penalties in connection with this payoff.
NOTE PAYABLE - STERLING COMMERCIAL CAPITAL, INC., FIRST WALL STREET SBIC, L.P.,
AND INTEREQUITY CAPITAL PARTNERS, L.P.:
In July 1995, the Company signed a $1.5 million, five year, first mortgage loan
(the Mortgage) with Sterling Commercial Capital, Inc., First Wall Street SBIC,
L.P., and InterEquity Capital Partners, L.P. The mortgage is payable in equal
monthly installments of $20,229 including interest at 14.25% commencing
September 1, 1995 with a final principal balloon payment of $1,290,317 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:
1) Provide a limited guarantee for up to $350,000 of the mortgage
payable.
2) Subordinate all of its outstanding receivables or other extensions
of the 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 of the Company's stock at $1.87 per share, the fair market value
of the stock on the date the warrants were granted.
NOTE PAYABLE - CIT GROUP/CREDIT FINANCE, INC. In July 1995 the Company signed a
five year $5 million maximum credit facility 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
Judgment) on Company owned real estate and a first lien on substantially all
other wned 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 credit
facility is for three years and is automatically renewed for an additional two
years so long as it is not terminated by either party. The credit facility
includes:
1) An $800,000 term loan requiring $13,333 monthly principal plus
interest at prime plus 3% from August 1, 1995 through July 1, 2000.
2) A line of credit against a percentage of eligible inventory not to
exceed $4,000,000 in the aggregate. The line of credit is payable
interest only at prime plus 3% until the line of credit is due in
full. At May 31, 1996 $1,760,459 is outstanding under the line.
3) 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, the fair market
value of the stock on the date the warrants were granted.
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 monthly installments of $5,000, which includes principal and
interest, through October 15, 1996.
================================================================================
F-15
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 8 - LONG-TERM DEBT: (Continued)
- --------------------------------------------------------------------------------
NOTE PAYABLE - HARRISBURG AUTHORITY:
In November 1995, as part of a settlement agreement between the Company and The
Harrisburg Authority, 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, 1996 are as follows:
1) Payable in equal monthly installments of $7,258, including interest
discounted at 10.5% due the first day of each month 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
17)
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, 1996 long-term debt maturities are as follows:
YEAR ENDED MAY 31,
------------------
1997 $ 305,877
1998 298,266
1999 312,820
2000 883,394
2001 1,340,337
-----------
$ 3,140,694
===========
CAPITAL LEASE OBLIGATIONS:
The Company acquired certain equipment under the provisions of leases that have
been capitalized for financial statement purposes. The following is a schedule
by years of future minimum lease payments together with the present value of the
net minimum lease payments as of May 31, 1996.
YEAR ENDING MAY 31,
- ----------------------------------------------------------
1997 $ 33,710
1998 33,098
1999 30,039
2000 23,663
2001 8,363
---------
Minimum lease payments 128,873
Less amount representing interest 29,025
=========
Present value of minimum
lease payment $ 99,848
=========
================================================================================
F-16
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES:
- --------------------------------------------------------------------------------
The components of the Company's deferred tax assets and liabilities are as
follows:
MAY 31,
1996 1995
------------------- ------------------
Deferred Tax Assets:
Bad debt reserve $ 66,000 $ 51,000
Inventory basis difference 27,000 6,000
Net operating loss
carryforwards 1,440,000 1,285,000
Tax credits 119,000 121,000
Lawsuit settlement 191,000 240,000
Deferred compensation
and retirement benefit 333,000 242,000
Other 70,000 66,000
------------------- ------------------
Total Gross Deferred
Tax Asset 2,246,000 2,011,000
Valuation allowance (2,014,000) (1,782,000)
------------------- ------------------
Total Deferred Tax Asset 232,000 229,000
Deferred Tax Liability:
Property, plant and
equipment (232,000) (229,000)
=================== ==================
Net Deferred Tax Asset
(Liability) $ - $ -
=================== ==================
The assumed rates used were as follows:
1996 1995
------------------- ------------------
Federal 25% 15%
State 10% 10%
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, 1996 and 1995.
The valuation allowance on the deferred assets increased by $232,000 during the
year ended May 31, 1996.
For the year ended May 31, 1996, the Company utilized net operating loss
carryforwards totalling $702,000 and $500,000 for federal and state income
taxes, respectively.
For the year ended May 31, 1995 the Company had a loss for income tax purposes
of approximately $160,000. The tax expense for the year ended May 31, 1995
related to minimum taxes for the Company and its' subsidiaries.
At May 31, 1996, the Company has approximately $4.7 million of unused federal
net operating losses and $119,000 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, 1997 through 2002. In addition, at May 31, 1996, the Company
has unused state net operating loss carryforwards of approximately $2.7 million
that expire in May 1997 and 1998.
The provision for domestic income taxes is as follows:
-----------------------------------------
YEAR YEAR
ENDED ENDED
MAY 31,1996 MAY 31, 1995
------------------- ---------------------
Current:
State $36,000 $1,105
------------------- ---------------------
The statutory federal income tax rate is reconciled to the Company's effective
income tax rate as follows:
YEAR ENDED MAY 31,
1996 1995
-------------------- -------------------
Statutory federal income
tax rate 25% 15%
Change in deferred asset
valuation reserve (25%) (15%)
-------------------- -------------------
Effective income tax rate 0% 0%
==================== ===================
================================================================================
F-17
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 10 - DEFERRED COMPENSATION PLANS:
- --------------------------------------------------------------------------------
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, 1996, the Company
has an accrued liability of $88,419 relating to its unfunded obligation. Net
periodic income related to this deferred compensation plan, primarily due to
change in estimates was as follows:
YEAR ENDED MAY 31,
1996 1995
------------------------ -----------------------
$(22,898) $(4,259)
======================== =======================
The unfunded obligations were discounted using the following discount rates:
YEAR ENDED MAY 31,
1996 1995
------------------------ -----------------------
8% 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 active employees accrued benefit obligation to a 401(k) plan.
Net periodic expense for the "Retirement Income Security Plan" in accordance
with FAS No. 87 is as follows:
1996 1995
------------------ -----------------
Service cost $ - $ 7,126
Interest expense 54,983 70,832
Transition obligation
amortization 33,378 33,378
Prior service cost and
amortization of gain (9,521) (9,490)
------------------ -----------------
$ 78,840 $ 101,846
================== =================
Weighted average
discount rate 8% 8%
================== =================
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, 1996.
Actuarial present value of benefit obligations:
Accumulated benefit obligation $657,948
========
Projected benefit obligations $657,948
Plan assets at estimated fair value -
--------
Excess of projected benefit obligation over plan assets 657,948
Unrecognized gain 149,338
Unamortized net obligation at adoption which is being
amortized over 15 years (386,624)
--------
Accrued pension expense $420,662
========
================================================================================
F-18
<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.
For the plan year beginning January 1, 1995, the plan was amended to no longer
require the Company to accrue future service benefits. 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:
YEAR ENDED MAY 31,
1996 1995
--------- ---------
Service cost $ -- $ 17,543
Interest cost on projected benefit obligation 222,918 216,629
Actual return on plan assets (502,310) (240,995)
Amortization of transition obligation 54,901 54,901
Net amortization and deferral 341,675 75,372
--------- ---------
$ 117,184 $ 123,450
========= =========
Weighted average discount rate assumed
in determining the actuarial present value
of the projected benefit obligation 8% 8%
========= =========
Expected long-term return on plan assets 8% 8%
========= =========
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, 1996
-------------
Actuarial present value of benefit obligations:
Vested benefit obligation $2,852,955
=============
Accumulated benefit obligation $2,852,955
=============
Projected benefit obligations $2,852,955
Plan assets at estimated fair value 2,497,745
-------------
Excess of projected benefit obligation over plan assets 355,210
Unrecognized net gain and prior service cost 463,965
Unamortized net obligation at adoption (399,633)
-------------
Accrued pension expense $ 419,542
=============
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
contribution of 1 1/2% of compensation. The plan is funded at the end of the
calendar year. At May 31, 1996 approximately $20,000 of employer contributions
were due to the plan. The 401K expense was $64,407 for the year ended May 31,
1996.
================================================================================
F-19
<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 also 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 utilizes Financial Accounting Standard No. 106
(SFAS No. 106), "Employers' Accounting for Postretirement Benefits Other Than
Pensions". 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:
YEAR ENDED MAY 31,
1996 1995
-----------------------------
Service cost $ 6,158 $ 5,702
Interest cost 90,712 83,993
Amortization
of transition
obligation 58,295 58,295
Expected
contributions
from retirees (131,055) (97,248)
-----------------------------
$ 24,110 $ 50,742
=============================
Discount rate 7% 7%
=============================
Medical trend rate 13.5% 13.5%
======= ======
The Company's accumulated postretirement medical benefit obligation at May 31,
1996 is as follows:
Active plan participants $ 135,111
Retirees 1,160,777
------------
1,295,888
Plan assets -
------------
Accumulated postretirement benefit
obligation in excess of plan assets $1,295,888
Unrecognized transition obligation
and net gain 1,271,778
------------
Accrued medical postretirement liability $ 24,110
============
The effect of raising health care cost trend rates 1% for each future year would
increase the accumulated benfit obligation by appoximately $130,000 and increase
the aggregate service and interest cost components of net periodic post
retirement health care benefit costs by approximately $16,000.
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 who 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 130 active and retired employees at May 31, 1996. The following
table presents accumulated postretirement life insurance benefit obligations at
May 31, 1996:
Active hourly employees $ 8,514
Inactive hourly & salaried
employees 110,128
---------
$ 118,642
---------
Accumulated postretirement
benefit obligation in excess
of plan assets $ 118,642
Unrecognized transition obligation 105,877
---------
Accrued life insurance post-
retirement liability $ 12,765
=========
Net periodic postretirement life insurance expense for premiums paid for hourly
and salaried retirees is as follows.
YEAR ENDED MAY 31,
1996 1995
-------------------------- -----------------------
$2,241 $2,284
========================== =======================
================================================================================
F-20
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 13 - 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,
1996 1995
------------------ -----------------
a) Options outstanding 25,000 42,500
b) Options available for
granting 125,000 107,500
c) Persons holding options 4 7
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 stock 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,
1996 1995
----------------- -----------------
a) Options outstanding 100,000 100,000
b) Options available for
granting 30,000 30,000
c) Directors holding options 10 10
================================================================================
F-21
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 13 - STOCK OPTIONS: (Continued)
- --------------------------------------------------------------------------------
PLAN 3:
During 1995, the stockholders approved the "1994 Stock Option Plan". 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. The
Board has granted options to twenty-one 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. The following table summarizes certain
key points of the plan:
MAY 31,
1996 1995
----------------- -----------------
a) Options outstanding 400,000 250,000
b) Options available for
granting - 150,000
c) Persons holding
options 21 1
OTHER OPTIONS:
During 1996, the Board of Directors appoved and issued an additional 683,000 of
stock options outside of any existing plan to the Company's Chairman, a former
Company Chairman, a Director of the Company, a former Director of the Company
and a consultant for the Company and U.P.E. All of the options were granted at
an exercise price equal to the fair market value at the date of the grant. The
following is a summary of the options issued:
NUMBER OF OPTIONS OPTION EXERCISE PRICE
----------------- ---------------------
303,000 $1.8125
30,000 $2.1875
350,000 $1.8125
================================================================================
F-22
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 14 - COMMITMENTS AND CONTINGENCIES:
- --------------------------------------------------------------------------------
A. In response to a lawsuit initiated by the Company against Denver Equipment
Company, Inc. and its successor Svedala Industries, Inc. ("Denver"),
Denver filed a counter claim against the company in July 1995. The
Counterclaim alleged 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. This matter, along with the Company's
lawsuit, was settled in full in November 1995.
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
judgments in thirty-seven of the fifty-one cases, and legal counsel is
filing summary judgment motions for the remaining cases.
The Company believes the courts will grant FBC summary judgments 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 believes that even if summary judgments are not granted in
favor of the Company, the Company does not appear to be exposed to a risk
of significant damage awards. Accordingly, no provision has been made for
any loss from these lawsuits in the accompanying financial statements.
C. 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 , which was subsequently paid to a
settlement fund during fiscal 1996. The Company is uncertain of its
ultimate liability, if any, relating to this case.
D. In May 1996, a complaint was filed alleging that the plaintiff sustained
injuries in the course of providing maintenance on a piece of equipment
manufactured by the Company in 1979-80. The suit seeks damages in an
unspecified amount.
While the Company is still investigating this matter, it appears that the
equipment was relocated by the plaintiff's employer from a plant in
Virginia to a facility in Reading, PA. Moreover, it appears that the
equipment had been substantially modified, by others, prior to plaintiff's
injury and that those modifications may have defeated the safety features
designed and installed by the Company prior to shipment of the equipment.
The Company is also investigating insurance coverages that were in place
for the appropriate periods involved.
The Company intends to vigorously defend this matter and can not determine
the likelihood of success by the plantiff or even if successful, the
amount of damage, if any, that would be awarded.
E. At May 31, 1996, the Company is not aware of any other material pending or
threatened litigation or other environmental claims which have not been
remedied, disclosed or accrued at May 31, 1996.
================================================================================
F-23
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 15 - RELATED PARTY TRANSACTIONS:
- --------------------------------------------------------------------------------
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 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 earned a $35,500 royalty for the year
ended May 31, 1995 related to sales of products covered by the agreement.
On November 28, 1995, the Company and U.P.E. entered into a sales and
marketing agreement whereby U.P.E. will market certain used equipment
owned by the Company. As consideration for its services, U.P.E. will
receive from the Company 50% of the net selling price (defined as the
sales price less the cost of the equipment) plus 1/2 of the sales
commission paid by U.P.E. to its sales people. The agreement provides that
U.P.E. will pay the Company any interest it will be required to pay on the
original acquisition of the inventory from its supplier.
During May 1996, the Company received a $310,000 advance from U.P.E. This
advance had no formal terms and was repaid in June and August 1996.
The related party receivables and payables are derived in the normal
course of business activities and are included in the accompanying balance
sheet as follows:
MAY 31, 1996
----------------------------
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) $1,439,643 $1,748,568
b. Universal Envirogenics, Inc.
(U.E.I.) (80% owned by
U.P.E.) 145,724 24,000
c. Universal Industrial
Refrigeration, Inc. (U.I.R.)
(80% owned by Ronald &
Jan Gale) - 105,181
d. R. Simon Dryers, Ltd.
(Directors are Ronald &
Jan Gale) 109,343 231,321
e. Employees, Directors and
Other Affiliates 340 85,430
----------------------------
$1,695,050 $2,194,500
============================
================================================================================
F-24
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 15 - RELATED PARTY TRANSACTIONS: (Continued)
- --------------------------------------------------------------------------------
Since the amounts are in the ordinary course of business, management expects to
collect and repay the amounts within one year.
The approximate total revenues derived from related party sales were as follows:
YEAR ENDED MAY 31,
1996 1995
------------------- ------------------
U.P.E. $ 977,000 $2,450,000
U.E.I. 132,000 -
------------------- ------------------
$1,109,000 $2,450,000
=================== ==================
The Company purchases equipment and services from U.P.E. and its affiliates.
These purchases total approximately 8% and 10% of the total cost of goods sold
for the year ended May 31, 1996 and 1995, respectively.
In November 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. Under the terms of the settlement agreement, U.P.E. agreed
to serve as a guarantor and surety for the obligation. In addition, U.P.E.
agreed to pay up to $650,000 from the proceeds of the sale of certain of its
machinery and equipment inventory and certain equipment co-owned by the Company
and U.P.E. During the year ended May 31, 1995, proceeds from sales under this
agreement of $47,000 were used to reduce the payable to Harrisburg. The $47,000
is included in Accounts Payable-related parties. Pursuant to the settlement
agreement, the Company granted stock options to U.P.E. These options provide
that at U.P.E.'s discretion, 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 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. As of May 31, 1996, no options
have been exercised by U.P.E. under this plan.
In addition, the Board of Directors approved and issued 350,000 stock options to
U.P.E. in March, 1996 for consideration of U.P.E.'s guarantees on the CIT debt.
As of May 31, 1996 none of these options have been excercised by U.P.E. The
options were granted at an exercise price of $1.825, the fair market value of
the stock on the date of the grant.
In July 1995, U.P.E exchanged used equipment inventory to the Company for $1 of
consideration. The Company recorded the transaction as contribution to paid in
capital in an amount equal to U.P.E.'s cost ($208,548), which is less than the
inventories net realizable value.
In March 1996, the Board authorized the Company to issue 350,000 shares of
common stock in exchange for used equipment inventory. As of September 4, 1996,
the inventory has not been exchanged and the stock has not been issued.
In connection with U.P.E.'s assistance in the acquisition of the assets of the
American Furnace Division and the introduction of the Tower Filter Press line,
the Company entered into a three year profit sharing arrangement with U.P.E.
expiring May 1999. Under this arrangement U.P.E. is entitled to receive 25% of
net pre-tax profits from these business units.
- --------------------------------------------------------------------------------
NOTE 16 - CONCENTRATION OF CREDIT RISK:
- --------------------------------------------------------------------------------
TRADE ACCOUNTS RECEIVABLE:
The Company designs, manufacturers sells and services a product line of capital
equipment used to process materials for a variety of industrial applications
primarily in the United States. In addition, the Company operates a production
facility that fabricates machines and assembles equipment to customers
specifications. In connection with these activities, the Company grants credit
to its customers. At May 31, 1996, the Company's accounts receivable (excluding
related parties) include a concentration of two customer balances which
represent 31% of the accounts receivable outstanding (excluding related
parties).
================================================================================
F-25
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 17 - 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,
1997 330,000
1998 141,000
1999 156,000
----------
$627,000
----------
- --------------------------------------------------------------------------------
NOTE 18 - MAJOR CUSTOMERS AND EXPORT SALES:
- --------------------------------------------------------------------------------
For the years ended May 31, 1996 and 1995, customers with 10% or more of the
Company's sales are as follows:
YEAR ENDED MAY 31,
CUSTOMER 1996 1995
- ------------------------------------------------------------
A 30% -
B - 13%
C - 10%
D - 12%
E - 12%
For the years ended May 31, 1996 and 1995, export sales were as follows:
YEAR ENDED MAY 31,
CUSTOMER 1996 1995
- ------------------------------------------------------------
Israel $235,988 $ -
Indonesia 210,792 1,780,920
Japan 204,099 -
Finland 195,560 -
United Kingdom 70,562 -
Canada 35,874 2,030,500
Korea - 839,120
Netherlands - 36,888
--------------------------------------
$952,875 $4,687,428
======================================
- --------------------------------------------------------------------------------
NOTE 19 - FUTURE OPERATIONS:
- --------------------------------------------------------------------------------
As reflected in the accompanying financial statements, liabilities exceed assets
by approximately $1,324,185 at May 31, 1996. Furthermore, the Company continues
to rely on extended terms from vendors in order to meet its cash flow
shortfalls.
In May, 1996 the Company filed a Registration Statement with the SEC to initiate
a Rights Offering to existing stockholders in order to raise additional capital.
There can be no assurance that such offering will become effective, or even if
it becomes effective, it will raise sufficient capital. U.P.E. has informed the
Company of its intent to exercise its Rights under the offering (approximately
267,000 shares). The Company is also continuing to seek outside sources of
financing when cost effective and appropriate. In addition, the Company has had
net income for the past two consecutive fiscal years and management's 1997
forecast indicates continued positive trends for sales, earnings and cash flows.
================================================================================
F-26
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 20 - CASH FLOW STATEMENT DISCLOSURES:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1996 1995
---------- ----------
<S> <C> <C>
A. Cash paid for interest $ 593,155 $ 256,285
========== ==========
B. Cash paid for income taxes $ 103,904 $ --
========== ==========
C. Non Cash Investing and Financing Activities:
1. Purchase of accounts receivable, machinery and
equipment and goodwill from the American Furnace
Division of the Third Millenium Corporation
via issuance of common stock and assumption
of accounts payable $ 446,683 $ --
========== ==========
2. Equipment capitalized with corresponding
increase to long-term debt and capital leases $ 101,589 $ 33,009
========== ==========
3. Balance of G.E. Capital Financing paid directly
by Sterling Commercial Capital, Inc. $1,439,732 $ --
========== ==========
4. Receipt of used equipment inventory form U.P.E with a
corresponding increase in additional paid in capital $ 208,548 $ --
========== ==========
</TABLE>
- --------------------------------------------------------------------------------
NOTE 21 - RESTATEMENT:
- --------------------------------------------------------------------------------
During the year ended May 31, 1996, the management of the consolidated company
determined that certain legal fees totalling $125,000 capitalized during the
year ended May 31, 1995 should have been expensed. Accordingly, the financial
statements for the year ended May 31, 1995 have been restated to recognize these
legal fees totalling $125,000 as an expense. As a result net income for the year
ended May 31, 1995 has been restated from $229,694 to $104,654 (a reduction of
$.04 per share).
- --------------------------------------------------------------------------------
NOTE 22 - FAIR VALUE OF FINANCIAL INSTRUMENTS:
- --------------------------------------------------------------------------------
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments.
CASH AND CASH EQUIVALENTS:
The carrying amount approximates fair value because of the short-term maturities
of these instruments.
LONG-TERM DEBT:
The fair value of the consolidated companys long-term debt (including current
installments) is estimated based on current rates available to the company for
similar debt of the same remaining maturities.
The estimated fair values of the corporation's financial instruments are as
follows:
MAY 31, 1996
CARRYING AMOUNT FAIR VALUE
--------------- --------------
Financial Assets:
Cash $ 18,976 $ 18,976
Financial Liabilities:
Long-term debt (including current portion) 4,901,153 4,901,153
================================================================================
F-27
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
NOTE 23 - BUSINESS COMBINATION:
- --------------------------------------------------------------------------------
On November 28, 1995, the Company acquired certain assets of the American
Furnace Division of Third Millenium Products, Inc. pursuant to the terms of an
Asset Purchase Agreement. The business combination is being accounted for
utilizing the purchase method of accounting. Results of operations are included
in the accompanying statement of income as of November 28, 1995.
Pursuant to the agreement, the Company purchased certain accounts receivables,
customer contracts, machinery and equipment and goodwill (including customer
lists and a covenant not to compete.) The purchase price of $446,683, was
comprised of 50,000 shares of the Company's common stock valued at approximately
$3.08 per share on the date of closing and the assumption of certain
liabilities. The allocation of the purchase price to the acquired assets are as
follows:
Accounts receivable $ 29,289
Machinery and equipment 20,000
Goodwill 397,394
---------
$446,683
=========
================================================================================
F-28
<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 assump- tion 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) The Company's 1989 Equity Incentive Plan. Incorporated by reference
to the Company's Report on Form 10-K for the fiscal year ended
December 31, 1992.
10(b) Description of the Company's deferred compensation arrangements with
certain employees, including its officers. Incorporated by reference
to the Company's Amendment No. 1 to Report on Form 10-Q for the
quarter ended September 30, 1993.
10(c) The Company's Equity Incentive Plan for Directors. Incorporated by
reference to the Company's Report on Form 10-K for the fiscal year
ended December 31, 1991.
10(d) Stock Purchase Agreement dated as of July 27, 1990 among the
Company, James L. Leuthe, Universal Process Equipment, Inc., Ronald
Gale and Jan Gale. Incorporated by reference to the Company's Report
on Form 10-K for the fiscal year ended December 31, 1991.
10(e) Registration Rights Agreement dated as of July 27, 1990 among the
Company, Universal Process Equipment, Inc., Ronald Gale and Jan
Gale. Incorporated by reference to the Company's Report on Form 10-K
for the fiscal year ended December 31, 1991.
10(f) Form of Agreement dated March 31, 1993 by and between the Company
and Universal Process Equipment, Inc. Incorporated by reference to
the Company's Report on Form 10- K for the fiscal year ended
December 31, 1992.
10(g) Conformed copy of Settlement Agreement, including the following
exhibits thereto. Incorporated by reference to the Company's
Amendment No. 1 Report on Form 10-Q for the quarter ended September
30, 1993.
10(g)1.1 Exhibit A: UPE Agreement. Incorporated by reference to the Company's
Amendment No. 1 Report on Form 10-Q for the quarter ended September
30, 1993.
10(g)1.2 Exhibit B: Security Promissory Note, dated November 22, 1993, by The
Bethlehem Corporation to The Harrisburg Sewage Authority.
Incorporated by reference to the Company's Amendment No. 1 Report on
Form 10-Q for the quarter ended September 30, 1993.
10(g)1.3 Exhibit C: Guaranty and Suretyship Agreement, dated as of november
22, 1993, by Universal Process Equipment, Inc. to The Harrisburg
Sewage Authority. Incorporated by reference to the Company's
Amendment No. 1 Report on Form 10-Q for the quarter ended September
30, 1993.
10(g)1.4 Exhibit D: Equipment Security Agreement (Schedule 1 Equipment),
dated as of November 22, 1993, by and between Universal Process
Equipment, Inc. and The Harrisburg Sewage Authority. Incorporated by
reference to the Company's Amendment No. 1 Report on Form 10-Q for
the quarter ended September 30, 1993.
II-4
<PAGE>
10(g)1.5 Exhibit E: Equipment Security Agreement (Schedule 2 Equipment),
dated as of November 22, 1993, by and between Universal Process
Equipment, Inc. and The Harrisburg Sewage Authority. Incorporated by
reference to the Company's Amendment No. 1 Report on Form 10-Q for
the quarter ended September 30, 1993.
10(g)1.6 Exhibit F: Collateral Assignment of Judgement, dated as of November
22, 1993, by and between Universal Process Equipment, Inc. and The
Harrisburg Sewage Authority. Incorporated by reference to the
Company's Amendment No. 1 Report on Form 10-Q for the quarter ended
September 30, 1993.
10(g)1.7 Exhibit G: Consent to Entry of Judgement. Incorporated by reference
to the Company's Amendment No. 1 Report on Form 10-Q for the quarter
ended September 30, 1993.
10(g)2 Conformed copy of UPE Agreement. Incorporated by reference to the
Company's Amendment No. 1 Report on Form 10-Q for the quarter ended
September 30, 1993.
10(h) Loan and Security Agreement dated July 14, 1995 by the Company to
The CIT Group/Credit Finance, Inc. Incorporated by reference to the
Company's Report on Form 10-K-SB for the fiscal year ended May 31,
1995.
10(i) Term Promissory Note dated July 14, 1995 by the Company to The CIT
Group/Credit Finance, Inc. Incorporated by reference to the
Company's Report on Form 10-K-SB for the fiscal year ended May 31,
1995.
10(j) Open-End Mortgage and Security Agreement dated July 14, 1995 by the
Company to The CIT Group/Credit Finance, Inc. Incorporated by
reference to the Company's Report on Form 10-K-SB for the fiscal
year ended May 31, 1995.
10(k) Inventory Purchase Agreement dated July 14, 1995 by Universal
Process Equipment, Inc. to The CIT Group/Credit Finance, Inc.
Incorporated by reference to the Company's Report on Form 10-K-SB
for the fiscal year ended May 31, 1995.
10(l) Mortgage Note dated July 13, 1995 by the Company to Sterling
Commercial Capital Inc., First Wall Street SBIC, L.P. and
Interequity Capital Partners, L.P. Incorporated by reference to the
Company's Report on Form 10-K-SB for the fiscal year ended May 31,
1995.
10(m) Loan Agreement dated July 13, 1995 by the Company to Sterling
Commercial Capital Inc., First Wall Street SBIC, L.P. and
Interequity Capital Partners, L.P. Incorporated by reference to the
Company's Report on Form 10-K-SB for the fiscal year ended May 31,
1995.
10(n) Security Agreement dated July 13, 1995 by the Company to Sterling
Commercial Capital Inc., First Wall Street SBIC, L.P. and
Interequity Capital Partners, L.P. Incorporated by reference to the
Company's Report on Form 10-K-SB for the fiscal year ended May 31,
1995.
10(o) Limited Corporate Guaranty dated July __, 1995 by Universal Process
Equipment, Inc. to Sterling Commercial Capital Inc., First Wall
Street SBIC, L.P. and Interequity Capital Partners, L.P.
Incorporated by reference to the Company's Report on Form 10-K-SB
for the fiscal year ended May 31, 1995.
II-5
<PAGE>
10(p) 1994 Stock Option Plan of the Company as amended (incorporated by
reference to Exhibit 10(a) to the Company's November 1995 10-QSB)
10(q) Equity Incentive Plan for Directors of the Company as amended
(incorporated by reference to Exhibit 10(b) to the Company's
November 1995 10-QSB)
**10(r) Agreement, dated July 23, 1994, between the Registrant and The
Bethlehem Corporation Employees Association
**10(s) 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, Form of Instructions for
Subscription Certificates and Form of Notice of Guaranteed Delivery.
99(b) Form of Subscription Agency Agreement.
- ---------------------
*To be provided by amendment.
** Previously filed.
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 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
II-6
<PAGE>
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-7
<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 Amendment No.
2 to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Easton, Pennsylvania, on the 30th day of
September, 1996.
THE BETHLEHEM CORPORATION
By: /s/ Alan H. Silverstein
-----------------------
Name: Alan H. Silverstein
Title: President, Director and Chief
Executive Officer
Pursuant to the requirements of the Securities Act, this
registration statement has been signed on September 30, 1996 by the following
persons in the capacities and on the dates indicated.
Name Title
---- -----
/s/ Alan H. Silverstein President, Director and Chief Executive
Alan H. Silverstein Officer (Principal Executive Officer)
* Chief Financial Officer (Principal
Antoinette L. Martin Financial Officer and Principal
Accounting Officer)
* Chairman of the Board
Salvatore J. Zizza
* Director
Ronald H. Gale
* Director
Jan P. Gale
* Director
James L. Leuthe
* Director
Harold Bogatz
II-8
<PAGE>
Name Title
---- -----
* Director
B. Ord Houston
* Director
O. Karl Dieckman
- -----------------------
*Alan Silverstein
Power-of-Attorney
II-9
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Document
- ------ -----------------------
II-10
CERTIFIED PUBLIC ACCOUNTANTS
293 EISENHOWER PARKWAY, SUITE 290
LIVINGSTON, NEW JERSEY 07039-1711
201-994-9494
FAX: 201-994-1571
================================================================================
Bernard Sobel, CPA SOBEL & CO.,LLC
Kenneth G. Hydock, CPA, J.D.
Michael LaForge, CPA
Alan D. Sobel, CPA
Harold R. Sobel, CPA
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 September 4, 1996
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.
SOBEL & CO., LLC
----------------
SOBEL & CO., LLC
Certified Public Accountants
October 1, 1996
SUBSCRIPTION AGENCY AGREEMENT
This Subscription Agency Agreement (the "Agreement") is made
as of ------------, 1996 between The Bethlehem Corporation, a Pennsylvania
corporation (the "Company") and American Stock Transfer and Trust Company, as
subscription agent (the "Agent"). All terms not defined herein shall have the
meaning given in the prospectus (the "Prospectus") included in the (Registration
Statement on Form SB-2 (File No. 333-03875) filed by the Company with the
Securities and Exchange Commission on May 15, 1996, as amended by any amendment
filed with respect thereto (the "Registration Statement").
WHEREAS, the Company proposes to make a subscription offer by
issuing certificates or other evidences of transferrable subscription rights, in
the form designated by the Company (the "Subscription Certificates") to holders
of record of shares (each a "Shareholder") of its Common Stock, no par value
(the "Common Stock") as of a record date specified by the Company (the "Record
Date"), pursuant to which each shareholder will receive transferable
subscription rights (the "Rights") to subscribe for shares of Common Stock, as
described in and upon such terms as are set forth in the Prospectus included as
a part of the Registration Statement (the "Prospectus"); a final copy of the
Prospectus has been or, upon availability will promptly be, delivered to the
Agent; and
WHEREAS, the Company wishes the Agent to perform certain acts
on behalf of the Company, and the Agent is willing to so act, in connection with
the distribution of the Subscription Certificates and the issuance and exercise
of the Rights to subscribe for Common Stock as therein set forth, all upon the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the
mutual agreements set forth herein, the parties agree as follows:
1. APPOINTMENT. The Company hereby appoints the Agent to act as
subscription agent for the Company in connection with the distribution of
Subscription Certificates and the issuance and exercise of the Rights in
accordance with the terms set forth in this Agreement and the Prospectus and the
Agent hereby accepts such appointment.
2. FORM AND EXECUTION OF SUBSCRIPTION CERTIFICATES. (a) Each
Subscription Certificate shall be irrevocable. The Agent shall, in its capacity
as Transfer Agent of the Company, maintain a register of Subscription
Certificates and the holders of record thereof (each of whom shall be deemed a
"Shareholder" hereunder for purposes of determining the rights of holders of
Subscription
<PAGE>
Certificates). Each Subscription Certificate shall, subject to the provisions
thereof, entitle the Shareholder in whose name it is recorded, or any transferee
designated therein, to the following:
(1) The right to purchase from the Company until the
Expiration Date, at the Subscription Price, a number of shares of Common Stock
equal to one share of Common Stock for each Right evidenced thereby (the "Basic
Subscription Privilege"); and
(2) The right to subscribe for additional shares of Common
Stock, subject to the availability of such shares and to the allotment of such
shares as may be available among Shareholders who exercise the Oversubscription
Privilege on the basis specified in the Prospectus; provided, however, that such
Shareholder has exercised the Basic Subscription Privilege in respect of all
Rights which he or she holds (the "Oversubscription Privilege").
3. RIGHTS AND ISSUANCE OF SUBSCRIPTION CERTIFICATES. (a) Each
Subscription Certificate shall evidence the Rights of the Shareholder therein
named to purchase shares of Common Stock upon the terms and conditions therein
and herein set forth.
(b) Upon the written authorization of the Company, signed by
any of its duly authorized officers, as to the Record Date, the Agent shall,
from a list of the Shareholders of Common Stock as of the Record Date to be
prepared by the Agent in its capacity as Transfer Agent of the Company, prepare
and record Subscription Certificates in the names of the Shareholders, setting
forth the number of Rights to subscribe for shares of the Common Stock
calculated on the basis of seven Rights for each ten shares of Common Stock
recorded on the books in the name of each such Shareholder as of the Record
Date. The number of Rights distributed to each Shareholder shall be rounded up
to the nearest whole number. No Subscription Certificate may be divided in such
a way as to permit the holder of such certificate to receive a greater number of
Rights than the number to which such Subscription Certificate entitles its
holder, except that a depository, bank, trust company, or securities broker or
dealer holding shares of Common Stock, on the Record Date for more than one
beneficial owner may, upon execution and delivery to the Agent of a
Certification and Request for Additional Rights, substantially in the form
attached hereto as Exhibit A, exchange its Subscription Certificate to obtain a
Subscription Certificate for the number of Rights to which all such beneficial
owners in the aggregate would have been entitled had each been a Holder on the
Record Date.
(c) Each Subscription Certificate shall be dated as of the
Record Date and shall be executed manually or by facsimile signature of a duly
authorized officer of the Agent. Upon the written advice, signed as aforesaid,
as to the effective date of the Registration Statement, the Agent shall promptly
countersign and deliver the Subscription Certificates, together with a copy of
2
<PAGE>
the Prospectus, instructions as to the use of the Subscription Certificates and
any other document as the Company deems necessary or appropriate, to all
Shareholders with record addresses in the United States (including its
territories and possessions and the District of Columbia). No Subscription
Certificate shall be valid for any purpose unless so executed. Delivery to
Shareholders shall be by first class mail (without registration or insurance).
4. EXERCISE. (a) Shareholders may acquire shares of Common Stock
pursuant to the Basic Subscription Privilege, and, if available, pursuant to the
Oversubscription Privilege by delivery to the Agent as specified in the
Prospectus of (i) the Subscription Certificate with respect thereto, duly
executed by such Shareholder in accordance with and as provided by the terms and
conditions of the Subscription Certificate, together with (ii) the purchase
price of $[ ] for each share of Common Stock subscribed for by exercise of such
Rights (the "Subscription Price"), in U.S. dollars by wire transfer or by money
order or check drawn on a bank in the United States, in each case payable to the
order of the Agent. In the case of holders of Rights that are held of record
through a Depository (as defined below), exercises of the Basic Subscription
Privilege (but not the Oversubscription Privilege) may be effected by
instructing the Depository to transfer Rights (such Rights "Depository Rights")
from the Depository's account of such holder to the Depository account of the
Agent, together with payment of the Subscription Price for each Underlying Share
subscribed for pursuant to the Basic Subscription Privilege. The
Oversubscription Privilege in respect of Depository Rights may not be exercised
through the Depository. The holder of a Depository Right may exercise the
Oversubscription Privilege in respect of such Depository Right by properly
executing and delivering to the Agent at or prior to 5:00 p.m., New York City
time, on the Expiration Date, a Nominee Holder Oversubscription Exercise Form,
substantially in the form attached hereto as Exhibit B or a Notice of Guaranteed
Delivery, together with payment of the appropriate Subscription Price for the
number of Underlying Shares for which the Oversubscription Privilege is to be
exercised. Payments will be deemed to have been received by the Agent only upon
(i) clearance on any uncertified check (for purposes hereof, an uncertified
check will be deemed to clear when the Agent has received good funds therefrom),
(ii) receipt by the Agent of any certified check or money order or (iii) receipt
of good funds by wire transfer to the Agent's account. Nominees, (as defined
below) who, on behalf of beneficial owners, exercise the Basic Subscription
Privilege and who wish to exercise the Oversubscription Privilege, must properly
execute and deliver to the Agent at or prior to 5:00 p.m., New York City time,
on the Expiration Date a Nominee Holder Oversubscription Exercise Form and a
Nominee Holder Certification, substantially in the form attached hereto as
Exhibit C.
(b) Rights may be exercised at any time after the date
3
<PAGE>
of issuance of the Subscription Certificates with respect thereto but no later
than 5:00 P.M. New York time on the Expiration Date. For the purpose of
determining the time of the exercise of any Rights, delivery of any material to
the Agent shall be deemed to occur when such materials are received at the
Shareholder Services Division of the Agent specified in the Prospectus. Once a
Shareholder has exercised the Basic Subscription Privilege or the
Oversubscription Privilege, such exercise may not be revoked.
(c) Notwithstanding the provisions of Section 4(a) and 4(b)
regarding delivery of an executed Subscription Certificate to the Agent prior to
5:00 P.M. New York time on the Expiration Date, if prior to such time the Agent
receives a Notice of Guaranteed Delivery by facsimile (telecopy) or otherwise
from a member firm of a registered national securities exchange or a member of
the National Association of Securities Dealers, Inc., or from a commercial bank
or trust company having an office or correspondent in the United States (each,
an "Eligible Institution") guaranteeing delivery of a properly completed and
executed Subscription Certificate, then such exercise of the Basic Subscription
Privilege and Oversubscription Privilege shall be regarded as timely, subject,
however, to receipt of (i) the duly executed Subscription Certificate by the
Agent within five NASDAQ trading days after the Expiration Date (the "Protect
Period") and (ii) payment in full of the subscription price (subject to the
right of the Company to waive advance payment in respect of the Oversubscription
Privilege as described above) prior to 5:00 p.m. on the Expiration Date.
(d) As soon as practicable after the valid exercise of Rights
(for purposes hereof an exercise will not be treated as valid until such time as
the Agent receives good funds), the Agent shall send to each exercising
Shareholder (an "Exercising Shareholder") (or, if shares of any Common Stock on
the Record Date are held by Depository Trust Company, Midwest Securities Trust
Company, Philadelphia Depository Trust Company (each a "Depository") or any
other depository or nominee (together with the Depositories, "Nominees"), to
such Nominee) the share certificates representing the shares of Common Stock
acquired pursuant to the Basic Subscription Privilege. As soon as practicable
after the Expiration Date and after all pro rations and adjustments contemplated
by the terms of the Rights Offering have been effected, the Agent shall send to
each Exercising Shareholder or Nominee who exercises an Oversubscription
Privilege certificates representing the shares of Common Stock acquired pursuant
to the Oversubscription Privilege, along with a letter explaining the allocation
of shares of Common Stock pursuant to the Oversubscription Privilege. (Any
excess payment to be refunded by the Company to an Exercising Shareholder who is
not allocated the full amount of shares of Common Stock subscribed for pursuant
to the Oversubscription Privilege, shall be mailed by the Agent to him or her
without interest or deduction as soon as practicable after the Expiration Date
and after all prorations and adjustments
4
<PAGE>
contemplated by the terms of the Rights Offering have been effected.)
(e) If an exercising Rights holder has not indicated the
number of Rights being exercised, or if the Subscription Price payment forwarded
by such holder to the Agent is not sufficient (subject to the fifth sentence of
Section 4(a) above) to purchase the number of shares subscribed for, the Rights
holder will be deemed to have exercised the Basic Subscription Privilege with
respect to the maximum number of whole Rights which may be exercised for the
Subscription Price delivered to the Agent and, to the extent that the
Subscription Price payment delivered by such holder exceeds the Subscription
Price multiplied by the number of Rights exercised (such excess being the
"Subscription Excess"), the holder will be deemed to have exercised its
Oversubscription Privilege to purchase, to the extent available, a number of
whole Underlying Shares equal to the quotient obtained by dividing the
Subscription Excess by the Subscription Price.
5. TRANSFER OR SALE OF RIGHTS. Any Shareholder may transfer (i) all of
the Rights evidenced by a Subscription Certificate by properly endorsing the
Subscription Certificate or (ii) some of the Rights evidenced by a Subscription
Certificate (but not fractional Rights) by delivering to the Agent such
Subscription Certificate properly endorsed for transfer, with instructions to
register the Rights to be transferred in the name of the transferee (and to
issue a new Subscription Certificate to the transferee evidencing such
transferred Rights). In such event, the Agent shall issue a new Subscription
Certificate evidencing the balance of the Rights to the Shareholder or, if so
instructed, to an additional transferee. For purposes of this Agreement the term
"properly endorsed for transfer" shall mean that each and every signature of a
registered Shareholder or Shareholders or assigns shall be made and guaranteed
by an Eligible Institution. All transfer taxes and other governmental charges
arising from a transfer shall be paid by the transferring Shareholder.
6. VALIDITY OF SUBSCRIPTIONS. Irregular subscriptions not
otherwise covered by specific instructions herein shall be submitted to an
appropriate officer of the Company and handled in accordance with his or her
instructions. Such instructions will be documented by the Agent indicating the
instructing officer and the date thereof.
7. OVERSUBSCRIPTION. If, after allocation of shares of Common
Stock to Exercising Shareholders, there remain shares not subscribed for through
the Basic Subscription Privilege (the "Excess Shares"), then the Agent shall
allocate such Excess Shares to Shareholders who have exercised all the Rights
initially issued to them and who wish to acquire more than the number of shares
for which the Rights issued to them are exercisable. If the number of
5
<PAGE>
shares for which the Oversubscription Privilege has been exercised is greater
than the Excess Shares, the Agent shall allocate pro rata the Excess Shares
among the Shareholders exercising the Oversubscription Privilege based on the
number of shares each Shareholder exercising the Oversubscription Privilege has
purchased pursuant to the Basic Subscription Privilege; provided, however, that
if such pro rata allocation results in any Shareholder being allocated a greater
number of Excess Shares than such Shareholder subscribed for pursuant to the
exercise of such Shareholder's Oversubscription Privilege, then such Shareholder
will be allocated only such number of Excess Shares as such Shareholder
subscribed for and the remaining Excess Shares will be allocated among all other
Shareholders exercising the Oversubscription Privilege. The percentage of Excess
Shares each oversubscribing Shareholder may acquire will be rounded up or down
to result in delivery of whole shares of Common Stock. The Agent shall advise
the Company immediately upon the completion of the allocation set forth above as
to the total number of shares subscribed and distributable.
8. DELIVERY OF CERTIFICATES. The Agent will deliver (i) certificates
representing those shares of Common Stock purchased pursuant to exercise of the
Basic Subscription Privilege as soon as practicable after the corresponding
Rights have been validly exercised and full payment for such shares has been
received and cleared and (ii) certificates representing those shares purchased
pursuant to the exercise of the Oversubscription Privilege as soon as
practicable after the Expiration Date and after all prorations and adjustments
contemplated by the Rights Offering have been effected, but in no event shall
share certificates be delivered after the time period set forth in Section 4(d)
hereof. The Agent will include a copy of the Prospectus with each certificate
delivered, unless a Prospectus was previously delivered to such Shareholder.
9. HOLDING PROCEEDS OF RIGHTS OFFERING IN ESCROW. (a) All
proceeds received by the Agent from Shareholders in respect of the exercise of
Rights shall be held by the Agent, on behalf of the Company, in a segregated,
interest-bearing escrow account (the "Escrow Account"). As soon as practicable
after the receipt of any proceeds in respect of the exercise of the Basic
Subscription Privilege, the Agent shall deliver all such proceeds to the
Company, together with any interest thereon.
(b) The Agent shall deliver all proceeds received in respect
of the exercise of the Oversubscription Privilege (including interest earned
thereon) to the Company as promptly as practicable, but in no event later than
10 business days after all prorations and adjustments contemplated by the terms
of the Rights Offering have been effected. Pending delivery to the Company as
provided herein or disbursement in the manner described in Section 4(d) above,
funds held in the Escrow Account shall be invested by the Agent at the direction
of the Company.
6
<PAGE>
10. REPORTS. Daily, during the period commencing with the mailing of
the Subscription Certificates and ending on the Expiration Date (and in the case
of guaranteed deliveries pursuant to Section 4(c), the period ending five AMEX
trading days after the Expiration Date) the Agent will report by telephone or
telecopier (by 12:00) Noon, New York time), confirmed by letter, to an officer
of the Company, data regarding Rights exercised, the total number of shares of
Common Stock subscribed for, and payments received therefor, bringing forward
the figures from the previous day's report in each case so as to show the
cumulative totals and any such other information as may be reasonably requested
by the Company.
11. LOSS OR MUTILATION; CANCELLATION. (a) If any Subscription
Certificate is lost, stolen, mutilated or destroyed, the Agent may, on such
terms which will indemnify and protect the Company and the Agent as the Agent
and the Company shall agree (which shall, in the case of a mutilated
Subscription Certificate include the surrender and cancellation thereof), issue
a new Subscription Certificate of like denomination in substitution for the
Subscription Certificate so lost, stolen, mutilated or destroyed.
(b) All Subscription Certificates surrendered for the purpose
of exercise, exchange, substitution or transfer shall be canceled by the Agent,
and no Subscription Certificates shall be issued in lieu thereof except as
expressly permitted by provisions of this Agreement. The Company shall deliver
to the Agent for cancellation and retirement, and the Agent shall so cancel and
return, any other Subscription Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Agent shall deliver all canceled
Subscription Certificates to the Company, or shall, at the written request of
the Company, destroy such canceled Subscription Certificates, and in such case
shall deliver a certificate of destruction thereof to the Company.
12. COMPENSATION FOR SERVICES. The Company agrees to pay to the Agent
$[ ] for services performed hereunder, which services include any other services
not described herein but customarily performed by the Subscription/Escrow Agent
in a rights offering. The Company further agrees that it will reimburse the
Agent for its reasonable out-of-pocket expenses incurred in the performance of
its duties as such.
13. INSTRUCTIONS AND INDEMNIFICATION. The Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions:
(a) The Agent shall be entitled to rely upon any instructions
or directions furnished to it by an appropriate officer of the Company, whether
in conformity with the provisions of this Agreement or constituting a
modification hereof or a
7
<PAGE>
supplement hereto. Without limiting the generality of the foregoing or any other
provision of this Agreement, the Agent, in connection with its duties hereunder,
shall not be under any duty or obligation to inquire into the validity or
invalidity or authority or lack thereof of any instruction or direction from an
appropriate officer of the Company which conforms to the applicable requirements
of this Agreement and which the Agent reasonably believes to be genuine and
shall not be liable for any delays, errors or loss of data occurring by reason
of circumstances beyond the Agent's control, including, without limitation, acts
of civil or military authority, national emergencies, labor difficulties, fire,
flood, catastrophe, acts of God, insurrection, war, riots or failure of the
mails, transportation, communication or power supply.
(b) The Company will indemnify the Agent for, and hold it
harmless against, any liability and expense which may arise out of or in
connection with the services described in this Agreement or the instructions or
directions furnished to the Agent relating to this Agreement by an appropriate
officer of the Company; provided, however, that such agreement does not extend
to, and the Agent shall not be indemnified or held harmless with respect to any
liability or expense which shall arise out of, or be incurred or suffered as a
result of, the Agent's negligence, bad faith, misconduct or breach of this
Agreement. The Company shall not indemnify the Agent with respect to any claim
or action settled without its consent, which consent shall not be unreasonably
withheld.
(c) The Agent will promptly notify the Company of any claim
with respect to which it may seek indemnity hereunder. The Company shall be
entitled to participate at its own expense in the defense of any suit brought to
enforce any such claim, and if the Company so elects, the Company shall assume
the defense of any such suit. In the event that the Company assumes such
defense, the Company shall not thereafter be liable for the fees and expenses of
any additional counsel that the Agent retains, so long as the Company shall
retain counsel reasonably satisfactory to the Agent, to defend such suit.
14. CHANGES IN SUBSCRIPTION CERTIFICATE. The Agent may, without the
consent or concurrence of the Shareholders in whose names Subscription
Certificates are registered, by supplemental agreement or otherwise, concur with
the Company in making any changes or corrections in a Subscription Certificate
that it shall have been advised by counsel (who may be counsel for the Company)
is appropriate to cure any ambiguity or to correct any defective or inconsistent
provision or clerical omission or mistake or manifest error therein or herein
contained, and which shall not be inconsistent with the provision of the
Subscription Certificate except insofar as any such change may confer additional
rights upon the Shareholders.
8
<PAGE>
15. ASSIGNMENT, DELEGATION. (a) Neither this Agreement nor any
rights or obligations hereunder may be assigned or delegated by either party
without the written consent of the other party.
(b) This Agreement shall inure to the benefit of and be
binding upon the parties and their respective permitted successors and assigns.
Nothing in this Agreement is intended or shall be construed to confer upon any
other person any right, remedy or claim or to impose upon any other person any
duty, liability or obligation.
16. GOVERNING LAW. The validity, interpretation and performance of
this Agreement shall be governed by the law of the State of New York.
17. SEVERABILITY. The parties hereto agree that if any of the
provisions contained in this Agreement shall be determined invalid, unlawful or
unenforceable to any extent, such provisions shall be deemed modified to the
extent necessary to render such provisions enforceable. The parties hereto
further agree that this Agreement shall be deemed severable, and the invalidity,
unlawfulness or enforceability of any term or provision thereof shall not affect
the validity, legality or enforceability of this Agreement or of any other term
or provision hereof.
18. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
19. CAPTIONS. The captions and descriptive headings herein are for
the convenience of the parties only. They do not in any way modify, amplify,
alter or give full notice of the provisions hereof.
20. FACSIMILE SIGNATURES. Any facsimile signature of any party
hereto shall constitute a legal, valid and binding execution hereof by such
party.
21. FURTHER ACTIONS. Each party agrees to perform such further
acts and execute such further documents as are necessary to effect the purposes
of this Agreement.
22. ADDITIONAL PROVISIONS. Except as specifically modified by this
Agreement, the Agent's rights and responsibilities set forth in the Agreement
for Stock Transfer Services between the Company and the Agent are hereby
ratified and confirmed and continue in effect.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
9
<PAGE>
AMERICAN STOCK TRANSFER & TRUST
COMPANY
By:
----------------------------
Name:
Title:
THE BETHLEHEM CORPORATION
By:
----------------------------
Name:
Title:
10
<PAGE>
EXHIBIT A
CERTIFICATION AND REQUEST FOR ADDITIONAL RIGHTS
To the Subscription Agent:
The undersigned hereby certifies that it is a broker-dealer registered with
the Securities and Exchange Commission, commercial bank or trust company,
securities depository or participant therein, or nominee therefor, holding of
record ----------- shares of Common Stock, no par value per share (the "Common
Shares"), of The Bethlehem Corporation (the "Company") on behalf of ----------
beneficial owners as of the close of business on -------------, 1996, the Record
Date for the offering by the Company of ------------ shares of Common Stock
pursuant to transferable subscription rights (the "Rights") being distributed to
record holders of shares of Common Stock, all as described in a Prospectus dated
- -------------, 1996 (the "Prospectus"), a copy of which the undersigned has
received. Seven Rights are being distributed for each ten shares of Common Stock
held of record as of the close of business on the Record Date, and any
fractional Right will be rounded up to the nearest whole number. The undersigned
further certifies that --------- beneficial owners on whose behalf it held, as
of the close of business on the Record Date, --------- shares of Common Stock
registered in the name of the undersigned are each entitled to an additional
Right in accordance with the principle that any fractional Right to which a
beneficial owner would otherwise be entitled should be rounded up to the nearest
whole number. Accordingly, the undersigned requests that, upon surrender of its
Subscription Certificate evidencing --------- Rights, a Subscription Certificate
evidencing --------- Rights (including --------- additional Rights) be issued.
The undersigned further certifies that each such beneficial owner is a bona fide
beneficial owner of shares of Common Stock, that such beneficial ownership is
reflected on the undersigned's records and that all shares of Common Stock
which, to the undersigned's knowledge, are beneficially owned by any such
beneficial owner through the undersigned have been aggregated in calculating the
foregoing. The undersigned agrees to provide the Company or its designee with
such additional information as the Company deems necessary to verify the
foregoing.
------------------------
Name of Record Holder
By:
---------------------
Name:
Title:
Address:
<PAGE>
Telephone Number:
Date: ,1996
---------------
2
<PAGE>
EXHIBIT B
THE BETHLEHEM CORPORATION RIGHTS OFFERING
NOMINEE HOLDER OVERSUBSCRIPTION EXERCISE FORM PLEASE COMPLETE ALL
APPLICABLE INFORMATION
By Mail, Express Mail or Overnight:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Telephone Number: (800) 957-5449
THIS FORM IS TO BE USED ONLY BY NOMINEE HOLDERS TO EXERCISE
THE OVERSUBSCRIPTION PRIVILEGE IN RESPECT OF RIGHTS WITH RESPECT TO WHICH THE
BASIC SUBSCRIPTION PRIVILEGE WAS EXERCISED TO THE FULLEST EXTENT POSSIBLE AND
DELIVERED THROUGH THE FACILITIES OF A COMMON DEPOSITORY. ALL OTHER EXERCISES OF
OVERSUBSCRIPTION PRIVILEGES MUST BE EFFECTED BY THE DELIVERY OF SUBSCRIPTION
CERTIFICATES.
THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH
IN THE COMPANY'S PROSPECTUS DATED--------------, 1996 (THE "PROSPECTUS") AND ARE
INCORPORATED HEREIN BY REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON
REQUEST FROM THE INFORMATION AGENT AT THE ADDRESS AND TELEPHONE NUMBER LISTED
BELOW:
MORROW & COMPANY
909 THIRD AVENUE
NEW YORK, NEW YORK 10022
TELEPHONE: (212) 754-8000
THIS FORM OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE
SUBSCRIPTION AGENT WITH PAYMENT IN FULL BY 5:00 P.M., NEW YORK CITY TIME, ON [
], 1996 (THE "EXPIRATION DATE").
1. The undersigned hereby certifies to the Company and the Subscription
Agent that it is a participant in -------------------------[Name of Depository]
(the "Depository") and that it has either (1) exercised the Basic Subscription
Privilege in respect of Rights and delivered such exercised Rights to the
Subscription Agent by means of transfer to the Depository Account of the Company
or (ii) delivered to the Subscription Agent a Notice of Guaranteed Delivery in
respect of the exercise of the Basic Subscription Privilege and will deliver the
Rights called for in and in accordance with such Notice of Guaranteed Delivery
to the Subscription Agent by means of transfer to such Depository Account of the
Company.
<PAGE>
2. The undersigned hereby exercises the Oversubscription Privilege to
purchase, to the extent available, ------- shares of Common Stock and certifies
to the Company and the Subscription Agent by execution of a Nominee Holder
Certification that such Oversubscription Privilege is being exercised for the
account or accounts of persons (which may include the undersigned) on whose
behalf all Basic Subscription Rights have been exercised to the fullest extent
possible.
3. The undersigned understands that payment of the Subscription Price
of $[ ] per share for each share of Common Stock subscribed for pursuant to the
Oversubscription Privilege must be received by the Subscription Agent at or
before 5:00 p.m., New York City time, on the Expiration Date and represents that
such payment, in the aggregate amount of $------------, either (check
appropriate box):
/ / has been or is being delivered to the Subscription Agent
[pursuant to the Notice of Guaranteed Delivery referred to above]
or
/ / is being delivered to the Subscription Agent herewith
or
/ / has been delivered separately to the Subscription Agent;and, in the case of
funds not delivered pursuant to a Notice of Guaranteed Delivery, is or was
delivered in the manner set forth below (check the appropriate box and complete
information relating thereto):
/ / wire transfer of funds
-- name of transferor institution----------------------------------------------
-- date of transfer------------------------------------------------------------
-- confirmation number (if available)------------------------------------------
/ / uncertified check
/ / certified check
/ / bank draft (cashier's check)
------------------------------
Basic Subscription Confirmation Number
------------------------------
Depository Participant Number
------------------------------
Name of Depository Participant
By
----------------------------
2
<PAGE>
Name:
Title:
Dated: , 1996
---------------
PARTICIPANTS EXERCISING THE OVERSUBSCRIPTION PRIVILEGE PURSUANT HERETO MUST
SEPARATELY SUBMIT A NOMINEE HOLDER CERTIFICATION TO THE SUBSCRIPTION AGENT. SUCH
NOMINEE HOLDER CERTIFICATIONS ARE AVAILABLE FROM THE SUBSCRIPTION AGENT.
3
<PAGE>
EXHIBIT C
THE BETHLEHEM CORPORATION
NOMINEE HOLDER CERTIFICATION
The undersigned, a bank, broker or other nominee holder of Rights
("Rights") to purchase shares of Common Stock, no par value per share ("Common
Stock"), of The Bethlehem Corporation (the "Company") pursuant to the rights
offering (the "Rights Offering") described and provided for in the Company's
prospectus dated -----------, 1996, (the "Prospectus"), hereby certifies to the
Company and to American Stock Transfer & Trust Company, as Subscription Agent
for such Rights Offering, that (1) the undersigned has exercised, on behalf of
beneficial owners thereof, (which may include the undersigned), the number of
Rights specified below pursuant to the Basic Subscription Privilege (as defined
in the Prospectus) on behalf of beneficial owners of Rights who have subscribed
for the purchase of additional shares of Common Stock pursuant to the
Oversubscription Privilege (as defined in the Prospectus); (2) the undersigned
has listed below each such exercised Basic Subscription and the corresponding
Oversubscription Privilege (without identifying any such beneficial owner) and
(3) each such beneficial owner's Basic Subscription has been exercised to the
fullest extent possible:
Number of Number of
Rights Rights
Exercised Exercised
Pursuant Pursuant Estimated
to Basic to Over-subscription Rights
Subscription subscription Certificate
Privilege Privilege Number
------------ ----------------------- ----------
1.------------ ----------------------- ----------
2.------------ ----------------------- ----------
3.------------ ----------------------- ----------
4.------------ ----------------------- ----------
5.------------ ----------------------- ----------
6.------------ ----------------------- ----------
7.------------ ----------------------- ----------
8.------------ ----------------------- ----------
9.------------ ----------------------- ----------
10.------------ ----------------------- ----------
(Attach additional beneficial owner list if necessary)
----------------------------
Name of Nominee Holder
- -----------------------------------------------
Depository Participant Number (if applicable)
- ---------------------------------------------
Address
<PAGE>
Basic Subscription
- -----------------------------------------------
Confirmation Number(s) By:
------------------------
Name: (Date)
Title
Telephone Number:
2
